What to do?

[BRMtnLvr]

Long story short, I’m just learning of the fire movement and want to start making the right choices so we can retire earlier than the typical 65-69 YO.

A little feedback. Married with no kids. Live in a LCOL area. Dual income I’m 32 wife is 31. Zero debt besides mortgages. No car payments etc. all cars paid in full.

Income (Yearly)
My primary income $72k
Side hustle $20k

Wife’s income $80k
LTR Rental income $9k
STR Rental Income $10k
Total: $191k

Investments:
My 401k 150k
Roth IRA 6.5K

Wifes 401k 150k
Roth IRA 60k
Company stock 15k
Savings 20k

Property’s:

Primary home valued at 450k mortgage of 175k at 2.625% 14 years left of a 15 fixed mortgage

Rental home paid off worth $115k netting 9k/yr

Vacation home that we just started renting on STR rental sites this year. Valued at $265k Mortgage of 200k 30 year 29 left at 3.375% fixed. Probably will net 10k a year.

Total assets including property equity equals about $850k

We currently have maxed out our 401ks @ 19.5 each and both Roth’s at 6k. Total 51k. Going forward that will be done each year.

I have a ton of questions but the main one revolves around the rental and whether we should keep or sell it and if sell, what to do with that $. I know it’s very dumb to pay off our primary home. To not have that mortgage would release a lot of stress each month though. That said the rental covers $800/month of our mortgage amount ($1565 PITI).

Since we started renting out the vacation property in July we have put aside the income and are piling that as well as the LTR income up.

Help! What should we be doing differently? If I can have both houses paid for and a solid stream of income by 50 I can let the retirement accounts grow. Need to play with the calculators to get a real idea of how much $ I need.

 

[kgtest]

My dad's path to Financial Independence started when he paid his first home off that was converted to a rental when he purchased his second home. Then, he took the $$ from his rental and paid off his primary homes mortgage. At that point he was able to really start contributing to his investment accounts and he would admit got started a little late in that game. BUT, I took similar advice and should be FIREd by 50 with a similar progression.

You are doing quite well so far. Its a balancing act. If the argument is that markets will outpace interest rates...it seems logical with your thinking. But once those homes are paid off, you are getting a helluva return on that investment which will also gain equity over time.

I try as hard as I can to not sell any of my assets and that is kinda my strategy with everything...even the jeans I wear...buy and hold baby!

 

[scrabbler1]

I think we'd need to more about your expenses in order to give you some advice.

 

[pb4uski]

I think you guys are doing great and I think where you are right now is on a solid path to a good early retirement.

You may want to buy a copy of Quicken Deluxe (or higher) and use the Lifetime Planner to create a plan... and then use Quicken to monitor your progress.

Alternatively, you may want to play around with FIRECalc, paying special attention to the Not Retired? tab. If I input spending of $1, a $581k portfolio and inflation adjusted additions of $51k a year for 18 years, FIRECalc projects that your retirement assets would grow to ~$3.4m by the time you are 50.

In tallying retirement assets we usually do not include the value of the home you live in since you need to live somewhere... unless someone plans to downsize to a smaller, less expensive home.

When you say you're not sure whether to sell the rental are you referring to the LTR or the STR?... sounds like you are referring to the LTR. If the $9k of LTR income is net of expenses (rent - property taxes - insurance - other operating expenses) then I would consider keeping it since $9k is a 7.8% return on the $115k value and presumably there is appreciation on top of that.

Your mortgage payments are so negligible in relation to your income that I wouldn't fret about that at all.

 

[pacergal]

Your Income is great.
What is your annual Spending? That is where you have leverage.

 

[BRMtnLvr]

Your Income is great.
What is your annual Spending? That is where you have leverage.

Thank you, we work hard for what we earn.

I do not know how to multi quote on Tapatalk App so will answer your question first. This is rough estimates and I plan to dive deeper into our
MINT account for more accurate data.

Monthly spend
Primary Home PITI $1565
Electric $135
Water $35
Internet $85
Cell Phones $60
Gym Memberships $160
Clothing $200
Food $400
Eating out $250
Gas $200
Insurance vehicles $100
Insurance Health/Vision/Dental $115
Vacation $450 (1yearly St. John vacation $5k)

As mentioned we do have a rental property that’s rented on a long term basis which after paying taxes/insurance and HOA fees brings in $9,600 year.

Our vacation home that has really turned into an investment/STR property nets around 10k so far this year. Just bought it in April and started renting in July. That said we have been paying the mortgage out of pocket and stock piling that cash. So mortgage there is:

$1070 PITI
Electric $65
Water - “Free” on a well
HOA $48
Internet $50
Security cameras $5

Investments:
This is the first year we have maxed out work 401ks and personal Roth IRAs. Total yearly is 51k. A good portion for the 39k (19.5 each) is pre tax to lower our tax liability.

I’m sure I’m missing things. I will review mint and follow up with updates. Appreciate everyone’s helpful responses and time!!

 

[BRMtnLvr]

I think you guys are doing great and I think where you are right now is on a solid path to a good early retirement.

You may want to buy a copy of Quicken Deluxe (or higher) and use the Lifetime Planner to create a plan... and then use Quicken to monitor your progress.

Alternatively, you may want to play around with FIRECalc, paying special attention to the Not Retired? tab. If I input spending of $1, a $581k portfolio and inflation adjusted additions of $51k a year for 18 years, FIRECalc projects that your retirement assets would grow to ~$3.4m by the time you are 50.

In tallying retirement assets we usually do not include the value of the home you live in since you need to live somewhere... unless someone plans to downsize to a smaller, less expensive home.

When you say you're not sure whether to sell the rental are you referring to the LTR or the STR?... sounds like you are referring to the LTR. If the $9k of LTR income is net of expenses (rent - property taxes - insurance - other operating expenses) then I would consider keeping it since $9k is a 7.8% return on the $115k value and presumably there is appreciation on top of that.

Your mortgage payments are so negligible in relation to your income that I wouldn't fret about that at all.

Thanks for the info. I will check out FIRECalc and once I spend some time there order Quicken. We use Mint to track expenses but I want to get a solid 1-2 run to really understand where our money goes.

I like that number you mentioned!

Yes it rents for $1100/month and we net $800/ month. $250 is insurance/taxes/HOA fee. The other $50 is Maintancence. This is low for two reasons, one I have $5k aside for any major appliances going bad and secondly I am very handy so can repair or fix most things for very little $ vs paying someone. Biggest expense here that could arise would be an insurance deductible or HVAC going out and needing a full replacement. The 5K handles either scenario.

 

[BRMtnLvr]

My dad's path to Financial Independence started when he paid his first home off that was converted to a rental when he purchased his second home. Then, he took the $$ from his rental and paid off his primary homes mortgage. At that point he was able to really start contributing to his investment accounts and he would admit got started a little late in that game. BUT, I took similar advice and should be FIREd by 50 with a similar progression.

You are doing quite well so far. Its a balancing act. If the argument is that markets will outpace interest rates...it seems logical with your thinking. But once those homes are paid off, you are getting a helluva return on that investment which will also gain equity over time.

I try as hard as I can to not sell any of my assets and that is kinda my strategy with everything...even the jeans I wear...buy and hold baby!

Thanks for the reply. My wife is really wanting to pay our primary home off for two reasons. One it lowers our monthly out of pocket costs. The vacation homes pays for itself and makes a little, the townhouse rental also does the same. By reducing our largest expense we could invest that $ in accounts that could be used pre 59.5.

The biggest reason she wants to do this though is peace of mind. That if one of us were to loose our jobs, or even both of us we are OK. I have to keep reminding here that we do have savings, we could sell our townhouse rental, I have a side hustle that would pay the monthly mortgage etc etc. She has the mentality of no debt and I completely agree with that thought process to a point. That said with interest rates so low it’s hard to pay anything extra on a 2.625% fixed rate mortgage.

If I’m being honest as well the peace of mind knowing that a job loss or any financial hit wouldn’t phase us housing wise would be awesome.

 

[SevenUp]

Long story short, I’m just learning of the fire movement and want to start making the right choices so we can retire earlier than the typical 65-69 YO.

Rental-specific questions I leave to others.

You're a long way from needing to answer these now, but see Some Important Questions to Answer Before Asking - Can I Retire? for the types of information you'll want to know when time gets closer.

Meanwhile, see Investment Order and Prioritizing investments for some things you can be doing now.

 

[CardsFan]

Looks to me like you are well on the way to FIRE. A few comments:

- Any kids in the future? That will be a big expense.

- Regarding paying off the residence, I am a fan of paying off the mortgage over time. You might compromise with DW and pay extra every month, but at that rate I think the 15 year mortgage makes the most sense.

- Don't forget to have fun along the way. A lot can happen between now a RE.

 

[Time2]

Thanks for the reply. My wife is really wanting to pay our primary home off for two reasons. One it lowers our monthly out of pocket costs. The vacation homes pays for itself and makes a little, the townhouse rental also does the same. By reducing our largest expense we could invest that $ in accounts that could be used pre 59.5.

The biggest reason she wants to do this though is peace of mind. That if one of us were to loose our jobs, or even both of us we are OK. I have to keep reminding here that we do have savings, we could sell our townhouse rental, I have a side hustle that would pay the monthly mortgage etc etc. She has the mentality of no debt and I completely agree with that thought process to a point. That said with interest rates so low it’s hard to pay anything extra on a 2.625% fixed rate mortgage.

If I’m being honest as well the peace of mind knowing that a job loss or any financial hit wouldn’t phase us housing wise would be awesome.

I see this quite different, my peace of mind would be having $300k in investments rather than sitting in equity of a house. If you both lost your incomes, equity in your home will not but food, clothing, electric, water and gas for your car. But, $300k of investments could be sold off little by little to pay for your needs and many mortgage payments/taxes/insurance, until you get on your feet again. Also 2.625%, that is cheap money, over 10 years invested in the market you should be able to beat that with a 3 or 4 multiple.
That said, if your net worth is invested just OK, and you could save $90k a year over the next ten years, it is conceivable that you would be getting close to $2M.
You are certainly on your way to FI and if you want FIRE. Congrats!

 

[Morgan22]

I wish I had more in taxable accounts to make managing income for ACA in early retirement easier. So if you have extra cash sitting around I would put it in a brokerage and purchase VTI. I would not pay off the mortgage.

 

[SnowballCamper]

Looks like you're on a great start. The numerically optimal choice is almost always to not pay off the mortgage, but to keep the money you would have used to pay off the mortgage fully invested according to your asset allocation. However, the peace of mind of having a home paid off is compelling...mine is paid off.

I would get more in the regular, taxable brokerage as you approach retirement. It can be especially helpful to have probably 50% of the retirement funds just in a brokerage (where the income tax has already been paid). You're able to spend this at will before you turn 59.5, while the IRAs require a fixed withdrawal plan (72t) to distribute money before 59.5 (with few exceptions).

 

[pb4uski]

I wish I had more in taxable accounts to make managing income for ACA in early retirement easier. So if you have extra cash sitting around I would put it in a brokerage and purchase VTI. I would not pay off the mortgage.

We ended up with a lot in taxable by fluke. Initially, the taxable account money was intended as the kid's college money since we were maxing out tax-deferred contributions... I would add a certain amount each month and it was in Vanguard's STAR fund. We'll by the time DD entered college I was making good coin and was able to pay her tuition, room and board from bonuses and other cash flow so we didn't need to use the taxable account money for college. Then DS decided not to go to college, so the "college money" was sitting there available to be used in ER before we had penalty free access to tax-deferred accounts.

 

[brydanger]

Certainly sounds like you're well on your way!!
I certainly would NOT recommend paying off either mortgage...and if you want to speed up your path to retirement I'd be more tempted to go the opposite direction and pull money out of the primary to buy another rental. Its all about leverage, and you've already seen how nice it can be to have passive income (as well as someone else paying off a mortgage for you)!

Have you thought of moving out of the current house and into the vacation home (or really, downsizing into any smaller home)?
Run the numbers on your cashflow once someone else is paying off that mortgage for you and your mind will be blown. Really no other move or investment you can make that will change things that rapidly, and it's a huge part of how we quit our jobs in the mid-thirties.

 

[BRMtnLvr]

Certainly sounds like you're well on your way!!
I certainly would NOT recommend paying off either mortgage...and if you want to speed up your path to retirement I'd be more tempted to go the opposite direction and pull money out of the primary to buy another rental. Its all about leverage, and you've already seen how nice it can be to have passive income (as well as someone else paying off a mortgage for you)!

Have you thought of moving out of the current house and into the vacation home (or really, downsizing into any smaller home)?
Run the numbers on your cashflow once someone else is paying off that mortgage for you and your mind will be blown. Really no other move or investment you can make that will change things that rapidly, and it's a huge part of how we quit our jobs in the mid-thirties.

I want to thank you all for your responses and apologize for not responding any sooner. I will try to answer any questions that have been asked shortly.

As of now we are in the process of listing the LTR townhouse on the market. We should be able to walk away with $117k. Between basically working two jobs, a LTR in one direction 1.5 hours east and a vacation home/STR 3 hours west of us I’m just tired. Have been working 50- 60 weeks for almost two years. We’ve been very lucky with the LTR rental tenants we had but I’m just tired of that. More below on how we might invest that $.

As far as selling our primary residence for us we really like our house. It has my second garage I love and the privacy/space we like. We could downsize to something in the low $300’s but our quality of life here is great.

I previously mentioned the cabin/STR/Vacation home we have. That has done pretty well this year and we are considering using the $117k towards building another smaller STR cabin on one of the three lots we own. The current cabin/vacation homes is on one of the lots so it gives us two additional to work with. There are some things that might make it not work but we are leaning towards that now. The area is pretty popular and I think if I could build something that could rent $100-115/night with taxes and cleaning fee included it would be very popular.

We have stayed in lots of smaller “granny flats” or ADUs and if you build them right they are very comfortable. In our area sub $100/night properties seem to be in demand. I think this $117k investment could make more than the LTR townhouse we are selling.

This should cover our mortgage on our primary home if it works out. Just a thought I had. That or dump it into the market but I’m hesitant to do that.

 

[skyking1]

yes good on you to think of your quality of life now. I like that move.

 

[BRMtnLvr]

Looks to me like you are well on the way to FIRE. A few comments:

- Any kids in the future? That will be a big expense.

- Regarding paying off the residence, I am a fan of paying off the mortgage over time. You might compromise with DW and pay extra every month, but at that rate I think the 15 year mortgage makes the most sense.

- Don't forget to have fun along the way. A lot can happen between now a RE.

Well your first question has a different answer this month than it did back in Oct. After trying for only a few months we found out on NYE that my wife is pregnant. We are very excited but also nervous.

Prior to that we had decided to put our townhouse on the market (rental), it’s got a close date at the end of this month and we should walk away with $125k. With working full time, a 10-20 hour a week side hustle, managing our vacation home rental and also the townhouse rental I needed some relief. This should provide that, abet short term until the baby arrives.

So now just down to our primary home and vacation cabin as far as properties owned. My wife as of now said she wants to continue working and I don’t blame her. That will add $1000-$1500 a month just in day care. Our expenses are about to dramatically change.

If you all had $125k minus CG on the income generated what would you do with it? Where would you park this money? We already max out our IRAs and work 401ks.

 

[matjung]

Thank you, we work hard for what we earn.

Monthly spend
Internet $85
Cell Phones $60

I'm not from your area.
Your numbers for internet and cell phones sounds a lot.
How many phones do you pay for?


My first impression was you save too much and invest too less.
Based on your writing I would keep the rental home and sell the vacation home.