Author Topic: Case Study of Rare Situation - Where Should I Go from Here?  (Read 1234 times)

Saraant

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Case Study of Rare Situation - Where Should I Go from Here?
« on: September 19, 2018, 07:35:03 PM »
Life Situation:
Single, 39 year old female, no children (ever).  Living and working on ranch in Las Vegas, NV with boyfriend. 
Housing & maintenance, internet, cable, cell phone, health insurance, fuel, oil changes all paid for by work. 
No commute as I live on property.  Share 1 older vehicle (paid off), spend about $3,000/year on registration, taxes, and maintenance. 

Gross Salary/Wages:
$42,000 (W2) - $7,830 taxes = $34,170 net salary
$7,000 cash in bank.
Saving $1,100/month
Spending $700/month, plus contributing $680 to a joint spending account (matched contributions) - this account pays food, entertainment, household furnishings/supplies, and vehicle expenses.

Other Ordinary Income:
Started my own business in August 2017 flipping raw land with seller-financing.  I'm not really making money on this right now, though I do have $680/month coming in from seller-financing.  The company has no formal debt, although it "owes" me $3,000 (or $20k if you count my start up investment).
I am seeing 100% ROI on these flips. I am trying to keep my annual yield around 100% for the seller-financing. 
I am following the Profit 1st system and using 40% of revenue for land purchases, then from there 50% for operating expenses, 15% for taxes, 30% for salary and 5% for profit. Salary and profits have been funneled back into the business for continuing education, but I would like to start hiring virtual assistants to automate 95% of the business with the money allocated for salary. 

Qualified Dividends & Long Term Capital Gains:
Sorry to say I am not 100% sure how to answer this (I'm super new to all of this financial stuff!). 
I have a few hundred dollars in index funds (S&P 500 and Schwab 500) and a 1 share of Tesla.
I have transferred my traditional IRA over to a Qualified Retirement Plan which costs $300/year to maintain.  I have checkbook control over my retirement funds to buy investments. I planned on using these funds ($15k) to purchase more land investments.  All profits must be deposited into the QRP (cannot be used for operating expenses or anything else).
The land business currently has $33,000 due back from customers taking advantage of seller-financing. 

Rental Income, Actual Expenses, and Depreciation:
Starting to consider the possibility of buying a duplex - but have a lot of learning to do, and saving! (Side note: I was a Property Manager for 10 years)
Have never bought a house.

Current expenses:
Groceries, Restaurants, Bars: $900/month (this is from the joint account which I contribute $680/month to)
Household & Personal Shopping $250/month (1/2-3/4 comes from joint account)
Entertainment: $200/month (comes from joint account)
Travel: $300/month (1/2 comes from joint acct)
Auto & Transportation: $3,000/year (from joint)
=$1,266/month (my estimated contribution to these categories)

Personal Shopping: $200/month (hobbies, personal care, clothing, electronics)
Gifts/Donations: $30/month
Finance Fees: $25/month
Health & Fitness: $100/month


For mortgage payments:
N/A

Expected ER expenses:
N/A

Assets:
Vehicle: KBB $1,500 (it's a '98, I think it's all depreciated? Paid $5,000 in 2012)
Rooftop Tent: Paid $5,000 in 2012, could sell for $2,000
Land: $33,000 due on seller-financing
Qualified Retirement Plan: $15,000
Stocks and Index Funds: $475 paid in, current worth $605
1oz Silver Coin
1/10oz Gold Coin (LOL)

Liabilities:
Personal Credit Card Debt: $800
Joint Credit Card Debt: $400
Business Credit Card Debt: $400


Specific Question(s):
~ I would like to know what I should do next. 

I am trying to save $25,000 as recommended in Scott Tranch's Set for Life book. 

~ Should I put some of my $7k cash savings into my best performing Index Fund to hold onto, instead of sitting in bank?

I plan on having saved $10k by the end of 2018.
I have tightened up my spending and plan on saving another $12k in 2019

* I want to buy a van and travel Central and South America.
I am hoping to scale my business enough in the next year to support me while traveling. 
I think this will cost about $1,500-2,000/month.
I hope to be bringing in $5,000-10,000/month with the land business. 

* I want to have a place to call home when I am done traveling. I envision multiple rental properties throughout the States, and hopefully a small homestead in Mexico.  I would also like to do short-term rentals in multiple tiny homes, or something of that nature. 

- I have no idea where to start (well, I guess I have started, considering I sold everything I owned except the truck and tent when I traveled the States for a year in 2013, I only had $10k in an IRA when I started at this job in 2014 (no cash or assets). I have spent A LOT of money that I will not be spending going forward.)
This job and all its benefits will end when I decide to leave - I can stay for as long as I'd like, but I am getting antsy and want to leave sooner than later, but also want to have a good financial foundation before that happens. 
When I leave this job, I will also leave my partner, so no more dual income.
I expect to be here at least through 2019 (I will turn 40 in Sept of 2019. I really want to take a big trip, but am willing to wait until I have money working for me!)

What would you do if you were in my situation?? 

lhamo

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Re: Case Study of Rare Situation - Where Should I Go from Here?
« Reply #1 on: September 19, 2018, 11:24:52 PM »
If you are so into a minimalist lifestyle what on earth are you buying with your huge "shopping" categories?

I can't understand your expenses. With no housing costs why can't you save more?

You don't seem to be in the position to finance land deals. Sounds very risky to me. What do you do when you are overseas and one (or more) of your buyers defaults?

MDM

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Re: Case Study of Rare Situation - Where Should I Go from Here?
« Reply #2 on: September 19, 2018, 11:40:02 PM »
Saraant, welcome to the forum.  You do have an interesting situation!

Gross Salary/Wages:
$42,000 (W2) - $7,830 taxes = $34,170 net salary
2018 taxes should be lower, perhaps ~$6,623 for FICA and federal income tax.  Self-employment tax on the business income will depend on the business income.

Quote
Qualified Dividends & Long Term Capital Gains:
Sorry to say I am not 100% sure how to answer this (I'm super new to all of this financial stuff!). 
I have a few hundred dollars in index funds (S&P 500 and Schwab 500) and a 1 share of Tesla.
In that case these numbers will be small, and perhaps not taxed at all.

Quote
I have transferred my traditional IRA over to a Qualified Retirement Plan which costs $300/year to maintain.  I have checkbook control over my retirement funds to buy investments. I planned on using these funds ($15k) to purchase more land investments.  All profits must be deposited into the QRP (cannot be used for operating expenses or anything else).
What type of Qualified Retirement Plan is this?

Quote
Groceries, Restaurants, Bars: $900/month (this is from the joint account which I contribute $680/month to)
That's on the high side for a single person, but I don't know grocery prices in your area. 

Is this "joint account" an employee benefit, or...?

Quote
Personal Credit Card Debt: $800
Joint Credit Card Debt: $400
Business Credit Card Debt: $400
You pay these in full each month...right?

Quote
Specific Question(s):
~ I would like to know what I should do next. 
See Investment Order for the generic advice.  Seem you are considering using real estate instead of stocks/bonds for your investment.  That can work, but requires more effort and expertise than buying index funds.  You may want to start a "rental property specific" thread in the Real Estate and Landlording board.

Good luck!

Saraant

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Re: Case Study of Rare Situation - Where Should I Go from Here?
« Reply #3 on: September 20, 2018, 09:11:15 AM »
If you are so into a minimalist lifestyle what on earth are you buying with your huge "shopping" categories?

I can't understand your expenses. With no housing costs why can't you save more?

You don't seem to be in the position to finance land deals. Sounds very risky to me. What do you do when you are overseas and one (or more) of your buyers defaults?


I included my investments to index funds in my spending, I had health issues and spent $200-$300/month on care for 4 years, I had major dental work that cost ~$4,000, I got braces for $5000, I had a death and a few weddings that I traveled for, I took 2 vacations (these trips were $1,000-$2,000 each).  When I landed here I was NOT thinking about any sort of F.I., it wasn't even on my radar until about 18 months ago.  In the last 6 months I have dropped $400/month in spending.

The "joint" account and spending is for 2 people. 

I have done 7 land deals already, they only cost ~$1,000 to purchase, and I sell them for $5,000-$13,000. 
I sell on Land Contracts so when someone defaults I just send them a letter and resell the property to someone else.  It doesn't matter where I am, I do not have to be present for the "eviction" (this is VERY different from rental properties). 

I have already had a default, I paid $1,500 for the land, sold it for $5,500 of which the buyer paid me $600 and then I never heard from him again.  I resold the lot 5 days later for $6,500 and got $300 more as a downpayment than the last buyer gave.  (So now I am only into the land $100 (counting the $200 doc fee, for doc I prepare myself) and am owed $6,200.)
« Last Edit: September 20, 2018, 09:28:34 AM by Saraant »

Saraant

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Re: Case Study of Rare Situation - Where Should I Go from Here?
« Reply #4 on: September 20, 2018, 09:24:37 AM »
Gross Salary/Wages:
$42,000 (W2) - $7,830 taxes = $34,170 net salary
2018 taxes should be lower, perhaps ~$6,623 for FICA and federal income tax.  Self-employment tax on the business income will depend on the business income.

2017 I got a $2,000 refund due to my business expenses. I probably should have noted that. I was also putting $100-$150/month into my traditional IRA, which I am not doing now.


Quote
I have transferred my traditional IRA over to a Qualified Retirement Plan which costs $300/year to maintain.  I have checkbook control over my retirement funds to buy investments. I planned on using these funds ($15k) to purchase more land investments.  All profits must be deposited into the QRP (cannot be used for operating expenses or anything else).
What type of Qualified Retirement Plan is this?

It is literally called a Qualified Retirement Plan.
https://www.totalcontrolfinancial.com/


Quote
Groceries, Restaurants, Bars: $900/month (this is from the joint account which I contribute $680/month to)
That's on the high side for a single person, but I don't know grocery prices in your area. 
Is this "joint account" an employee benefit, or...?

This is how I split my boyfriend and my finances up after we got off the road and started having incomes. We each put $700/month into this account and use it for our groceries, entertainment, household spending, and truck repairs - so it is for 2 people, not just me.

Quote
Personal Credit Card Debt: $800
Joint Credit Card Debt: $400
Business Credit Card Debt: $400
You pay these in full each month...right?

I was, until we got hit pretty hard with joint expenses this summer, which we would rather pay from the joint than take from our personal accounts.  So we pay about $200/month on the joint debt.  This will be paid off this month from a sale of tickets we have coming in.
The personal debt is ALWAYS paid off each month, except I had a rough summer of trips and also carried my cousin's honeymoon for her - this will be paid off this month, but has been lingering for about 4 months (was up to $3k in May)


Quote
Specific Question(s):
~ I would like to know what I should do next. 
See Investment Order for the generic advice.  Seem you are considering using real estate instead of stocks/bonds for your investment.  That can work, but requires more effort and expertise than buying index funds.  You may want to start a "rental property specific" thread in the Real Estate and Landlording board.

Are you saying investing in index funds is just as lucrative as rentals?  After being a Property Manager for a decade, index funds sound WAY more appealing to me! But I didn't think they were as good of a return as rentals. (I also like the idea of having a place to live when I want a place to live again.) But again, as you can tell, I am just starting to think this way and have a lot of learning to do! (Hence why I am here :) )

Thank you so much for your reply, and well wishes!!

MDM

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Re: Case Study of Rare Situation - Where Should I Go from Here?
« Reply #5 on: September 20, 2018, 10:23:48 AM »
It is literally called a Qualified Retirement Plan.
Ok, that's a Self-Directed 401(k).  Just make sure you understand the rules (e.g., you can't live in property owned within the 401k).

Quote
Are you saying investing in index funds is just as lucrative as rentals?  After being a Property Manager for a decade, index funds sound WAY more appealing to me! But I didn't think they were as good of a return as rentals. (I also like the idea of having a place to live when I want a place to live again.) But again, as you can tell, I am just starting to think this way and have a lot of learning to do! (Hence why I am here :) )
One can gain or lose money in any given year with index funds, just as one can gain or lose money in any given year with rentals.  How much gain or loss depends on the index fund and the rental.  Either can be the foundation of a successful plan.