Author Topic: Boring Bay Area Family FIRE in 2 years with magic  (Read 1880 times)

clairebonk

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Boring Bay Area Family FIRE in 2 years with magic
« on: February 26, 2017, 02:32:29 PM »
Topic Title:
Reader Case Study - Boring Bay Area Family FIRE in 2 years with magic

Life Situation:
Married filing jointly (ages 36 & 39). 2 kids, ages one and four. Bay Area, California. My husband works full time and I am taking some time off to stay at home with our young kids. Iíve had contracting work here and there, so it is difficult to estimate future income. My husband has a business background, and I do software & analytics. He is working at a start-up and expects it to go public in 2 years.

Gross Salary/Wages:
8,333 / mo

Individual amounts of each Pre-tax deductions:
FSA is 417 / mo
What I see comes in from his paycheck in Mint is 5640.40 / mo. Some is taken out for medical insurance.

Other Ordinary Income:
Last year I made 21,500 but I donít plan on working this year unless something interesting pops up. Childcare is really hard to find. It would be more than $2,000 a month for both kids to have a nanny or daycare. So I donít feel it justifies the stress of me having to be the full time parent and work. Iíve had some temporary part-time gigs which I love but they are hard to find and then also hard to find temporary childcare.

Qualified Dividends & Long Term Capital Gains:
I donít know what this is so we probably donít have it.

Rental Income, Actual Expenses, and Depreciation:
We have a rental house house which brings in:
1,735 / mo

Adjusted Gross Income:
5,640 / mo + 1,735 / mo = 7,375 / mo

Taxes:
I donít know how much income tax we pay because my husband does them. I know he works his magic and we pay about 5% (combined state/fed) because of our mortgages. I will just assume the ďcorrectĒ amount gets taken out for each of his paychecks. Last year we "broke even" & owed federal but got back state.

Current expenses (by month, using Mint averages):
Rental mortgage:1,286
Rental taxes: 412
Rental insurance: 44
Rental utilities: 100
Home mortgage : 2,356
Home taxes: 637
Home insurance: 50
Home elec: 75
Home water: 33
Home trash: 19
Groceries:500
Restaurants: 40
Preschool (9 hours/week): 366 (city-run preschool & cheapest, all but $50 is pretax)
Gas:42
Car insurance:49
Clothing: 40
Personal repayment: 500 (for home down payment, 0% interest)
Charity: 20
Dentist/doctors: 20
Internet: 40
Phone: 0 (company phone for him, my parents cover mine and I use used phones)
Public transport: 160 (my husbandís commute to SF is 10 minute bike, 40 min train, 10 min walk)
Travel: 200
Misc 2.5%: 116
Total: 6,789

We have about $586 ďextraĒ per month that we could throw into in Roth IRA or use it to fix up our house for when we plan to sell it. It is definitely a fixer-upper so lots of areas of improvement.

Assets:

Home: 795,000
Rental house: 473,000
Honda Fit 2008: 5,000
457B: 56,154
453B: 87,848
TSP:15,928
IRA: 40,100
Vanguard: 90,000
ESA: 740
UCRP: 22,000
Cash: 19,879
Total: 1,605,649

Financial planner (husband) is a mustachian and has invested in low-cost funds.

Liabilities:

Rental loan: 261,131 (27 more years at 3.12%)
Home loan: 513,810 (refinanced so 30 years at 3.6%)
Personal loan: 25,000, paying 500 / mo (0% interest borrowed from family for down payment)
Total: 799,941

Specific Question(s):
My husband believes his start-up will go public in 1.5-2 years. He got in early and has some stock and will make about 200,000 minus taxes hypothetically. I know what youíre thinking, that we canít bet on this. That is the way I think too, but he is confident and one of those people that good things happen to all the time because he projects positive energy and enthusiasm to the world and it rewards him with good karma.

So in ~2 years we are looking at a big change. Sell our current house (we have been making improvements and we live in a very desirable area). Pay off our rental house loan. Then we will have $21,000+/yr. We can easily live off that (without housing), we are Mustachians through and through. However we will need a place to live. We are wondering where to move: Davis (where our rental house is), Truckee/Tahoe, Minneapolis (we have family), Oregon. Boulder/Longmont makes the most sense because we could both find fun part-time good-paying jobs/consulting in our field while the kids are in school to top out our Ďstash. We love the Bay Area and would like to stay but canít afford it if we want to FIRE anytime soon. My husband loves his job and would probably want to continue working in his field (the outdoors). Our rental house has such a low mortgage and easy to find renters but would be hard to manage out of state so we would probably sell it. We could also move there. I would love to live in Davis. It is expensive though.

From writing all this I think my question is: where should we move? Readers, you canít probably answer that! But maybe you can give some advice as to how we can FIRE as soon as possible? I do think my husband wants to work for an employer but I DO NOT. EVER. NEVER EVER. I am willing to live as frugally as possible so I can spend time with my family and pursue my own interests (these days, with 2 little ones, it is sleep).

I got married because I liked spending time with my husband but I can't imagine him wanting to spend all his time with me & the kids because he loves his job so much. And once the kids start school I can't imagine what I would do all day if I wasn't working! The whole FIRE thing is empowering but really scary to me: will I get bored? All my friends will be working. What if my husband still wants to work?



« Last Edit: March 04, 2017, 04:43:09 PM by clairebonk »

waltworks

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Re: Boring Bay Area Family FIRE in 2 years with magic
« Reply #1 on: February 26, 2017, 09:54:25 PM »
If you sell the rental house and move somewhere a bit cheaper, you are FI immediately. If you just sell the rental house you are possibly in ok shape to be FI where you are in a few years if your husband's ship comes in and the IPO goes well.

Really, the bottom line is that you're house-poor. Crazy house poor. $500k of your ~$800k net worth is tied up! And by my very rough estimation your housing costs are something like 75% of all your spending!

Adding the unbelievably terrible rental (gross rent is $1700, right? If you did the standard 25% down for a rental, that means it was purchased for $360k or so?) makes it even worse.

You are good candidates for selling all your real estate and doing some slow domestic travel/renting to see where you like, IMO. You have proposed a wild variety of potential locations without all that much in common. Sounds like you need to spend some time figuring out where you'd actually want to live. Your kids are young enough that you won't disrupt their lives by wandering around a bit.

Bottom line: your non-housing expenses are super reasonable - and housing expenses are just totally insane. You can fix that by moving (but you need to know where) or by renting instead of owning. At the very least you can stop the bleeding a bit by selling the rental. Don't buy any more real estate until you know what you're doing.

Also, just a clarification - how are you going to end up with $21k a month if you pay off the rental? Did you mean $2100? What does the place actually rent for?

-W
« Last Edit: February 26, 2017, 10:05:51 PM by waltworks »

clairebonk

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Re: Boring Bay Area Family FIRE in 2 years with magic
« Reply #2 on: February 27, 2017, 04:28:44 PM »
I updated the mistake of the rental income, good catch.

We are crazy house poor!! I thought the rental was a good investment though. We paid $365k. We've had it rented continuously with good renters. Both our houses are the cheapest houses you can buy in the neighborhood for the size and decently livable without major upgrades. We bought the 2nd house when I was still working so making double salary of what we are now... I don't know how we are making it work!

I still don't know how a person decides where to live, though. I guess some domestic travel is in order.
 

waltworks

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Re: Boring Bay Area Family FIRE in 2 years with magic
« Reply #3 on: February 27, 2017, 04:48:16 PM »
So $365k rental (now worth another $100k or so) - what is the per-month rent? To roughly match basic index-fund expected returns, you'd want rents to be $3k/mo at a bare minimum.

Seriously, go read about the 1% rule, 50% rule, etc. Rental properties that cost $80k and rent for $1000 a month still exist in the US (though they're really hard to find now). How does your place compare? Are you including some set-asides for maintenance and capital outlays?

You have been bailed out by appreciation, which is awesome. Take your good luck, cash it in, and stay away from rental houses unless you do your homework first on what actually works.

-W

zolotiyeruki

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Re: Boring Bay Area Family FIRE in 2 years with magic
« Reply #4 on: March 01, 2017, 10:41:18 AM »
You have been bailed out by appreciation, which is awesome. Take your good luck, cash it in, and stay away from rental houses unless you do your homework first on what actually works.
I think this is step 1 in any case.  Sell the rental, stick it in a low-cost index fund, and then re-evaluate.  If you sell the rental  your net worth is about $530k + home equity ($280k). 

Beyond that, though, I think some soul-searching may be in order.  Retiring from work isn't usually enough.  You need something to retire to.  Do you have hobbies, or projects you'd prefer to be working on instead of a job?  The same goes for your husband.  And there's always the option for DH to keep working, if that's what he really enjoys.  MMM calls that a SWAMI (satisfied working advanced mustachian individual).  If you want to spend more time with DH, then if you retire, you have the freedom to handle tasks at home so that DH has the evening free to spend with you!

marty998

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Re: Boring Bay Area Family FIRE in 2 years with magic
« Reply #5 on: March 01, 2017, 02:01:14 PM »
You have been bailed out by appreciation, which is awesome. Take your good luck, cash it in, and stay away from rental houses unless you do your homework first on what actually works.
I think this is step 1 in any case.  Sell the rental, stick it in a low-cost index fund, and then re-evaluate.  If you sell the rental  your net worth is about $530k + home equity ($280k). 

This is quite insulting. I would say a hundred thousand in capital growth is exactly what "actually works". Would you rather her spend the next 14 years trying to do the same netting $7k income per year after all expenses and taxes.

She has bought a rental in a place where people want to live and are going to pay premium prices for. What is wrong with that? Do you always assume prices are headed for a crash all the time?

hadabeardonce

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Re: Boring Bay Area Family FIRE in 2 years with magic
« Reply #6 on: March 01, 2017, 02:36:24 PM »
How do you keep your food expenses to $540/mo?

waltworks

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Re: Boring Bay Area Family FIRE in 2 years with magic
« Reply #7 on: March 01, 2017, 05:36:33 PM »
This is quite insulting. I would say a hundred thousand in capital growth is exactly what "actually works". Would you rather her spend the next 14 years trying to do the same netting $7k income per year after all expenses and taxes.

She has bought a rental in a place where people want to live and are going to pay premium prices for. What is wrong with that? Do you always assume prices are headed for a crash all the time?

Go read some threads on the RE subforum. I was not being insulting, I was trying to help. Rentals that rent for <1% per month of their purchase price are almost always a bad idea. When you get a ton of capital appreciation, that's great - but it isn't the normal situation in real estate at all. Unless you're new to RE, of course, and you think prices always go up.

If I went out and say, bought 1000 shares of Pets.com for $10 (using, say, 3:1 leverage), and then in a year it had gained $100/share, and I was super psyched that I'm the best investor ever, you'd say something like "you got lucky, don't count on that happening again", right? You'd probably also tell me not to use leverage because it's too risky...yet somehow this is ok when we're talking about houses?

Look, housing overall in the US has appreciated about in line with inflation. There are reams of data about this. You can certainly get lucky in certain markets if you buy at the right time, but you can't count on the good times rolling on forever, nor should you generally buy counting on appreciation - because the numbers say it's a bad move.

-W

cats

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Re: Boring Bay Area Family FIRE in 2 years with magic
« Reply #8 on: March 03, 2017, 09:53:35 AM »
From writing all this I think my question is: where should we move? Readers, you canít probably answer that! But maybe you can give some advice as to how we can FIRE as soon as possible? I do think my husband wants to work for an employer but I DO NOT. EVER. NEVER EVER. I am willing to live as frugally as possible so I can spend time with my family and pursue my own interests (these days, with 2 little ones, it is sleep).

I got married because I liked spending time with my husband but I can't imagine him wanting to spend all his time with me & the kids because he loves his job so much. And once the kids start school I can't imagine what I would do all day if I wasn't working! The whole FIRE thing is empowering but really scary to me: will I get bored? All my friends will be working. What if my husband still wants to work?

These two bits really resonated with me as they're the parts of FIRE I struggle with too.  We're also in the Bay Area, earn enough to FIRE in the next ~3 years *if* we are willing to move somewhere LCOL.  I have a very love-hate relationship with California and also waffle about whether or not it is a good idea to move to either of the locations where we have family (as in, I think it would be good to live near family, but not 100% sold on where said family currently lives).

But more and more I find myself freaking out about the "what will I DO??" post-FIRE.  In my early 20s I always thought I'd find being a SAHM totally fulfilling and that I would devote myself to being the best possible mother.  Now that I have had more of a career I feel a bit differently, like I would be walking away from something that would be hard/impossible to go back to.  Also, when I've had random days off and done things like take my kid to the park or the library, most of the other kids are clearly there with their nannies, kind of like your point about how all your friends will still be working.  I do wonder if we move somewhere LCOL, maybe there will be more of a culture of SAHMs and less of a nanny culture, and I'll be able to make friends with other parents...but that seems like a lot to count on too.

Anyway, enough of that waffling, just wanted to say you aren't alone in your quandary! I'll be interested in seeing what thoughts others might have.

zolotiyeruki

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Re: Boring Bay Area Family FIRE in 2 years with magic
« Reply #9 on: March 03, 2017, 12:09:37 PM »
These two bits really resonated with me as they're the parts of FIRE I struggle with too.  We're also in the Bay Area, earn enough to FIRE in the next ~3 years *if* we are willing to move somewhere LCOL.  I have a very love-hate relationship with California and also waffle about whether or not it is a good idea to move to either of the locations where we have family (as in, I think it would be good to live near family, but not 100% sold on where said family currently lives).

But more and more I find myself freaking out about the "what will I DO??" post-FIRE.  In my early 20s I always thought I'd find being a SAHM totally fulfilling and that I would devote myself to being the best possible mother.  Now that I have had more of a career I feel a bit differently, like I would be walking away from something that would be hard/impossible to go back to.  Also, when I've had random days off and done things like take my kid to the park or the library, most of the other kids are clearly there with their nannies, kind of like your point about how all your friends will still be working.  I do wonder if we move somewhere LCOL, maybe there will be more of a culture of SAHMs and less of a nanny culture, and I'll be able to make friends with other parents...but that seems like a lot to count on too.
In every relatively-LCOL place I've lived in, it's parents at the playground with their kids.  I think the nanny culture is the real outlier here--it's only in high-income, HCOL areas that you'll see that, generally speaking.

Also, nobody said that the place you move right at retirement is the place you have to stay.  I've heard a lot of recommendations that you may want to travel a bit, staying 6 months in each of a few places to see how much you actually like it.  Then you can pick a place and settle down.

clairebonk

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Re: Boring Bay Area Family FIRE in 2 years with magic
« Reply #10 on: March 04, 2017, 05:00:33 PM »
I updated $200/mo for travel. That will go up next year after my kid turns 2.

We lived in the rental house for a bit and are still hanging on to it in case we move back up to Davis.

@hadabeardonce Mostly because we moved out of walking distance to Whole Foods, where our monthly food bills totaled $800/mo. I make everything from scratch (vanilla, pasta sauce, enchiladas, beans, crackers, cakes, mustard, bread) and we eat mostly vegetarian. We usually have something to pick from our garden and our neighbors' gardens. Right now it is lettuce, lemons, oranges, grapefruit and bok choy. We shop at Costco and are walking distance to Sprouts which has a great bulk selection and weekly sales. My husbands works at a start-up so has free meals 3x/wk and unlimited snacks.

@cats Totally!!! To everything you wrote. I have experienced mostly nannies at the playgrounds, too. I feel I have a big hole of mom-friendships because if I lived somewhere else there would be more moms with the bandwidth for friendship. I am a huge proponent of co-op living with childcare and meal sharing. I love NoCal, it feels like HOME. I love all it has to offer- the beach, the mountains, the city life, the climate. However the traffic is so bad and public transportation so lacking that I never do any of those things now that I have kids. Before my husband and I were sleep deprived, we could wake up at 4am and drive up the mountains or didn't mind doing a longer drive to the beach because we didn't have a whining child in the backseat. Mainly we hang out in our neighborhood which is lovely but we could be anywhere else in the USA. Thanks for sharing your perspective. It's super easy to go in/out of my career so I could jump back into it, I just find the Bay Area to be a little too intense in the workforce than is healthy for me.