Author Topic: Case Study: Get a house or retire early or become a landlord or ...  (Read 2697 times)

Sulame66

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Life Situation: Single, 32, 0 dependents, Dallas Texas

Gross Salary/Wages: $61,990

Individual amounts of each Pre-tax deductions - Was putting in 17% pre-tax and 15% post-tax into the 401(k) / Roth 401(k), I've since dropped to 5% pre and 0% post to maximize cash each month to pay off debt, while meeting company match maximum (80% up to 5% = 4% -> 9% by investing 5%)

Other Ordinary Income: None

Qualified Dividends & Long Term Capital Gains: Don't know what these are

Rental Income, Actual Expenses, and Depreciation: None

Adjusted Gross Income: This should equal the additions and subtractions above. Current paycheck is $1,776.39 bi-weekly at the 5% = $46,186.14

Taxes: Federal, state/local, and FICA.  Don't know federal, no state as I'm in Texas, don't know local.

Current expenses: Rent all in (cable, utilities, water, trash, rent) is $980-$1,000 a month. Gas is $80 a month. Car Insurance is currently $95 a month. Rental Insurance is paid in full through December 2017. Smart Phone is currently $70 a month, will drop to $45 a month in 2 months when the phone is paid off (22 months into a 24 month contract). I put $200 towards my car, $125 towards one set of loans, and $75 towards another loan. I spend typically about $50-$150 a month on fun stuff, but also have random stuff all the time like a dentist appointment tonight (probably $150 out of pocket), new clothes as I recently lost 10 pounds, $15 for a book through Church, $20 for a random happy hour with co-workers, etc. At $150 a month that's 3.9% of the $46,186.14 figure.

Assets: Toyota worth about $5,000, $3,100 in checking, 401(k) worth $42,000 split between pre and post-tax

Liabilities: Car -
Original Amount Financed
 $11,250.00
Maturity Date
 02/08/2018
Number of Extensions
 2
Monthly Payment Amount
 $196.85
Annual Percentage Rate
 1.90%
Payoff info: 1,965.43

Navient 1 -
Unpaid Principal
$1,753.41
Unpaid Interest
$0.00
Current Balance
$1,753.41
Interest Rate
2.650%
Original Principal
$2,625.00

Navient 2 -

Unpaid Principal
$1,562.46
Unpaid Interest
$0.00
Current Balance
$1,562.46
Interest Rate
2.650%
Original Principal
$3,500.00

Navient 3 -
Unpaid Principal
$3,552.19
Unpaid Interest
$0.00
Current Balance
$3,552.19
Interest Rate
2.650%
Original Principal
$5,500.00

MyFedLoan - Original Balance: $5,500.00
Unpaid Interest:  $0.59
Current Balance:  $3,451.14
Payment Information
Monthly Payment:  $54.38
Repayment Term:  111 Months
Expected Payoff Date:  05/22/2023
Due Date Information
Next Due Date:  04/22/2017
Days Delinquent:  0
Interest Rate:  3.15% 

I also owe $2,000 to the IRS this year for not taking out enough each paycheck

Specific Question(s): I don't know how to handle paying off the debt, saving for retirement, getting into a home for myself, possibly not getting a home for myself but getting an investment property, and generally working towards FIRE. There's not one person on this earth who would ever want to be with me so this will be 100% solo funded / done and that won't ever change. I hate work and never want to do it again
« Last Edit: March 24, 2017, 09:19:59 AM by Sulame66 »

RidetheRain

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Re: Case Study: Get a house or retire early or become a landlord or ...
« Reply #1 on: March 24, 2017, 12:47:08 PM »
Seems to me like you're in a pretty good place. A reasonable income with high percentages into retirement, low general spending, and the debts are low with tiny interest rates. Good job!

What I would do in your place is focus on one loan at a time. You'll have to do a little homework so far as early payoff fees for the car. Sometimes that can bite you. Otherwise, rank them in costly order and tackle the worse one first. Really though, they have such low interest rates that it hardly matters.

Your best bet is to follow this: https://forum.mrmoneymustache.com/investor-alley/investment-order-65299/

It's probably worth considering an EF so you don't have to take out any more loans too.

dess1313

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Re: Case Study: Get a house or retire early or become a landlord or ...
« Reply #2 on: March 25, 2017, 05:36:12 AM »
Welcome.  Here are 2 sites that may help you figure out how to focus on your debts
http://undebt.it/

http://www.whatsthecost.com/snowball.aspx

It sounds like you should be able to make a lot of headway into your debt with your low expenses you have.  these calculators can help show you the best method by either interest cost, or by lowest loan to pay it down.  I would recommend setting up a payment plan to the tax man soon, as there can be fees and or interest involved, and they can forcibly take money sometimes.  better to have them out of the way sooner than later

It will be easier to save up for a home when you have less debt to deal with.  Also work on establishing an emergency fund. 

An old joke is how do you eat an elephant?  One bite at a time.  right now focus on some of your debts before you try to jump into a house or becoming a land lord.  When those are out of the way, saving for a bigger goal like this will be much easier

frugal_c

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Re: Case Study: Get a house or retire early or become a landlord or ...
« Reply #3 on: March 25, 2017, 09:16:11 AM »
First of all, I think your debt is just noise as far as the bigger decisions.  Yes, pay it off from highest to lowest interest rate so long as there is no penalty but it's not very much relative to your income.  You should have it all paid off fairly soon or you could pay it off tomorrow with your savings.  I think it's distracting the conversation by focusing on something that's really quite small relative to the other issues.

As far as the bigger questions, no reason you can't both save for FIRE and be a landlord and have your own place.  Just find a place that is suited or where you rent a room.   I don't know the real estate situation where you are but if you do this perhaps your real estate expenses, with your renter considered, would be comparable to your current rent.  Then you could still save for FIRE.
« Last Edit: March 25, 2017, 09:19:40 AM by frugal_c »

nouveauRiche

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Re: Case Study: Get a house or retire early or become a landlord or ...
« Reply #4 on: March 25, 2017, 11:20:24 AM »
What kind of investment property did you have in mind? If you buy a building with 4 units or fewer (duplex, triplex, 4-plex) & live in one of the units, you can get a low-down-payment loan through FHA as "owner occupied".


Cwadda

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Re: Case Study: Get a house or retire early or become a landlord or ...
« Reply #5 on: March 25, 2017, 01:34:57 PM »
What kind of investment property did you have in mind? If you buy a building with 4 units or fewer (duplex, triplex, 4-plex) & live in one of the units, you can get a low-down-payment loan through FHA as "owner occupied".

Can confirm this works very well with as little as 3.5% downpayment. I did this with a 4-family and even with PMI I'm still living for free.

marty998

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Re: Case Study: Get a house or retire early or become a landlord or ...
« Reply #6 on: March 25, 2017, 04:20:49 PM »
There's not one person on this earth who would ever want to be with me so this will be 100% solo funded / done and that won't ever change.

This is a very sad thing this to say. Are you ok? Do you want to talk about it?

farfromfire

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Re: Case Study: Get a house or retire early or become a landlord or ...
« Reply #7 on: March 27, 2017, 04:25:14 AM »
There's not one person on this earth who would ever want to be with me so this will be 100% solo funded / done and that won't ever change. I hate work and never want to do it again
Even if just looking at it from a Mustachian point of view, this outlook is harmful and costing you far more in happiness, income and spending than any other category. I highly recommend speaking to a (cheap) therapist of some sort - absolutely nothing wrong with this.

Congratulations on the weight loss!

Laura33

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Re: Case Study: Get a house or retire early or become a landlord or ...
« Reply #8 on: March 27, 2017, 07:10:59 AM »
Why do you need to pay off those loans?  At those interest rates, it's close to free money.  Personally, I'd be making minimum payments and putting my extra money toward either retirement, home, or investment property (whatever is the highest priority).  Except the tax debt -- pay that off ASAP.

If you go back to maxing out your 401(k), what does that leave you to save monthly?  I suspect by the time you get enough saved up for a good downpayment, you will also at least have the car loan paid off, and maybe some of the others as well, which will leave you more space in your budget to handle a mortgage and home expenses.

Other than that, you need to figure out your priorities so you can allocate your income appropriately.  If you really hate work and your priority is to stop as soon as possible, think about investment property instead of a home to live in (or at most something like a quadruplex where you can live in one unit).  You can't quit until your passive income meets your monthly needs; therefore, to FIRE as quickly as possible, you need to (i) cut your expenses to as low as you are comfortable with, and (ii) put your savings towards vehicles that will throw money back at you (e.g., stocks for investment gains/dividends; real estate for rental income).  A house to live in can be a good idea if you can get one for a total monthly payment less than your rent, because that will help with (i).  OTOH, for most people, a home is more of a consumption good, because you want something bigger/more comfortable, and you end up spending more than your current rent on an asset that you get nothing out of until you sell it.  So as long as your rent is affordable and you are reasonably happy there, you are probably better off throwing your money at (ii) by investing or buying rental properties.

 

Wow, a phone plan for fifteen bucks!