Do we really need to wait to RE?

[forsythia]

It's a sunny 70-degree day and I'm stuck working on a Saturday...well, I'm procrastinating, so I'm posting instead

My husband thinks we're not ready to retire early and part of me agrees, but on the other hand, the other part just wants to quit now, and if we run out of money later, just get a job again...so, I guess some financial feedback would be great!

Current situation: We're DINKs, I'm 38, he's 40. Plan was to RE at the end of 2008, but investments we made in 2006 set us back about a year...he thinks at least 2 We're leaning towards doing what Billy and Akeisha are doing in a few years but our dogs are both 9 so we'll be in the US for the next 5 years or so. Oh, we're both earning a lot now $300 combined salary / yr and we're able to invest at least half of it without any problem (we live cheaply)

Yearly expenses after we stop working is projected to be approx 80k/year (includes a 2k a month for housing; travel; insurance; new car, etc....been on this board awhile); drops to 40k - 50k easily if we move abroad.

So...the question... Most of our assets are in RE now (see below). Fortunately, we have 20% down on all of them and all are either 15 or 30 year mortgages. The problem we have is that it's hard to calculate the 4% rule on RE....thoughts? Oh, of course...do you think we'll be ready in a year or do you think it's really at least 2 years out? Thanks!



Estimated Value Loan Equity
Primary Home (near work) $450,000 $290,000 $160,000
2nd Home (weekend home; 2.5 hrs from work) $700,000 $240,000 $460,000
SFH Rental #1 $400,000 $140,000 $260,000
SFH Rental #2 $275,000 $120,000 $155,000
4 Unit Condo #1 $315,000 $235,000 $80,000
4 Unit Condo #2 $315,000 $235,000 $80,000
4 Unit Condo #3 $315,000 $235,000 $80,000
SFH Rental #6 $150,000 $0 $150,000
1/3 interest in family vacation home $50,000 $0 $50,000
Total Real Estate $2,970,000 $1,495,000 $1,425,000

401ks / IRA $407,000
Other Stock $60,000
International Real Estate Investments $85,000
Net Worth $1,977,000

 

[Martha]

Are you going to be keeping both homes? What kind of cash flow do you get out of the rentals?

(My forsythia is just starting to bloom. Sweet.)

 

[Nords]

Welcome to the board, forsythia.

It sounds like you guys have sorted out the budget, but what's going to give you the money to pay the annual expenses?

You've listed the equity in your property, but that's meaningless unless you consider the after-tax effects of depreciation recapture & rental-property cap gains. If you're planning to liquidate the real estate and turn it into a retirement portfolio then you may have a lot less than you need, let alone want.

If you're planning on keeping the real estate while you're retired then the equity numbers are equally meaningless-- what counts is cash flow after expenses, taxes, rehabs, evictions, unexpected vacancies, and so forth. Hopefully those are fixed-rate mortgages!

And if you are planning on keeping the real estate in retirement and eventualy living the perpetual-traveler lifestyle then you're going to have to factor in the cost of property management while you're away.

$2M net worth for $80K/year is usually a no-brainer. However in this case it's highly illiquid and dependent on its cap rate...

 

[macdaddy]

Where are these properties located?
What is the monthly rent vs expenses (PITI) for each of the rentals?
If you decide to stay in the US, can you sell the 2nd home/vacation home?

Answer these 3 questions and then we can help you make a plan.

 

[REWahoo]

(My forsythia is just starting to bloom. Sweet.)

Wow. It's almost May. Just how close to the Arctic Circle are you guys located?

 

[Nords]

Just how close to the Arctic Circle are you guys located?

You mean how far to the south of them is the Arctic Circle?

 

[forsythia]

Wow! What a quick response...

Ok, I just wrote a long email responding to all your questions and realize now that my husband is right....we wont have enough if we liquidate the properties we had in mind ... 3 of our rentals have great cashflow after all expenses ($400 - $600 each). However, the other three are still rocky. We are at approx $1k negative right now and although I think we'll be safe to say that it can support itself in a couple of months, I don't want to rely on that until it can really be positive for at least 6 months in a row. Selling it wouldn't be an option for at least 6 months - 1 year or we'll take a loss (bad property managers over the past 6 months so the numbers don't look good at all) Good news I guess is that we at least DO have conventional mortgages on all of our properties, so if we continue to work, then we'll be fine.

So.....I guess it's dark out now, so I'm not as bummed about working as I was this morngin. We actually have it pretty good....we are able to spend 3 days a week at our 2nd home (work from home 1 day and then the weekend) and enjoy hiking, boating and of course, the beautiful forsythias! We would eventually sell this home (1 year after we stop working) - it's too expensive for us to stay in it, but we love it so much.

 

[Rich_by_the_Bay]

We actually have it pretty good....we are able to spend 3 days a week at our 2nd home (work from home 1 day and then the weekend) and enjoy hiking, boating and of course, the beautiful forsythias! We would eventually sell this home (1 year after we stop working) - it's too expensive for us to stay in it, but we love it so much

Time to get philosophical. You are young, you have time, better to resist the urge, hunker down another few years, enjoy what you have. When you finally do pull the trigger your sense of comfort will be much greater.

Retiring at your age exposes you to many, many imponderable events over all those decades, both financial and personal. Best entered with lots of financial cushion. You are doing the right thing by holding off a bit. Just my gut reaction.

 

[macdaddy]

Wow! What a quick response...

Ok, I just wrote a long email responding to all your questions and realize now that my husband is right....we wont have enough if we liquidate the properties we had in mind ... 3 of our rentals have great cashflow after all expenses ($400 - $600 each). However, the other three are still rocky. We are at approx $1k negative right now and although I think we'll be safe to say that it can support itself in a couple of months, I don't want to rely on that until it can really be positive for at least 6 months in a row. Selling it wouldn't be an option for at least 6 months - 1 year or we'll take a loss (bad property managers over the past 6 months so the numbers don't look good at all) Good news I guess is that we at least DO have conventional mortgages on all of our properties, so if we continue to work, then we'll be fine.

First, you should be proud of yourselves because you are in a very stable financial position and you earn an excellent salary, so you'll be truly FIRE in no time...

Second, I would never rely too heavily on rents to supply income that you need to cover expenses in retirement... many, many things can go wrong with property that "used to cashflow" - vacancies, downturns in the market, crooked management companies, nightmare tenants, etc.