Can I quit? Why is FI easier than RE?

[OhioDoug]

Hey MMM readers!  I've been a long time MMM follower and haven't posted much but have been living the "mustachian" life for quite a while now.  I think I'm finally nearing, or at my FIRE point but like others I'm letting fear hold me back.  Discussing this topic with friends/family is hard so I'm hoping to get some help here.

Me and my wife are from Ohio, both 36 yrs old with a 3 yr old and a 4 yr old.  I'd love to quit the rat race and live simply, but also really hate the idea of being "limited" in life.  By limited I mean that if some opportunity were to arise in the future (like a new small business venture or a big relocation) we'd hate to not be able to do it because we settled on too low of an FI number or we quit too early.  I think this is our biggest hold out to me leaving my full time job.  My full time job is very draining and makes it really difficult to see my family enough.  Over the last few years we've been aggressively investing in real estate and we're hoping that this will be the primary income source in retirement.  Since I outsource management it should be very minimal time commitment to allow us to pursue other passions while focusing more on "family."

I'm hoping to get some feedback on our situation, and very open to any tips or advice!

Gross Salary/Wages: 185k/yr My engineering salary = $135k w/ additional 401k match, pension and health care, Wife ~$50k from self employed small business

Retirement contributions $46.2k/yr: My 401k = $18.5k/yr + $10k/yr match, Roth IRA'S = $11k / yr, HSA = $6.7k/yr

Other Income $60k/yr:  Real estate income averaged after estimated expenses

Current expenses: $50k/yr annual living expenses with $18k/yr of that for personal home loan

Mortgage payments: $3,875/mo principal, $8,340/mo interest Investing + Personal real estate (combo of 15, 20, 30 year loans)

Expected ER expenses: ~$65k/yr Should match current expenses of ~$50k/yr + healthcare costs ($12k/yr?) and maybe slightly higher to allow for travel.

Assets: $587K 401k= $230k, IRA's= $165k, HSA = $12k, Pension cash out value ~$50k, small business value ~$100k, Cash = $30k

Real Estate Assets: $2,375k Fairly conservative estimate of values

Liabilities: $1,555k Real estate loans ~$1,479k, Real estate lines of credit~$76k, also have 401k loan of ~$44k but owed to myself

Additional Details:  Here's where I'm a bit stuck and partially waiting for these to play out before I quit my full time job. 
1 - Potentially selling small business for around $150k (would be used to payoff lines of credit and 401k loan)
2 - Option on the table will allow us to free up ~$125k cash from a real estate sale or we can invest another $75k over the next 12 or so months in renovations to bring in ~$21k/yr in additional cash flow (can refi and pull cash back out if needed)

Final Questions:  With some "potentially" large amounts of money coming in soon should I wait until those play out and then re-assess retiring at that point?  We have a LOT of real estate debt, but that leverage has allowed us to have great returns and still cash flow well (and will eventually pay themselves off).  Should we work to pay down some real estate debt to be "safer?"  Finally, what are you thoughts on us retiring now to allow us to focus on our kids while they're still young?

Thank you in advance!

[Cassie]

Could you switch to a less stressful job with lower pay that you would enjoy?

[marty998]

Me and my wife are from Ohio, both 36 yrs old with a 3 yr old and a 4 yr old.  I'd love to quit the rat race and live simply, but also really hate the idea of being "limited" in life.  By limited I mean that if some opportunity were to arise in the future (like a new small business venture or a big relocation) we'd hate to not be able to do it because we settled on too low of an FI number or we quit too early.

Would you not miss out on these opportunities by default if you were still working?

[tamuaggie2011]

Final Questions:  With some "potentially" large amounts of money coming in soon should I wait until those play out and then re-assess retiring at that point?  We have a LOT of real estate debt, but that leverage has allowed us to have great returns and still cash flow well (and will eventually pay themselves off).  Should we work to pay down some real estate debt to be "safer?"  Finally, what are you thoughts on us retiring now to allow us to focus on our kids while they're still young?

1. I think it's fairly obvious you want to get out of your current job in order to be able to be with your family. As a previous poster questioned this could be just taking a lower paying job if you are still wanting cash flow/health insurance coverage
2. As to your questions on real estate you do not provide a breakout of how much is owed on personal vs. investment properties. Personally I would want to have my personal residence paid off before retiring. What are you currently doing with the 60k of rental income?
3. As to being worried about having enough, these rental properties alone generate enough to cover your yearly expenses. Using your numbers you currently spend 50 including 18k on the personal home so really your net expenses are 32k a year. Even adding back in 12k for personal health insurance you are only  at 44k a year and bringing in 60k in real estate alone
4.Is your wife wanting to continue with the business once you retire? If not then I would say go ahead and sell the business and use the proceeds to pay off your personal residence.
5. In conclusion, you could stop working tomorrow if you really wanted to, but it sounds like you and the Mrs. are looking to be  110% secure on financial future. Therefore I would say continue working long enough (I'm estimating 2-3 years but that is an educated guess without real numbers) to pay off the personal residence and continuing to save some more in liquid accounts as well (Emergency Fund etc..). This will also give you the time to wait out to see if you get the "potential large amounts of money" you reference.

Great job on your financial situation so far and best of luck in the future!

[OhioDoug]

Could you switch to a less stressful job with lower pay that you would enjoy?

I did think about this, but I think I'm over working for a standard paycheck (getting paid by the hour).

Me and my wife are from Ohio, both 36 yrs old with a 3 yr old and a 4 yr old.  I'd love to quit the rat race and live simply, but also really hate the idea of being "limited" in life.  By limited I mean that if some opportunity were to arise in the future (like a new small business venture or a big relocation) we'd hate to not be able to do it because we settled on too low of an FI number or we quit too early.

Would you not miss out on these opportunities by default if you were still working?

I guess I didn't explain this well, but I was thinking more long-term if something were to arise a few years after quitting (whenever that happens).  But right now yes! That's one driver for wanting to leave as well.

Final Questions:  With some "potentially" large amounts of money coming in soon should I wait until those play out and then re-assess retiring at that point?  We have a LOT of real estate debt, but that leverage has allowed us to have great returns and still cash flow well (and will eventually pay themselves off).  Should we work to pay down some real estate debt to be "safer?"  Finally, what are you thoughts on us retiring now to allow us to focus on our kids while they're still young?

1. I think it's fairly obvious you want to get out of your current job in order to be able to be with your family. As a previous poster questioned this could be just taking a lower paying job if you are still wanting cash flow/health insurance coverage
2. As to your questions on real estate you do not provide a breakout of how much is owed on personal vs. investment properties. Personally I would want to have my personal residence paid off before retiring. What are you currently doing with the 60k of rental income?
3. As to being worried about having enough, these rental properties alone generate enough to cover your yearly expenses. Using your numbers you currently spend 50 including 18k on the personal home so really your net expenses are 32k a year. Even adding back in 12k for personal health insurance you are only  at 44k a year and bringing in 60k in real estate alone
4.Is your wife wanting to continue with the business once you retire? If not then I would say go ahead and sell the business and use the proceeds to pay off your personal residence.
5. In conclusion, you could stop working tomorrow if you really wanted to, but it sounds like you and the Mrs. are looking to be  110% secure on financial future. Therefore I would say continue working long enough (I'm estimating 2-3 years but that is an educated guess without real numbers) to pay off the personal residence and continuing to save some more in liquid accounts as well (Emergency Fund etc..). This will also give you the time to wait out to see if you get the "potential large amounts of money" you reference.

Great job on your financial situation so far and best of luck in the future!

Thanks for the thorough look through!  We owe around $176k on our personal residence and I have definitely considered paying that off first.  I think it's a really good idea, but I can't turn my "optimizing" brain off to just put money into paying it off when I can get better returns elsewhere.  Perhaps this would be best in my situation though. 

So far the real estate income has just gone into buying more real estate and renovations.  I'm finally at a point where I may start stashing some of the income and slowing down on the acquisitions.

My wife isn't sure what she wants to do yet, but shes very open to any new exciting opportunities.

I think your conclusion is probably the best route, and roughly 2 years might do it.  I'm just hoping for someone to help me justify making the leap sooner! ha

[feelingroovy]

Is your wife willing to continue with the business?

If so, I think you could quit pretty soon. You are going to need to pay off the 401k loan as soon as you leave so you may as well do that first.

I think if you just switch your goals from wealth building to cash flow, you will soon have more money than you know what to do with. Then you can go back to wealth building.

If it were me, I would put together a plan. Run a few scenarios of acquiring nothing more. Put all rental income plus salary into paying off one loan at a time to increase cash flow. Maybe start with the LOCs after the 401k loan. What does your cash flow look like at that point?

This could take just a few months.

[mistymoney]

is 100-150k a realistic estimate of selling the wife's business?

Unless you've left out some details, it sounds like buying one's self a 50k/year job. Which are pretty easy to come by.

[insufFIcientfunds]

Looks like you have a good plan set up so far. I also work/live in Ohio. I work in a research lab with engineers (I work in finance, I also like my job) and I will say they are the most happy that I have seen anyone in a job. I think they don't even really see it as work. They would do it for free they love it so much...so that sucks you are caught in the position you are in.

Hopefully as you kick this can down the road you can find similar work you enjoy. Maybe that be as a part timer focusing on the engineering discipline you actually care about and less about pushing paper or doing admin BS.

Not that it'll help relieve the stress but it has to give you some comfort to know that you have a valuable, desirable skill to fall back on or to leverage to increase your happiness and provide for your family (with time and $, not just $.)