Doing IT

[bearkeley]

So look, my wife and I go back and forth.* One day I say we can,* then she says we can't.* Then she says let's do it now and I say we can't.* Then we look at the numbers and decide we need to wait at least 2 years.* Then she says she dosen't want to wait let's do it earlier.*

So today we both had a not good not bad, just another day at the office and came home and decided we can only stand so many more BLAH BLAH days at the office.*

We simply enjoy our time* not at the office more.* We are not at all worried about being bored not working.* We are bored working.* So at least if we are bored not working we will be at home and can be bored naked if we so choose.* We have our hopes and aspriration set on spending no more than two more years in the working mans purgatory but we need some help working the bugs out of our plan and finding the courage to FIRE.

So here it is:

Me 39
She 37
Me 401k* * * 185K
she 401k* * * *85k
me IRA* * * * * * *8k
she IRA* * * * * * *8k
Total* * * * * * *286k* I also have some Fed pension of maybe 15k/yr at 62.

Cash* * * * * * * *80k
Brokerage* * * *50k
total* * * * * * * 130k

Equity
1 st home 400k
2nd home* 500
total* * * * * 900k

1t rental* *100k
2n rental* *110k
3rd* * * * * * 150k
other* * * * * *75k
total* * * * * 435k

So in theory we have $1.75 mil in assets to plan with, plus we have the goal of saving and investing 100k of our salary every year we work before we do it.* So theoritically given the 4% SWR we have nothing to worry about (estimate 80k/yr to live, less if we move outside the country; no kids, so no need to worry about leaving anything to our heirs) and should join the ranks of the unemployed.* *BUT, reality seems different.* *

So...here's the Question:* If we stick with a plan of 2 years to FIRE, do the following steps seem like it would get us there?

1) Sell house 1 this Fall after remodel is complete (never again) to get tax free equity out and either buy or rent another house to live in until we FIRE to house #2

Questions: Buy or rent? Where do we put the equity if we don't buy?

2) Sell Rental #1 - tenant just moved out, and purchase a multi-family unit with outside management thru a 1031 exchange

3) Take cash on hand and consider investing in another rental property or stock - thoughts? (right now it is getting 4.75% in ING)

4) Invest 100k/yr of salary thru monthly allocations into stocks/index funds.

Any thoughts, concerns, things to look out for (ie., too much RE, not enough)?* Help!

[califdreamer]

I'm in a similar position except I'm a little older (46) and I will not have any pension income in my future.* So I'm a little envious

The trick for me is converting investment RE equity into reliable cash flow.* I like your idea of moving the equity into multifamily instead of SFR.* I think in many markets multifamily will outperform SFRs, kind of a reversal of the last 5 or 6 years.*

Things to consider:* where is your area in the cycle for apt bldgs?* are you willing to invest at a distance if your area is not in a favorable part of the cycle?* what loan-to-value can you achieve after you 1031?* where is your area in the cycle for your SFR?* are you willing to relocate to a cheaper area if need be?* can you get reliable income from your second home or would it be better to sell it and invest in a multifamily propty?

Like me, you have some money tied up in retirement accounts.* I'm inclined to keep it until I'm 59.5 and have a boost down the road.* I believe the SEPP withdrawals allow you to take 1/30 each year out of your retirement accts without penalty.* Others will know a lot more about this than me.*

It looks like you can have $1,135,000 (minus selling costs) in investment RE equity by selling your personal residence and allocating 200k of that equtiy to the investment side and using your second residence (either by renting it out or exchanging it into rental propty) for income.*

If you assume 6.5% mortgage rate, 50% LTV and CAP rate [(Income minus Expenses) divided by down payment] of 6.5% your cash-on-cash return would be 5.4%.* So the $1,135,000 would yield $61,517/year.*

If you do the SEPP thing (others help me on this one) with the retirement accts I think you can take about 9k annually w/o penalty.*

If you can find a house somewhere for 200k, your can live mortgage free.

So that's roughly 70k/yr with no mortgage.*

[mb]

Bearkeley,

It looks like you have about 75% of your net worth in real estate. I assume that you are comfortable with that. I don't invest in RE except for REITS so this is a reflection of my prejudices, but I would be concerned if those properties were in one of the areas where prices have gone up so much in recent years.

The 4% rule is supported by survival calcuations for stock/bond portfolios using historical-based and Monte Carlo simulations. CalifDreamer gives a calculation for the cash flow from your properties. Maybe some of the RE guys can enlighten us as to what they do? Is it just based on the rental cash flow? Does a SWR type calc make sense for RE?

By the way are you a Berkeley guy?

Go BEARS!

MB

[califdreamer]

Quote:

Originally Posted by califdreamer CAP rate [(Income minus Expenses) divided by down payment]

I made an error on my previous post. Here's the correct formula:

CAP rate = [(Income - Expenses) divided by the PURCHASE PRICE OF THE PROPERTY].

Quote:

So at least if we are bored not working we will be at home and can be bored naked if we so choose.

This should be the motto of the ER forum!

[cute fuzzy bunny]

"I'm not wearing any pants! Film at 11..."

[Chris24]

It's half past 11. Where's the film ! ?

[cute fuzzy bunny]

Its only 8:35 in the morning here.

Let me get some coffee before I show you my butt...

Believe me, a little delay is going to be good for both of us. Gives me time to wake up, and you time to come to your senses.

[bearkeley]

Thanks for the thoughts but not the mental images

We are debating on keeping the 2nd home it is a really great on 12 acres water front with quick access to the Ches. Bay

It has an old farm house we could rent for around 600 per month but doing that would really tie up a lot of equity in the house and tie us down to the area as we would have less money to play.

I guess I could always make the wife work

[Arif]

Quote:

Any thoughts, concerns, things to look out for (ie., too much RE, not enough)? *Help!

I think only you can answer the question of whether you have too much RE. We are sitting at about 80% real estate and feel much more comfortable with that than if the percentage was reversed (i.e. 80% stocks). In real estate there is a big difference between equity and cashflow. While our equity in real estate is roughly $800k (which isn't much ) it throws off about 60k in free cashflow per year and of that 800k we invested about 100k of our own money. The remaining 700k was created through rehabbing and buying from desperate sellers.
Personally if I were you I would sell your home, scale down and pay cash for the next one. Not sure if IRS rules treat 2nd homes like primary ones (250 and 500k exepmtions) but if they do I would put it in a balanced portfolio. I would do a 1031 on the rental properties and move the money into multifamily units. Something that was ugly and needed some work. Hire a PM to turn it around and increase cashflow (and value of the property). Be very careful with the 1031 as the timeframes are very stringent. If you don't execute on time you would have not only wasted the fees to set it up but also owe taxes on the sale. I am in the process of doing a 1031 now with a sfh and duplex. Once the sfh sells I'll purchase a larger multifamily with more cashflow. That is one way to grow your cashflow from real estate assets without soley relying on appreciation or rental increases.