Aloha - Need advice. :)

[Breitling]

Hi All, great community you guys have here! I registered a week or two back and have been lurking non stop. Thought it was time to say Hi, and tell ya about me.

I'm a 30yr old guy, I am engaged to be married this fall. I have been self employed for the last few years, bought a nice condo for cheap just about 2 years ago.

As of next week, I am selling a business I own... As of May 1st, I'll have a bunch of cash, but no income. How can I keep my retirement lifestyle? What are my best options?

Heres the low down: I have about $180k in assets: $50k in 401k, $60k in equity, $20k new car, $24k in money market.

I can live comfortably with $2k a month, I can live comfortably and road trip every weekend with $3k a month.

I'll be selling by business for $730k, cap gains will take 19% off the top, leaving me with $600k.

I think I'll have a lot of questions for you guys in the near future... My goal is to figure out a way to invest that $600k and live 100% off the investments so I can spend all my free time playing and traveling.

So, how can I make $600k cash toss out $3k a month?

One idea I'm looking at is to sell the condo and buy a 4plex. The numbers I have run would allow me to rent out 3 of the units, and live in the 4th for free. I could put 20% down on a 4plex with the equity I have in my loft. With that scenario, I would still have $600k cash, but my living expenses would drop about a grand a month. FireCalc tells me I could safely withdraw $23,851 safely...

Any other 30yr olds able to pull this off? Any advice would be welcome at this stage.

[Nords]

E komo mai, Breitling.

But I have some questions. If you're engaged to be married, then why are you planning an ER based on what appears to be just your assets? What's the relevance of "my" retirement lifestyle, including the free time to be playing & traveling, or is she coming along? And most important of all, what plans have you worked out with her?

After all those is a question about your previous landlord experience.

As for the $3K/month on $600K, would that be before or after taxes? And how does this fit into your asset allocation? I mean "your" in the sense of "you and fianceé".

[Breitling]

Good questions.

She has a few grand in assets, none are liquid. We have been living together for 18 months, once we figure out how to live comfortably off investments alone, she will be quitting her job. We both live real simple lives, the $3k budgets includes both of our expenses, we can live very comfortably off that.

I have not yet factored in my expected taxes, I doubt taxes will be much of a concern if i go the 4plex route. I really like the idea of holding multi-unit properties as long term investments, for both cash flow and tax reduction reasons.

I'm not 100% sure I understand your asset allocation question. I'm not much of a financial planner, thats why I'm here. I have time on my side, I don't think I need to add anything else to my 401k, I'll be opening Roth IRAs for the both of us this year. Care to elaborate?

We have plans for a very active 'retirement', most of our plans don't require a lot of money, just time to go and do. I think we are both thinking more on the lines of semi-retirement. Working in the winters, or taking a fun part time job when we feel like it.

[devo]

Great job on the business!

Now can I see pics of your breitling(s)? Now that I can't imagine ever owning one, I'll have to live through you "well to dos".

I'm thinking that you may want to work enough to just let that wad work it's way to 1M, maybe a touch more. 4% may be a touch high for a retirement as long as the one you're venturing into. If you just cover your own expenses for a bit, you may be a bit more secure. I know..who wants to go back to work? I'm not that fond of risk, but I'm sure someone here will scramble you up a recipe for that size SWR.

Good Luck!
devo

[jdw_fire]

Hello and welcome!

My first question is have you ever owned and managed residential real estate before? My experience with it is that it can be a job and you won't be able to "spend all your free time playing and traveling" because even when you aren't working on it you have to be responsible for it when something goes wrong/breaks. However if you are comfortable with that end of it then from your post

Originally Posted by Breitling

Heres the low down: I have about $180k in assets: $50k in 401k, $60k in equity, $20k new car, $24k in money market.

I can live comfortably with $2k a month, I can live comfortably and road trip every weekend with $3k a month.

I'll be selling by business for $730k, cap gains will take 19% off the top, leaving me with $600k.

...

One idea I'm looking at is to sell the condo and buy a 4plex. The numbers I have run would allow me to rent out 3 of the units, and live in the 4th for free. I could put 20% down on a 4plex with the equity I have in my loft. With that scenario, I would still have $600k cash, but my living expenses would drop about a grand a month. FireCalc tells me I could safely withdraw $23,851 safely...

I get that the 4 unit building you are thinking about will cost ~ $300K and putting $60k down leaves you with a $240K mortgage that, assuming 7% interest, will have a P&I payment of ~ $1600/mo. I also get from your post that since by moving into one of the units you will save $1000/mo on your expenses, you figure that the rent from the 3 other units in 4-plex will at least cover all the 4-plex's expenses, including the mortgage payment. Well if this is really how the cash flow from the 4-plex will look and when you do this you will only need $2000/mo to "live comfortably and road trip every weekend" then why don't you take $240k of your $600k after tax profit from your business sale and buy the 4-plex out right. If you do that then the 4-plex will throw you at least $1600/mo (what you would have had to pay toward the mortgage) of positive cash flow and now you only need $400/mo above that to fully fund you desired lifestyle. Getting $400/mo from $360k of assets would be simple, you could just stick it in a MM account paying 5% and get $1500/mo. So it looks like you are set.

[Nords]

Originally Posted by Breitling

Good questions.
She has a few grand in assets, none are liquid. We have been living together for 18 months, once we figure out how to live comfortably off investments alone, she will be quitting her job. We both live real simple lives, the $3k budgets includes both of our expenses, we can live very comfortably off that.

OK, so she's part of the plan. That sounds pretty straightforward but we've seen exceptions to that rule.

A working spouse can really accelerate the other spouse's ER. OTOH nothing screws up a good ER financial plan like marriage... unless it's kids!

Originally Posted by Breitling

I have not yet factored in my expected taxes, I doubt taxes will be much of a concern if i go the 4plex route. I really like the idea of holding multi-unit properties as long term investments, for both cash flow and tax reduction reasons.

The details make all the difference-- vacancies, repairs, rehabs, the occasional problem tenant (perhaps leading to an expensive period of no rent followed by an eviction). You have to know your local tenant market (college town, military base, blue-collar, vacation resort) and then you have to acquire the property. Returns are somewhat location-dependent too. The capitalization rates that you're told about are frequently not reflected in the property's actual performance.

Before we get into the specifics, it's hard to tell from your post if you've done this before. The rental property might need some work (and a lot more capital than your current property's equity could provide) but it would be a good thing if a four-plex starts coughing up cash as quickly as possible. What if the cash flow doesn't work out (for whatever reason)? Does some of the $600K have to be available to start up the four-plex? How long does spouse work to support the launch of the rental property? Do you have a timeline, a Plan B, and an emergency exit?

Originally Posted by Breitling

I'm not 100% sure I understand your asset allocation question. I'm not much of a financial planner, thats why I'm here. I have time on my side, I don't think I need to add anything else to my 401k, I'll be opening Roth IRAs for the both of us this year. Care to elaborate?

One of the board's frequently-recommended asset-allocation books is "Four Pillars" by William Bernstein, and one of the aspects he examines is an investor's comfort zone-- especially the risk of losing principal and volatility risk. Setting aside the real estate for a minute, putting the $600K in a balanced portfolio would have a challenging time kicking out 6% after taxes, but it can be done in the long run (10-20 years). OTOH putting the entire $600K in a small-cap value stock fund, or a single well-chosen stock, might easily return more than 6% after-tax. Of course it might be difficult to sleep at night but technically the objectives would have been met. Steady rental income might make it less necessary to hold bonds or dividend-paying stocks (and give you a bit of slack in the 6% requirement) but if there's a blip in the rental income caused by a recession that craters the stock market then all your cash flow might vaporize in a few months.

Originally Posted by Breitling

We have plans for a very active 'retirement', most of our plans don't require a lot of money, just time to go and do. I think we are both thinking more on the lines of semi-retirement. Working in the winters, or taking a fun part time job when we feel like it.

"Going" might be challenging without a property/maintenance manager. I guess it depends on the length of your absence and how needy the tenants are. I've seen it all over the spectrum from "never calls" to "lonely & can't handle anything".

Semi-retirement... have you read Bob Clyatt's "Work Less, Live More"?

[Breitling]

I finished Bobs book about a week ago.

I'm meeting with my CPA next week about my options. I think I'll spend a bit more time lurking around the forums before I decide to make any big changes.