Can't Wait for FI!

[lust4adventure]

Hi there! I'm a software engineer in my low 30's living in the NYC metro area (northern New Jersey, specifically). Just moved out here for a new job after I discovered the FI/RE movement and realized it was for me; however, I have a long way to go. I'm so glad I found this forum! I'd love to meet some like-minded people near me--sometimes I feel all alone in this city of glitz and people obsessed with spending most of what they have--but I'm happy there are others out there seeking financial independence.

Here are my deets:

Income:

Salary: 245,000 USD/yr
Bonus: 60,000 USD/yr (maximum)
Net CA home income: -5,000 USD/yr (estimated)
​

I lived in my California house but decided
to rent it once I moved out here.
It's cashflow-negative once I factor in
occasional repairs, vacancy, capex, etc.,
but should become cashflow-neutral in a few years
after I raise rent a few times. It'll bring in
12,000-15,000 USD/yr once I pay off the mortgage.
​

Monthly Personal Expenses:

Room + utilities: 1,050 USD/mo
Transportation: 107 USD/mo
Discretionary: 600 USD/mo

Company pays health, dental, and life insurance
​

Assets:

Home Equity: 100,000 USD (maybe more)
401(k)s: 80,000 USD

. All US equity index funds
. Rolling over to IRA
​

Vanguard IRA: 129,000 USD

VFIAX 26%
VEMAX 17%
VBLTX 3%
VPADX 14%
VGSLX 14%
VSMAX 26%
​

Will soon simplify to something like:

VTSAX 55%
VTIAX 25%
VGSLX 10%
VBLTX 10%
​

Vanguard brokerage: 77,000 USD

VFIAX 19%
VBLTX 14%
BLV 2%
VGSLX 17%
VSMAX 17%
VTIAX 15%
VTSAX 16%
​

Liabilities: Mortgage only

Principal remaining: 320,000 USD
Interest rate: 4 %
Years remaining: 27 years
Monthly PITI payment: 2,050 USD/mo
​

I'm still formulating my investment strategy, but I'm planning to FI/RE in 10-15 years depending on how I invest and how much risk I'm willing to live with. I'm fairly risk-averse, so I'm going to invest a ton before I FI/RE. I'd like to live off dividends, interest, and rent: I want to reserve my principal for emergencies.

I'm dividing my plan into stages.

Stage One (6-7 years):
. Invest 130,000 USD/year
. Approx. 24,000 USD/year will go into my taxable account (55% VTSAX, 25% VTIAX, 10% VGSLX, 10% VBLTX).
. Max out my 401(k) annually (70% S&P500 index fund, 20% international large-cap index fund, 10% US bond index fund), so 18,500 per year.
. Maintain a 30,000 USD emergency fund.

. Buy, rennovate, and rent out at least 2 distressed single-family homes for an 8-10% cash-on-cash ROI.
. I'm very new to real estate (esp. renovating distressed houses--no experience at all), so I have a lot to study. I need to find mentors, too. My father, whose had lots of success investing in residential real estate throughout his career, refuses to help. (Who knows why?)
. Pay for the first 2 with cash.
. I will hire property manager(s).
. If this works out (heck, I'd settle for 5% cash-on-cash ROI), spend the rest of this period acquiring 500,000 USD worth of properties. Hopefully they'll net 25,000-50,000 USD pre-income-tax.
. If this doesn't work out or I figure I'm not cut for real estate, I'll just put the rest of this period's savings into my brokerage account (as specified above).

Stage Two (5-10 years):
. Same as Stage One, but put everything into my brokerage account and 401(k).
. Continue to maintain a 30,000 USD emergency fund.
. I want to invest 1 million USD during this period. This is what I want to put in, not what I want my net worth to be.
. These new investments should earn me 20,000-30,000 USD/year on dividend and interest alone.
. This will end much faster if I have plenty of rental properties from Stage One.

Stage Three (2-3 years):
. Pay off my California rental's mortgage.
. It should net me 12,000-15,000 USD/year pre-income-tax.
. Increase my emergency fund to 75,000 USD.

Stage Four: FI/RE!

I'm hoping to gross 35,000-85,000 USD/year when I'm financially independent. I'll continue to live well below my means and continue to invest my savings in index funds (mostly bonds and REITs, but some equities, too). I dream of traveling the world on foot, so I'll take advantage of geographic arbitrage to cut down on my expenses. Health insurance will probably come from private providers (estimating 20,000 USD/year, which is one reason why I want my retirement income to be so high); perhaps living in other countries will reduce my need for insurance. (Countries like Japan have fine and affordable healthcare--I know this from personal experience--even without insurance.)

Thanks for reading my absurdly long post. I'm really excited to chat with and cheer on everyone here!

 

[lust4adventure]

I forgot to add that I'm single with no kids and live very frugally. My salary pays me roughly 11,500 USD/mo after taxes and I manage to live well on less than 1,700 USD/mo. My plan doesn't take raises, bonuses, and job changes into account, but I definitely plan to hunt for more lucrative positions or climb the corporate ladder.

Anyone here choose not to get married or have kids while pursuing FI?

 

[DrRoy]

I think your plan looks good, except for the CA house. When paid off, you are only making a little over 3% ROI. Not worth the risk. Sell it and invest the proceeds.

 

[flintnational]

Welcome to the forum. As Dr. Roy indicated, the Ca rental does not appear to be a very profitable rental. Unless there are other reasons to keep it, sell it and look for rentals that have a better ROI and that are near you. Your overall plan is very well thought out and appears fine. Congrats.

 

[Dtail]

Welcome to our wonderful forum. Sounds good overall. After retiring, I assume you will need to pay for own medical. Thus, you should become familiar with what is out there just as a reference in planning.
Healthsherpa.com will provide some good info. If ACA or some form of it is still around, you can potentially plan for subsidies, although a dividend heavy portfolio might not fit this cause.

 

[pjigar]

I think your plan looks good, except for the CA house. When paid off, you are only making a little over 3% ROI. Not worth the risk. Sell it and invest the proceeds.

+1

On comment about your father: May be he wishes your well being. Earning good money in real estate depends on lot of luck (in terms of what you pay for the asset) AND lot of hard work. I am an engineer with high income and I also have real estate so I can tell you that return-on-sweat is 100x more for my engineering job than real-estate. I do real estate because I LOVE fixing things, sometimes little too much. The more I do real estate, the more I realize that the good money is in big projects (think apartments, strip malls, office building, etc.) rather than single-family home. And the big projects can be "outsourced" for management. If you outsource single-family home then you will NOT make anything on cash-on-cash, only equity return if any. And equity returns are hit-or-miss over a long term in real-estate. So all-in-all, know your skills and desires before jumping into real-estate.

And always remember Warren Buffet's rule: "You make money when you BUY an investment" which applies to real-estate lot more than any other investments. i.e. NEVER "overpay" (compromise on cash-on-cash returns) for real-estate, no matter what the "market" says.

On single+no kids: I have two kids and I would NOT trade them for an earlier FIRE. The life is not a race to happiness. The journey of life IS happiness.

 

[Golden sunsets]

Have you looked at the cost of housing in the NYC metro area, even fixer uppers? The idea of buying multiple properties for a total cost of $500,000 seems unrealistic.


Sent from my iPad using Early Retirement Forum

 

[HI Bill]

"Buy, rennovate, and rent out at least 2 distressed single-family homes for an 8-10% cash-on-cash ROI." This sounds great, but there are many, many inherent risks in buying distressed properties. Since you're new to real estate, home repairs, and distressed properties, the risk is amplified several times. This sounds like by no means a sure deal, especially if you have to hire out the repairs and hire property managers. I bought a rental condo on Maui, and even with a local real estate agent acting as my property manager, this one condo added tons of financial and emotional stress to my life. Maybe you will be different, but I'm planning to never go down that path again!

 

[JoeWras]

Didn't read it all yet (I'll look later), but just want to say "welcome." You actually got me to laugh out loud because I brought the page up, saw the courier font, and thought "Must be an engineer." Read the first line and it says, "I'm a software engineer." NICE!

 

[lust4adventure]

I think your plan looks good, except for the CA house. When paid off, you are only making a little over 3% ROI. Not worth the risk. Sell it and invest the proceeds.

I've been considering that since the day I decided to move out here. Oddly, though, my father--the successful real estate investor who usually refuses to help--advised against it, probably because he factors appreciation into his real estate investments. (It's historically been good in coastal California.)


The problem is I don't plan to sell my investments. If I'm going to keep the house, I'm going to hold onto it for the long term. Appreciation might affect rent a little, but it only really matters when selling (or getting reassessed for property taxes). My real estate goal is income, not appreciation.


Thank you for the advice. I'll definitely consider it.

 

[lust4adventure]

Welcome to the forum. [...] Your overall plan is very well thought out and appears fine. Congrats.

Thank you! It's good to be here.

 

[lust4adventure]

Welcome to our wonderful forum. Sounds good overall. After retiring, I assume you will need to pay for own medical. Thus, you should become familiar with what is out there just as a reference in planning.
Healthsherpa.com will provide some good info. If ACA or some form of it is still around, you can potentially plan for subsidies, although a dividend heavy portfolio might not fit this cause.

Thanks for the welcome and the link! I'll definitely use it to shop around. I'm not counting on the ACA being around, so I'm assuming I'll have to pay for very, VERY expensive insurance--hence my conservative plans.

 

[lust4adventure]

On comment about your father: May be he wishes your well being. Earning good money in real estate depends on lot of luck (in terms of what you pay for the asset) AND lot of hard work. I am an engineer with high income and I also have real estate so I can tell you that return-on-sweat is 100x more for my engineering job than real-estate. I do real estate because I LOVE fixing things, sometimes little too much. The more I do real estate, the more I realize that the good money is in big projects (think apartments, strip malls, office building, etc.) rather than single-family home. And the big projects can be "outsourced" for management. If you outsource single-family home then you will NOT make anything on cash-on-cash, only equity return if any. And equity returns are hit-or-miss over a long term in real-estate. So all-in-all, know your skills and desires before jumping into real-estate.

Maybe, but I know he wants me to invest in real estate. He's convinced stocks and bonds are too risky. As he likes to tell me, "If the stock market crashes and home prices plunge, at least you can bulldoze your house, pitch a tent, and grow crops on your land." Hard assets beat paper assets.

But then again, he created his whole career around residential real estate: first a real estate agent, then an agent plus a general contractor, then a home inspector. He managed all of his properties (until recently) and did most of his own repairs and capital improvements. So maybe real estate really worked for him because he lived and breathed it.

I, on the other hand, am a desk jockey, so maybe I can't make it work as well. Maybe it is too risky for me. But it's alluring for three reasons:

1. I want to diversify. Stocks and bonds are great, but owning some rental units adds security.

2. If done right, real estate produces incredible returns (with greater risk, of course).

3. If I were to invest 500,000 USD, I could make 40,000-50,000 USD/year in partially-tax-sheltered rent vs. 10,000 (stock dividends), 15,000 (bond interest), or 20,000 USD (REIT dividends) with little tax sheltering. Rentals would not only speed up my FI, but provide me with much higher retirement income (60,000-85,000 USD/year vs. 30,000-45,000 USD/year). Which sounds better?

Fortunately, I have a long time to give this some thought.

And always remember Warren Buffet's rule: "You make money when you BUY an investment" which applies to real-estate lot more than any other investments. i.e. NEVER "overpay" (compromise on cash-on-cash returns) for real-estate, no matter what the "market" says.

Absolutely.

On single+no kids: I have two kids and I would NOT trade them for an earlier FIRE. The life is not a race to happiness. The journey of life IS happiness.

Sure, I get that. In my situation, though, I'm glad I don't have any.

 

[lust4adventure]

Didn't read it all yet (I'll look later), but just want to say "welcome." You actually got me to laugh out loud because I brought the page up, saw the courier font, and thought "Must be an engineer." Read the first line and it says, "I'm a software engineer." NICE!

Thanks! Yeah, I write almost everything in plain text: Monospaced fonts all the way!

The funny thing is I'm an amateur calligrapher. The artistic side of me weeps when I read my posts!

 

[Katiek]

Welcome and congrats on your plan. I think you've got the commitment to make it work. LBYM is definitely a huge part of FIRE, but don't live so frugally that you can't enjoy some of the benefits of working and living near NYC. There are actually a ot of cheap activities around NY/NJ that can be fun, but a little splurge here and there won't ruin your plan.

I'm single with no kids and that has definitely had an impact on expenses, but I'd be open to whatever your future may hold. It can be hard to predict.

 

[lust4adventure]

"Buy, rennovate, and rent out at least 2 distressed single-family homes for an 8-10% cash-on-cash ROI." This sounds great, but there are many, many inherent risks in buying distressed properties. Since you're new to real estate, home repairs, and distressed properties, the risk is amplified several times. This sounds like by no means a sure deal, especially if you have to hire out the repairs and hire property managers. I bought a rental condo on Maui, and even with a local real estate agent acting as my property manager, this one condo added tons of financial and emotional stress to my life. Maybe you will be different, but I'm planning to never go down that path again!

That's true. And thanks for sharing your experience. Rental real estate is just one of my ideas: I figured I could try it once or twice (after preparing really hard!). If I don't like it, fine: I have options. Going all index funds isn't terrible.

 

[lust4adventure]

OK, I'm getting sick of the Courier New font. I'd prefer Source Code Pro, but that isn't an option.

Have you looked at the cost of housing in the NYC metro area, even fixer uppers? The idea of buying multiple properties for a total cost of $500,000 seems unrealistic.

I was planning on investing in cheaper markets with better cash-on-cash ROI. I don't know where yet, so I'd have to research tons of places first. Probably nowhere near the coasts.

 

[JoeWras]

I came back to read your post now that I'm not w*rking. They actually gave me Saturday off.

I'm not an R.E. guy, so no comment there. I am glad to see you have aggressive saving rate for your salary. And I see you are living frugally for NYC. Also nice. People say it can't be done. You are doing it.

That is a very impressive salary for any city, anywhere for a software engineer. Here I am 34 years in, making about 55% of what you make. Well done!

So, on that topic, keep current and job hop if necessary. I got stuck into a software engineering box, worked to death without time to upgrade my skills, then deemed "trash to throw out." Don't go there, even if you have a short career. Do what is hot and stay on the curve. I'm guessing you are doing apps or big data, both hot in NYC.

 

[jetpack]

I used to think I need a big emergency fund too. hopefully you're at least keeping that in high yield savings or VMMXX (2.07% yield currently). However, the vanguard funds are liquid enough, and there's always dogging that I one I could sell in a pinch.

Anyway, I'm like you. Single no kids. Was a software developer in NYC area. Though, I made less than 1/2 what you did. Got out by 33 though. Turned to my own online app development projects at just the right time.

Good luck!

 

[pj.mask]

If you’re saving that much a year you could retire on stocks with your desired income.

You have a rental returning 15k (pretax?) on 420k (3.5%) so in one year this equates to 2-3 weeks at your job? You have a really real estate heavy plan; I strongly encourage you to spend 2 hours reading about stock investments over at boglehead. You don’t seem to have a complete understanding of what stock is (ownership of a company with real assets including land, buildings, and IP)

If you read enough about people’s strategies you find (for the most part) people who retire on stocks check them once a year to rebalance. People who retire with real estate spend significant time every month dealing with issues or fixing things. Generally hiring a property manager cuts out all the profit unless you have numerous properties to split the balance between.

Real estate, just like stocks, have some inherent value. I have no confidence in my ability to consistently better predict the future value of real estate or stocks more accurately than the current marked price.

Some people make it big on real estate and tell everyone how great it is. You have no experience but seem confident in the ability to generate greater than market returns? Others made out really well on stocks (some article about Jeff Bezos’ parents could be worth billions from their 100k startup investment)

You are in a great position in terms of income; spend some time studying what each strategy will mean to you before you plow your money into something.

 

[JoeWras]

Anyway, I'm like you. Single no kids. Was a software developer in NYC area. Though, I made less than 1/2 what you did.Good luck!

Great! I was really starting to wonder just how underpaid I was! I know I am, but jetpack is off the charts ($305k, holy <expletive>!)

 

[socca]

Anyone here choose not to get married or have kids while pursuing FI?

Back in the old days, there was a widespread belief in America that married-with-children provided the best chance at personal happiness in life, and any other path in life was distinctly inferior. Even in the modern America, you can still find communities where traditional family values are strongly promoted (for example, in some areas of the rural deep South). However, most of us aren’t living in Mayberry any more, and as far as I can see, the married-with-children pathway to happiness has become a much dicier proposition. So, what has changed? Well, back in the old days:

• a family could survive (and even thrive) on a single salary (usually the husband’s). Nowadays, two salary families are the rule. This doubles the probability that at least one person will be deeply dissatisfied with their job, which can put stress on the marriage / child-raising.

• there was an unwritten social contract between employer and employee: the employer was expected to ‘take care’ of the employee, and in turn, the employee was expected to make whatever sacrificies were necessary so that the employer would be successful. Those days appear to be gone. Nowadays, there is a climate of mutual distrust between employer and employee - employers will screw the employee and vice-versa at the earliest opportunity. Is raising a child in an environment where there is substantial employment insecurity enjoyable?

• launching a kid toward an upper-middle class lifestyle was feasible for a family with a middle class income. It appears that the costs associated with this enterprise have increased greatly in the modern era.

If you are an odd sort of duck, your marriage/children decision may be shaped by considerations other than what is best for yourself. For example, you may speculate whether your children would have a reasonable chance of having lives worth living given the way things are going and whether planet Earth really needs any more human children.

Speaking from personal experience, the advantages associated with the unmarried/child-free lifestyle are mostly intellectual and practical (for example, relocating without dependents is orders-of-magnitude simpler than relocating with them), whereas the advantages associated with the married-with-children lifestyle are mostly emotional (so I imagine, having never given this lifestyle a try myself). So, the married-with-children decision resembles the mortgage-payoff decision, with both intellectual and emotional factors to consider.

Whatever you decide - good luck!

 

[HI Bill]

Anyone here choose not to get married or have kids while pursuing FI?

I made the choice not to have kids while pursuing FI, but not for the implied reason. As others have said, I considered the impact on world population, and every since high school, believed that we need to diminish, not increase the world population (negative population growth, for both the good of the earth and its inhabitants (human and non-human).

 

[lust4adventure]

Great! I was really starting to wonder just how underpaid I was! I know I am, but jetpack is off the charts ($305k, holy <expletive>!)

Well, it took a few years, some company hopping, some hard negotiating (plus having a couple of other companies wanting to interview me around the same time), and picking a very profitable, stable company. I intend to work hard, of course: Slacking off for 10-15 years does not sound fun.

 

[lust4adventure]

I am glad to see you have aggressive saving rate for your salary. And I see you are living frugally for NYC. Also nice. People say it can't be done. You are doing it.

It can absolutely be done. I think most people here equate “decent life” with eating out all the time, drinking in expensive bars, clubbing, fancy rooftop parties, $100+ boat rides, etc. In other words, what people here consider a good life is really an expensive life. But people like me, who prefer reading, hiking, spending time with friends outside, and free outdoor arts—simple living—can definitely get away with less. And if you have a job with a good salary, simple living translates into huge savings and investment.

That is a very impressive salary for any city, anywhere for a software engineer. Here I am 34 years in, making about 55% of what you make. Well done!

Thanks! But it wasn't easy. It required a lot of job hopping (at strategic times) and some hard negotiating. I just lucked into my current job: My last one paid half as much.

So, on that topic, keep current and job hop if necessary. I got stuck into a software engineering box, worked to death without time to upgrade my skills, then deemed "trash to throw out." Don't go there, even if you have a short career. Do what is hot and stay on the curve. I'm guessing you are doing apps or big data, both hot in NYC.

You're absolutely right. I'll probably hop at least one more time before I retire. Fortunately, my current company has lots of opportunities, so I'll stick around for a few years.

Actually, I'm in finance. It pays well, even if it isn't the most glamorous sector. (Video game development is much more fun but very demanding and unstable.)