Hi... age 40, $3M, should I retire?

[deepc]

Haven't seen this in the thread but consider that the probability of financial and world circumstances being the same in 50 years is near nil.

Can't remember where I read it, but one writer considered any calculations showing an 80 pct probability of success over thirty years beats the odds of some cataclysm occurring that changes the equation anyway. I debated long and hard over a 95 pct success rate before coming to the conclusion that a bus could run me over tomorrow.

You've got the money to retire early, the real question I think is: is that what you want to do? In my case, leaving the rat race means a return to University and pursuit of a different profession, without the necessity of earning a living in it. You need to determine if retirement itself is what you seek, or an escape from what you're currently doing.

 

[FUEGO]

Can't remember where I read it, but one writer considered any calculations showing an 80 pct probability of success over thirty years beats the odds of some cataclysm occurring that changes the equation anyway. I debated long and hard over a 95 pct success rate before coming to the conclusion that a bus could run me over tomorrow.

I think it was Bernstein. I think his argument was something like: think of all the great empires of the world. What is the longest period of time that any of the great civilizations had stability? 400 years? Let's say a human lifetime is 80 years. So there is a 1 in 5 chance (or 20%) of any great civilization coming to an end during a typical human lifetime.

 

[Grep]

There is reason to be optimistic and not obsessively concerned with numbers, especially since the original poster apparently dodged the worst of the recenct down-turn and is investing at reasonable valuations. That's great! Still, I think his major risk is, well, taking on too much risk.

One of the greatest risks that an extreme FIRE type encounters is being too miserly out of the "but what if I'm eating cat food at 90" fear. Yes, indeed, any of us could be hit by a bus tomorrow. But prudence is still absolutely necessary. The OP certainly should plan on capital preservation as befitting a long and healthy life.

One of the more optimistic risks we face is that medical science, particularly our vastly increasing understanding of the human genome, will significantly extend health and life within our own lifetimes. This may easily include the vanquishing of a wide range of diseases that are amenable to genetic understanding and manipulation. Kurtzweil is a proponent of this concept (though he's "eccentric" to put it mildly). Knowing so little about the future, one might view this risk as about as likely as that of our civilization collapsing.

 

[honobob]

Usually, but not always, someone currently making $180K/year would likely want to spend more than 60K. Something to consider.

-ERD50

...................or there might be a better way. But keep this between us or we'll have alot of people here talking stink about Lilo and Stitch. Take $1,350,000 and start a CD ladder. Now we're only looking at 5% average return over the next 20 years. I believe that is conservatively doable. That gives you a withdrawal of $105,000 a year for the next twenty years! Part two: buy 4 $400,000 condo in Honolulu for cash. Yeah sounds stupid not to use the power of leveraging but people here claim it improves your sleep. One house paid off sleep good, four houses paid off sleep Greeeat! Now current rents will net you $87,000 a year and that's with a gross rent multiplier of only 13.3. That gives you $192,000 spending money in year one. Spend like a drunken sailor! Now probably most people will say rents will increase at say 3% annualy so by year 20 your net rents are $152,555 (not so much upside since you have no fixed mortgage being paid off with inflated dollars) plus your $105,000 in CD money.. It actually works out to about $222,000 a year. Now my rents over more than 25 years have increased more like 6% so 20 year rents could be more like $263,227 for a combined income (+CD's) of $368,227! These could rent as vacation rentals so the income could even be 50% higher.

So 20 years have gone by and you've shot through your CD's You still have net rents of $152-263K a year and four properties worth conservatively $3,505,797 at 4% appreciation (my *ss) or more like $8,967,059 at slightly less appreciation than what Waikiki has actually enjoyed in over the last 25+ years. I'd also like to think you've spent at least $40K a year out of your $221K a year on a nice little East Coast hideaway.

Now if you go into the market and get 6% returns and spend the same amount you'll have $1,041,000 at the end of 20 years. And most people here won't even mortgage at 4.5-5% in expectation of a better return over 30 years! OK so maybe you're a believer in long term market results. Lets see what 8% gets you in twenty years, $3,781,851!

I think playing with buckets is too much work and the opportunity of 30% to 40% spills seem very likely!

IMO YMMV

Aloha

 

[Kabekew]

Honobob, 5% CD return on $1.35M is $67K, not $105K -- how do you come up with that?

Also an $87K rental income on $1.6M property investment, you also need to pay property tax (1%?), then assuming no maintenance and insurance costs, and 100% occupancy always, that's only about a 4.3% return on your investment, all treated as ordinary income.

I think historic market returns at 7% with a good chunk of it treated as capital gains is more enticing than making money off rentals! Probably the real estate money is more from market appreciation of the real estate itself, not rental income, I'd think?

 

[honobob]

Honobob, 5% CD return on $1.35M is $67K, not $105K -- how do you come up with that?

Also an $87K rental income on $1.6M property investment, you also need to pay property tax (1%?), then assuming no maintenance and insurance costs, and 100% occupancy always, that's only about a 4.3% return on your investment, all treated as ordinary income.

I think historic market returns at 7% with a good chunk of it treated as capital gains is more enticing than making money off rentals! Probably the real estate money is more from market appreciation of the real estate itself, not rental income, I'd think?

1.) You're spending down the $1,350,000 plus interest over 20 years.
2.)$87K is starting NET rents.
3.) 7% leaves you at 60 only $2,472,000 That will only generate $173,000 at 7%.

With real estate you have growing rents of $152,000 to $263,000 and properties worth $3,505,797 to $8,967,057!

I vote for the bigger money!

 

[honobob]

As most posters have pointed out, he can if he invests wisely for the long term and can live on say $90k (including taxes) per year.

.........if only there was another way......

 

[Kabekew]

1.) With real estate you have growing rents of $152,000 to $263,000 and properties worth $3,505,797 to $8,967,057!

I vote for the bigger money!

So buy a bunch of condos and rent them out instead of put it in the markets? Why isn't everyone else doing that? (Or are they?)

 

[samclem]

So buy a bunch of condos and rent them out instead of put it in the markets? Why isn't everyone else doing that? (Or are they?)

Either because:
1) Some people want to retire, so they resist using their savings to purchase a job.
2) Other hopeless saps don't believe they can pick the real estate market that will be the same in the next 20 years as the randomly chosen city of, say, Honolulu, Hawaii has been. Some dopes aren't even willing to bet their entire life's savings that even the Golden Goose that is Honolulu will remain fertile for 20 more years.

 

[honobob]

So buy a bunch of condos and rent them out instead of put it in the markets? Why isn't everyone else doing that? (Or are they?)

I can't keep track of everybody and wouldn't want to do something just because everybody's doing it unless I saw that it would make me money. If you feel more comfortable doing what everybody else is doing and don't think anyone is renting out properties (wonder who owns the rentals that I don't) then stay in your comfort zone.

I have asked a few friends why they won't invest in real estate and the most honest answer I got was that they were afraid. Some people have no people skills and could not deal with a property manager much less a tenant. Some people are so cheap that they would rather give up good returns than have to pay a plumber to unclog a toilet.

What kind of skills did you develop as a business owner? I'm thinking you were just the money or technical guy. You don't seem to be comfortable in a business setting outside you niche. I'm only saying this because you don't seem to have problem solving skills and are not very attentive to detail. I'm not knocking your accomplishments as you seem to have done very well but I think you may be about to squander your gains.

 

[Kabekew]

What kind of skills did you develop as a business owner? I'm thinking you were just the money or technical guy. You don't seem to be comfortable in a business setting outside you niche. I'm only saying this because you don't seem to have problem solving skills and are not very attentive to detail.

Isn't that the great thing about the anonymous internet? I could indeed be a clueless company founder who somehow blundered my way up, or I could be trolling you for amusement! (Nah, I'm a nice guy...)

You're right though, I could put it all in Honolulu condos, or land in Wyoming, or a chain of gas/convenience stores in southern Vermont, and make a mint. Or not?

Are you actually early-retired? And you keep it in CD's and condos you rent out?

 

[Martha]

Kabekew, Hono is not retired.

Hono, you do acknowledge that your success is location dependent, yes? Specifically, Honolulu and San Francisco?
When are you going to get out? How confident are you in continued appreciation in those two markets and why? Look at San Diego, great city, beautiful climate, and they got hit big by the downturn. Same with all of Florida. And most everywhere else in the US. And even San Francisco is neighborhood dependent.

 

[ERD50]

Are you actually early-retired? And you keep it in CD's and condos you rent out?

Kabekew, Hono is not retired.

Agreed, I just don't 'get' this part of the thread. The OP asked about retiring, not becoming a multi-property landlord.

It's fine if someone chooses to manage properties and collect the rent and finds those trade-offs acceptable - but it isn't 'retired'.

Some people are so cheap that they would rather give up good returns than have to pay a plumber to unclog a toilet.

Having to unclog a toilet that is not in your own house (or if just helping a relative/friend) qualifies as a 'job' to me. It sure as heck ain't a hobby (what did *you* do today?)!

-ERD50

 

[honobob]

Agreed, I just don't 'get' this part of the thread. The OP asked about retiring, not becoming a multi-property landlord.

-ERD50

Maybe if you actually read the post you'd get it!!IMHO I never suggested that Kabekew become a landlord in Honolulu from the East Coast. My suggestion was to INVEST in 4 properties. Some people seem to only see what they want to see. That could be a problem.

Also never unclogged a tenants toilet in over 25 years. I discussed my YPYP policy in another thread.

 

[samclem]

Come on, guys! You know what an INVESTOR is! Hes' a guy who fixes toilets, paints houses, exterminates roaches, evicts tenants, screens new tenants, repalces windows, patches drywall, replaces water heaters, etc. Clearly, a guy who does this is an INVESTOR.

 

[honobob]

Come on, guys! You know what an INVESTOR is! Hes' a guy who fixes toilets, paints houses, exterminates roaches, evicts tenants, screens new tenants, repalces windows, patches drywall, replaces water heaters, etc. Clearly, a guy who does this is an INVESTOR.

Well I do screen tenants but have never done any of the other. Can I still call myself an investor?

Samclem, what is your real estate experience?

 

[FinanceDude]

Come on, guys! You know what an INVESTOR is! Hes' a guy who fixes toilets, paints houses, exterminates roaches, evicts tenants, screens new tenants, repalces windows, patches drywall, replaces water heaters, etc. Clearly, a guy who does this is an INVESTOR.

Or owns a handyman service..........

 

[honobob]

Or owns a handyman service..........

Business owner AND investor. Akamai!

 

[samclem]

Samclem, what is your real estate experience?

Bad.
I'm not sure if it is germane to the discussion, and I'm not sure one needs to own real estate to know what it entails. And, I'm sure I just don't have the "right kind" of experience (or the wrong disposition, or whatever). I owned a duplex in SoCal (Ventura) for several years, I sold a house in Las Vegas using seller financing, I have been a tenant several times, and I have bought /sold several single-family homes over the last 25 years.

It is very possible to make money in RE, people do it all the time. But I wouldn't tell anyone it is a sure thing, that it requires little work, that it can be done in any market at any time, or that it is a diversified investment. I'm sure you wouldn't either.

 

[ERD50]

Maybe if you actually read the post you'd get it!!IMHO I never suggested that Kabekew become a landlord in Honolulu from the East Coast. My suggestion was to INVEST in 4 properties. Some people seem to only see what they want to see. That could be a problem.

Well, since you got so excited, I went back and re-read it.

I never gave nor got the impression you were suggesting anyone become a long-distance landlord. But, your 'investment' requires one to be a landlord. That is different than what most people call 'investing'. Most people call that 'work'. Doesn't mean that is isn't the right thing for some people, but it is what it is. Not sure why you are getting so defensive about making the distinction.

Also never unclogged a tenants toilet in over 25 years.

Then why did you bring it up?

I discussed my YPYP policy in another thread.

Sorry, but I don't expect everyone to remember every word I've written in various threads. And I don't recall that one. Nothing about your attitude on this has me motivated to go search for YPYP at this point.

Chill. I'm not saying there is anything wrong with what you do, just call it what it is. It is not a passive investment.

-ERD50.

 

[calmloki]

hemm. Bob & i do different versions of the rental game. He does fewer units worth a bunch more that rent for far more. I do more units but less expensive. In my opinion, this is looking like a great time to be amassing rentals if that's what one wants to do. I don't consider owning our rentals to be leisure activity, though i do seem to be able to be web-surfing quite a lot. The gal & i are kid free and have enough to suit us, but i'm feeling trapped by the properties - no-one buying at the price i want to be selling. Nice thing is that while salability is down rents are not, so the money keeps coming in. Guess it's like if you had an asset, maybe a bond, that was dropping in value but the dividend check amounts remained the same. We are starting to consider hiring a really good 34YO kid with baby on the way and job evaporating to handle management. He's one of the few people i feel good helping, because he's honest about payback - if we call on him he's there. solid. Could be a win-win. We could incorporate, buy insurance (insurance through honey's GM car dealership job could go away if the dealership folds), act retired, let the rentals keep chunking along till demand comes back up. Sell then - maybe to the kid who has had a chance by then to see how they work...

 

[alwaysjammin]

Congrats and welcome! You are in the position I want to be at your age. you have definately found a valuable resource as i am continuing to learn a lot from this board2.95 million w/ a 5% yield should comfortably give you 80-90k after taxes. Now, of course, the way you have ur money allocated as far as investment vehicles is important. i believe you may be able to divert some of that yield if ur money is just sitting in non-retirement accounts into tax deductible, tax deferred accounts and lower ur fed/state income tax if u happen to have a little excess moola. also, looking into other places to live is one of the best ways to stretch ur dollar. I am actually moving to the midwest for a few years to complete training and continue saving. Keep posting and let everyone know how everything goes, and impart ur knowledge!

**Nothing in the above post is to be used as financial advice and is simply my opinion.

 

[putty]

With all due respect, some (NOT ALL but a rotten apple spoils the barrel) of the advice given on this board is crap and isn't just bad it's seriously dangerous. Please go to Bogleheads :: Index and get some better advice. And don't respond to anyone who PMs you offering to "help."

 

[landonew]

Seems to me that you are just on the fringe.

3% of $3,000,000 = $90,000 Gross....Figure $60-70k net (depending on location and tax-deductions).

While I am in no position to give you retirement/investing advise, have you considered putting in another 5-6 years and socking away another $1million or so?

Investing $3million @ 5% for 5 years = $3,850,000. Save another $250,000 or so and you are at $4M.

3% of $4M = $120,000 annual withdraw rate, or about a 30% SOL increase.

Sounds like a good deal to me, but then again I am not in your situation.

 

[landonew]

With all due respect, some (NOT ALL but a rotten apple spoils the barrel) of the advice given on this board is crap and isn't just bad it's seriously dangerous. Please go to Bogleheads :: Index and get some better advice. And don't respond to anyone who PMs you offering to "help."

I agree with this, but with that kind of money I would seek the advice of a PROFESSIONAL financial advisor (hourly/rate not %/return).

With all do respect, what makes the boards different? Anyone, and everyone, can join and post whatever they wish.