Early 40s, checking on my progress, welcome advice

[SecretlyFI]

Indeed, that is certainly a reoccurring tip/point here that is sinking in and I greatly appreciate everyone who is pointing it out. While we've managed our debt in a rational way, I'm at that stage in life where I think I really need to focus on avoiding all debt when possible.

I agree with this self-advice. You are at an optimal point right now to adopt new habits and have them make a huge impact on your financial future. It seems you've had a habit up to now of taking on additional debt routinely, including borrowing more when you re-financed your primary home? So you went from putting only 10% down, borrowing $568k, to now, 5 years later owing $591k on it. Around your age I joined the no-debt camp, paying off 2 car loans and a mortgage and vowing never to have debt again. I did this after looking at my monthly expenses and crossing out just those 3 debt payments and was extremely excited to see how low my expenses would be if I just didn't have to write those 3 checks each month.

In a debt-free situation, the amount of surplus each month starts compounding incredibly. The immediate benefit is the peace of mind of having a very large emergency fund, where you know you can handle anything that comes up (with 4 kids in your life, the surprises can be endless!) My main financial goal has always been to reach a point of having the freedom to choose whether to work or not. You want to be at a point in a decade or so to be able to make that choice, and you will not believe the amount of freedom of choice being debt-free and liquid-funds-rich, will provide to you. You already have the home of your dreams, so in my opinion, your goal should be work toward not being saddled to that paycheck.

 

[Koolau]

I don't have much to add to what has already been said, other than Welcome to the Forum!
It is a great place to learn and share.

Yeah, don't let us run you off with all of our free advice. We really do like having your here.

 

[xaviemb]

Yeah, don't let us run you off with all of our free advice. We really do like having your here.

Haha, no worries, I have rather thick skin... also everything is a learning experience, and I think the goal is to always be learning, even (and most importantly) in our later years. There is clearly an amazing wealth of knowledge here, I'm happy to be here and appreciate the warm welcomes.

I agree with this self-advice. You are at an optimal point right now to adopt new habits and have them make a huge impact on your financial future. It seems you've had a habit up to now of taking on additional debt routinely, including borrowing more when you re-financed your primary home? So you went from putting only 10% down, borrowing $568k, to now, 5 years later owing $591k on it. Around your age I joined the no-debt camp, paying off 2 car loans and a mortgage and vowing never to have debt again. I did this after looking at my monthly expenses and crossing out just those 3 debt payments and was extremely excited to see how low my expenses would be if I just didn't have to write those 3 checks each month.

Yep, you're right. I tend to view leverage as a good thing, but I've avoided getting burned with a stable career that's gone nothing but upward despite the great recession and COVID periods. I know I'm fortunate. Life could be very different if one of those hit me when I was in an over leveraged spot. We did increase the basis of the loan on our primary to knock the rate from 4ish to 2.75, but took that 'risk' on thinking as long as we're in the house a while it would pay off in the long run.

In a debt-free situation, the amount of surplus each month starts compounding incredibly. The immediate benefit is the peace of mind of having a very large emergency fund, where you know you can handle anything that comes up (with 4 kids in your life, the surprises can be endless!) My main financial goal has always been to reach a point of having the freedom to choose whether to work or not. You want to be at a point in a decade or so to be able to make that choice, and you will not believe the amount of freedom of choice being debt-free and liquid-funds-rich, will provide to you. You already have the home of your dreams, so in my opinion, your goal should be work toward not being saddled to that paycheck.

Very good advice! That's exactly where I hope to be in 10 years... hope won't get us there though, we need to start 'doing' thing actively to achieve that.

 

[xaviemb]

I don't have much to add to what has already been said, other than Welcome to the Forum!
It is a great place to learn and share.

Thanks so much! I agree... happy to be here

 

[pjigar]

If that rental home is in an area where there are significant amount of renters, maybe 10%(?), then investors would be interested in your property and being tenanted is an advantage. But if there are few rentals, then the likely buyers are looking for a home for themselves and they won't want to consider your home.

^ This.

Also your point about rental as an inflation hedge has a lot more oomph when rental is highly leveraged with a mortgage rate lot lower than the cap rate. As your cap rate starts to creeps closer to mortgage rate (for whatever reason) and/or as you build equity, the inflation hedge is not as potent. We had that situation in one of our rentals and we sold it a while back. To keep things objective: I always compare ROE with return on other less hands-on investments (i.e. stocks/bonds). This has helped me to not get emotional with the rentals but YMMV.

 

[xaviemb]

^ This.

Also your point about rental as an inflation hedge has a lot more oomph when rental is highly leveraged with a mortgage rate lot lower than the cap rate. As your cap rate starts to creeps closer to mortgage rate (for whatever reason) and/or as you build equity, the inflation hedge is not as potent. We had that situation in one of our rentals and we sold it a while back. To keep things objective: I always compare ROE with return on other less hands-on investments (i.e. stocks/bonds). This has helped me to not get emotional with the rentals but YMMV.

Appreciate the insights here! I did a little research in the area this condo/townhouse sits, and it is a tech heavy sector (one of those regions that big tech is hiring at 200k+ a year and moving a bit of their business, Amazon and Apple to name a few)... also a lot of technical schools within a few miles and access to the major metro for the larger city. All of this has made it a desirable area for renters (and investors).

It looks like the neighborhood I own in (200ish units) has rules about number of rentals. They limit it to 15%, but I guess that hasn't been reached. I remember having to fill out a form to rent (I wonder if that would transfer to a buyer, or if they would have to ask for it as well?).

Another thing to consider is that there is a $325 HOA fee... which I'm not sure is considered a good or bad thing for investors. On one hand this covers all of the exterior spaces, including roof and balcony and siding, plus trash and parking/paving/driveway. It also means water as a utility is 'free' (included) -- while $325 mandatory HOA fees seems excessive, considering everything it covers, it might actually be viewed as a positive for investment purposes? I know we've enjoyed having it and not having to manage or check on our renters maintenance of the exterior. I guess the downside is that eats away at the cap rate... so it would be $2,900 minus $325 as a total expense - so $2,575 total ...

I sent an e-mail to a handful of investment firms that deal with investment real estate in my region, and will see if any of them reach back. I would likely hire a lawyer to help draft up the sale (make sure I'm protected and it's legal)... but if I could sell without realtors, I guess getting $525,000 to make it more attractive might help it sell as well...

Will let you guys know how it goes. We have 20 months left on the lease, and I think we're priced about $100 less than what we could have rented for, but that was to keep these good tenants in the property. I'm not sure how important or relevant that would be to a buyer... I doubt they would 'trust' my subjective input on that one. They likely have their own system, and would view "random tenants picked by seller" as a risk more than anything?

 

[xaviemb]

I checked the for sale vs for rent listings locally (within about 2 miles) and it looks like 55 homes are currently for rent (about 60% of that is apartments though), and 25 are for sale. So the 'for sale' vs. 'for rent' (excluding apartments) appears to be about 50:50

 

[Figaro]

I'm at similar age and same family size. I'm part of debt adverse gang.

My investment properties were financed for a short while before I paid them off to increase cash flow (always has the cash on hand to pay for a serious repair). When you invest in your investment property (payoff) you have more cash flow to play with. I always thought a bit risky keeping emergency fund in the market -via Roth for myself. (Guess it's just how.my brain is wired.- so I give up that opportunity for greater growth)...

Of course my interest rate on that was ~4.5-6.0 when I paid down/paid off. If my rate was at 2.75, I'd play the same interest rate game with the CD/MM as well.

Being a landlord means having to keep a bigger pile of cash for the unknown I think.

I feel good that my rentals cover the basic expenses for my living.

Recently I played the 0% CC 18-21 month game as well for the interest income and CC bonuses and I must say I still feel the need to payoff my $80k + in CC (mostly due to floating the property taxes on them). Nervous about when the interest starts getting applied to it.

I'd rather have the big pile of cash at this point in my life, big roof expense, home reno, and payoff of my super CC bill coming up.

Helps me sleep well *except when I check out this site

 

[xaviemb]

Follow-up:

1) We paid off the rolling 0% rate CC's ($12.5k debt)

2) After recommendations to consider the value of keeping the rental vs putting the equity to use somewhere else, I decided to list the house for sale with lease assumption. Received a cash offer at asking with no contingencies, I think we priced it fairly... and we'll be extracting approximately $130,000 cash after taxes and fees.

Planning to pay off the $38k remaining balance on the car, and use the remaining $90K to start building the much needed taxable account snowball to bridge the gap between FIRE and distribution...

3) Retirement accounts are slightly up at about $747,000 now (from $730,000 on the initial post).

We will be 100% debt free (if we ignore the primary house mortgage) as of January when the last $284 payment goes out on the tractor, and that feels great. DW and I hope to avoid all debt if possible from here forward, and will be actively working to grow both the retirement and taxable investment accounts, as well as expanding our business (which is just a bonus on top of income, currently)

Everything is on the up and up...

 

[WhenIsItTime]

Congrat's on your progress. Life must be a bit simpler less the CC's and rental property.

I was debt free before retirement. Mostly for peace of mind. In '14, paid off house by selling a stock that today trades at 5x. If I recall, fixed loans were around 4%. I had a lot of income so had (interest) deduction phase-outs. Future returns not guaranteed. I don't regret the decision, but in hindsight gave up upside. Thus, not all debt is bad.

 

[NgineER]

Wow-nicely done! You will be well positioned to focus on your investments now and won't have to worry about tenants. Congratulations!

 

[pjigar]

Congratulations on streamlining your financial affairs. Just make sure that the "new found" cashflow that was going to payments is invested! There is always a danger of lifestyle inflation/creep when you have a lot of free cashflow. Slow and steady wins the race.

 

[Koolau]

Thanks for the update. Sounds like you have things pretty well in hand. Do keep us posted.

 

[Patience]

Impressive retirement accumulation! Debt free feels amazing. Keep at the investing and you'll be free to do whatever in no time.

 

[Cassius King]

Nice moves, you're set now. Congrats and remember to enjoy the journey!

 

[xaviemb]

Update after 8 months...

Summary: Total Net Wealth hasn't changed too much in the last 8 months, realtor fees were a bit of a drag on the sale of rental house, but I feel better about the distribution of assets/investments now and removing (almost) all of the debt (except primary home mortgage, which continues to shrink)

Assets - 1.78m (up $50,000 from 8 months ago, knocking on the door of $1m when excluding equity in home)

IRA: $780,000 (up $150,000 from 8 months ago)
403b: $87,000 (down $3,000 from 8 months ago)
401(k): $25,000 (up $15,000 from 8 months ago)

Housing: $800,000 (down $184,000 from 8 months ago; from sale of investment house)
sold rental (for $20,000 less than I originally estimated, but still received $144,000 after realtor fees)
Total Mortgage Debt $580,000 (down $422,000 from 8 months ago)
Total Home Equity: $800,000 (down $184,000 from 8 months ago)
No more tenants to have to deal with... paid off debts (below) woohoo!

Debts on Car Loan and CC's: $0 (down $62,000 from 8 months ago)

Cash in Bank(s): $22,000

Other Liquid / Hard Assets: $67,000
(inflation hedge)

 

[OldShooter]

Looks good. Congratulations. Taxes on selling the investment house are paid, right? So not a hidden liability?

 

[xaviemb]

Looks good. Congratulations. Taxes on selling the investment house are paid, right? So not a hidden liability?

Absolutely, and great question. That would have otherwise been an unpleasant surprise.

 

[pjigar]

Congratulations on the progress

 

[Koolau]

I like the moves you have made. It's not always about the absolute dollars. Your portfolio is now more manageable and potentially set up for future growth IMO. Good on you! Thanks for sharing and looking forward to next update.

 

[Surewhitey]

I like simple. Looks like you're going that route. Numbers look good & very similar when we were younger (except for the brood). We only have 1+2 grands now.