Hello from Seattle

[MrJohn]

Hello from Seattle

I am 37. I am dad, married with 3 younger kids not in college. We live in Seattle.

I am passionate about investing and learning how to build wealth for retirement.

I am planning to start retiring in my 50s. I have enjoyed my career so far, so I can see myself still working part-time in my 50s to ease-off into retirement.

Here is where we are:
Annual income for the household is $200.000
401K has $235.000
Primary house equity has $200,000
Secondary home is a rental. It has $90,000 in equity and does not have a positive cash flow yet (all expenses are covered)
Third home is a vacation rental. It has $60,000 in equity and does not have a positive cash flow yet (all expenses are covered)

The 401K contribution are maxed out and we don't qualify for RothIRA due to income so this year I am going to start a IRA->RothIRA conversion.
I am also planning on starting a side-business and investing into a Solo401k.

Any advice is appreciated! There is so much to learn.

I am also not a big fan of financial advisors. Last time I got one, I ended up with a VUL insurance policy as my primary "retirement vehicle". I was new and I had to learn.

 

[2B]

Welcome.

You are in overall good shape but you don't talk about any non-401k savings. Is it all in your non-positive cash flow rentals? If so, you need to build up a decent emergency fund in after tax money.

I'm not big on single family home rental property. Some people here love them. I consider them too much like a second job that is tying up investable capital. If you have a housing downturn in Seattle, you might find sitting on a vacant property that's losing value a bit of a financial stress. You lack diversification with only one unit.

Run your numbers through FireCalc. You can put in planned savings, pensions and desired spending. It's a good way to see if your plan makes sense. I don't like going over 30 years for a plan length because longer - 40 or 50 year plans - drop off too many cycles in the calculations.

You didn't mention investment knowledge but there is a recommended reading list here and also at Bogleheads. The size of it can be overwhelming. I recommend new investors read Andrew Hallam's Millionaire Teacher to learn the basics about LBYM and index fund investing. More advanced reading would be William Berstein's Investors Manifesto.

There are lots of threads on FAs here. You got one of the true scum with the VUL salesman. We've all had our "moments" with the rip offs in the financial services industry. A fee only FA can add value in setting up an investment plan but I honestly don't think most people really need one. You and your wife need wills, durable POAs and medical POAs.

 

[NgineER]

Welcome!
It is great that you start thinking about ER at your age.

If you want to ER, I have found that I need to have a well balanced portfolio between taxable, tax deferred and tax free. I am lagging behind in the taxable myself, but I hope that I will catch up over the next 10 years.

I recently found that I could contribute to an after tax 401k, which you can then roll over to a Roth-401k. Your contribution limit is dictated by your company, but the maximum is $53k I believe.

I would be a little concerned about your income properties not cash flowing, there is not much leeway if there are unexpected expenses. But it is a great tax deduction, I know. I am looking into some properties myself.

I am not sure you can have another 401k if you have one through your employer, but you'll have to check that yourself.

 

[MrJohn]

Welcome.

You are in overall good shape but you don't talk about any non-401k savings. Is it all in your non-positive cash flow rentals? If so, you need to build up a decent emergency fund in after tax money.

I have between ~ 10K of emergency fund. I am planning on boosting that.
Correct. Majority of the non-401k is in the non-positive cash flow rentals.

I'm not big on single family home rental property. Some people here love them. I consider them too much like a second job that is tying up investable capital. If you have a housing downturn in Seattle, you might find sitting on a vacant property that's losing value a bit of a financial stress. You lack diversification with only one unit.

Overall I agree with your statement. Rental properties are not rest and vest type of investment. You have to know the risk, otherwise you could lose a lot of money.

In my case I am an accidental home rental investor. I bought a property in Florida for vacation in 2011 that was foreclosed to test out the waters of owning vacation properties. Later in the year 2011, we had our 3rd child and needed more space. I bought another foreclosure in Seattle well below construction cost (the market had bottomed out). My older primary house was under because of the depreciated market. I decided to keep it and rent it until the equity would jump back up.

In the end, the rental in Seattle is 0 cash flow property right now and I am expecting it to start generating positive cash flow in 12 months via refinance (I am still at 5.75% fixed). I am using a property management, so this property is not using any of my time. I am planning now to keep renting it.

Property in Florida was expected to generate positive cash flow but estimation were a little too optimistic. It is a great place for regular family vacation time and it allows tax deductible trips to it maintain it. On the negative side, it is quite a bit of work since it is a short term rental (you have to continuously find renters every week). I will probably keep it if it stays a 0 cash flow but I will not buy another property for short term rental. Way too much work.

Run your numbers through FireCalc. You can put in planned savings, pensions and desired spending. It's a good way to see if your plan makes sense. I don't like going over 30 years for a plan length because longer - 40 or 50 year plans - drop off too many cycles in the calculations.

Thanks

You didn't mention investment knowledge but there is a recommended reading list here and also at Bogleheads. The size of it can be overwhelming. I recommend new investors read Andrew Hallam's Millionaire Teacher to learn the basics about LBYM and index fund investing. More advanced reading would be William Berstein's Investors Manifesto.

Thank you. Good advice.

There are lots of threads on FAs here. You got one of the true scum with the VUL salesman. We've all had our "moments" with the rip offs in the financial services industry. A fee only FA can add value in setting up an investment plan but I honestly don't think most people really need one.

Lol. I was so naive. I was so flattered that he would meet me at work to sign the VUL papers. I felt so important...

You and your wife need wills, durable POAs and medical POAs.

Thanks. That is a really good reminder. I have not done that yet.

 

[MrJohn]

Welcome!
It is great that you start thinking about ER at your age.

If you want to ER, I have found that I need to have a well balanced portfolio between taxable, tax deferred and tax free. I am lagging behind in the taxable myself, but I hope that I will catch up over the next 10 years.

I recently found that I could contribute to an after tax 401k, which you can then roll over to a Roth-401k. Your contribution limit is dictated by your company, but the maximum is $53k I believe.

Oh good find. I need to look into that. I have been looking at IRA->RothIra but I believe I am allowed to have a Roth401k at work.

I would be a little concerned about your income properties not cash flowing, there is not much leeway if there are unexpected expenses. But it is a great tax deduction, I know. I am looking into some properties myself.

I am not sure you can have another 401k if you have one through your employer, but you'll have to check that yourself.

Thanks for the concern. I do expect one of the rental to have positive cash flow (see my other answer above). The other one is a vacation rental in Florida and I don't expect much cash flow for the next 2 years.

Thanks for the Welcome!