I need some help weighing options and wanted to get the opinions of folks who also want to be out of the rat race. I know your instinct will be to urge me to lower expenses (and I promise I am, I've cut over $1k from our budget in the last six months or so!), but I'd like this post to be about how to generate more, or the right type of, income for me to quit. My DH loves his job and is not interested in quitting. So this post talks about replacing my income only, but we have joint assets to consider. I'd like to quit in the next 2 years, and I am having trouble making the numbers work.
My Current Net Income = $4,000/month from Rat Race Job; I'd like to replace this fully with other income before I quit.
Here's what I figure my options are:
1. Invest in more rental properties, but I'm not sure of the best way to fund them
2. Freelance, I've found a job that pays great but I doubt I can find another like it
3. Cash out 401k to pay off personal mortgage, only gets me part of the way to goal
4. Combination of above?
I recently started a business with a colleague from work to invest in rental properties. We've had it about 4 months and are doing well; we paid cash for two properties and both are rented. In my market, I can invest $55-60k and generate NET monthly income of about $800-850/month. We aren't taking profits from the business right now, but instead are building a cash reserve with the intent to buy more properties. We are unsure whether to leverage the properties we currently own to buy more or let the reserve grow until we can buy a third (will take about 3 years). I've run the numbers, and if we start mortgaging properties to fund buys I can NET about $550/month per property and remember I have to split profits with my partner. Numbers wise, it does make sense to leverage and buy more, we come out ahead in the long run.
I have about $215k in my 401k. My spouse has about the same. I cannot withdraw from my 401k at all (the rules don't allow it), but I can take up to a $50k loan @2.25% over 5 years which all gets paid back to my 401k. If I quit the loan comes due immediately. I have recently reduced our 401k contributions to just get the company match and now am saving/investing in regular taxable accounts to give us some more options when it comes to saving/spending. But it will take years to build up the same amount of money in a regular taxable account. I do not want to take anything from DH's 401k, as I'd like it to continue to grow.
On a suggestion from this board, I got an elance account and started freelancing. I got a job within a week; I was so thrilled and amazed at how easy it was and I love what I'm doing. Unfortunately, I've discovered that the job was truly a dream job. Despite over a month of searching, I cannot seem to find similar opportunities. Fortunately, this job is on-going, but only until March. My NET earnings are about $2000/month doing this. Knowing the possibilities I am confident I will always have some type of side job, but I am extremely doubtful I will ever find another job of this type that also pays this well.
I've got a 15 year mortgage @3% with about $180k and 13 years remaining. Payment is $1700/month. This is my only debt, but if I paid it off then I only need to replace $2300 a month in income.
I guess my "pie in the sky" thought was the following:
1. Continue freelancing earning $2k/month, in 2 years buy another income property for NET earnings of $800/month
2. Start taking my share of the profits from my existing rental property business for NET earnings of $800/month
3. Let 401k grow for another two years, cash it out and pay off the house for "earnings" of $1700/month
4. Freelance to earn the remaining $700/month
But here's where I get worried:
1. Doubt I can sustain the $2k/month in freelance income (not a big issue, since I'll still be working full time during this period, but it means I won't make my goal)
2. If I take profits from the business, it can't grow anymore (this really doesn't bother me at all)
3. Hate to have to pay the 10% penalty and I'd have to absolutely QUIT (this scares me if I don't get a warm fuzzy from my other income sources), plus I'd be heavily reliant on investment return which may skew my schedule if I have to wait for the market to tank and recover again (though I do love a good market crash, it would wreak havoc on my timeline)
4. Doubt I can earn a steady income freelancing (BIG concern here)
I need to find a way to replace my stable Rat Race Income of $4k/month. The freelancing gig has made me want so much more. I realized that if my house were paid off and I had a steady freelancing job, then I could quit today. I feel like I'm so close but just cannot quite get there. I have good income and cashflow, and given enough time I know I could quit the workforce. But I want it to be within 2 years and I'm not sure the best approach to take.
Ideas?