Intro and Fired up for Fire

[ghh101]

I have been lurking for 2 years and finally decided I wanted to contribute.

- 41 years old and DW is 37
- 2 children 6 and 10
- I work in the Medical Field and my wife is a Teacher
- Combined we make $160,000
$28,000/yr in my retirement account
$4800/yr in my DW retirement acccount
- We own 15 Rental Homes and 13 have mortgages
Most of the remaining mortgages will be paid off in 12-15 years
- Personal Home is worth $415,000 and we owe $283,000
14 yrs left on mortgage
- We also co-own a condo at the beach with my FIL.
Worth about $220,000 and we owe $165,000
14 yrs left on mortgage
- $710,000 403b with Voya thru my work
$218,000 RSA-1
$19,000 IRA Smith Barney
$22,000 Roth IRA Smith Barney
$16,000 403b Tiaa Creff
$60,000 in 529 plans for College $1950/yr per kid
- Our expenses are about $80,000

I hope to FIRE in 2027 at 52. My wife will FIRE at that time also. She will receive a pension of about $24,000/yr. We are eligible to get Health Insurance thru her.

I have figured our expenses will be $65,000 upon Firing.

Let me know your thoughts. If you have any questions feel free to ask.

 

[Senator]

Every rental you pay off increases your cash flow by quite a bit. Focus on one at a time and you will see the cash flow grow exponentially.

I have 25 renters and only 3 mortgages. One more mortgage will be paid off within three months.

 

[Blue Collar Guy]

I have been lurking for 2 years and finally decided I wanted to contribute.


- Combined we make $160,000

- We own 15 Rental Homes and 13 have mortgages

- We also co-own a condo at the beach with my FIL.

- Our expenses are about $80,000

She will receive a pension of about $24,000/yr. We are eligible to get Health Insurance....

I have figured our expenses will be $65,000 upon Firing.

Let me know your thoughts. If you have any questions feel free to ask.

I think your on a roll. I also think your in the top 10 % of the entire country. When those properties are paid up you will be in the top 5 % or more. Way to go man. Oh, and welcome to the forum.

 

[ghh101]

Every rental you pay off increases your cash flow by quite a bit. Focus on one at a time and you will see the cash flow grow exponentially.

I have 25 renters and only 3 mortgages. One more mortgage will be paid off within three months.

I hope to be there one day. That was going to be my next question. Should I start paying down my rentals or my personal home?

 

[MBAustin]

Welcome! Looks like you are on a good path. I'll leave the rental mortgage question to others more experienced in that field. If your home mortgage interest rate is low, there's no rush to pay it off, IMHO - better to build up investments.

Remember that retiree health insurance (even for teachers) is not guaranteed and the costs may change, so keep that in mind given that you are 10 years out from your target date.

Have you run calculators such as FIREcalc?

Glad to have you join the posting crowd!

 

[ghh101]

I think your on a roll. I also think your in the top 10 % of the entire country. When those properties are paid up you will be in the top 5 % or more. Way to go man. Oh, and welcome to the forum.

I definitely don't feel in the top 10%. Between work and the rental homes I put in about 55 week. I have been maxing out my retirement account since I was 26. I bought my first rental at 27 and added the others by 32. I haven't purchased anymore after those. I have some poor financial decisions along the way and could have probably retired at 40 if I would have been smarter.

 

[rodi]

Welcome to the forum.

You're doing a great job on the savings... My only comment/critique would be that your IRA money is all at higher fee type places... Have you considered rolling the Smith Barney stuff over to one of the super low fee places like Schwab or Vanguard? My past experience with SB was that their expense ratios were pretty high.

 

[Blue Collar Guy]

I have some poor financial decisions along the way and could have probably retired at 40 if I would have been smarter.

Most of us have made a few boo-boos. I sure did. When you finally go, those 55 hour weeks are going to pay you sweet dividends. Best of luck you earned it.

 

[ghh101]

Welcome to the forum.

You're doing a great job on the savings... My only comment/critique would be that your IRA money is all at higher fee type places... Have you considered rolling the Smith Barney stuff over to one of the super low fee places like Schwab or Vanguard? My past experience with SB was that their expense ratios were pretty high.

I will look at the SB account. I have had it since I was 18. I saved up $4000 and I started the account. It has done well for my over the years. I was adding to it up until I was about 22. Then I got my first real job and started contributing to my 403b.

 

[ghh101]

Welcome! Looks like you are on a good path. I'll leave the rental mortgage question to others more experienced in that field. If your home mortgage interest rate is low, there's no rush to pay it off, IMHO - better to build up investments.

Remember that retiree health insurance (even for teachers) is not guaranteed and the costs may change, so keep that in mind given that you are 10 years out from your target date.

Have you run calculators such as FIREcalc?

Glad to have you join the posting crowd!

Yes my personal home 3.25%. And the rental homes range from 4.5-7%.

I agree about the health insurance costs will go up steadily to retirees.

Fire Calc shows 100%.

 

[Koolau]

This is just personal preference on my part, but if I owned that many rentals IN retirement, I would think I was still w*rking. Do you use a property manager or do you field the 3AM calls for stopped up plumbing? If it were me, I would w*rk myself out of the "business" by the time I FIRE'd, but that's just me. YMMV

 

[ghh101]

This is just personal preference on my part, but if I owned that many rentals IN retirement, I would think I was still w*rking. Do you use a property manager or do you field the 3AM calls for stopped up plumbing? If it were me, I would w*rk myself out of the "business" by the time I FIRE'd, but that's just me. YMMV

I manage them myself. I have a list of contractors that the tenant calls and the contractor sends me the bill.
I like knowing who I am putting in my houses.
I have worked since I was 15 so I will need to do something.

 

[Another Reader]

Every rental you pay off increases your cash flow by quite a bit. Focus on one at a time and you will see the cash flow grow exponentially.

I have 25 renters and only 3 mortgages. One more mortgage will be paid off within three months.

+1. Less risk, less stress, more cash flow.

ETA: Just saw the post on your interest rates. I aggressively paid off the ones that were over 6 percent. More than ten mortgages, so not able to refi using conventional loans. Given today's low yield environment. I would focus on the rental mortgages with the higher interest rates. Guaranteed return.

 

[ghh101]

Yes that is what I was thinking also of attacking the higher interest rates. My only thought process of attacking my home mortgage was that I could lower my expenses and in turn maybe FIRE quicker.

 

[pb4uski]

I'm going to be the contrarian here... I think that you have too much in real estate. I suspect that the real estate that you own is not geographically diversified nor diversified by type (probably all residential I would guess). This creates significant risk..what would happen to your real estate portfolio if there were a Flint, MI type event where they are located.... you would be up the creek... ditto for a slower decline like Detroit or certain parts of Chicago. By paying the real estate mortgages off faster you are effectively investing more in real estate... I'm not sure that is wise.

BTW, I'm not against real estate.... my mom has a commercial property that I manage that is very lucrative but it is probably 15% of her assets and that is enough.

 

[Another Reader]

Leverage is great until it's not. It's more important to me to reduce the risk to my rental income, especially if I am dependent on that income. It's also hard to beat a guaranteed return of 7 percent (ignoring the write off). Money rented at 3.25 percent is less of a worry if I have more than enough income. If all your rentals are paid off, my guess is you will be a lot less concerned about the mortgage payment on your house.

 

[ghh101]

I understand where you are coming from with it in regards to exposure. The income from my rental business far exceeds what we spend monthly. So if there is a downturn I can start taking a small draw on my retirement funds.

 

[ghh101]

Another Reader


I agree on the leverage is a great until it is not. I took to much risk when I was younger on the rental houses and grew to quickly. I should have done it slower but my income was able to offset my stupidity.

 

[Another Reader]

I'm going to be the contrarian here... I think that you have too much in real estate. I suspect that the real estate that you own is not geographically diversified nor diversified by type (probably all residential I would guess). This creates significant risk..what would happen to your real estate portfolio if there were a Flint, MI type event where they are located.... you would be up the creek... ditto for a slower decline like Detroit or certain parts of Chicago. By paying the real estate mortgages off faster you are effectively investing more in real estate... I'm not sure that is wise.

BTW, I'm not against real estate.... my mom has a commercial property that I manage that is very lucrative but it is probably 15% of her assets and that is enough.

I would agree if the rentals were his only income source in retirement. Looks to me like the OP is well diversified and is saving a substantial amount of money in retirement accounts. Plus his wife will have a pension. He did not mention Social Security. His wife may not contribute because she's a teacher, but it's not clear if the OP does. Bonus income if he does.

 

[ghh101]

I am 41 and my wife is 37. SS will just be gravy for us both. I work in the medical field and she is a teacher. We have both been paying in since we were teenagers. I still am on the fence if I will take it as soon as I can or wait till 70. I have read about it till my eyes bleed. I probably think way too much about this all.

 

[pb4uski]

It is hard to know since we do not know the value of his real estate equity to the total... it could 20% which wouldn't be horrible or it could be 50% which could be an issue for him. Also, the geographic and property type concentration is a concern in addition to the ratio of real estate to the total. Historically, there have been depressions of real estate in certain locales (closing of an important major employer for example, or Detroit or Flint) or property types (like shopping malls in certain areas today).

Such concentration in real estate is similar to having a lot in individual stocks or employer stock... some former Enron, WorldCom and other investors and employees could probably tell some good cautionary tales on that.

The purpose of diversification is that if something bad happens with a specific investment that you are not ruined and/or losses are limited.

 

[Senator]

I hope to be there one day. That was going to be my next question. Should I start paying down my rentals or my personal home?

The highest interest rate one, or the smallest. All the interest is tax deductible, but a rental property mortgage is ALWAYS deductible. A personal mortgage may go away, or be subject to a 10% of income limit. Or if the interest is low enough, may not be worth writing off.

I did my personal mortgage first. I paid $4K extra a month, then an extra $5K and now $6K. It's still takes a lot of time to pay down a mortgage.

 

[Another Reader]

It is hard to know since we do not know the value of his real estate equity to the total... it could 20% which wouldn't be horrible or it could be 50% which could be an issue for him. Also, the geographic and property type concentration is a concern in addition to the ratio of real estate to the total. Historically, there have been depressions of real estate in certain locales (closing of an important major employer for example, or Detroit or Flint) or property types (like shopping malls in certain areas today).

Such concentration in real estate is similar to having a lot in individual stocks or employer stock... some former Enron, WorldCom and other investors and employees could probably tell some good cautionary tales on that.

The purpose of diversification is that if something bad happens with a specific investment that you are not ruined and/or losses are limited.

Rental real estate on the OP's scale is a business. not an asset class. All businesses have business risks. I would not want to be in any small, retail customer-oriented business in Detroit or Flint. The demographics are not in my favor.

Most real estate investors are astute enough to see a trend of deterioration in a market before the press does. They can sell or exchange out of the next Detroit before it's too late.

 

[ghh101]

I have 15 properties and they are valued at $1275000 and I owe $875351.

 

[Another Reader]

I'm sure you know that leverage can be positive. neutral, or negative. Your leverage is too high for my tastes, especially with those interest rates. If your gross rent is one percent of value per month, the 50 percent rule of thumb means that leverage is working against you on some of those properties.

My guess is you are keeping expenses down by self managing and doing most repairs yourself. If you like to do this and can see yourself doing that in retirement, you might be fine.

Without seeing the exact numbers, I can't say what I would do in your shoes. If I intended to keep these properties long term, I would take a hard look at reducing the number of loans and the interest you are paying. You are above the number of permitted loans to refinance anything with conventional loans. Been there, done that, never again.

I know I would continue to fully fund the retirement accounts, and you are in great shape with the pension and Social Security plus those. Everything else right now would go to get rid of the mortgages, based on what you have said. As Senator said, highest rate or lowest balance, your choice. If you have not looked at Senator's blog, it's at www.nononsenselandlord.com. I suspect you and he have a lot in common.