Eight is enough!

[SmallCityDave]

Great forum, I've been poking around for a bit and thought I would introduce myself. I turn 50 next year, my wife is a few years younger we have 2 awesome boys and in 8 years our youngest will be an "adult". We put God 1st in our lives, we try to live well beneath our means and we are fans of Dave Ramsey.



A bit about our finances:

We have a bit over $200k in a traditional IRA.
We earn a bit over $250k gross between myself, my wife and a few rentals. Our monthly budgeted outgo is right around $4500 but we can certainly cut back if needed.
No debt.


We are thinking about retiring in about 8 years or so.... we are both independent contractors (my wife works from home) we really like what we do and life couldn't be much better. Earlier this year we met with a financial advisor, that made my head spin. My thought process has been that rentals are a lot better ROI so we've been trying to buy a rental every year or two.



Our rental income after property taxes, insurance, some repairs etc is right around $40k per year (we bought 1 more last week so that will be increasing). I really like real estate but I know we need to diversify so we started a 401k that we'll be contributing $24k per year plus I'm looking at fully funding a Roth IRA.


I'd like to get some feedback on what we could be doing better.

 

[Choices]

Whoa, hoss! 4500 a month is only 54 a year. You must have some other investments?

 

[VanWinkle]

You and your wife are making a good income. Have you thought about the expense of healthcare when you are 58 and retired?

I would get a SEP, individual 401K or some other mechanism to start saving the maximum into tax deferred accounts. A Roth at your tax rate would likely not make sense unless you think you will be in a higher tax brkt after retirement.

 

[SmallCityDave]

Whoa, hoss! 4500 a month is only 54 a year. You must have some other investments?

No, nothing substantial.

 

[SmallCityDave]

You and your wife are making a good income. Have you thought about the expense of healthcare when you are 58 and retired?

I would get a SEP, individual 401K or some other mechanism to start saving the maximum into tax deferred accounts. A Roth at your tax rate would likely not make sense unless you think you will be in a higher tax brkt after retirement.

We currently participate in a Christian cost sharing plan, we spend about $500 per month I don't see that changing much.


You may have a point about the Roth IRA I'll have to looking into that a bit more.

 

[Dtail]

We currently participate in a Christian cost sharing plan, we spend about $500 per month I don't see that changing much.


You may have a point about the Roth IRA I'll have to looking into that a bit more.

Does the Christian healthplan cover potential large medical issues like cancer/heart/stroke issues?

 

[Bamaman]

Does the Christian healthplan cover potential large medical issues like cancer/heart/stroke issues?

Sure they cover high dollar items. But they're not big on accepting those with pre-existing conditions. The one big Christian Healthcare plan right now has about 400,000 subscribers. It's a viable alternative.

 

[Lagniappe]

You make 250K from work, and net another 40K from your rentals. You spend 54K.

How much do you save per year, and where do you invest the savings?

 

[SmallCityDave]

You make 250K from work, and net another 40K from your rentals. You spend 54K.

How much do you save per year, and where do you invest the savings?

We expect to earn a bit over $250k gross this year between myself, my wife and a few rentals. The $4500 per month is our personal budget set for the last few months.



As rough example of income and outgo for this year:


$250k income
-100k for taxes, tithe and offering
-40k finish paying off rental
-10k home remodel
-55k personal "fixed" budget
-45k saved for buying and rehabbing rental

 

[Scrapr]

I guess my question would be are the rentals paid off? Or will they be paid off by the time you retire? I would worry about a cash flow problem. Large % of your net worth is in an illiquid asset. Is your local area economy stable? Dependent on one industry?

Myself I would build my after tax (taxable) savings. So you would have income from rentals, IRA & Taxable savings. Do you also have SS available at that time?

edit: I see your debt on the rentals is low. I would still balance out my "pools" of money

* but it looks like you are doing great!

 

[pj.mask]

You can’t get a clear answer unless you post total rental value/remaining loan amount (and details about payoff schedule)

You are very concentrated in rentals and that is a risk others have picked up on. If you have a few vacancies or major repair and need a few months cash flow how can you manage your income?

Also if you need major medical treatment (cancer) or die - can your wife manage property (and you at the same time)? If you two can no longer manage rentals, what is your exit strategy?

 

[Vacation4us]

Folks the man has zero debt, I assume that means he has been investing all that extra money above his budget on his real estate empire.

His investment produces 40k a year. Rentals. He's is doing great!

I agree you need to diversify your portfolio. Definitely fund the IRA but you should also start to build an after tax fund since it looks like you will definitely be able to retire before you can tap the IRA or pretax accounts.

 

[ERD50]

... and we are fans of Dave Ramsey.
...

Watch out. Some of DR's numbers are absolutely phony and dangerous. Some of his advice is absolutely detrimental to your finances. Approach with a truckload of salt and question everything he says.

Easier yet, just ignore him, then you don't need to put in the effort to separate the (small amount of) wheat from the (large amount of) chaff.

-ERD50

 

[SmallCityDave]

I guess my question would be are the rentals paid off? Or will they be paid off by the time you retire? I would worry about a cash flow problem. Large % of your net worth is in an illiquid asset. Is your local area economy stable? Dependent on one industry?

Myself I would build my after tax (taxable) savings. So you would have income from rentals, IRA & Taxable savings. Do you also have SS available at that time?

edit: I see your debt on the rentals is low. I would still balance out my "pools" of money

* but it looks like you are doing great!

We have another +/- $100k in savings, cd's & kids college fund so that's relatively liquid.


The rentals aren't terribly liquid but they are income producing, the homes that we bought as rentals are worth 50-100% more than the initial purchase price and return on investment is no less than 15%-20% annually.


Our economy is stable for as long as we've been here 30+ years but it is a one industry town...


How much would you set aside for savings? At 65 we should have $1500 each from SS.

 

[SmallCityDave]

Folks the man has zero debt, I assume that means he has been investing all that extra money above his budget on his real estate empire.

His investment produces 40k a year. Rentals. He's is doing great!

I agree you need to diversify your portfolio. Definitely fund the IRA but you should also start to build an after tax fund since it looks like you will definitely be able to retire before you can tap the IRA or pretax accounts.

Correct no debt.



Can you please elaborate?

 

[38Chevy454]

I think you are doing good, but agree with diversification outside of the rentals. Your start on the IRA is good. Consider once maxed out on pre-tax IRA contributions, to do some after-tax. Whether Roth or just a brokerage type account, depends on your tax rates and also need for cash to bridge the time frorm retirement until you can start the pre-tax IRA withdrawals, and then SS. Might want to lower the amount being paid to rental mortgages and swap that into the after-tax savings. After all, one thing about the rentals is leverage and using other people's money, right?


Many on here do have rentals as part of their retirement, but many also do not. Just remember that rentals being self managed will always take some time and it is like a part-time job. As long as you accept that, they can be a good financial investment. I have had some rentals in the past, but now prefer the hands off approach and just use widely held funds where I do not have the issues being a property mgr.

 

[cnocmmz]

I guess my question would be are the rentals paid off? Or will they be paid off by the time you retire? I would worry about a cash flow problem. Large % of your net worth is in an illiquid asset. Is your local area economy stable? Dependent on one industry?

Myself I would build my after tax (taxable) savings. So you would have income from rentals, IRA & Taxable savings. Do you also have SS available at that time?

edit: I see your debt on the rentals is low. I would still balance out my "pools" of money

* but it looks like you are doing great!

Yeah, I agree with Scapr....in my opinion (just mine), you will need to substantially save more in 401K and after tax cash. I am confused, BC your income level is high although the savings should be higher. Are the rentals paid for?
-Either you have a guaranteed stream of income, or, your investments need to be high enough to weather a strong down turn in the market....Just my two cents..

 

[Vacation4us]

Correct no debt.



Can you please elaborate?

You need to have some savings and investments outside of the IRA and your rentals. These "after tax" funds can be accessed if you retire before you can touch you IRA penalty free.

 

[calmloki]

I'm guessing SmallCityDave has been pushing funds hard at the rentals to get them paid off. That's what we did. There is a great feeling of security having all the properties free and clear. There is a big disposition on this board toward stock and bond funds and a big antipathy toward financial advisors of the commision type. Probably reasonable, but you do you SmallCityDave - You have a nice chunk of cash saved for a future rental, that can stand in as emergency funds. You are targeting about 60 for retirement - have you considered your rental exit plan? 69 here, and I'm getting REAL done with riding herd on our rentals, but my gal has a very hard time looking at the tax penalty for a stack of almost fully depreciated properties - also they bring in a stack of money very consistently. During the last big stock market crash tenants kept paying. During the big real estate crash tenants kept paying. Stock funds have done great the last years - but they can fall on their faces for unknown reasons and you can't do anything about it but hope they come back up. If you are doing rentals and are independent contractors I'm thinking you like to feel you have some control over things..

At this point we have cut our number of doors (we're mostly apartments) by 1/4 and have an absurd amount of cash waiting for a great deal but earning about 3% in CD and bank deals. We also have money in hard money loans and land sales contracts coming in. And, because I want to cover the good chance that I'm not the smartest person in the world, about 20% of our net worth in stock and bond funds. No FA, Vanguard.

 

[HI Bill]

Well done! I agree with others, if the rentals are all paid off, focus on building up the IRA/401(k)/Roth IRA, so that you have some diversity in your investments. By the time you're 58, do you still want to be managing your rentals? I had some friends who sold their Los Angeles rentals, moved to Maui, and bought more. After 5 years of managing those, they had enough, and sold everything. Of course, you could always pay a management company if you no longer want to deal with the hassles of being a landlord.

 

[Choices]

Just my 2 cents, but you need to buckle down on the saving. You are too invested in real estate in one area. Did you say there was only one industry there? If that goes south that will cut into the numbers of renters.
I think you need to pump money into liquidity, even stocks.
You cannot eat real estate.

 

[SmallCityDave]

I'm guessing SmallCityDave has been pushing funds hard at the rentals to get them paid off. That's what we did. There is a great feeling of security having all the properties free and clear. There is a big disposition on this board toward stock and bond funds and a big antipathy toward financial advisors of the commision type. Probably reasonable, but you do you SmallCityDave - You have a nice chunk of cash saved for a future rental, that can stand in as emergency funds. You are targeting about 60 for retirement - have you considered your rental exit plan? 69 here, and I'm getting REAL done with riding herd on our rentals, but my gal has a very hard time looking at the tax penalty for a stack of almost fully depreciated properties - also they bring in a stack of money very consistently. During the last big stock market crash tenants kept paying. During the big real estate crash tenants kept paying. Stock funds have done great the last years - but they can fall on their faces for unknown reasons and you can't do anything about it but hope they come back up. If you are doing rentals and are independent contractors I'm thinking you like to feel you have some control over things..

At this point we have cut our number of doors (we're mostly apartments) by 1/4 and have an absurd amount of cash waiting for a great deal but earning about 3% in CD and bank deals. We also have money in hard money loans and land sales contracts coming in. And, because I want to cover the good chance that I'm not the smartest person in the world, about 20% of our net worth in stock and bond funds. No FA, Vanguard.

You hit the nail on the head..... in 2008 the real estate market took a big hit but people were very happy to write a rent check. Your right I do feel that I have a bit of control with these rentals unlike the stock market.


I haven't thought much about our exit plan but perhaps when SS hit's for both of us would be a good time to transition out.

 

[Jerry1]

We are thinking about retiring in about 8 years or so.... we are both independent contractors (my wife works from home) we really like what we do and life couldn't be much better.

So why the focus on retiring? Maybe you could just scale back. Personally, I’d rather do the independent contractor gig than spend more time being a Landlord. Which do you prefer? True, rentals will provide income, but so will a financial portfolio. Which, for you, would be easier to build and, more importantly, maintain?

 

[SmallCityDave]

Well done! I agree with others, if the rentals are all paid off, focus on building up the IRA/401(k)/Roth IRA, so that you have some diversity in your investments. By the time you're 58, do you still want to be managing your rentals? I had some friends who sold their Los Angeles rentals, moved to Maui, and bought more. After 5 years of managing those, they had enough, and sold everything. Of course, you could always pay a management company if you no longer want to deal with the hassles of being a landlord.

I don’t see an issue doing it at 58 but every few years some of these renters make me scratch my head. I wouldn’t mind using a pm but I’m in the industry and I see how they are managed I’m not sure that would work for us.

 

[SmallCityDave]

So why the focus on retiring? Maybe you could just scale back. Personally, I’d rather do the independent contractor gig than spend more time being a Landlord. Which do you prefer? True, rentals will provide income, but so will a financial portfolio. Which, for you, would be easier to build and, more importantly, maintain?

It’s all about having options, if I’m still enjoying what I do I may keep doing it at 65. I’m in real estate so it’s one and the same but I don’t manage properties besides what we have.

I’m currently working about 30 hrs a week and my wife works 2 days a week. Real estate is what I know and understand so that’s a bit easier to manage. I don’t get my hands terribly dirty except when someone moves out but even then I just make some calls and write some checks.