Author Topic: Life Change?  (Read 1754 times)

Taxlady

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Life Change?
« on: December 02, 2012, 10:49:48 PM »
Ever since our first child was born my husband and I had a 5 year plan to FI allowing me to quit my job and be a stay at home mom (although I am one to never stay home and do nothing so I was planning on working part time during school hours just to keep my brain active). Fast forward 5 years and we now have 2 children and I'm still working because we bought a house in the country with plans to build a second house on the property for my parents (my dad is a self-employed contractor with no retirement thanks to the past 4 years). We wanted the country life for our kids and we enjoy it too but the main reason I even considered leaving the stay at home mom idea behind is because of my parents. They really have no way of supporting themselves. But...I'm really starting to regret it and I HATE not being there for my kids when they get out of school. My boss has been great and let's me work from home as much as I need to and pick up the kids most days. I just don't know how I'm going to handle summers and having the kids spend their summer break in camps. I really can't quit my job with the current house we have. We kept our old house as a rental and have 2 more. Here's our financial picture:
Primary Residence: purchased 2011 for $625k with 20 percent down ($500k loan)
Rental 1: single family purchased 01/2011 for $215k with 20 percent down (used 401k loan to finance down) ($160k mortgage) renting to family for more than mortgage
Rental 2: single family purchased 2012 for $299k with 20 percent down ($240k mortgage) renting for more than mortgage
Rental 3: old primary residence purchased 2004 for $385k ($240k mortgage) worth about $280k renting for equally our mortgage, taxes and insurance.
I've had our life pretty pared down for years because I was preparing us for living on one income so I don't think we have many areas to cut down expenses. I have a long commute but a company car so we have no expenses on that car. My job is great and provides for 2/3 of our combined income which is $180k. I can retire in 15 years at 50 but by then my kids will be grown and gone. I have $120k in my retirement account. We've had to put our oldest in private school because there is no after school program at our local school. What it comes down to it I don't think we can stay here in our current house, support my dad, and stay home with the kids. Do we give up the country life, a great house and the financial security to support my parents all so I can stay home with my kids after school and in the summer? Thanks for you advice!
By the way, my flexibility at work can change at any time depending on management.

Taxlady

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Re: Life Change?
« Reply #1 on: December 02, 2012, 11:08:55 PM »
Sorry, a few more things I should add. We have no debt other than our mortgages (we pay off our credit cards every month). We have $35k in various mutual funds in addition to the $120k in my retirement account. My husband plans to keep working until retirement at which point he'll earn roughly 30-50 percent of his income. I have 10 years of experience in my current job plus a CPA license on the way which should make it easier for me to find part time work. I just think if I keep working I am trading more money than we know what to do with for time with my kids. I'm not crazy about throwing money at the kids when they get older because I think there are some invaluable life lessons to be learned by working in college and such. So, what do you think...

happy

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Re: Life Change?
« Reply #2 on: December 03, 2012, 01:28:04 AM »
1.500k is a fairly aspirational mortgage on 180k income:  and although the rentals are positive or neutral cash flow you have over 1.1 mill debt ( that's an awful lot of killer bees covering every inch of your body and stinging you all over http://www.mrmoneymustache.com/2012/04/18/news-flash-your-debt-is-an-emergency/. ) If your mortgages are all 3.75% that's $41,250 interest a year. Or over 20 years @3.75% it will cost you $465,225, or 30 years $733,937.  How long before all this is paid off (and using the figures above how much will it have cost you to create an income) ? How has all this debt moved you closer to FI? If you didn't have the 500k mortgage would you be FI now?(I suspect the answer is no)  How much are those properties throwing off as profit?  You have lost 105k on rental 3 already, and have a total of $265 equity over the four houses. What is the ROI? The rentals will probably eventually create good cash-flow, enough to cover your expenses depending how much these are ( you didn't say), provided everything goes to plan. BUT its a longer term plan, and to make this work you have to sacrifice now. And although you have positive cash flow on 2 properties, a good amount of the cash flow is paying the interest on the mortgages since you have on purchased them recently.
2. You sound like you are trying to have  it all : a dream house in the country and look after everyone emotionally and financially- parents, kids and job..this is really  too high an expectation and you can either go on being stressed and frustrated or make a choice, although something you hold dear to your heart will have to take lesser priority. Which it is, is probably a personal decision only you can make.
3. Warning:here comes the face punch: what are you thinking? You can't have it all. Get a grip,  and lower your expectations. (sell something or let go of your happy family dreams for the here and now)

tooqk4u22

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Re: Life Change?
« Reply #3 on: December 03, 2012, 07:47:40 AM »
As happy said you can't have it all, so you need to make the choices that are best for you and your family. 

While I understand the emotional aspect with your dad - Don't blame the economy over the last four years for your fathers lack of retirement - I mean afterall the 15 years before that were stupendous.  Clearly retirement wasn't a priority for him, so don't necessarily feel an obligation to provide that. Personally I would put what I want to accomplish for my kids ahead of my parents. Your parents (1 or both) should get social security and medicare. Building a separate house probably doesn't makes sense from a financial perspective (unless he is building it for you for free) - buying or renting a one bedroom apartment is probably the better choice.

Taxlady

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Re: Life Change?
« Reply #4 on: December 03, 2012, 08:54:04 AM »
Thank you for your comments. The current plan we are on is really a long term plan with no early retirement. We bought the house knowing we were going to loose financially by building a second house but we were willing to do that for my dad. I'll save you the specifics but my dad is a hard working man and would give the shirt off his back to anyone (probably why he is where he is right now) but regardless, it's difficult for me to turn my back on him. However, I'm starting to realize that I have my own family to look out for and that is more important. We started down this road of rentals because we anticipated needing to help out my parents then my sister post her house and on it continued. Anyways, I'm trying to get us back on track and we will be putting our house on the market and move into one of the rentals once we sell. We'll also think about which rentals to hold on to after that. I'm not sure about social security for my dad as he has been self employed pretty much his whole life. His wife hasn't worked in at 15 years but that's another story. Any other advice once we sell the big house?

DoubleDown

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Re: Life Change?
« Reply #5 on: December 03, 2012, 08:55:32 AM »
If you have not already read this post from MMM, I recommend it. It gives some guidelines on the number of years needed for FI based on your savings rate:

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

Some alternate scenarios for you to consider, just for illustration. I've made up figures since I don't know your exact situation. If you ignored all the houses, properties, parents, and plans for the moment, and just looked at straight returns on investing:

1. At $180k combined income, we could assume (very conservatively) your take-home pay is 70%, or $126,00. Your family should easily be able to live on $50k/year, probably far less if you adopt the principles here. That leaves at least $76,000 to invest annually. In ten years, at only a 5% rate of return, you would have $983,000 in savings.

2. Since you earn twice as much as your husband, if someone was going to stay home with kids, it would clearly make more sense for your husband to do that from just a financial perspective. With you earning $120k/year, and him earning nothing (which is probably way less than realistic since he should still be able to earn SOMETHING), and using the same assumptions as above, you would save $440,000 in ten years.

Neither of the calculations above considers any of your existing savings, which you could just add in bringing you even closer. I have no idea what you need to be FI, but somewhere between that $440k and $983k plus your existing savings and home equity is probably very reasonable.

So all things being equal, unless your houses and country property are expected to return an additional $983,000 in net worth (through rent PROFITS and appreciation) over the next ten years, then it makes absolutely no sense to hold them. You could downsize, give up all the headaches, and have $1 million in ten years, or half a million in ten years while having a parent stay home with your kids. And once kids are older adolescents and teens, no parent needs to be home with them anyhow, bringing you even closer to FI.

Imagine an alternate life of selling all those properties and pouring all the equity into a single, modest home, which you could immediately pay off and have no house payment (other than taxes/insurance). Start investing all that additional income in either regular old stocks/bonds/etc, and/or a good cash-generating property (a lot of folks here follow the "50/50 rule, you can check it out), and you'll have $1 million probably in less than 10 years. No rentals to hassle with, or maybe just one that makes you a good income.

You might consider moving turning one of the rental properties into your primary residence, that is most ideal for your family, and selling everything else unless you see any of the properties as truly good cash flow generators for the future.

jrhampt

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Re: Life Change?
« Reply #6 on: December 03, 2012, 10:05:42 AM »
I agree with the previous poster.  If you are the higher income earner and have the ability to work from home on occasion, why would you be the one to be the stay at home parent?  Doesn't make much sense financially.

trammatic

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Re: Life Change?
« Reply #7 on: December 03, 2012, 10:41:31 AM »
If you are supporting your parents, and they're (effectively) living with you, could they help watch the kids during the summer?

Taxlady

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Re: Life Change?
« Reply #8 on: December 03, 2012, 01:23:55 PM »
My husband has absolutely NO desire to stay home with the kids which is fine with me. I would much rather be the one to stay home anyway. I know we are better off financially with me working but I think our family is better off with me staying home. I wish my husband made more but I'd rather him doing what he loves instead of miserable making more. Even if we aren't financially independent I'm trying to figure out if I'm kidding myself that I can quit while my husband keeps working. We'll have the rental that we'll live in paid off if will sell our current residence.

happy

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Re: Life Change?
« Reply #9 on: December 04, 2012, 01:21:20 AM »
So what is your question? I'm having trouble pinning it down.

Is your question: If I sell the large country house, and live in one of the rentals having used the remaining equity of the sale to pay off the mortgage, could I afford to stay home and my husband work? with a long term plan to retire on the rental income? (either the country house has increased in value or you've paid a lot off the mortgage, since the smallest rental mortgage was/is $160k, and originally in 2011 you had 125k equity in the $625k property)

To answer this we need to know:

A.What is your husbands income (60k?)?
B.What are your current expenses?  $x?

A must be > B for you to be able to do this.

I would suggest you track your expenses accurately if you don't know the answer.  If you need to reduce your expenses to stop work, this may take a little while, so you would probably need to keep working while you learn to live on less.