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Old 02-28-2010, 11:58 AM   #1
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Welcome!

Hello, new poster here!

I'm almost 30 years old and I'm a decent saver. I could save considerably more, but I'm where I am today mostly due to a few focused investments that (luckily) worked out well for me. I'm certainly on the track to retire early, I just don't know how early. Too many unknowns: inflation, health insurance, being too young to pull money from retirement accounts, etc.

Here's my current breakdown:
non retirement brokerage accounts: $44,000
IRAs: $80,000
401k: $44,000
savings: $3,000
non-house debt: none (had very little college loans and paid them off early)
home mortgage debt: $75000 with 14 years remaining
home value: $120,000 (approximate)

Savings are currently a little lower than I like but I spent savings down buying a used car in cash and I don't see any chance of my job being at risk currently. Will build this back up to $6000 or so in the near future.

In summary, I have about $170,000 in non-house assets and $45,000 in home equity (which I typically don't count towards assets because I like to think of housing as a home and not an investment). I'm concerned that most of my money is tied up in retirement accounts because it means I will have a hard time at retiring considerably before age 60. I don't expect to need a lot of money (in today's dollars) in retirement income because I will no longer have to save, my house should be paid off, and my hobbies are relatively cheap. I just enjoy free time and relaxation.

One goal is to test the waters as a landlord. I feel that's a really good way to secure wealth, but I realize landlording is only for the select few. I guess I'm willing to give it a shot to see if it works for me.

Another goal is to work on a budget. I spend whatever I feel like (but I'm relatively cheap so it doesn't get me in trouble) and invest haphazardly whenever my savings grows by chance beyond what I feel is a safe level. I feel like I could save more with a budget.

Any comments would be great!
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Old 02-28-2010, 12:33 PM   #2
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Welcome.
Some random thoughts about your portfolio - they sort of link together
- your highest income producing years are probably ahead of you
- as your income increases, you'll max out on retirement accounts and grow your taxable accounts
- be careful that your lifestyle doesn't creep up with or faster than your income
- Keep track of your spending - even without a budget. Then examine to make sure you're getting the best satisfaction from your spending, and not throwing away money at something you're not getting much use from.
- Read & learn about ER. See the ER Faq thread on this forum.
Pay attention to any kind of monthly payment /subscription.

You've got a great start! Congratulations.
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Old 02-28-2010, 01:46 PM   #3
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Your position is similar to mine when I was your age, though I had to save like a mad demon to get there - perhaps I made less than you do (accounting for inflation). I'll just echo WalkinWood's comments.

Landlording is OK if you get good tenants, and the value of the property keeps going up. One thing to keep in mind - tenants are much harder on houses than owners are. As a result, appliances break down faster; plumbing gets clogged and stops working. You will be on the hook to fix all that. Depending on where you live, it's very expensive to pay other people to fix stuff. Are you handy? Can you fix things?

Good luck! Welcome aboard,

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Old 02-28-2010, 11:09 PM   #4
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as an owner of 5 rental properties i will tell you that you will make FAR more money in the stock market than you ever will in real estate. this is a proven fact, not just an opinion. keep doing what you have been doing. dollar cost average into no load mutual funds & over the long haul you will win.
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Old 02-28-2010, 11:36 PM   #5
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Quote:
Originally Posted by 2brich View Post
I'm concerned that most of my money is tied up in retirement accounts because it means I will have a hard time at retiring considerably before age 60.
Google "72t". It'll show you how you can make withdrawls from retirement accounts before 59 1/2 without paying the usual 10% penalty.
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Old 03-01-2010, 08:24 AM   #6
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Renting property takes a special person. I'm renting my house in Bar Harbor until I move in. The renters are smart people(PhD level), but clueless about how to deal with issues. Luckily there are almost no year round rentals on the island, and these people know that they are renting a house for people who are retiring. Since we live 600 miles away we need a good rental management agent who understands that s/he works for us, not for the special and often ridiculous needs of the renter.

Our last one was a nightmare. He encouraged the renters to complain about everything because he wanted to sell them a house on island and get them to move out of the rental that he was getting money from us every month. They felt that they needed more fresh air in the winter so they left their windows open a crack; this is Maine! Then they complained about the high cost of fuel.

Our new agent told them right away how to conserve fuel, how to put up blinds, not to open the windows in winter. They complained about mold around the refrigerator and she immediately told them it wasn't mold, it was discoloration.

But we have had to replace things, and we hope not too much more before we move in. As absent landlords, everything that needs to be fixed has to be done by professionals, and they are not cheap. When we move in 95% of the repairs will be done by me.

So unless you are really good at judging people, have property with no problems, this can turn out to be a nightmare.

Z
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Old 03-01-2010, 11:29 AM   #7
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Welcome to the board, 2BRich.
Quote:
Originally Posted by 2brich View Post
I'm concerned that most of my money is tied up in retirement accounts because it means I will have a hard time at retiring considerably before age 60.
Not that hard; there are several ways to work around that. For example, contributions to a Roth IRA can be withdrawn penalty-free at any time. Some employer 401(k)s allow penalty-free withdrawals even if you retire before age 59.5. And finally, as another poster has mentioned, there's the 72(t) withdrawal:
Retire Early: Can I withdraw money from my IRA before age 59 ?

Quote:
Originally Posted by 2brich View Post
One goal is to test the waters as a landlord. I feel that's a really good way to secure wealth, but I realize landlording is only for the select few. I guess I'm willing to give it a shot to see if it works for me.
Speaking as a 20-year landlord, it's not for everyone. Try these books before you "test" the waters:
(1) Investing in Real Estate, 4th edition or later, by Andrew McLean & Gary W. Eldred (who's taken over the new editions) and
(2) Landlording by Leigh Robinson (7th edition or later).

While you can make a lot more money in the stock market, you can lose a lot more of it too. I guess a more general statement would be that the stock market is much more volatile than real estate... of course no one complains about upward volatility.

Quote:
Originally Posted by 2brich View Post
Another goal is to work on a budget.
I'd say that's the first and most important goal. You can't forecast anything else until you've minimized this uncertainty...
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Old 03-01-2010, 10:07 PM   #8
Confused about dryer sheets
 
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Thanks for all the replies.

My income is decent for my age, but only in the last 3 years or so. Really I've just been lucky with a few investments, to the point where in the last few years I've only saved my the company matched 401k and my ROTH IRA max contribution. In my early 20s I put most of my net worth (which wasn't much) into Philip Morris during their legal uncertainty. I moved all my big gains from that into other investments. A few big wins really make a huge difference (and now that I actually have something worth losing I realize 1 big loss will wipe it all out.)

As for landlording, I would plan to do all the work repairs myself or not even bother. I've done all the remodeling myself on my current house so I'm pretty handy at this point. Everything would be local.

I'd like to see the studies that prove the stock market always outperforms rental real estate as an investment. It's certainly possibly, but not obvious to me and very market dependent. Assuming rents cover costs over a 30 year period (cash flow negative initially but grows to positive as rent increases gradually while mortgage is fixed) and you put 20% down. Assuming 2% appreciation on the house you have an 800% return on investment over 30 years. Appreciation assumptions are basically just inflation, and low guess for inflation at that. That seems like a 7.6% compound return. Not too shabby, albeit potentially far more work than stocks. There are so many assumptions built in, but mine seem pretty conservative. Putting 15% down instead of 20%, for example, results in nearly 9% compounded instead. These are all pulled from my head, so I think I'll need to look at what other boards are available to read up.

Thanks everyone, this is really getting me thinking about things.
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Old 03-03-2010, 02:03 PM   #9
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One of the problems with rents is the continuous management you have to have with the tenants. Rarely does anything nice happen. People call you because something broke that is going to cost a lot of money to fix; the tenants left and damaged the house badly; your taxes doubled or tripled; your renter moves out and is taking you to court for something dumb; you have to take the renter to court; it goes on and on.

You have to be a way more special person to handle it as a landlord than you do with simple dollars and cents in a fund account, or even buying on your own if you have a good investment advice process.

Just today my renters contacted me. I cannot seem to get it out of their minds that I am not a wealthy landlord. They are planning on buying a house in the summer but think they'd like to stay a couple of months past the lease date. They don't see a problem with this. And if I was a wealthy landowner maybe I wouldn't either. But I need the rent to pay the mortgage. If they leave in December, I may not be able to find a renter to replace them since 90% of new renters move in before the first snow. But they don't see this, despite the fact that I've told them our financial plight over and over again.

It is what it is. Good luck to you if you decide to do it. If I didn't need the money I would get rid of my renters.

Z
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