Hi everyone!!!

[Wu Wei]

My first attempt to start a new thread was thwarted and I ended up posting a reply to the first Hi, I am... on the page. Sorry for the duplicate post.

Hi everyone! I'm Michael, and I'm.......an aspiring - perhaps un-proclaimed - FIRE'er! (Sounds like the intro into a 12 step program!) Can this affliction be cured? I doubt it.

I've been on the internet/www almost since it went "public" and this is the first time that I have posted anything to a forum. (Read: compliments to you folks for this very interesting forum.) I found FIRECalc about 3 years ago, and have been lurking on the forum for about 3 months. I don't claim to be savvy on forum etiquette, and therefore beg your indulgence and welcome corrective suggestions.

I am 49 and dapple in real estate. (It has been said that I pray at the alter of real estate.) I know very little about stocks and bonds. DW is 45 and works for the only major airline that hasn't gone into Chapter 11. DW plans to work until age 50 at which point she will become "eligible" for pension (including medical) and flight benifits which in theory would kick in at age 55. DW is planning to live to 90.

DW manages approx. 450K in mutual funds - mostly Vanguard - spread out using some sort of Charles Schwab "theory of diversification". I manage real estate with a current value of about 2.5M with about 1.1M equity. ( For info's sake: real estate is split amongst 3 properties, all duplexes, one of which is primary residence which we intend to "keep forever") We keep about 100K in cash for rainy days. We will have approximately 500K kick in from a trust in +/- 10 years.

I am wondering: how do others account for real estate in a FIRECalc senario? I have been plugging in the estimated (read: WAG) equity after cost of sale and taxes into the "Sell Your Yacht" field. If I run the numbers through FIRECalc starting today, and excluding the primary residence, I come up with a SWR of 7.5%. Seems simple enough so I'm sure I must be missing something.

Happy to fill-in any critical missing data. Thanks in advance for any time spent on this.

 

[Nords]

I tried to start a new topic but couldn't make it happen! See below.

Hi everyone! I'm Michael, and I'm.......an aspiring - perhaps un-proclaimed - FIRE'er! (Sounds like the intro into a 12 step program!) Can this affliction be cured? I doubt it.

I've been on the internet/www almost since it went "public" and this is the first time that I have posted anything to a forum. (Read: compliments to you folks for this very interesting forum.)
If I run the numbers through FIRECalc starting today, and excluding the primary residence, I come up with a SWR of 7.5%. Seems simple enough so I'm sure I must be missing something.

Congratulations on your first post, and a belated welcome to the board, Michael.

Starting a new post: if you begin here at the board's index page and click on one of the board names (e.g., "Fire and Money", your next screen will have four oval buttons on the right-hand side, about one-third of the way down the screen. Of those four buttons, the third from the left says "new topic". Clicking on that button will give you a screen like this.

Looks like you figured that part out already.

Are you planning to ER on the cash flow from your rents, or on the equity in your real estate? The former would ideally be paying the majority of your ER expenses and leaving your retirement portfolio to cover the rest. If it's the latter, then as you're doing you sell each "yacht" when you need the money.

The issue with a 7.5% SWR is that it's a pretty high burn rate. 3-4% is considered extremely safe, and 5% is probably safe enough, and even 5.5-6% might turn out to be safe over the next 40 years. But we're pretty sure that 7.5% is darn high, and probably too high. What does FIRECalc give for your success rate at a 7.5% SWR?

Your FIRECalc inputs should also include your spouse's pension (if you think that airline will be around to pay that pension 10 years from now for a period of 35 more years), her retirement portfolio, and your Social Security.

If you haven't already done so, your expenses will have to reflect the cost of medical insurance from the time she stops working until the pension picks it up.

(P.S.-- I'll delete the duplicate post on the "Introduce yourself here" thread.)

 

[Wu Wei]

Thanks for the welcome and the information. I was finally able to start a new topic under Hi, I am, and duplicated the post. I believe I was having a cookie problem.

I was figuring that we would initially use the retirement portfolio and hold the real estate for the equity in the future. Rental income is enough to cover all expenses but not enough to live on. FIRECalc gave me a 100% success rate. I assume that this was due to the lump sums being added to the portfolio around year 10?

I intentionally left out the primary residence, the DW's pension, and Social Security. The latter two are iffy and if they show-up I'll have a nice cushion. The medical coverage gap is an issue that I hope to learn more about from other members.

 

[Martha]

We also have a high proportion of our assets in real estate. It used to be units we owned and now is primarily limited partnerships/LLC in which we minority owners. Unfortunately, FIRECalc doesn't have historical real estate information and since real estate is so local, it probably couldn't.

I imagine the high 7.5% rate is because you are not including your real estate in your beginning portfolio, but as part of the "sell your yacht" field, therefore you can burn through the stock portfolio pretty quick because the real estate is waiting in the wings. I don't know how valuable that is as a tool for determining whether you have enough to retire because of the assumption that you will sell the real estate for a certain price. FIRECalc can't test that assumption.

 

[Wu Wei]

Martha...were you able to do an exchange into the partnership/LLC? (Seems like the timing would be very tricky.) Did you get out of the rentals due to tenant issues?

 

[Martha]

We didn't exchange into the partnerships/llcs. Only really had the opportunity with one property but couldn't make the exchange work.

No real regrets because the partnerships and LLC are all relatively short term holdings. We also did get to use pass through depreciation to offset rental income on the properties we owned outright. So for a few years our tax situation was great. Lots of cash kicked out of all the properties and no tax.

Over the past two years we have suffered the tax consequence with paying tax on recaptured depreciation as well as significant capital gains as most all our capital had been returned. AMT hit hard.

We got out of owning our own rental properties in our market mostly because prices for rentals had increased to such an extent that people would buy even if they didn't cash flow. It was time to sell and we did. And it is very nice for my DH not to have middle of the night calls from tenants anymore.