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How do I treat reliable income from rental property?
Old 04-22-2018, 04:06 PM   #1
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How do I treat reliable income from rental property?

I own three buildings, one multi-family and two commercial. Seven tenants total, all relatively long term. The buildings are 100% paid for, no debt. I pull in about $75k in rents and cash flow $52k before taxes. I am diligent about upkeep.
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Old 04-22-2018, 04:08 PM   #2
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Your question is not clear.

How do you treat it? It's just income. Treat it as you would any other income, in whatever context you are considering.
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Old 04-22-2018, 04:38 PM   #3
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OP might be thinking in terms of retirement planning. I have two words for you: Nothing is forever. Always have a backup/fall back income.
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Old 04-22-2018, 04:57 PM   #4
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Diversify
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Old 04-22-2018, 05:49 PM   #5
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Your question is not clear.

How do you treat it? It's just income. Treat it as you would any other income, in whatever context you are considering.

Plugging into FIREcalc? A COLA pension? Where would you plug the figure in?
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Old 04-22-2018, 05:52 PM   #6
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Diversify


I also have some limited funds ($200k) in the market, a huge cash reserve ($400k+), a side hustle (dog breeding) and a business from which I currently earn an income. However, I assume that will stop as I would probably sell the business as I approach retirement.
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Old 04-22-2018, 07:04 PM   #7
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Plugging into FIREcalc? A COLA pension? Where would you plug the figure in?
With my rental income, in firecalc, I reduced the total amount of taxable income by 5% to make up for vacancies. Then I put it in as a COLA'd annuity.
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Old 04-22-2018, 07:54 PM   #8
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No idea. We bring in more than we spend on our rentals, but I am pretty vague when wanting to use FireCalc to give me assurance that all will be well forever. I convert the taxman's TCV to a cash amount, reduce it by 25% for taxes and sale expense, then pretend that is the amount of cash I have to invest. Pretty bogus. Did have a guy looking to do a 1031 exchange call today suggesting he was interested in one of our properties for more than double what we have it valued for. Cool!

User Rodi has some method of valuing rentals in FireCalc and equating them to bonds, but I can't represent that.
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Old 04-23-2018, 07:12 PM   #9
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One time I re-financed a Multi-Family-Residence and used the cash to buy a farm. We still had it full of tenants, and we thought everything was cool, it was slowly paying off the new mortgage.

But then the recession hit, there were huge lay-offs, and we lost our tenants.

If got ugly.

I suggest that so long as you are out of all debt, stay out of debt. Make repairs as needed, stay up-to-code, and enjoy.
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Old 04-23-2018, 08:13 PM   #10
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OP might be thinking in terms of retirement planning. I have two words for you: Nothing is forever. Always have a backup/fall back income.
As they say around here, "Numbers is hard."
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Old 04-23-2018, 08:24 PM   #11
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Read the info on the Other Income and Spending tab. What your rental income will do is lower your portfolio withdrawal requirements. Select a pension income and put the income from the rentals there.
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Old 04-23-2018, 08:41 PM   #12
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Read the info on the Other Income and Spending tab. What your rental income will do is lower your portfolio withdrawal requirements. Select a pension income and put the income from the rentals there.
It seems that I generally see 'portfolio withdrawal' as reducing the size of your portfolio. Is there a real requirement to draw down a portfolio?
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Old 04-23-2018, 09:20 PM   #13
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It seems that I generally see 'portfolio withdrawal' as reducing the size of your portfolio. Is there a real requirement to draw down a portfolio?
FireCalc is a tool that basically tells you how much you can safely withdraw from your portfolio each year throughout your retirement. That does not necessarily mean your portfolio will go down over the years. In fact, if you look at the results of the simulation runs, often the portfolio ends up many multiples of what it was at the start of retirement. Those are where you might like to wind up. The runs of most interest are those few runs that indicate those circumstances where you would have run out of money. They are the failures and what everyone here frets endlessly about and often plan spending/withdrawal rates at somewhere around half of what reasonable conservative withdrawal rates could be. For us folks in that boat, we will very likely die very rich.
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Old 04-23-2018, 09:24 PM   #14
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It seems that I generally see 'portfolio withdrawal' as reducing the size of your portfolio. Is there a real requirement to draw down a portfolio?
Only if your spending (cash outflow) exceeds your income (cash inflow).
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Old 04-24-2018, 06:20 AM   #15
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Is there a real requirement to draw down a portfolio?
It depends on the portfolio. Tax deferred accounts (traditional 401k, IRA) have required minimum distributions (RMDs) after age 70.5. Penalties for not taking them are quite high.
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Old 04-24-2018, 09:21 AM   #16
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It depends on the portfolio. Tax deferred portfolios (traditional 401k, IRA) have required minimum distributions (RMDs) after age 70.5. Penalties for not taking them are quite high.
Drawing down the portfolio is not required at 70.5. Moving a required percent of deferred accounts to a taxable account and paying income taxes on the amount moved is.
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