califdreamer
Recycles dryer sheets
I've taken a closer look at the balance sheet and budget needs for ER and wanted to run it by the group. I've received a lot of good info and advice since first posting in Dec 05 and wanted to get feedback on most recent financial situation. This is sort of an updated "Hello I am..." post.
I've determined that the lowest I'd like to go in terms of after-tax cash flow is $4500/mo. Assuming a tax rate of 18%, that would require just under 66k annually pre-tax. I'm erring on the high side on the tax rate because the bulk of my cash flow would be from rental income. Even with depreciation write-offs, tax rate would be higher than living off of dividends and cap gains.
Repositioned rental propty equity (after >200k in commissions/selling costs )would be 900k.
Cash 275k
Home equity (after commisions/selling costs) 375k
401k/ESOP 355k
Here's what I would execute in a year or less:
1. Sell rental properties and 1031 into "cash cows" yielding 6.5%
900k * 0.065 = 58,500/yr
2. Sell personal residence, relocate to cheaper area, buy house for 250k cash.
375k - 250k = 125k
3. Invest extra 125k in diversified portfolio (this is new thinking for me, ie not putting it back into real estate, see what you've done!)
125k * 0.04 = 5k/yr
4. Keep 100k in cash as a buffer. Put remaining 175k to work.
175k * 0.04 = 6800/yr or put it in RE investmt 175k * 0.065 = 11,050/yr
Depending on how the 175k was invested annual cash flow would be 70,300/yr or 74,550/yr. Even though the real estate might have a higher yield I do see the value in diversifying away from RE and into a portfolio with a 4% SWR.
I would prefer to roll the 401k/ESOP money into and IRA and keep hands off. My estimate of annual withdrawals from a 72(t) is 9600/yr.
Using 18% tax rate, cash flow (w/o 72t) would be in the neighborhood of 5k/mo, slightly higher than my minimum requirement.
Wild cards: finding reasonable health insurance, keeping rental income ahead of inflation, relocating from San Diego to less expensive area, having a big enough buffer.
Is it time to pull the cord?
I've determined that the lowest I'd like to go in terms of after-tax cash flow is $4500/mo. Assuming a tax rate of 18%, that would require just under 66k annually pre-tax. I'm erring on the high side on the tax rate because the bulk of my cash flow would be from rental income. Even with depreciation write-offs, tax rate would be higher than living off of dividends and cap gains.
Repositioned rental propty equity (after >200k in commissions/selling costs )would be 900k.
Cash 275k
Home equity (after commisions/selling costs) 375k
401k/ESOP 355k
Here's what I would execute in a year or less:
1. Sell rental properties and 1031 into "cash cows" yielding 6.5%
900k * 0.065 = 58,500/yr
2. Sell personal residence, relocate to cheaper area, buy house for 250k cash.
375k - 250k = 125k
3. Invest extra 125k in diversified portfolio (this is new thinking for me, ie not putting it back into real estate, see what you've done!)
125k * 0.04 = 5k/yr
4. Keep 100k in cash as a buffer. Put remaining 175k to work.
175k * 0.04 = 6800/yr or put it in RE investmt 175k * 0.065 = 11,050/yr
Depending on how the 175k was invested annual cash flow would be 70,300/yr or 74,550/yr. Even though the real estate might have a higher yield I do see the value in diversifying away from RE and into a portfolio with a 4% SWR.
I would prefer to roll the 401k/ESOP money into and IRA and keep hands off. My estimate of annual withdrawals from a 72(t) is 9600/yr.
Using 18% tax rate, cash flow (w/o 72t) would be in the neighborhood of 5k/mo, slightly higher than my minimum requirement.
Wild cards: finding reasonable health insurance, keeping rental income ahead of inflation, relocating from San Diego to less expensive area, having a big enough buffer.
Is it time to pull the cord?