FIRE by 40? 2M in a HCOL area possible?

[refi]

Hi!

I've been lurking on the board for a while and definitely appreciate the advice and the laughs Anyways, like most people, I don't love my job, and would like to stop working. Here's where I'm at, any advice is appreciated.

Stats

• 37
• No wife, No kids
• Fairly healthy
• Higher CoL area

Portfolio

• NW: ~1.825m
• Stocks: 320k
• 401k: 410k
• Cash (Internet Savings): 375k
• Properties: 720k equity (owe 550k, live in a property)

Income

• Job: 230k/yr
• Rent: 3850/mo

Outgoing

• Mortgages+HoAs: 5150/mo ($1450 towards principal)
• Current monthly expenditures (includes int'l travel and hobbies): 2300/mo

So overall, I think I'm in a decent/great spot. Doing some Firecalc and SWR, it looks like i'd be okay. My plan is to work for a couple more years and hopefully sustain a continued bull market and retire towards $2M of assets outside of real estate. Some thoughts:

(1) I'm holding a bunch of cash, albeit in a higher yield internet savings. Am I too cautious given my age? Increase my equity position? Feel like I'm being too conservative w/ my position. Was thinking to hold it for the next downturn? Yup, market timing.

(2) Am going to open a backdoor IRA and start an HSA to shield some more money, but are there other ways to save? or any other investment reqs?

(3) I'm thinking I *could* retire by 40, but thinking I should work a few more years to be safe and pay down some of my properties. My job is pretty good in the grand scheme of things, but work is always overrated.

Again, any feedback/recommendations is great. Always feel like a dick in real life talking about retirement and savings, so it feels like a safe haven when I visit this site. Just trying to get any insights and thoughts from the community. Much appreciated!

 

[Golden sunsets]

Depending on what your taxes are it looks like you are able to save $100,000 a year of your own money not including any employer match. It also appears that your cash represents roughly 35% of your investable assets. Unless you have a specific cash need in the next 1-3 years I would whittle that percentage down. I too am leery of this frothy market, but am only holding 10% cash. What is your fixed income allocation? Otherwise you're killing it.


Sent from my iPad using Early Retirement Forum

 

[DrRoy]

AFTER your house is paid off your WR is only 1.5%, which is great if you have really included all your expenses. Did you include taxes and medical insurance? Consider inflation also.

 

[Another Reader]

It looks like you would depend on the rental income in retirement. More information on the properties, the gross incomes, the expenses, the mortgages, and the net incomes is necessary to have an opinion on that part of your plan.

 

[NgineER]

Investigate if you can contribute to an after tax 401k, you can roll that over into a Roth IRA if allowed. This will help you with before 59.5 access to money. You are looking good, but I'd probably pad the account a bit if you are planning to stay in HCOL area.

 

[hilltide]

Great question. I have been thinking that myself. If I know we are at the top of the market or close, why would I dump a bunch more into play. Shouldn't we tighten our position until after the correction. Interested to hear these responses. You are doing awesome!

 

[refi]

Depending on what your taxes are it looks like you are able to save $100,000 a year of your own money not including any employer match. It also appears that your cash represents roughly 35% of your investable assets. Unless you have a specific cash need in the next 1-3 years I would whittle that percentage down. I too am leery of this frothy market, but am only holding 10% cash. What is your fixed income allocation? Otherwise you're killing it.


Sent from my iPad using Early Retirement Forum

Yea, i'll be able save $100k+ easily. $2,300/mo. is actually buffered. I don't have too much in fixed income allocation. maybe that's where I need some recommendations. I have all my cash in Internet savings which yield me 1.3% and is flexible. My stocks and 401k/IRA are mostly in more blue chips/FANG and total market ETFs which pay out ~2% dividends.

 

[refi]

AFTER your house is paid off your WR is only 1.5%, which is great if you have really included all your expenses. Did you include taxes and medical insurance? Consider inflation also.

I included property taxes not health insurance, but I was assuming my rental income would rise with the cost of living. Rent in my area has sustained that and more to offset. But any rule of thumbs for increases and cost would be helpful.

It looks like you would depend on the rental income in retirement. More information on the properties, the gross incomes, the expenses, the mortgages, and the net incomes is necessary to have an opinion on that part of your plan.

I have two rentals and I live in one. All have HOAs so I'm thinking about selling and getting something else with lower fees, but don't necessarily want to incur all the transaction costs. Here are rough numbers

Prop 1 - val - $375k, paid off, rent: $1850 (could rent for 2k), HOA: $295
Prop 2 (primary) - $500k (owe $250k), HOA $400
Prop 3 - val - $525k (owe $320k), rent: $2000, HOA: $595 (yikes!)

Prop 3 is the one i'm really thinking about getting rid. Property 1 and 2 are in great areas have have appreciated nicely and are low maintenance.

This probably should be in a whole other thread, but my parents want to give me a rental property, which would give me another $2500+/mo (yes, generous and great parents) Doing a bunch of research, it doesn't seem like it's possible unless I want to incur a bunch of taxes. I don't get the bonus of the step-up value when they pass and there is capital gains to transfer to me unless they gift their max amount every year. Also, I'm in a way higher tax bracket than my retired parents for the rental income. Perused a bunch of websites and talked to lawyers and it seems the right way to do it is to wait. The only benefit of transferring now is that I have clear ownership.

Investigate if you can contribute to an after tax 401k, you can roll that over into a Roth IRA if allowed. This will help you with before 59.5 access to money. You are looking good, but I'd probably pad the account a bit if you are planning to stay in HCOL area.

Thank you for the input, noted. As stated earlier, I'm thinking real estate would rise with the cost of living, so my incoming would account for that, but will be careful, I've added some buffer already.

 

[Another Reader]

Those are some poor yielding rentals. Gross income is 4.6 and 6.4 percent of value per year. After subtracting all expenses, over time you may be be cash flow negative, especially with those HOA's.

 

[Another Reader]

Rents are tied to wages and employment levels more than inflation. Operating costs will go up at least at the inflation rate. My experience has been they go up faster than inflation.

 

[refi]

Those are some poor yielding rentals. Gross income is 4.6 and 6.4 percent of value per year. After subtracting all expenses, over time you may be be cash flow negative, especially with those HOA's.

I would say the disparity between the rent and value is due to the bull market in the area, the values have gone up really fast vs. rent which have gone up steadily; the cap rates are par for the area (which aren't great). with that said, this may point to way inflated RE and an opportunity to sell.

the units are small 500 sq ft. and condos, so not much expenses or operational expenditures, but good to highlight the value and what i could be making elsewhere.

 

[refi]

--UPDATE--

Hi All!

Took some feedback on the board and moved some more cash into equities and looked into better cash flow real estate vs the ones that I was/am holding.

Closed on one duplex and will close on another multi-family next week:

Unit 1
$240k + $30k rehab
$60k down
$1550/mo cashflow (conservative)

Unit 2
$490k
$122k down
$1230/mo cashflow (conservative)
Going to wait a little bit before to raise to market, but target is $1900/mo.

After closing on the two above properties along with some work bonuses, gains in market and appreciation to the my current properties, I’m at:

NW: ~2.16m
Cash: 160k
Stocks: 450k
401k: 450k
Properties: 1.1m equity (owe 1.1m)

So now that I’ve found more cash flowing properties, I’m like wow, should I convert everything into real estate (BRRRR)? So I still have the rental units I mentioned earlier, but they have appreciated a bit too:

Prop 1 - val - $425k, paid off, rent: $1850, HOA: $295
Prop 2 - val - $600k (owe $320k), rent: $2000, HOA: $485

Questions:

1. Can I retire now? So I will have cash flow from three units and my job is killing me, but I’m thinking I should tough it out and build cash flow portfolio a bit more. Though I would need $2m in cash before, but now with additional property cash flow, I'm wondering how long I would have to wait.
2. Which leads to.. should I sell my prop 2 property and 1031 it into more cash flowing properties? My aim is that I have $280k in equity and can convert that into at least $2500/mo cash flow. That seems realistic given my first two housing deals. In my mind, this seems like a no-brainer, but maybe I'm just too intoxicated the real estate deals i've been seeing.

That was a lot of writing, but just wanted to say the input from the board propelled me to look at alternatives to my current rentals and cash flow, which has been really helpful.

Thanks!

 

[flintnational]

First, you are doing great. Congratulations. I recently sold our last rental property. I was faced with similar issues. The value of the property had increased significantly and this resulted in a low rent yield. We sold the property for $203,000 and the rent was $1,150. If you can't get the rent up, I would sell and buy properties with a higher yield.

You might want to set an asset allocation including real estate and stick to it over the long term (maybe 35% RE, 35% stocks, 30% bonds and cash (just a WAG)). In an appreciating real estate market, the allocation method would likely indicate you should sell real estate and buy other assets. So, no I would not sell stocks to buy more properties.

Can you retire? Maybe. I would be concerned about carrying RE debt into retirement. I would downsize the RE portfolio and only keep paid for properties. That will greatly reduce your risk and increase your cash flow. Others may disagree.

 

[Another Reader]

Until you have at least a year with the new properties and have a good idea of how they perform, I would not rely on their income. I would still sell property number 2 and redirect the equity to better cash flow in some form.

 

[JakeinChina]

--UPDATE--

Hi All!

Took some feedback on the board and moved some more cash into equities and looked into better cash flow real estate vs the ones that I was/am holding.

Closed on one duplex and will close on another multi-family next week:

Unit 1
$240k + $30k rehab
$60k down
$1550/mo cashflow (conservative)

Unit 2
$490k
$122k down
$1230/mo cashflow (conservative)
Going to wait a little bit before to raise to market, but target is $1900/mo.

After closing on the two above properties along with some work bonuses, gains in market and appreciation to the my current properties, I’m at:

NW: ~2.16m
Cash: 160k
Stocks: 450k
401k: 450k
Properties: 1.1m equity (owe 1.1m)

So now that I’ve found more cash flowing properties, I’m like wow, should I convert everything into real estate (BRRRR)? So I still have the rental units I mentioned earlier, but they have appreciated a bit too:

Prop 1 - val - $425k, paid off, rent: $1850, HOA: $295
Prop 2 - val - $600k (owe $320k), rent: $2000, HOA: $485

Questions:

1. Can I retire now? So I will have cash flow from three units and my job is killing me, but I’m thinking I should tough it out and build cash flow portfolio a bit more. Though I would need $2m in cash before, but now with additional property cash flow, I'm wondering how long I would have to wait.
2. Which leads to.. should I sell my prop 2 property and 1031 it into more cash flowing properties? My aim is that I have $280k in equity and can convert that into at least $2500/mo cash flow. That seems realistic given my first two housing deals. In my mind, this seems like a no-brainer, but maybe I'm just too intoxicated the real estate deals i've been seeing.

That was a lot of writing, but just wanted to say the input from the board propelled me to look at alternatives to my current rentals and cash flow, which has been really helpful.

Thanks!

I'm in a very similiar situation then your in now. First off, congrats to your success. My personal situation is below, if you'd like to compare

Age 39
NW 2.1 Mil
Rental Properties: 1.55 Mil (South Florida)
Stocks: 450K
Cash: 100K

I have one daughter who is 5 yrs old with my wife. We will move to PA in a semi-low costs area at which our total monthly expenses (including healthcare) will be 5k USD.

I dislike my job right now, but I save around 120K annually from my salary, plus I save 5,500 USD (net) each month with all of my rental income, so I'm at around 180K usd each year in savings. ( I pay little federal taxes since I live full time overseas).

As much as I dislike my job, I'm going to stick it out for 2 more years so that I can add around 400K to my current 450K in stocks. I personally think having rental income on properties with no debt (mortgage) is the best way to RE when your young. I pay someone to manage my single family home rentals, but if I had to, I would do them myself if need be after I retired. Now as you get older, and say get into your mid to late 50's, then yeah maybe rental income is too much work and you prefer to invest elsewhere, but if your young, ie in your 40's, then you can handle it and will give you something to do after Early retirement.

My goal is to live off my rental income (5500 USD/mo) and never touch the equities (stocks/Mutual funds/ETF's). This is why I am bullish on rental income. It always isn't the best return, but it allows flexibility to RE, esp if the market goes bear for a year or more. You'll always get paid your rental income, but when the market struggles, I feel your gonna go nuts watching the marketing every day instead of enjoying retirement, travel, or whatever it is you like to do. Just my two cents.

 

[knucklehead 61]

I'm in a very similiar situation then your in now. First off, congrats to your success. My personal situation is below, if you'd like to compare

Age 39
NW 2.1 Mil
Rental Properties: 1.55 Mil (South Florida)
Stocks: 450K
Cash: 100K

I have one daughter who is 5 yrs old with my wife. We will move to PA in a semi-low costs area at which our total monthly expenses (including healthcare) will be 5k USD.

I dislike my job right now, but I save around 120K annually from my salary, plus I save 5,500 USD (net) each month with all of my rental income, so I'm at around 180K usd each year in savings. ( I pay little federal taxes since I live full time overseas).

As much as I dislike my job, I'm going to stick it out for 2 more years so that I can add around 400K to my current 450K in stocks. I personally think having rental income on properties with no debt (mortgage) is the best way to RE when your young. I pay someone to manage my single family home rentals, but if I had to, I would do them myself if need be after I retired. Now as you get older, and say get into your mid to late 50's, then yeah maybe rental income is too much work and you prefer to invest elsewhere, but if your young, ie in your 40's, then you can handle it and will give you something to do after Early retirement.

My goal is to live off my rental income (5500 USD/mo) and never touch the equities (stocks/Mutual funds/ETF's). This is why I am bullish on rental income. It always isn't the best return, but it allows flexibility to RE, esp if the market goes bear for a year or more. You'll always get paid your rental income, but when the market struggles, I feel your gonna go nuts watching the marketing every day instead of enjoying retirement, travel, or whatever it is you like to do. Just my two cents.

i also got out of the rat race (at 49) by using rental property income.

Age: 51
NW: 6m+ (NIC: tools, cars, motorhome, boat, & 21 antique Harley-Davidsons)
Rental Properties: 4.7m equity
Stocks: 1.4m
Cash: very little, under 50k (don't need cash when you have a heloc)

i'm netting over 100k more now than when i was working & had a 200-250k+ salary.

rents and home prices are way-way up in the last 5 years. i would be very uncomfortable if i was living off of dividends or selling shares of stock with all the market turbulence. meanwhile it is very easy to sleep at night knowing that people will always need a place to live no matter what the markets do.
if property values go down, i don't care, i'll just buy more. if they go up then bonus for me. all the while the tenants are paying off the few remaining mortgages, paying for all the repairs, & paying for my lifestyle.

 

[JakeinChina]

i also got out of the rat race (at 49) by using rental property income.

Age: 51
NW: 6m+ (NIC: tools, cars, motorhome, boat, & 21 antique Harley-Davidsons)
Rental Properties: 4.7m equity
Stocks: 1.4m
Cash: very little, under 50k (don't need cash when you have a heloc)

i'm netting over 100k more now than when i was working & had a 200-250k+ salary.

rents and home prices are way-way up in the last 5 years. i would be very uncomfortable if i was living off of dividends or selling shares of stock with all the market turbulence. meanwhile it is very easy to sleep at night knowing that people will always need a place to live no matter what the markets do.
if property values go down, i don't care, i'll just buy more. if they go up then bonus for me. all the while the tenants are paying off the few remaining mortgages, paying for all the repairs, & paying for my lifestyle.

Knucklehead, Totally agree and its a nice feeling that even though you have some skin in the stock market game, you don't completly reply on it for retirement.

Can I ask what's your return on investment with your rentals, on average? I only get just under 5% net (after everything) but it could be slightly more if I managed the properties myself. I know some guys in the mid-west get much better returns.

Yeah, I can't wait for housing to go back down. Just so I can perhaps purchase another home and add it to my rentals. IMO the best balance is to have rental income and perhaps 30% or 40% of your assets in the market with equities.

 

[ncbill]

Just curious - are both of you using SFRs, multi-family, or a combination?

I'd think the best returns would be for multi-family (and the latter would make most sense for a professional manager) since it's what I'm thinking of exploring now.

Thanks for any info!

 

[knucklehead 61]

Knucklehead, Totally agree and its a nice feeling that even though you have some skin in the stock market game, you don't completly reply on it for retirement.

Can I ask what's your return on investment with your rentals, on average? I only get just under 5% net (after everything) but it could be slightly more if I managed the properties myself. I know some guys in the mid-west get much better returns.

Yeah, I can't wait for housing to go back down. Just so I can perhaps purchase another home and add it to my rentals. IMO the best balance is to have rental income and perhaps 30% or 40% of your assets in the market with equities.

my rentals look like this:
7 duplexes
15 sfh
29 units total
6 have mortgages

13.02 average cap rate
7.01 worst cap rate
26.77 best cap rate

14.54 average cash on cash return after expenses, before taxes
7.70 worst c on c return
32.39 best c on c return

i have a professional property management company handle most everything. i do some of the repairs, maintenance, & cleanup depending on my mood or if i would rather ride one of my motorcycles instead.

 

[refi]

my rentals look like this:
7 duplexes
15 sfh
29 units total
6 have mortgages

13.02 average cap rate
7.01 worst cap rate
26.77 best cap rate

14.54 average cash on cash return after expenses, before taxes
7.70 worst c on c return
32.39 best c on c return

i have a professional property management company handle most everything. i do some of the repairs, maintenance, & cleanup depending on my mood or if i would rather ride one of my motorcycles instead.

What areas are your rentals? Looking at expanding to the midwest, the cap rates and cash flow look great currently, but longer term, i'm not sure.

 

[Another Reader]

i also got out of the rat race (at 49) by using rental property income.

Age: 51
NW: 6m+ (NIC: tools, cars, motorhome, boat, & 21 antique Harley-Davidsons)
Rental Properties: 4.7m equity
Stocks: 1.4m
Cash: very little, under 50k (don't need cash when you have a heloc)

i'm netting over 100k more now than when i was working & had a 200-250k+ salary.

rents and home prices are way-way up in the last 5 years. i would be very uncomfortable if i was living off of dividends or selling shares of stock with all the market turbulence. meanwhile it is very easy to sleep at night knowing that people will always need a place to live no matter what the markets do.
if property values go down, i don't care, i'll just buy more. if they go up then bonus for me. all the while the tenants are paying off the few remaining mortgages, paying for all the repairs, & paying for my lifestyle.

I'm older than you two but the same situation. Retired 11 years ago, early 50's. About two dozen SFR's out of state and an inherited property in Silly Valley that I really should sell and take the profit from. Rents up 25 percent in the last few years (35 percent in Silly Valley) and values are skyrocketing. Bought four newer houses in 2009-2012 that have almost tripled in value. Seven rental mortgages left plus the mortgage on my house at 3.125 percent that I am not paying off early.

IRA's and taxable accounts in equities and cash where RMD's are a factor, two smaller pensions, and now Social Security. Have more cash than you, split between RMD reserves and property reserves/slush fund. Works for me.

 

[refi]

Need some pushing (and validation) here...so I'm about to list my property which I mentioned earlier:

val - $600k (owe $320k), rent: $2000, HOA: $485

I'm almost positive it's the right thing to do, but since my post late last year, the property has gone up probably $100k given the insane demands in the area. I'm guessing it sell around $650k. Originally, when i made my first post it was $525k.

Anyway, I will be able to pull out $325k in equity and it will allow me to get a much better cash flow property and give me a better use of my money. Right choice, yes? . The prospect of speculative gains is making me second guess myself.

 

[NgineER]

I usually don’t count on appreciation of my rental properties other than as a function of rent increases. Someone would be willing to pay more for a higher yielding rental property.
In your case, the appreciation is definitely something to think about. Your property has appreciated a lot in the last year...
Do you speculate that prices will continue up or do you cash in and invest elsewhere?
I don’t know what the right answer is, but it would be tempting to cash out and purchase better yielding properties.
I myself is uncomfortable getting properties in an area far from where I live.

 

[refi]

TLDR: Bull Market is still good to me, Equities and RE. RE cash flow is nice and consistent, makes me feel safer. Where are good places to buy good cash flow properties? Can I coast Fire?


So making an update here to get some more feedback, track for myself, and give insight to anyone w/ similar stats.

The bull market is pretty good and strong for me and I’ve benefited. Here are my updated stats:

NW = ~2.55m
Cash = $280k
Stocks = $430k
401k/IRA = $500k
HSA = $2.5k

Properties
Prop 1 - val - $450k, paid off, rent: $1925, HOA: $295; cash flow = $1400/mo
Prop 2 - val - $675k (owe $320k), rent: $2500, HOA: $485; cash flow = $300/mo
Prop 3 (Primary) - val - $600k (owe $240k)

Prop 4 - val - $300k (owe $180k), cash flow = $1000/mo (by Oct)
Prop 5 - val - $510k (owe $360k), cash flow = $830/mo (by Oct)

Quick Notes:
- Maxed out HSA
- Backdoor IRA
- Put more cash into equities (and cashed some out); tech has been friendly, China has not; only 80k of 430k is in an index ETF, others are in single stock picking.
- GF moved in -> cut down on costs in half
- Bought the two properties as mentioned before. Cash didn’t flow as high as I anticipated

• - Rehab took longer way longer
• - Renters took way longer
• - Couldn’t raise rates directly to market rates b/c they were so low
• - Bought in an income tax state
• - Bright side, appreciation is still on the upswing and still decent cash flow

- Didn’t end up 1031’ing my low yield rentals. Got spooked it not being RED-HOT and just a semi-normal market for a bit. Still would have sold and maybe should have? Anyway, did some quick additions to the place and the rent went from $2000 to $2500. Also, the value as jumped up still. So from my first post it’s gone up $150k.
- Still Dreading going to work daily and hating it with a passion.


Questions/Thoughts:

1. As aligned w/ this thread feedback, I’m really liking cash flow from Real estate more than equities b/c it’s consistent month over month vs the irregularities of the market. Although, it wasn’t as easy as I anticipated, I think I’ll be at $3,500/mo. In earnings by October. With that, did anyone have any recommendation for cities to invest? Been staying more on the coast, though there are high yields in the midwest.
2. Work is getting more miserable and unbearable by the day, can I coast Fire? Or stick it in a bit longer to be safe.
3. I’m like $370k in single stock picking, would it more wise and time-efficient to put it in an ETF?
4. Any other recommendations? I’m guessing still to dump the low-yields? Also still holding too much cash? Was more so waiting for a RE deal to come by. In an Online Savings @1.85%