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Retiring at 39 in NC
Old 06-17-2014, 05:43 AM   #1
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Retiring at 39 in NC

First post here, came over from the MMM forum where I've been lurking. While I like being frugal I do feel a focus on high income & living well might fit us a little better. Anyway here goes:

Demographics:

-Live in NC
-35 year old wife, married 13 years, easily my most valuable asset
-She will continue to work until retirement (wife likes what she does)
-Moderate cost area but live in a nice house (no need to upgrade or move)
-One kid on the way in September

Debt: None

Expenses:

This is where we have really done well - we currently spend $30,000 per year including taxes (not income but all else) and that is being way generous. With the addition to our family for calculations sake let's say $75,000.


Assets:

-Home $475k

Investment:

This is where I differ from many posts here. I'm a long time real estate investor and in recent years have increasingly moved away from wall street assets. I don't like to invest in things i don't understand and I know enough about HFTs and the market to know I don't understand it.

Totals are as follows:

Qualified funds: $600k, Non-Qualified funds: $1.5M

Breakdown & asset types:

$350k - trust deeds fully performing at 11% in self directed IRA

$100k - Life Settlements through a diversified fund. New investment but looks reasonable. Fund has exposure across a few hundred policies of individuals with compromised health - but not pending death. Self directed IRA

$150k - 401k Market assets (crappy 401k options like target date funds, managed funds, etc). For that reason we no longer contribute to the wife's 401k.

$400k - Trust deeds secured by real estate (generates approx 5% return - a few loans are non currently performing - hangovers from 2008, eventually this will clear up)

$400k - Trusts deed fully performing at 10%

$700k - Commercial Multifamily (fully performing - IRR of 15%+)

Income:

Wife earns $40,000 per year and has decent health benefits for us all

I'm walking away from a $300,000/yr high stress job that is compromising my health - even with rigorous daily workouts and mediation, etc.

Passive income streams:

Actual cashflow is approx $90k/year as some assets have deferred returns and I'm not counting the 401k earnings at all.

So - am I crazy for worrying at all about leaving this income stream and pursuing my passions? I hate my current job, the only reason I ended up in this career 15 years ago was for the money and that it could be done on less than 40 hrs/week but with very high stress.

I'll also say I will be "working" part time as a consultant and active manager in some real estate deals, so in reality in a few years I could have more income than I do today with part-time efforts in a field I am passionate about.

I'm also aware we are heavily exposed to real estate but we have moved much of our exposure away from residential and shifted towards notes, commercial for more stability.
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Old 06-17-2014, 06:33 AM   #2
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Once you are financially independent, you get to choose what you do with your time. That may be to continue to w*rk at the same j*b, take a low stress j*b, volunteer or be there to watch your kids grow up.
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Old 06-17-2014, 11:28 AM   #3
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Once you are financially independent, you get to choose what you do with your time. That may be to continue to w*rk at the same j*b, take a low stress j*b, volunteer or be there to watch your kids grow up.
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Welcome aboard, wqo3wt76.

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Old 06-17-2014, 04:17 PM   #4
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Nicely done! Looks like you have quite a bit invested in trust deeds. Are 10%+ deals easy enough to come by where you live, or do you use a broker, or ?
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Old 06-17-2014, 04:57 PM   #5
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Thanks.

At the moment we are overweight, I have one $400k loan paying off this month so it's slightly distorted today.

Most of mine are funded through other investors i know and work with - some projects we go in as partners on in the LLC, other times I'll loan the money if it's not a project I can add value in as a manager.

So I guess it depends. I'm looking to do less trust deeds are more multifamily going forward because we don't need the income (from the trust deed) and would rather have more of our return deferred & tax advantaged.
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Old 06-17-2014, 07:33 PM   #6
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If you can get comparable returns in multi-family that's definitely the way to go. Not only are the returns tax deferred/advantaged, but you also get the benefit of future appreciation which you don't get with trust deeds. I wish I lived in an area where 10-15% returns were possible - everything here is selling at 3-4 caps which is insane.
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Old 06-18-2014, 07:55 AM   #7
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Sales guy; I take it trust deeds are loans? If so why are the interest rates so high? Just curious, as high rates are typically indicative of high risk. If a trust deed becomes non-performing, what is your recourse-foreclosure?
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Old 06-18-2014, 09:40 AM   #8
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Originally Posted by mchas View Post
If you can get comparable returns in multi-family that's definitely the way to go. Not only are the returns tax deferred/advantaged, but you also get the benefit of future appreciation which you don't get with trust deeds. I wish I lived in an area where 10-15% returns were possible - everything here is selling at 3-4 caps which is insane.
Yep - both coasts have really low cap rates, it's tough to eek out much yield at all at those prices.

While we live on the east coast, we certainly do not limit ourselves to what is within driving distance. I'm not a property manager after all, so it hardly matters if I'm local to the asset.

Yes, tax advantages, yield, principal paydown and assuming the strategy involves driving NOI - then appreciation. I hope mid-teens type returns continue into the future, I think they will given demographic trends for apartments vs SF housing.
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Old 06-18-2014, 09:57 AM   #9
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Sales guy; I take it trust deeds are loans? If so why are the interest rates so high? Just curious, as high rates are typically indicative of high risk. If a trust deed becomes non-performing, what is your recourse-foreclosure?
Yep - aka, "first deed of trust" or "hard money loans". Loans secured by real estate of some sort or another.

The higher interest rate reflects two things:

-Higher risk of default
-Not entirely passive - there is work (and value in that work) in finding good borrowers & lenders, maintaining those relationships and evaluating deals.

Example:

Investor wants to purchase a defaulted note from a bank (we do this often), secured by a piece of rental property. Bank's don't lend against notes so you have a choice - use all cash, syndicate the deal and form a partnership or borrow the money on a short-term basis (3 years or less) and pay 10% for that capital.

There are brokers out there to setup these types of loans and keep 1 to 2% for that work, but I typically work directly with individual borrowers that I know well and have track record with. Without those types of relationships it's hard to manage risk well.

Another example:

We funded a loan to another investor who bought a beach house at foreclosure. 75% LTV on a 2-year 10% note. The collateral has increased in value and is of high quality so i HOPE the borrower defaults, and joke about that with him often.

So yes, with these investments your only recourse is foreclosure & take back of the asset. As such the collateral quality is of utmost importance.
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