this is where i am....just turned 42

[ratraceout]

Thanks Maenad. You bring up a very good question here. she definitely is not of the former Merc type or i would never have married her in the first place. She sees that the job drains me of all my life energy and if i came up with a plan that could envigorate me and we could still live an adequate life she would be more than happy. Im all about passive income, its just finding the avenue that generates it that is tough. to give you an example the rental on a 1.4m usd flat in london is 30,000 usd per year before tax of 20% and then there would be a managament fee. doesnt quite stack up does it.

[Golden sunsets]

A 1.4 million dollar flat can only generate $30,000 per year in income? That's crazy. I'd sell the flat and rent a 2bedroom flat rather than tie up that much cash. What would induce an investor in London real estate to purchase when he/she could not make a decent ROI?

[ratraceout]

sorry i miscalculated. the rental income is 57,000 usd before tax and mgt fee.

[daylatedollarshort]

Ratraceout - If you keep both the properties then doesn't that bring you back to your current status quo? You have a lot of your eggs not just in real estate but only in two properties. Your gains on the properties are not locked in unless you sell:

The Money Pit and The Decline of Enhanced Millionaires

There is a forum called biggerpockets where a lot of experienced rental property owners post. I would post your same questions there and perhaps they can give you more specific advice on how to live off rental income alone with assets like yours.

You might also want to read the book Retire on Less Than You Think by Fred Brock. It has sample before and after budgets for a couple with a lot of equity in a house in a high COL with high taxes who retire to a sunny, lower tax, lower COL area.

[ratraceout]

Thanks yours. if i was to think about ER or a change of lifestyle then of course at least one of the properties would have to go. thanks your advice on the books.

[daylatedollarshort]

Quote:

Originally Posted by ratraceout Thanks yours. if i was to think about ER or a change of lifestyle then of course at least one of the properties would have to go. thanks your advice on the books.

We cut $100k off our annual expenses to ER and it has been surprisingly painless. A lot of it was taxes, job and commute costs, outsourcing stuff we didn't have time to do, and not having time to comparison shop, DIY or really review each expense in detail.

$100K a year X 50 years = $5M less in retirement funding needed. Plus we no longer need to save for retirement in addition to the $100K. Yet we have the same house and same basic lifestyle. If we downsize or move to a lower COL area our expenses will drop more, and not having local jobs means we are free to move wherever we want.

Good luck. You have enough to retire soon if you just plan it out. Many posters here retired to comfortable lives with much less.

[MooreBonds]

Quote:

Originally Posted by ratraceout I would love to resign my high stress job and move somewhere warm and tropical but i also know its just a dream.

You mention that your $1.4M property would bring in about $57,000 in rental income BEFORE taxes/management fees/upkeep/maintenance/repairs/etc.

That means your yield before any expenses is just 4% - or much less than that after all expenses, etc. With that kind of return, there's no way I'd want to move to a tropical destination and be a TRANSATLANTIC landlord earning just 4% gross on my property!

There are enough risks being a landlord next door, much less thousands of miles away for just a 4% gross cap rate if fully leased. If I were you, I'd rather just sell both properties and invest in a diversified basket of stocks, which could easily yield almost 4% if you include a healthy dose of international holdings/ETFs.

And seeing some Househunter International shows, you can apparently find some great lots in some Caribbean islands for just $100,000-$200,000, and build a decent home for another $200,000. So you could sell both properties, build a nice home for your family, and still leave plenty left to retire right now and lived off of the dividend income!

[ratraceout]

thanks Moorebonds. You are not wrong. the reality of the situation is a little less black and white than that as there has been huge property appreciation here and in fact the original equity i put into the London flat was only around 300,000 USD. so if you look at ROE its a lot better than the 4%. I agree that being a transatlantic landlord is a pain but we have mgt companies here who of course take a percentage of rent who cover all the day to day issues.

The bottom line is i dont need the two properties. we need something to live in and the holiday home will be sold. It just may take some time....

as u say i could sell both and that is always an option to. will think about all your comments again and thanks again for all the input

[MooreBonds]

Quote:

Originally Posted by ratraceout the reality of the situation is a little less black and white than that as there has been huge property appreciation here and in fact the original equity i put into the London flat was only around 300,000 USD. so if you look at ROE its a lot better than the 4%. I agree that being a transatlantic landlord is a pain but we have mgt companies here who of course take a percentage of rent who cover all the day to day issues.

Two items in response:

1) ROE - I realize you made an excellent move in purchasing the real estate with price appreciation....but it's a concept that you have to get your heard around and eventually realize (and which took me a little while to accept), in that it doesn't matter if a stock or piece of real estate you bought has dropped 90% or has risen 900% - all that matters is what the future prospects are. If you honestly think the real estate will continue to increase 7%/year well into the future, AND you are comfortable with having it be such a large % of your portfolio, then keep it.

But you can't look at it as having a return off your initial investment. As an example, let's say your real estate went up 10fold!

Initial investment: $300,000
Current market value: $3,000,000
Current rental income: $30,000
(my keyboard doesn't have a shortcut for Sterling, so excuse the US-centric currency symbols .

Even though your current rental income is a 10% yield off of your initial investment, it means nothing - you have to look at it yielding just 1% off of the current market value, because that's the number you have to compare it against other investments, because the $3M is what your equity value is, not $300,000 anymore.

In reverse:
Initial investment: $300,000
Current market value: $50,000 (the area declined!
Current income: $6,000

Using your metric of "initial investment", should you keep this property? It's only yielding 2% off of your initial investment! But that doesn't matter - what matters is that it's now worth $50,000 if you sold it. It's currently yielding 12% off of the market value, which is a pretty nice yield. If you sold the property and reinvested it, you'd be hard-pressed to find a way to earn 12% off of the $50,000 current equity value. The original investment value of $300,000 is immaterial in the decision, and it doesn't matter if you originally invested $3,000 or $300,000 in this property. All that matters is what else you'd be able to roll over the current market value into.

2) As I mentioned - don't forget the various costs inherent with real estate: tenants not paying (don't know how land lord-friendly laws are across the pond; in some US states, it can be downright silly what a landlord has to put up with with tenants not paying), capital outlays for replacing roof/air conditioning/various other remodeling and touch-ups (which is not covered by your management fee), and also trusting your property management person to do their job.

With a 4% return BEFORE taxes/expenses/insurance/etc., all it takes is just one problem tenant to make that return disappear. I would expect much better income and capital gains prospects with various growing equity markets, with greater diversification and not having 67% of your net worth in a single real estate holding, subject to a lot of risks. Surely you don't expect your real estate to continue to double over the next 7-8 years?

[ratraceout]

Wow you put a lot of thought and effort into that which I really appreciate. I must say I agree with you. The first step for me is to put the holiday home on the market. Once that sells then I can reinvest the money and generate a better return. I'll keep london for now or sell and move out of the city where col is lower. When I do eventually ER then I can rent or buy something small where we choose to live. Your assessment is spot on and really got me thinking. Thanks again.

[daylatedollarshort]

Quote:

Originally Posted by ratraceout Wow you put a lot of thought and effort into that which I really appreciate. I must say I agree with you. The first step for me is to put the holiday home on the market. Once that sells then I can reinvest the money and generate a better return. I'll keep london for now or sell and move out of the city where col is lower. When I do eventually ER then I can rent or buy something small where we choose to live. Your assessment is spot on and really got me thinking. Thanks again.

You could live within day trip range of London and spend winters some place warm like Spain or Malta. We have thought of doing that.

We also like watching House Hunters International for ideas and I think Moorebonds advice is spot on. Our house has not appreciated as fast or as much as yours, but still for us moving some place where housing costs are half or even less would free up a lot of capital that could be used for investing or ER living expenses.

[ratraceout]

Yes commuting would be the option. Maybe abt an hour away. Thanks for your ideas.

[daylatedollarshort]

Quote:

Originally Posted by ratraceout Yes commuting would be the option. Maybe abt an hour away. Thanks for your ideas.

I actually meant just living within day trip range of London for the cultural activities and shopping if you were able to quit your job. We've been there on business or vacation and had relatives who live in less expensive real estate areas of the UK meet up with us in London by taking the train in for the day.

It sounds like you have along day already. I didn't mean to add commuting on top of it.

[Jay_Gatsby]

Quote:

Originally Posted by ratraceout Wow you put a lot of thought and effort into that which I really appreciate. I must say I agree with you. The first step for me is to put the holiday home on the market. Once that sells then I can reinvest the money and generate a better return. I'll keep london for now or sell and move out of the city where col is lower. When I do eventually ER then I can rent or buy something small where we choose to live. Your assessment is spot on and really got me thinking. Thanks again.

This makes good sense. It sounds like you're too busy to use the holiday home anyway. Your mind will feel much freer when you only have to worry about one piece of property. Besides, it's quite likely that in the event of a real estate crash, your London property will hold its value much better than a holiday home.b