Author Topic: Also $800,000 in debt; in a good position but still interested in your help  (Read 2712 times)

smallstache

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I would like to know the community’s thoughts on my financials.  Even though I think most would agree the numbers are good, there is plenty of room for face-punching, so fire away.

However, I am particularly interested in your thoughts on our monthly surplus.  I used to throw it all in our taxable account, but now I split it about 50/50 in the taxable account and extra payments on the RV loan.  What say you...more/less to the loan?

I also would like to know your thoughts on whether I should sell Rental #2 and use the proceeds to pay down (or off) some of the other loans.  It is about halfway through a three-year lease, but I do not like the high property tax.  After the lease is up, it will have about $27,000 of depreciation recapture on it, which will have to be reported as LTCG.  On a side, note I would like to sell Rental #1 too, but it has over $115,000 of depreciation recapture on it, and I am not enthusiastic about paying that tax.  One of my goals is to simplify, so I am not really interested in doing a 1031 exchange into something else.

Life situation:  MFJ with three kids.  Our oldest child did not want to move to Florida so she lives with my father-in-law.  We also largely support a third adult and her daughter.  Five pets roam the house too.

I am on active duty in the armed forces and can retire in four years.  My spouse is also on active duty and can retire in seven years.  The adults are 41, 41 in two days, and 45.  The kids are 16, 14, 14, and 13.

Summary:

Balance sheet:
Assets:  $3,213,000
Liabilities:  $818,000
Net worth:  $2,395,000

Monthly income statement:
Income:  $28,150
Expenses:  $23,150
Net income:  $5,000

More Detailed:

Assets:
1.  Primary residence:  $445,000
2.  Secondary condo:  $200,000
3.  RV:  $90,000
4.  Rental #1:  $579,000
5.  Rental #2:  $300,000
6.  Rental #3:  $200,000
7.  Investments:
     Taxable:  $555,000
     Roth IRAs:  $161,000
     401(k)s:  $548,000
     Education accounts:  $107,000
8.  Checking/Savings accounts:  $28,000
9.  Three cars and a camper, values are not tracked
10.  Two Post 9/11 GI Bills transferred to the kids
11.  Two paid-off $254,000 whole life insurance policies, cash value $44,000 each

Liabilities:
1.  Primary residence:  $395,000; loan terms:  3.375% / 30 year fixed VA (28 years remaining)
2.  Secondary condo:  $153,000; loan terms:  3.375% / 15 year fixed (14 years remaining)
3.  RV:  $75,000; loan terms:  4.25% / 20 year fixed (18 years remaining)
4.  Rental #1:  $186,000; loan terms:  4.5% / 30 year fixed (25 years remaining)
5.  Credit cards:  $10,000; terms vary; paid off monthly

Monthly Income:
1.  Salary 1:  $10,800
2.  Salary 2:  $9,600
3.  Rental #1:  $2,150
4.  Rental #2:  $2,000
5.  Rental #3:  $1,350
6.  Taxable Account Dividends:  $1,800
7.  Interest:  $450

Monthly Expenses:
1.  Primary residence:
     PITI:  $2,333
     HOA:  $133
2.  Secondary condo:
     PITI:  $1,250
     HOA:  $435
3.  RV:  $544
4.  Rental #1:
     PITI:  $1,635
     HOA:  $100
5.  Rental #2:
     Property tax:  $600
     Insurance:  $110
6.  Rental #3:
     Property tax:  $180
     Insurance:  $80
7.  Allowances:  $233
8.  Auto:
     Fuel: $333
     Service: $333
     Insurance: $65
     Tolls: $50
9.  Charity:  $300
10.  Clothing:  $300
11.  Dining: $400
12.  Education: $166
13.  Entertainment: $350
14.  Furniture: $240
15.  Gifts:  $166
16.  Groceries:  $1,280
17.  Gymnastics:  $1,350
18.  Home repairs:  $560
19.  Daughter’s rent:  $250
20.  Miscellaneous:  $1,500
21.  Personal Care:  $37
22.  Pet:  $120
23.  Recreation:  $150
24.  Telecom-Internet:  $75
25.  Telecom-Netflix/DirecTV Now:  $50
26.  Telecom-Wireless:  $328
27.  Utilities-Electricity:  $200
28.  Utilities-Water:  $60
29:  Taxes:  $3,000
30:  TSP Deductions:  $3,800

marcela

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #1 on: September 19, 2017, 09:13:17 AM »
Just gonna annualize a few thing for some perspective:

$20,160/ year on food (groceries and dining out)
        I know you've got a lot of people you're feeding but I'm trying to imagine spending $1,200 a month of groceries. What are you guys eating? Dining Out doesn't seem quite so bad in comparison.
$18,000/ year on miscellaneous.
        What goes in here that isn't already covered in the other categories you've broken out?

I can't speak to the rentals/ taxes thing, but thought I would get you started.




RetiredAt63

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #2 on: September 19, 2017, 09:24:46 AM »
Can you split your personal finances from your business finances?

You may be doing well in one and not the other, or badly in both, we can't tell easily.  And they are 2 different analyses.

And just a reminder for posters in general, acronyms common for your country are not common to all, and forum members are world-wide - I had to Google MFJ, I am guessing it meant married filing jointly, but it is not universal across countries.
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Laura33

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #3 on: September 19, 2017, 10:10:19 AM »
So, first, thanks to you and your spouse for serving.  And you have done a truly awesome job compiling assets. 

My concern is that you have also adopted some pretty spendy habits along the way that may hurt you when you are looking to retire.  What sort of pensions are you guys in line for?  You have a massive $23K/mo in expenses, and it looks like your rentals and your current 'stache will cover about $10K/mo. of that.  What's the plan for that rather gaping huge hole?  I am assuming the military pensions will cover a good chunk.  If not, you need to throw all of that extra money at investments and look to cut those expenses.

And as to those expenses, all I can say is, wow.  And I'm not even sure you've caught it all -- does the home repairs line cover a sinking fund for the rentals?  What about kid activities, school supplies, etc. -- do they cover all of that from their allowance, or is it in misc. or somewhere else?  Do you track your spending in YNAB or Mint or the like?  May be helpful in breaking down that huge $1500 "misc" category.

One thing I am not a fan of is the 2-year loan on the RV.  With depreciating assets, I don't like loan terms longer than I will own the asset.  Are you really going to keep this RV for another 18 years?  In few years it will no longer be shiny and new, or it will be having some engine/maintenance issues, and you will likely want to upgrade into another one.  The long loan term locks you into a cycle of always having a loan and being upside-down in vehicles. 

My other question is how much thought have you guys given to your downside risk?  You have a massive pile of assets there -- really awesome job compiling all of that, btw -- but those assets come with significant operating expenses.*  What happens if you or your spouse dies or is significantly injured?  You have $250K in whole life, but that won't even last a year at your current spending level.  I think it would be a good exercise to see what you could do with your budget on only one salary (and whatever death/disability benefits you are entitled to).  Losing a spouse is hard enough; you don't want the survivor to have to change his/her whole life around to make ends meet -- especially with kids still in the house.

*I don't particularly care about the rentals one way or the other; while they add to the mandatory monthly payments, they also more than pay for themselves.  I don't know enough about RE to say whether they are "good" rentals, but at least they would not impose a financial burden on your spouse should something happen to you.
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smallstache

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #4 on: September 19, 2017, 10:18:34 AM »
Can you split your personal finances from your business finances?

You may be doing well in one and not the other, or badly in both, we can't tell easily.  And they are 2 different analyses.

And just a reminder for posters in general, acronyms common for your country are not common to all, and forum members are world-wide - I had to Google MFJ, I am guessing it meant married filing jointly, but it is not universal across countries.

I will post the business numbers tonight when I get a little more time.

caracarn

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #5 on: September 19, 2017, 10:21:11 AM »
The one thing that jumped out at me was expense 8.  We have three and we spend $300 in fuel and $100/month in what you call "service".  This is one of our biggest non-mustachian buckets as we live far away from our jobs and the teenagers use the third car quite a bit (about 1,100-1,200 miles/month).  So just offering as a point of comparison, because at a minimum the $333 per month in service seems really high.  We've placed tires on two of the cars this year and been able to stay within that budget for the year and obviously we'll not be replacing those tires again next year so the $1,200 for the year may be building up good buffer at that point.  If I have $3,600 in there I'd be way overfunded.

smallstache

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #6 on: September 19, 2017, 10:28:52 AM »
Just gonna annualize a few thing for some perspective:

$20,160/ year on food (groceries and dining out)
        I know you've got a lot of people you're feeding but I'm trying to imagine spending $1,200 a month of groceries. What are you guys eating? Dining Out doesn't seem quite so bad in comparison.

The "groceries" is everything we bought in a grocery store and Costco, with a few exceptions like a set of bunk beds from Costco went in the "furniture" category.  Not everything we buy at Costco is groceries, but most is.  The same for pet food, which we bought with groceries until this summer when we started ordering from Chewy.

$18,000/ year on miscellaneous.
        What goes in here that isn't already covered in the other categories you've broken out?

This is everything from Target, Barnes and Noble, Walmart, CVS, and taking money out at ATMs.  My software downloads the transactions and I don't go back and itemize each individual receipt.  If I was willing to put in the time, I could do that, but my situation is so complex that I don't see enough value in providing more granularity.  To put it in perspective, "miscellaneous" is 6% of spending.

I can't speak to the rentals/ taxes thing, but thought I would get you started.

smallstache

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #7 on: September 19, 2017, 10:35:58 AM »
The one thing that jumped out at me was expense 8.  We have three and we spend $300 in fuel and $100/month in what you call "service".  This is one of our biggest non-mustachian buckets as we live far away from our jobs and the teenagers use the third car quite a bit (about 1,100-1,200 miles/month).  So just offering as a point of comparison, because at a minimum the $333 per month in service seems really high.  We've placed tires on two of the cars this year and been able to stay within that budget for the year and obviously we'll not be replacing those tires again next year so the $1,200 for the year may be building up good buffer at that point.  If I have $3,600 in there I'd be way overfunded.

We have three cars and the RV.  Most of the "service" was a new set of tires on a car after one blew out on the interstate and new house batteries and radio for the RV.   I don't see these items being recurring expenses.  I did two brake jobs in my driveway this summer.

caracarn

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #8 on: September 19, 2017, 10:43:48 AM »
The one thing that jumped out at me was expense 8.  We have three and we spend $300 in fuel and $100/month in what you call "service".  This is one of our biggest non-mustachian buckets as we live far away from our jobs and the teenagers use the third car quite a bit (about 1,100-1,200 miles/month).  So just offering as a point of comparison, because at a minimum the $333 per month in service seems really high.  We've placed tires on two of the cars this year and been able to stay within that budget for the year and obviously we'll not be replacing those tires again next year so the $1,200 for the year may be building up good buffer at that point.  If I have $3,600 in there I'd be way overfunded.

We have three cars and the RV.  Most of the "service" was a new set of tires on a car after one blew out on the interstate and new house batteries and radio for the RV.   I don't see these items being recurring expenses.  I did two brake jobs in my driveway this summer.
Hmm.  I did not realize your monthly expenses were just a random month, not a monthly budget.  To give solid actionable feedback it would be best if you could think about what a monthly budget looked like for these expenses.

smallstache

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #9 on: September 19, 2017, 10:56:50 AM »
So, first, thanks to you and your spouse for serving.  And you have done a truly awesome job compiling assets. 

Thanks and thanks.

My concern is that you have also adopted some pretty spendy habits along the way that may hurt you when you are looking to retire.  What sort of pensions are you guys in line for?  You have a massive $23K/mo in expenses, and it looks like your rentals and your current 'stache will cover about $10K/mo. of that.  What's the plan for that rather gaping huge hole?  I am assuming the military pensions will cover a good chunk.  If not, you need to throw all of that extra money at investments and look to cut those expenses.

Yes, lots of expenses.  The rentals pay for themselves and then some.  The military pensions will be about $8,000/mo combined.  By then the kids will be out of the house, so no gymnastics, much less food (those things are surprisingly connected), fewer cars.  Our taxes will be much lower too.

And as to those expenses, all I can say is, wow.  And I'm not even sure you've caught it all -- does the home repairs line cover a sinking fund for the rentals?  What about kid activities, school supplies, etc. -- do they cover all of that from their allowance, or is it in misc. or somewhere else?  Do you track your spending in YNAB or Mint or the like?  May be helpful in breaking down that huge $1500 "misc" category.

I used Quicken for years until I got sick of having to buy upgrades every three years.  I use Moneydance now, which is basically the same thing.  The kid activities is the gymnastics.  The school supplies is in "miscellaneous" as they come from Target, etc (see previous response).

One thing I am not a fan of is the 2-year loan on the RV.  With depreciating assets, I don't like loan terms longer than I will own the asset.  Are you really going to keep this RV for another 18 years?  In few years it will no longer be shiny and new, or it will be having some engine/maintenance issues, and you will likely want to upgrade into another one.  The long loan term locks you into a cycle of always having a loan and being upside-down in vehicles. 

I think you meant 20-year loan.  The RV is a 2013 that we bought two years old.  A new one would go for $160,000.  I don't know if we will have it in 20 years, but probably not.  At my current payment rate, I expect the loan to be gone by the end of next year.  We started at $88,000 and now owe $73,000 (update from yesterday).  I don't believe the loan is upside-down but there isn't much equity in the RV. 

My other question is how much thought have you guys given to your downside risk?  You have a massive pile of assets there -- really awesome job compiling all of that, btw -- but those assets come with significant operating expenses.*  What happens if you or your spouse dies or is significantly injured?  You have $250K in whole life, but that won't even last a year at your current spending level.  I think it would be a good exercise to see what you could do with your budget on only one salary (and whatever death/disability benefits you are entitled to).  Losing a spouse is hard enough; you don't want the survivor to have to change his/her whole life around to make ends meet -- especially with kids still in the house.

I'm not really concerned about disability as the government would continue to pay us, unless I got injured doing something criminal like get shot while robbing a bank.  If one of use was to die on active duty the other spouse would get a one-time $100,000 gratuity and monthly survivor benefits.  The kids would get survivor benefits until out of college or age 26.  I view the life insurance more as long term care insurance rather than life insurance, as the cash value can be accessed tax free for that purpose.  If we don't need it for long term care, then I guess the kids can blow it when we are gone.  The payout goes up every year.  Well over $1M each if I live to 100!

As I mentioned earlier, expenses will fall when the kids move out.  And they know they are moving out and not going to boomerang back to mom's and dad's house(s).


*I don't particularly care about the rentals one way or the other; while they add to the mandatory monthly payments, they also more than pay for themselves.  I don't know enough about RE to say whether they are "good" rentals, but at least they would not impose a financial burden on your spouse should something happen to you.

Rufus.T.Firefly

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #10 on: September 19, 2017, 11:41:12 AM »
Cash out the whole life policy and invest it. Whole life policies are one of the worst financial products on the market.

44K to 1MM over 55 years is only 5.84% nominal return. The stock market has been nearly 10% nominal during the past 50 years. To put another way, 44K invested for 55 years at average stock market returns will be $6.8MM.

sources:
https://www.daveramsey.com/blog/the-truth-about-life-insurance
https://www.fool.com/investing/general/2016/04/22/how-have-stocks-fared-the-last-50-years-youll-be-s.aspx
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smallstache

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #11 on: September 19, 2017, 12:08:41 PM »
Cash out the whole life policy and invest it. Whole life policies are one of the worst financial products on the market.

44K to 1MM over 55 years is only 5.84% nominal return. The stock market has been nearly 10% nominal during the past 50 years. To put another way, 44K invested for 55 years at average stock market returns will be $6.8MM.

sources:
https://www.daveramsey.com/blog/the-truth-about-life-insurance
https://www.fool.com/investing/general/2016/04/22/how-have-stocks-fared-the-last-50-years-youll-be-s.aspx

I could, but I also already have over $1.3M in the stock market.  Don't you think a little differentiation is advisable?  I am only talking about $88,000.  That also leave me with no tax-free assets (other than the Roths) that are readily available for long term care.
« Last Edit: September 19, 2017, 12:12:50 PM by smallstache »

Laura33

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #12 on: September 19, 2017, 01:28:24 PM »
I could, but I also already have over $1.3M in the stock market.  Don't you think a little differentiation is advisable?  I am only talking about $88,000.

What exactly do you think the life insurance company is doing with your money?  It takes the money you pay, pays a little bit to a reinsurance company for the value of the policy, takes out more to cover its fees and costs, and puts the rest in the market.  Then it keeps most of the earnings in return for whatever "guarantee" they provided. 

You are already very diversified -- looks like @$1.7M in real estate, $1.3-something in investments, and a pension that gives you a payout equivalent to another $2.4M in your 'stache and that fundamentally serves as a bond or annuity.  If anything, it's the investment bucket (the part that provides the greatest long-term growth potential to keep up with inflation) that is somewhat light. 

Although I guess since the life insurance is accessible and guaranteed, you could consider that part of your cash allocation, which at $28K is skimpy (barely one month's expenses).  I don't think you need a huge EF given your job security, so I wasn't going to mention that.  But if you are looking at the life insurance as a "just in case" fund you could access in the event you couldn't work any more and needed to cover additional major expenses (like LTC), it could reasonably be construed as part of your cash allocation.  In which case it would be a reasonable replacement for something like CDs that pay even less. 

Honestly, I would never, ever recommend getting started in whole life; you'd have significantly more money now had you bought a term life policy and put the difference into the market back when you first took out the policy.  But since it's all paid up now and you have so many other assets anyway, what you do with that policy now isn't quite as significant.
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Rufus.T.Firefly

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #13 on: September 19, 2017, 02:24:29 PM »
Cash out the whole life policy and invest it. Whole life policies are one of the worst financial products on the market.

44K to 1MM over 55 years is only 5.84% nominal return. The stock market has been nearly 10% nominal during the past 50 years. To put another way, 44K invested for 55 years at average stock market returns will be $6.8MM.

sources:
https://www.daveramsey.com/blog/the-truth-about-life-insurance
https://www.fool.com/investing/general/2016/04/22/how-have-stocks-fared-the-last-50-years-youll-be-s.aspx

I could, but I also already have over $1.3M in the stock market.  Don't you think a little differentiation is advisable?  I am only talking about $88,000.  That also leave me with no tax-free assets (other than the Roths) that are readily available for long term care.

I think diversification is good, but you're already diversified. You have stocks, you have real estate, you have a pension. Index funds are also diversified investment vehicles by definition. If it helps you sleep at night, wait until the pension starts rolling in and then cash out the policy.

If you're uncomfortable that "all your money is in stocks" then you should re-assess you investment allocation strategy. Perhaps consider other options like Bonds, REITs, and international stocks.

My point is that 88K is not a small amount of money over a long period of time to have un-optimized.

If you're concerned about long-term care, there are insurance policies for that. Although I'm not an expert in end of life care, it's my understanding that those insurance policies would be more effective than trying to use a whole life policy.
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jwright

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #14 on: September 19, 2017, 03:05:48 PM »
If Rental #1 is worth $579,000, why does it only rent for $2,150?  None of your rentals meet the "1% rule" but that's the most egregious. 

With your income, you wouldn't be able to deduct the rental losses on your tax return, do you have any loss carryforward that would help offset depreciation recapture?

Dicey

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #15 on: September 19, 2017, 06:40:09 PM »
Oh, this is gonna be good...ptf.
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lhamo

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #16 on: September 19, 2017, 07:45:37 PM »
$1350/month on gymnastics is $16,200/year.

I sure hope at least one of them is heading to Division A, if not the Olympics.  And that you have excellent health insurance....

And if you have a 90k RV what is the camper for?
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smallstache

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #17 on: September 19, 2017, 08:43:15 PM »
$1350/month on gymnastics is $16,200/year.

Yes.  I'm not sure they could have picked a more expensive sport.  I included all the costs for travel to out-of-town meets in that amount.

I sure hope at least one of them is heading to Division A, if not the Olympics.  And that you have excellent health insurance....

Maybe Division I, or a full ride to Division 2.  Military health insurance is free. 

And if you have a 90k RV what is the camper for?

That is where the kids stay.  At this point, it has a near-zero cost of ownership.


smallstache

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #18 on: September 19, 2017, 08:43:52 PM »
Oh, this is gonna be good...ptf.

Care to explain?

smallstache

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #19 on: September 19, 2017, 09:02:51 PM »
If Rental #1 is worth $579,000, why does it only rent for $2,150?  None of your rentals meet the "1% rule" but that's the most egregious. 

With your income, you wouldn't be able to deduct the rental losses on your tax return, do you have any loss carryforward that would help offset depreciation recapture?

We paid $579,000 in 2007...then the market in DC tanked like everywhere else...then it recovered.  I think it would go for about $600,000 now.  After commissions, we would probably get the 579 back.

This was our primary residence when we were stationed in DC.  Same with the other two rentals.

We have about $10,000 of loss carryover on Rental #1.  Much of our income is nontaxable and, every couple of years, one of us deploys and qualifies for the combat zone tax exclusion.  This gets us below the threshold to deduct rental losses.

Dicey

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #20 on: September 20, 2017, 12:08:28 AM »
Oh, this is gonna be good...ptf.

Care to explain?
Oh, sure! You have a ton of assets, and a ton of expenses. It will be like watching a tug o'war on a sandy beach. Don't get me wrong, I'm not criticizing, but you have lots of  low-hanging fruit (RV*, trailer, multiple cars, expensive kid's sports) that is sure to attract attention, debate, and facepunches. I find this kind of case study far more interesting than someone who's wallowing in debt, lacks discipline and really isn't interested in making lasting changes. In short, you have a lot to work with, so it will be interesting to see what choices you make.

*BTW, are you classifying the RV as a second home and writing off the interest?
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former player

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #21 on: September 20, 2017, 04:37:33 AM »
Your figures are too big for me to parse them properly, but I have a couple of thoughts.

1.  Less of this "I can retire in four years" nonsense, please.  On the stash you've got you could moderate your expenses and retire now.  There is no compulsion on you to work another day.  (Yes, I realise the pension implications of working those four years.  That doesn't mean that you couldn't stop work today if you wanted.  You are totally making the choice to keep working.)

2.  I get cross with people who come here in dire financial and personal straits but still say "I have to tithe 10% of my  -income" - and sometimes that's even 10% of their gross, not their net.  You are the first person I've come across where I have the opposite reaction.  You are a multi-millionaire with an income of over $300k a year and you are giving a measly less than 1% to charity.  Time to step that up, my friend.
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Mazzinator

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #22 on: September 20, 2017, 07:32:49 AM »
Thank you both for your service! Army spouse here..

With the rental properties, i'm not sure exactly how the depreciation recapture works, but could you sell one or both of the rentals in a deployment year? That way your taxable income will be lower due to being in a combat zone. Unless deprication recapture is a set tax percentage. Or you could wait and sell once one or both of you retire so your income will be in a lower tax bracket. Do either of you have medical issues that would reduce taxes on your pension once retired?

Another option would be to keep them but hire property managers. That way it simplifies your life, keeps the assets but takes most/all the burden off you guys.

If not, i see no other way except bite the bullet and pay the taxes or exchange them all into 1 property.

Is your condo used as a rental or your vacation home?

Yes, you guys are set, but personally i recommend staying to the full 20yr retirement. The benefits are too greatto give up. And i also don't agree that you aren't tithing enough. You mostly support another adult amd child!!! That is greater than just shoving money into a church!

For the left over money, i would either pay off the rv or stock it away into a taxable account..maybe split it 50/50.
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slappy

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #23 on: September 20, 2017, 07:43:41 AM »




2.  I get cross with people who come here in dire financial and personal straits but still say "I have to tithe 10% of my  -income" - and sometimes that's even 10% of their gross, not their net.  You are the first person I've come across where I have the opposite reaction.  You are a multi-millionaire with an income of over $300k a year and you are giving a measly less than 1% to charity.  Time to step that up, my friend.

I'm not strongly attached to tithing/charitable giving either way, but this jumped out at me as a relatively small amount as well.  Although I do agree that with another poster that supporting another adult/child is a form of charity.

jwright

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #24 on: September 20, 2017, 08:14:36 AM »
If Rental #1 is worth $579,000, why does it only rent for $2,150?  None of your rentals meet the "1% rule" but that's the most egregious. 

With your income, you wouldn't be able to deduct the rental losses on your tax return, do you have any loss carryforward that would help offset depreciation recapture?

We paid $579,000 in 2007...then the market in DC tanked like everywhere else...then it recovered.  I think it would go for about $600,000 now.  After commissions, we would probably get the 579 back.

This was our primary residence when we were stationed in DC.  Same with the other two rentals.

We have about $10,000 of loss carryover on Rental #1.  Much of our income is nontaxable and, every couple of years, one of us deploys and qualifies for the combat zone tax exclusion.  This gets us below the threshold to deduct rental losses.

This still seems to indicate that you should raise the rent.

Blonde Lawyer

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #25 on: September 20, 2017, 08:19:20 AM »
Oh, this is gonna be good...ptf.

Care to explain?

What does PTF stand for? Google is failing me.

marcela

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #26 on: September 20, 2017, 08:30:35 AM »

MrsWolfeRN

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #27 on: September 20, 2017, 09:49:12 AM »
Since this is the MMM forum, can you at least get rid of the cable and look for cheaper cell phones? Please?

Also what is the "secondary condo"? Is it rented out? And who is this third adult?

slappy

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #28 on: September 20, 2017, 10:09:15 AM »

smallstache

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #29 on: September 20, 2017, 02:47:44 PM »
Your figures are too big for me to parse them properly, but I have a couple of thoughts.

1.  Less of this "I can retire in four years" nonsense, please.  On the stash you've got you could moderate your expenses and retire now.  There is no compulsion on you to work another day.  (Yes, I realise the pension implications of working those four years.  That doesn't mean that you couldn't stop work today if you wanted.  You are totally making the choice to keep working.)

To be a little more clear, "I can retire in four years" means I could submit a retirement application with the Air Force and draw a pension while being subject to the authority of the Secretary of the Air Force to involuntarily recall in the event of World War III.  Notwithstanding all that, there is compulsion to work until my service commitments end and the Air Force discharges me.  Otherwise, I go to prison for desertion.  My current commitment ends in 2 years,
 after which I would have about 18 more months to reach Air Force retirement eligibility.  I don't know of anyone that would pass up a lifetime pension that is indexed for inflation for 18 months of work, especially one who actually likes his or her job.


2.  I get cross with people who come here in dire financial and personal straits but still say "I have to tithe 10% of my  -income" - and sometimes that's even 10% of their gross, not their net.  You are the first person I've come across where I have the opposite reaction.  You are a multi-millionaire with an income of over $300k a year and you are giving a measly less than 1% to charity.  Time to step that up, my friend.

There is some truth to this.  While our support of a war widow and her daughter is a form of charity, we have sufficient resources to donate more.  The $250/mo is a recent addition to our expense line and it needs to grow.

smallstache

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #30 on: September 20, 2017, 03:12:36 PM »
Since this is the MMM forum, can you at least get rid of the cable and look for cheaper cell phones? Please?

Also what is the "secondary condo"? Is it rented out? And who is this third adult?

No cable.  It's Netflix for $10 and DirecTV Now (internet-based live TV service) that costs $38.  I have an 100-mile antenna but it only gets one station where we live.  I'm more likely to dump the Netflix.

The cell phones are as follows:  $20/mo per phone for 5 phones, which will be paid off in June, plus $32/mo per line for 7 lines of service.  This is an unlimited Verizon plan.

What is there for less that does not run off of Sprint's or AT&T's networks, which I tried and are shit around here?  I haven't tried T-Mobile, but I haven't heard anything positive from others that did.  Straight Talk uses Verizon's network, but that service is $45/mo and I would still need to pay off the phones.  Is there anything else?

The condo is a vacation rental.  When we don't use it, it is available for rent.  It is in ski country so I would expect it to be occupied a lot this winter.  Once we are retired, it will be our summer home and rented out in the winter.

SwordGuy

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #31 on: September 20, 2017, 08:03:00 PM »
You have a lot of discretionary spending.

Here's your entertainment budget:

7.  Allowances:  $233
11.  Dining: $400
13.  Entertainment: $350
14.  Furniture: $240
15.  Gifts:  $166
16.  Groceries:  $1,280  $680
17.  Gymnastics:  $1,350
20.  Miscellaneous:  $1,500  $1,100
23.  Recreation:  $150
25.  Telecom-Netflix/DirecTV Now:  $50
26.  Telecom-Wireless:  $328 circa $228

$4,947 per month for entertainment.
$59,364 per year for entertainment.

What?  Furniture for entertainment?  Yep.  If you've got a kid in college you've surely already got all the furniture you need.   Same with some of the other categories.

HALF of all families in the entire USA live on less money than your family spends on fun in a year.

Now, go ahead and spend all you want, you're certainly earning it.   But that's a HUGE amount of money.

Think how your kids would be set up in life if you just took 80% of that fun money for a year and invested it on their behalf in Vanguard VTSAX stock for just 1 year per kid.

Think how fast your debt would melt away if you redirected 80% of that fun money to it.

The other think I'll ask you to think about - do your kids have an even vaguely accurate understanding of how most families live in this country?   Because they are unlikely to be able to spend that kind of money for some years without going into debt big time.   Have you read "The Millionaire Next Door" and the effects of too much given to one's kids?

Anyway, hope that's useful food for thought.

jamccain

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #32 on: September 21, 2017, 10:03:20 AM »
My advice would be to ignore >95% of the people who comment here as they don't have a clue to the situation you're in.  Find the <5% who are your peers and pay attention and consult with them.  What I mean is, you've built an awesome financial machine and you're asking mostly 20 somethings with a negative net worth what you should do.  See the problem with that?  You wouldn't consult the junior enlisted troops on the strategic direction of the unit.  You'd pull together the experienced officers and senior enlisted. 

Example, "cut the cable bill" to save what $50.  Honestly, saving $50 on $28K is .002% of your monthly cash flow, it's in the noise.  This advice might make sense if you made $28K a year, instead of $28K a month. Focus on the big stuff which is what you are doing, but you're getting this type of cable bill advice.  Another example, "cash out the whole life"...that's dumb advice from someone who doesn't understand your situation or paid up whole life.  Or the most egregious advice I have seen, "screw working four more years, retire now", not the first clue what they are talking about.   

We're a military family as well, it changes the numbers dramatically when you're dealing with the idea of FIRE.  Honestly, all you have to do is serve out your time (with spouse) and you're going to have military retirement pensions worth $3-4M in savings using the 4% rule.  By that time, most of the kids will be toward the end of college (on that 9/11 GI bill no less).  Get the kids off your payroll and worry about the cable bill then if it's an issue toward FIRE (which you didn't state was even your goal).  You're stated goal is to simplify, but you don't really give us enough information to help you with that specific goal.  For example, you ask, "should I pay extra on the RV" but don't give us enough information on the alternative.  Also, you want to sell rental #1 and/or #2, but are worried about the tax hit...nobody can really answer this for you because the goal to simplify is an emotional one (I don't mean this in a bad way).  You're life is busy and rentals are a pain in the butt you don't want to deal with anymore.  How much is it worth to get rid of that pain in the butt, anxiety, whatever else it's causing?  Only you can really answer that.  There is no right or wrong answer. 

This is what I would say, as someone who is your same age, in a very similar situation.  Don't worry about the math, do what is going to make your life better today.  (Disclaimer: Given historical conditions)  You've got enough money to make whatever post retirement dreams you have come true.  If you want, or need, to reduce your current stress level today by doing something that doesn't maximize your return on investment, it's not going to prevent you from doing whatever it is your heart desires in retirement.  It might mean the kids have slightly less in an inheritance, but you have whole life for that and you're going to have a huge nest egg as well as long as you maintain your current path.  So, what causes you more pain, having the rental or paying the taxes?  Is there a way to reduce the pain of having the rental (hiring a PM)?

Allow me to offer one more piece of advice about your goal to simplify and you're already thinking along these lines.  When you have a lot of debt, you think of simplifying as owning all of your stuff debt free.  However, once you own all of your stuff debt free, you realize simplifying actually means getting rid of all the stuff.  It's the overabundance of stuff that causes anxiety, but this is masked when you owe on it and you mistakenly think it's the debt.  The debt just adds an extra layer of anxiety over top of the stuff.  Remove the layer of debt anxiety and you feel better...for a time, but the anxiety doesn't completely disappear.  Seems you can already sense this as your goal is to sell instead of only paying off. 

Also, I commend you on your generosity.  I also, help others out financially and honestly, if I had to work in a job I hated do continue that, I would do it.  There is no joy like that of giving to a real life person.  And honestly, something very few on this board understand is, there is more to life than FIRE and "having the freedom to do whatever you want".  Those, like us, understand the value of service in a way many others don't. 

You've got a ton on your plate, full time career, full time family life, others who are depending on you.  You've added lots of additional stress securing you and your families financial security.  I think it's safe to say, you've become unbalanced at this point given all of your commitments so if you have to do some balancing you can proceed as you see fit knowing your long term financial future is secured in this system.   


RetiredAt63

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #33 on: September 21, 2017, 11:58:19 AM »
I need to talk about jamccain's post.

Why would anyone on here want to talk to their peers?  Their peers are in as much of a mess as the OPs, that is why they are peers.  You want to talk with those who are ahead of you on the journey, and have been where you are now.

Most of the people who actually take the time and effort to reply here (i.e. doing some of that service work mentioned later in jamccain's post) are older and wiser and in many cases already FIRE.  And if someone really has their act together at 25, maybe that someone is worth listening to?

Jamccain is perfectly correct that debt is just another layer of stress on the stress of too much stuff and not enough of the life you want and need to live.

However, "the Freedom to do what you want in retirement" around here does not usually include vegging out on the couch  Most here who are already FIRE are having active, goal-oriented lives, often with strong service components.

Jamccain has 112 posts - he may be someone who has read all the blog entries and forums and only started posting here recently, or he may be a total newbie.  The people who have a few 1000 posts have been around a lot longer and have most likely accrued more of the MMM philosophy.

Who am I?  Someone who was a SWAMI the last few of my working years, now retired, doing all sorts of community service activities, enjoying activities I had no time for while working, and generally enjoying my (not-early) retirement on an income way smaller than yours will be.
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Laura33

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #34 on: September 21, 2017, 01:59:11 PM »
[snip]

1.  Thanks for insulting all the folks here who took the time to respond.*  Clearly those of us who have not served in the military have no concept of serving others and have no experience at all with pensions or anything similar.

2.  Peers schmeers.  You can find peers all around you, every day; presumably you come here to get a different perspective and help you see things in a different way.  As the saying goes, if you do what you've always done, you get what you've always gotten.

3.  100% correct that too much stuff is a fundamental problem -- very insightful about how the debt can mask the real source of the anxiety/dissatisfaction.

4.  But you've missed the even-more fundamental point:  $50 does matter if you are spending it on stuff that doesn't actually improve your life.  SwordGuy nailed this:  it's not about the $50 -- it's about whether this is the highest and best use of your $50.   Most people get this exactly wrong, because they cannot envision their future until it's there, and so they assume that it's fine to fritter stuff now, because it's "only" $50, and I work hard and deserve it, and what does it really matter?  But then 10 years from now you'd wish you hadn't blown that money so you could help your kids with a downpayment or whatever.  The problem with silly spending is it's a double-whammy:  each $50 you spend on something that doesn't matter is $50 you can't put toward something that does matter; and it's another $50 that is built into your lifestyle that you need to support forever, because now you're used to having it.  $50/mo. now in extra expenses = more than $12K more you need in your 'stache to RE.  Oh:  and those $50 decisions tend to multiply like rabbits before you've even noticed.

5.  We're not talking about $50 here.  We're talking about $50 here, and $200 there, and $500 over there, and so-on and so-on.  And, you know, a few grand a month here, a few grand a month there, and pretty soon you're talking real money.**

6.  If you're happy with your spending, don't post a case study.  Case study implies that you want to improve. 

7.  To put the most obvious last:  this is MMM.  You cannot possibly expect to post $18K+/mo. expenses, say you think "most would agree" that you've got the spending dialed in, and have everyone chime in and say "awesome, you go do you."  Fuck, I was waiting for the flame wars to begin and was impressed that so many people restrained themselves to offer productive advice.

*I'm sorry, do I need to establish my bona fides to post?  How about: I'm older than the OP; I have more socked away; my DH also has a pension coming; my spending is closer to the OP's than to MMM's; and I have blown a shit-ton of money on crap that didn't matter -- and that pisses me off and I want to do better.  Does that sufficiently meet standards?

** Please read heavy irony font here.
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RetiredAt63

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #35 on: September 21, 2017, 03:25:17 PM »
Hey Laura, if I'm ever down your way in good weather can we go out for coffee at a nice park?  We FIRE-type oldsters can moan over the ineptitude of the younger generation.   ;-)
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NeonPegasus

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #36 on: September 21, 2017, 04:08:32 PM »
Sure, you're doing well financially. I assume you're here to actually get better.

None of your rentals is a good deal. Not one of them meets the 1% rule (you should be able to command 1% of the home's value in rent every month). You could hang on to them in the name of diversification or you could sell them, take the proceeds and invest it in something that will yield much better. Right now, you have a bunch of equity tied up in very low performing assets.

Take your worst property - rental #1. You show PITI but have nothing budgeted for maintenance or vacancy. I would expect at least $600/mo for maintenance so your true income is $1550 (or probably less because you also have to account for vacancy). If you took the $414k of equity and invested it, you would average a 7% return, which would be more like $2415/mo. So, is "diversification" really worth losing $900/mo in potential income? Even if you do want the diversification, take your money and invest it in a good rental property that will make a lot more money.

Same thing with the whole life insurance, which is a wretched investment.


Laura33

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #37 on: September 21, 2017, 06:52:26 PM »
Hey Laura, if I'm ever down your way in good weather can we go out for coffee at a nice park?  We FIRE-type oldsters can moan over the ineptitude of the younger generation.   ;-)

Oh, hell yes -- we late-arrivers need to stick together.  :-)
Laugh while you can, monkey-boy

RetiredAt63

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #38 on: September 21, 2017, 07:09:10 PM »
Hey Laura, if I'm ever down your way in good weather can we go out for coffee at a nice park?  We FIRE-type oldsters can moan over the ineptitude of the younger generation.   ;-)

Oh, hell yes -- we late-arrivers need to stick together.  :-)

Done deal.  ;-)
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caracarn

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Re: Also $800,000 in debt; in a good position but still interested in your help
« Reply #39 on: September 22, 2017, 12:56:02 PM »
Yes I too find jam's input in poor taste at best.  First, I think very few of the posters are 20 somethings and we all have a very clear picture of other situations because we take the time to look at them and have the capacity as intelligent individuals to understand a situation even though we have not lived it.  They have parallels.  For example, when someone stated you can retire now, it does not need to be taken literally as it seems to have been, it's more about the attitude.  Sure we get that you have an enlistment period and you need to fulfill that.  No one was saying not to honor a contract you signed up for.  The point was more along the lines of "everything you do is a choice" so don't get hung up on that you have no options.  I am friends with people who did determine stress of getting the that last month was not worth it after 18 years of service and walked about short of full retirement pay.  It made sense for them and they extra money was not worth the impact it was having on them, in their opinion. 

Several of us "old people" also pointed out that this is not the place, in case studies, to not expect that every expense will not be questioned.  If you want a lot of chest thumping, hooyahs about how awesome your life is do it at the officer's mess and celebrate your spending with another beer, but don't come on the MMM forum and try to say that $50 is just noise.