Real Estate and ER plan help

[fish4fun]

I’ve been following the boards off and on for nearly a year now. Thanks for all of the great insights. It’s nice to be able to learn from those who are where I’m hoping to reach at some point.

I’m 31, the better half 29. We’ve got kids that are 5, 3, and one on the way due in the fall. The corporate job has put us in a position where DW is able to stay home with the kids and plans to so for the near term (more on that in a bit). We currently have $150K in 401K, another $15K in Roth, a couple paid for residential rentals worth around $75K (aspiring slum lord I guess). We also have some other small amounts of misc cash and $30K or so in home equity. Between my and the corporations contributions we’re adding about $12K a year to the 401K and we also max out a Roth IRA each year. On top of these annual contributions we’ve got another $10-20K beyond our living expenses that we will probably continue to use for real estate investments.

While I appreciate the corporate gig and all it offers, it’s not necessarily my life’s ambition. My wife and I have bought into the idea that in 10 years she would go to work at the local university. This would offer up enough income to cover all but roughly $20K of our living expenses, provide insurance and other benefits, and (as long as the policy continues) free tuition for the kids if they decide to go that route. In the meantime this would free me up for either continuing to develop the real estate thing which, if all goes well, should be generating at least the $20K needed to cover the living expenses deficit.

So what does this have to do with early retirement? I’m hopeful that after our kids make it through college DW will be able to fully retire (52). At this same time (54 years old), I’d hopefully be in a position to either hand the daily operation of the rental business over to a property management company to make it “passive” or cash it out all together. One other item of note is that our current living expenses are around $58K with $20K of that being mortgage dept that we hope to erase prior to retirement.

I know there are a ton of unknowns here, but any thoughts or insights around any part of this plan would be much appreciated as we've kicked this one around for a few months and would like some feedback from others. Feel free to call out the flaws as I’d rather found out now then later ; ) Thanks.

 

[jclarksnakes]

Fish4fun,
....Welcome to the posting side of the forum. Your plan seems sound but I know practically nothing about real estate investing. What I do know though is that loads of people reached FI investing in real estate. Just be ready to make adjustments as things change. About the only thing that you can be sure of is that there will be changes over the next decades. You have done way better than most people your age and I think ER will come to you because you have the right attitude about saving and investing.
Good luck,
Jeff

 

[oljim]

Thanks for posting up fish4fun. Sounds like you've done some great planning and thinking thru the process of early retirement.

Sounds not too much like me when i was around your age. I began my planning in my mid-30's and am 64 now - only a couple of months away from the medicare safety net.

What a country!

Just speaking for myself here, but i never felt safe until i did the math on what i'd expect to have in later years - after many years of planning and financial discipline.

The thing that did the trick for me was to use the Quicken software program to keep up with things - and make projections all the way out to end-of-life years.

Unless you've already done so, I'd recommend you install the Quicken program on your computer - plug in your numbers - and begin playing around with it. And, let us know how it goes for you,,ok?

You've got a great start on everything,,way to go!

 

[fish4fun]

Thanks for taking the time to read my long post and offer encouragement and insight.

Jeff - Great point on change being the one certainty. If I look back 10 years came up with 100 plans for how I thought things would go, none of them would match up with where I'm at today.

oljim - I'll check out some of the utilities on Quicken. I've used Excel to track net worth and make some basic projections for the future regarding inflation and investment growth rates. Maybe Quicken can give me a more full picture. Thanks for the recommendation.


More feedback is certainly welcome from the resident experts if anyone has additional commments to share. Thanks again!

 

[HpRyder]

a couple paid for residential rentals worth around $75K On top of these annual contributions we’ve got another $10-20K beyond our living expenses that we will probably continue to use for real estate investments.

Good choice. I started rental accumulation about your age, but with a mortgage. I let the renters pay off the mortgage. At your early accumulation stage, paid for rentals don't give you the leverage to easily get more with the accumulated savings. Hopefully you know the standard leverage rental buy approaches and take it slow and careful. I opted for a more aggressive approach with loans causing a slightly positive cash flow per rental.

While I appreciate the corporate gig and all it offers, it’s not necessarily my life’s ambition.

I gave up the corporate management ladder climbing life style after I realized the rules had changed. They fund my MBA and I gave them a chance to help me use it, but that wasn't part of their plan. Your current job provides cash flow for unexpected rental investment events and documentation for easier loan application. Lenders love steady documented W2s. So it is worth while.

My wife and I have bought into the idea that in 10 years she would go to work at the local university. This would offer up enough income to cover all but roughly $20K of our living expenses, provide insurance and other benefits, and (as long as the policy continues) free tuition for the kids if they decide to go that route.

My wife worked in a low paying CA corp job for the benefits, first to supplement my income and insurance for the kids, then to provide benefits when I gave up the corporate job and went contract. Every was working fine until the BOD got caught skimming by the state & feds. Then they restructured my wifes' division out of existence as part of a plea bargain. So don't get too comfortable with your wife working there. Bad corporate business decisions can directly and suddenly impact you.

Free tuition may not be the benefit you think it is. When they are of age and ready, you may want them to get the best education possible, not necessarily the cheapest. This may or may not be the university/college your wife is currently at. Just be prepared. I had to send one child out of state and the other to another city. Not exactly a low cost approach.

In the meantime this would free me up for either continuing to develop the real estate thing which, if all goes well, should be generating at least the $20K needed to cover the living expenses deficit.

If all goes well, it should generate one h_ll of a lot more than 20K. I would think a conservative estimate would be 60-80K/yr after expenses but before taxes.

I’d hopefully be in a position to either hand the daily operation of the rental business over to a property management company to make it “passive”

IMO don't do it. Unless you stumble upon a terrific competent manager, you will trade one management job for another. Instead of dealing with tenants, you will be managing a PM, not getting it done your way and continually paying for it to be done wrong the second time.

This post is already too long, so I'll end it here.