HELP - Advise - Target End Date

[Sbrooks06340]

Hello All,
Long Time reader but never have posted.

I wanted to get some advice as to where I am at. My focus is 100% in retirement but not sure where to go from here. I have been heavy into Real Estate.

Here is my infomation, suggestions or thoughts are appreciated!!

Myself 42, Spouse 40 Total Net Worth today is showing 1.4Million consisting of:

CA Primary Residence: Value 650K, Paid in Full - Renting Portion - $1600/Month
CA Condo: Value: 350K, Paid in Full - Renting 1600K/Month
CA House: Value: 180K, Paid in Full - Renting 1300K/Month
GA House: Value: 181K, Owe 86K- Renting 1000/Month - Currently Nets $300/Month
FL Condo: Value: 135K, Owe 64K- Renting $975/Month Currently Nets $0.00/Month
IRA: 141K

So the plan in the last five years was to pay off the top three properties. We will be making the final payment on #1, #2 next month (so I am counting them as paid).

We are very cash poor, with 13K in Savings, so the next five years will be to build savings/cash as much as possible.

With rents and work, we bring in about 12K-17K a month and have been able to save about 10K/month consistantly. All of which has been going to paydown real estate. We are spending about 3/4K month in living which is bare bones in CA. The monthly overage has been used in Real Estate is what has greatly increased the values of the properties. (We bought foreclosures and fixed)

Very happy as it seems we are kind of at a break even point, where we could just live off of the rents and survive. Of course we are looking to enjoy retirement, travel etc so adding in another $3K/month income would be the goal for us. We live in CA.

Not sure where to go from here...thoughts/imput/etc.....??

 

[MichaelB]

Not sure where to go from here...thoughts/imput/etc.....??

Needs more cowbell.

Hi sbrooks06340, welcome aboard.

 

[HI Bill]

Congrats! Sounds like you're in very good shape for your ages! It's awesome that your rents cover your expenses! My only concern is that you are very heavily into real estate (~$1.5M), with almost no cash reserves, and no ability to hedge your risk/income if the economy tanks (and you have to cover carrying costs for unrented properties that might be hard to sell in a recession, or have to reduce rent prices). Before paying off mortgages, I'd set up a 6-month cash reserve as your first step. That way, if everything goes south simultaneously (job loss, lowered rental rate, etc.), you can withstand the storm. Then, I'd go with your plan of paying off the mortgages, then work on building 401(k) or IRAs. So far, without knowing your retirement budget, your 5-year plan sounds like a realistic plan!

 

[Texas Proud]

Congrats on posting... I do not know enough about real estate, but this kinds struck me...


CA Condo: Value: 350K, Paid in Full - Renting 1600K/Month
CA House: Value: 180K, Paid in Full - Renting 1300K/Month


Seems like you should sell condo and buy two houses like the one you are renting... that would net $1,000 more per month for a $10,000 investment....

 

[OldShooter]

I'm sure the real estate in your market has been good to you, but I think you should consider diversifying for retirement. Maybe leave 20% in RE? A common bank trust department is that anything over 15% in a single asset is overconcentration.

Re "travel," from many years' experience I know that rentals can be time-consuming and unexpected events can be expected. You must know this too. If you are going to travel very far or for very long, you will need a management company or, better, a trustworthy individual who will function as caretaker.

 

[exnavynuke]

Hello All,
Long Time reader but never have posted.

I wanted to get some advice as to where I am at. My focus is 100% in retirement but not sure where to go from here. I have been heavy into Real Estate.

Here is my infomation, suggestions or thoughts are appreciated!!

Myself 42, Spouse 40 Total Net Worth today is showing 1.4Million consisting of:

CA Primary Residence: Value 650K, Paid in Full - Renting Portion - $1600/Month
CA Condo: Value: 350K, Paid in Full - Renting 1600K/Month
CA House: Value: 180K, Paid in Full - Renting 1300K/Month
GA House: Value: 181K, Owe 86K- Renting 1000/Month - Currently Nets $300/Month
FL Condo: Value: 135K, Owe 64K- Renting $975/Month Currently Nets $0.00/Month
IRA: 141K

So the plan in the last five years was to pay off the top three properties. We will be making the final payment on #1, #2 next month (so I am counting them as paid).

We are very cash poor, with 13K in Savings, so the next five years will be to build savings/cash as much as possible.

With rents and work, we bring in about 12K-17K a month and have been able to save about 10K/month consistantly. All of which has been going to paydown real estate. We are spending about 3/4K month in living which is bare bones in CA. The monthly overage has been used in Real Estate is what has greatly increased the values of the properties. (We bought foreclosures and fixed)

Very happy as it seems we are kind of at a break even point, where we could just live off of the rents and survive. Of course we are looking to enjoy retirement, travel etc so adding in another $3K/month income would be the goal for us. We live in CA.

Not sure where to go from here...thoughts/imput/etc.....??

What are your net profits on the properties, assuming those aren't the numbers shown; i.e. after all your costs for maintaining, vacancies, finding tenants, repairs, etc etc are accounted for? That's much more important than your gross rents imo.

Here's my generic thoughts though:
1. You have ~$1,346,000 in real estate equity, generating $58,500/year in gross rent.
2. Assuming that's gross rent, you'll likely average 0.5-1% of value spent maintaining/repairing the properties each year over the long-term, which would knock about $13k/year off of that income, taking it down to ~45k/year.
2.a. To generate that $45k/year, you're likely spending a good deal of time yourself taking care of managing the properties.
3. If that equity was in the markets long-term, you'd likely have a net income of ~3.5% of the portfolio, or $47k without more than a few minutes of work being needed every once in a while.
4. In the current situation you're in, the vast majority of your wealth (~84%) is concentrated in one asset (real estate), in one location (California), and thus is a very high risk allocation (imo) since a localized problem in that one asset class could decimate your portfolio.

That said, risk tolerance is an individual consideration and there is no real "right" answer, so if you're happy with that level of risk, that's up to you. If it were me, I'd try to diversify into a much broader set of investments through index funds etc, either by stopping all extra payments and diverting that into traditional investments or by doing a combination of that and liquidating some of the real estate portfolio and purchasing traditional investments with the proceeds.

 

[NgineER]

Hello All,
Long Time reader but never have posted.

I wanted to get some advice as to where I am at. My focus is 100% in retirement but not sure where to go from here. I have been heavy into Real Estate.

Here is my infomation, suggestions or thoughts are appreciated!!

Myself 42, Spouse 40 Total Net Worth today is showing 1.4Million consisting of:

CA Primary Residence: Value 650K, Paid in Full - Renting Portion - $1600/Month
CA Condo: Value: 350K, Paid in Full - Renting 1600K/Month
CA House: Value: 180K, Paid in Full - Renting 1300K/Month
GA House: Value: 181K, Owe 86K- Renting 1000/Month - Currently Nets $300/Month
FL Condo: Value: 135K, Owe 64K- Renting $975/Month Currently Nets $0.00/Month
IRA: 141K

So the plan in the last five years was to pay off the top three properties. We will be making the final payment on #1, #2 next month (so I am counting them as paid).

We are very cash poor, with 13K in Savings, so the next five years will be to build savings/cash as much as possible.

With rents and work, we bring in about 12K-17K a month and have been able to save about 10K/month consistantly. All of which has been going to paydown real estate. We are spending about 3/4K month in living which is bare bones in CA. The monthly overage has been used in Real Estate is what has greatly increased the values of the properties. (We bought foreclosures and fixed)

Very happy as it seems we are kind of at a break even point, where we could just live off of the rents and survive. Of course we are looking to enjoy retirement, travel etc so adding in another $3K/month income would be the goal for us. We live in CA.

Not sure where to go from here...thoughts/imput/etc.....??

Nice progress on paying down mortgages!

I'm a little concerned however that you are so concentrated in real estate, but you have invested wisely in buying low and fixing properties. What is the cash-on-cash return for your properties?

I am also relying on income properties to grow wealth, but I have not yet started paying them off. I know that the rent/value ratio can be crazy in places like CA, but I think that you are not capturing enough in income for the stated property values. Since you are not averse to owning properties in other areas, I would probably recommend cashing out and look for better yielding properties elsewhere. But I myself am too chicken to do so...

I would get a HELOC on your primary to have cash in an emergency. You could also use that to pay off your properties quicker without locking your money up permanently.

I echo others in that you should focus on getting more investments to diversify away from being dependent on real estate solely.

Good luck!