Poll

What is your plan (or actual) FIRE point for net rental income to expenses?

FIRE with net rental income < expenses, other assets make up the difference
24 (40%)
FIRE with net rental income = expenses, little to no other assets
2 (3.3%)
FIRE with net rental income = expenses, sizable extra assets
13 (21.7%)
FIRE with net rental income > expenses, little to no other assets
7 (11.7%)
FIRE with net rental income > expenses, sizable extra assets
8 (13.3%)
Plan to sell real estate at FIRE and invest in equities/bonds
6 (10%)

Total Members Voted: 60

Author Topic: **POLL** FIRE with high % NW in rental real estate  (Read 1572 times)

Papa bear

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**POLL** FIRE with high % NW in rental real estate
« on: October 18, 2018, 07:20:51 PM »
I'd like some data and information as to members's plans, or actual FIREing regarding net rental income and expenses.  I know that there have been other threads on a "SWR" for real estate.  I don't believe anyone could accurately come up with a number as real estate is too local.  I plan on having net rental income = expenses plus sizable other assets, probably at 12-15x annual expenses.  And we have already all been through the stock vs real estate debate; it's not my intent to rehash this.

Part of my curiosity is to see how conservative or aggressive I may be in my plan.  I hope that we can have a good discussion regarding member's FIRE plans regarding real estate, including plans on continuing leverage or selling to reinvest in other asset classes. 

Nothing in my plan is written in stone.  I would be open to selling, refinancing, purchasing more, etc. depending on local market conditions. 

SwordGuy

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Re: **POLL** FIRE with high % NW in rental real estate
« Reply #1 on: October 19, 2018, 05:54:54 AM »
We FIRED with 2 rental properties ready to go and 1 in the works.
We now have 3 rentals, 1 rental we're working on, and 1 flip or rental to work on.

When #4 comes on line, our rental income will cover 26% of our planned FIRE expenses.

My goal is to get to 6 rentals over the next few years.  That will cover 40% of planned FIRE expenses and also mean we don't have to depend on stock and bond income.  (The balance is farm income and social security.)


Papa bear

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Re: **POLL** FIRE with high % NW in rental real estate
« Reply #2 on: October 26, 2018, 02:49:30 PM »
I know there’s more of you out there!!  Only 12 votes???  Come on mustachians!!


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matchewed

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Re: **POLL** FIRE with high % NW in rental real estate
« Reply #3 on: October 27, 2018, 05:45:50 AM »
I plan on FIRE with RE income covering 25%-33% of our expenses. Then sell near traditional retirement age for a lump sum to be invested. So I guess some combination of the above?

APowers

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Re: **POLL** FIRE with high % NW in rental real estate
« Reply #4 on: October 27, 2018, 05:58:21 AM »
My plan is to have net rental income cover the basic expenses, and then use that as a safety net to basically do whatever I want, which may or may not bring in further income (likely it will, given that my skill set is pretty wide and generally useful).

clarkfan1979

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Re: **POLL** FIRE with high % NW in rental real estate
« Reply #5 on: October 27, 2018, 02:55:20 PM »
My wife and I have 2 single family rentals. Last year we brought in about 25K of rental income after vacancy and repairs. This does not count appreciation, principle pay down and tax benefits. Real estate is awesome!

Both rentals have a mortgage. If we had 4 of them with similar returns we could call it quits with 4 rentals. I think it's ok to spend 100% of your rental income because in this scenario about $800-$1,000/month would be going to principle pay down. You could do a cash-out refi on one property every 5 years for your slush fund. Never be less than 40% equity across all properties.

This year our rental income is going to be 18K because we did a cash-out re-fi this year to come up with a down payment for a primary residence, which happened in June 2018. We have another 2-3 months of repairs and should be at 42% equity across all 3 properties when it's complete. Our primary residence has a mother-in-law suite that we will use for rental income.

I will never retire because I love my job. I teach community college and the hours are close to part-time work. My wife quit full-time work approximately 3 years ago. She was a retail store manager. She got burned out. I told her to quit. That was huge. Now, she is a substitute teacher for fun about 2-3 days/week.




Dicey

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Re: **POLL** FIRE with high % NW in rental real estate
« Reply #6 on: October 27, 2018, 05:02:58 PM »
Hmmm, our primary home is worth 1.5M and has no mortgage..

We have three SFH rentals in another part of the state. They're collectively worth about 1.1M. All have mortgages at about 55% LTV. They don't cash flow a ton yet, but we bought when prices were low and the rents are rising steadily, so things are improving.

We're in the middle of a slow,  extensive flip. Bought for $725k, spending $200k, expect to sell for at least $1.1M based on recent neighborhood comps. We have a 50/50 partner.

DH gets a Defined Benefit Pension and we have more than enough in equities to retire on.

There is no option in the poll that fits our situation, which is exactly why I'm posting. It's a mistake to expect Real Estate to be the sole source of income in retirement. My Realtor has been a friend for over 20 years. She's in her seventies now. She's made shitloads more money than we ever have, but never invested in anything but real estate. Just today, she said that's why she still works. <---- If you haven't guessed, she's our partner in this flip.

Knapptyme

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Re: **POLL** FIRE with high % NW in rental real estate
« Reply #7 on: October 27, 2018, 05:57:08 PM »
We just bought our third official rental property. (We own the mortgage note on our old primary residence as our one unofficial income property. Not ideal situation, no need to derail this thread.) Two properties are owned outright, the third was leveraged for the most recent cash purchase. One covers the mortgage on itself, its HOA, maintenance, and taxes. The other covers our own home's mortgage and taxes and its own HOA. This third one will provide almost all profit.

We have 403b accounts from working, and some other investments elsewhere, but real estate now represents more than 75% of our FIRE plan. (Wife still works for now.) Ideally, we plan to live off profits from rent while letting everything else continue to grow.

Side note: I second the substitute teacher gig in retirement. Plenty of opportunity, no obligation. (It's okay to plan for that and still be able to be FIREd, right?)

Papa bear

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**POLL** FIRE with high % NW in rental real estate
« Reply #8 on: October 27, 2018, 11:08:09 PM »
Thank you to everyone that has contributed so far. I know we all have different plans and risk tolerances.  It’s good to have the data points.

So far, it looks like almost half of the poll responses are for people that have real estate as a part of their fire plan, but not covering the entirety of their expenses.

For the other half, maybe we are too conservative... not enough for me to get my wife to pull the plug too!  Yet.


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Lmoot

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Re: **POLL** FIRE with high % NW in rental real estate
« Reply #9 on: October 28, 2018, 04:29:38 AM »
Thank you to everyone that has contributed so far. I know we all have different plans and risk tolerances.  Itís good to have the data points.

So far, it looks like almost half of the poll responses are for people that have real estate as a part of their fire plan, but not covering the entirety of their expenses.

For the other half, maybe we are too conservative
... not enough for me to get my wife to pull the plug too!  Yet.


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Hmm, excluding the ones who chose it as part of the plan, not covering expenses, and little to no alternative sources of income, it seems like those relying on real estate to cover more than their expenses, might me less conservative...at least in terms of traditional methods of retirement funding.

matchewed

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Re: **POLL** FIRE with high % NW in rental real estate
« Reply #10 on: October 28, 2018, 09:52:46 AM »
Using terms like conservative in this fashion doesn't mean much to me. We generally agree with regular stock/bond definitions of that term but how does real estate measure to that? Or more importantly how do you measure it?

The plan is the plan, mitigate the risks associated with the plan and you have yourself a good recipe for success. Conservative/aggressive is a meaningless assignment of some vague wishy washy value of risk.

snacky

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Re: **POLL** FIRE with high % NW in rental real estate
« Reply #11 on: October 28, 2018, 10:49:58 AM »
Managing rentals doesn't sound like retirement to me. I plan on selling everything when I FIRE, and living in a little apartment with very little maintenance. I want to lock the door and leave for months without keeping a mental tally of the ages of roofs and furnaces, etc.

Stachetastic

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Re: **POLL** FIRE with high % NW in rental real estate
« Reply #12 on: October 28, 2018, 11:13:07 AM »
I will retire (not early) from the public sector, which will provide a pension that will be the bulk of retirement income. I also contribute to a 457 plan for additional retirement income. Because I intentionally stay in a low paying field in exchange for job flexibility and a short commute, the rentals help pad the overall income situation. We currently have two and are looking to add a third this year. They will all be paid off by the time we retire, so the income will be sizable at that point.

Lmoot

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Re: **POLL** FIRE with high % NW in rental real estate
« Reply #13 on: October 28, 2018, 02:42:04 PM »
Managing rentals doesn't sound like retirement to me. I plan on selling everything when I FIRE, and living in a little apartment with very little maintenance. I want to lock the door and leave for months without keeping a mental tally of the ages of roofs and furnaces, etc.

I suppose it is no more or less a retirement then someone who retires and builds houses or manages a blog. But yes, it may not be some peopleís ideal retirement.

waltworks

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Re: **POLL** FIRE with high % NW in rental real estate
« Reply #14 on: October 28, 2018, 02:46:28 PM »
Look, this is mostly a math problem. How much money do you expect the rentals to bring in, and how much will it cost you to hold onto them? Is that return better than you'd get elsewhere or not? It had better be pretty good, because rentals are potentially risky (asset fixed in one location subject to disasters, local economic changes, etc) unless you have a LOT of them in different locations.

OP's plan is crazy "conservative" (as Arebelspy pointed out once, accumulating way more than you need is a form of front-loaded FIRE failure, you're just putting the failure years at the beginning instead of the end), for sure, in that one could theoretically have at least some chance of a successful 30 year RE just on the paper assets (~6% WR). Add in RE that covers 100% of expenses and even if either half of the portfolio gets blown up/goes to zero, you're fine.

Which, of course, begs the question of why even think about finances anymore at that point. Threats to RE are basically non-financial (health, political instability, meteor impact/disaster) if you have 2x the income stream you actually need.

If you are still in accumulation mode, you may want to rethink acquiring this amount of assets, or at least contemplate how many hours/days/years of your life are being spent to acquire something you almost certainly will never need.

-W
« Last Edit: October 28, 2018, 02:54:32 PM by waltworks »

SwordGuy

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Re: **POLL** FIRE with high % NW in rental real estate
« Reply #15 on: October 28, 2018, 05:24:52 PM »
Managing rentals doesn't sound like retirement to me. I plan on selling everything when I FIRE, and living in a little apartment with very little maintenance. I want to lock the door and leave for months without keeping a mental tally of the ages of roofs and furnaces, etc.

We hire a management company to take care of the day-to-day issues.   We spend very little time each year dealing with our properties.  Maybe 2 hours per year per property.  And that's a liberal time expense estimate.

simplyjay

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Re: **POLL** FIRE with high % NW in rental real estate
« Reply #16 on: November 04, 2018, 07:27:04 PM »
Hmmm, our primary home is worth 1.5M and has no mortgage..

We have three SFH rentals in another part of the state. They're collectively worth about 1.1M. All have mortgages at about 55% LTV. They don't cash flow a ton yet, but we bought when prices were low and the rents are rising steadily, so things are improving.

We're in the middle of a slow,  extensive flip. Bought for $725k, spending $200k, expect to sell for at least $1.1M based on recent neighborhood comps. We have a 50/50 partner.

DH gets a Defined Benefit Pension and we have more than enough in equities to retire on.


allow me to kindly ask you a question. i live in boston and have a 2 family home. prices were better back when i purchased the house in late 2015.. now prices are way out of my reach, just for 20% down id need over 100k hah. how do you do the whole long distance land lording? how  has it worked out for you.
There is no option in the poll that fits our situation, which is exactly why I'm posting. It's a mistake to expect Real Estate to be the sole source of income in retirement. My Realtor has been a friend for over 20 years. She's in her seventies now. She's made shitloads more money than we ever have, but never invested in anything but real estate. Just today, she said that's why she still works. <---- If you haven't guessed, she's our partner in this flip.

Dicey

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Re: **POLL** FIRE with high % NW in rental real estate
« Reply #17 on: November 06, 2018, 12:56:19 AM »
Hmmm, our primary home is worth 1.5M and has no mortgage..

We have three SFH rentals in another part of the state. They're collectively worth about 1.1M. All have mortgages at about 55% LTV. They don't cash flow a ton yet, but we bought when prices were low and the rents are rising steadily, so things are improving.

We're in the middle of a slow,  extensive flip. Bought for $725k, spending $200k, expect to sell for at least $1.1M based on recent neighborhood comps. We have a 50/50 partner.

DH gets a Defined Benefit Pension and we have more than enough in equities to retire on.

There is no option in the poll that fits our situation, which is exactly why I'm posting. It's a mistake to expect Real Estate to be the sole source of income in retirement. My Realtor has been a friend for over 20 years. She's in her seventies now. She's made shitloads more money than we ever have, but never invested in anything but real estate. Just today, she said that's why she still works. <---- If you haven't guessed, she's our partner in this flip.
allow me to kindly ask you a question. i live in boston and have a 2 family home. prices were better back when i purchased the house in late 2015.. now prices are way out of my reach, just for 20% down id need over 100k hah. how do you do the whole long distance land lording? how  has it worked out for you
Hi @simplyjay, I think I've separated your question out correctly. Being a long distance LL has its challenges. Over time, we have developed a network of trusted providers who fix things when we can't be there. It helps that DH is a very handy kind of guy. He understands the problems and knows what needs to be done to fix them and what it should cost. He has excellent communication and follow-up skills.

All of our rentals have been long distance, because we live in a HCOLA, and nothing nearby pencils out. With the benefit of hindsight, I'd say Index Funds are a lot smarter and easier way to go.

Hope I've answered your questions.

simplyjay

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Re: **POLL** FIRE with high % NW in rental real estate
« Reply #18 on: November 06, 2018, 10:00:37 AM »
Hmmm, our primary home is worth 1.5M and has no mortgage..

We have three SFH rentals in another part of the state. They're collectively worth about 1.1M. All have mortgages at about 55% LTV. They don't cash flow a ton yet, but we bought when prices were low and the rents are rising steadily, so things are improving.

We're in the middle of a slow,  extensive flip. Bought for $725k, spending $200k, expect to sell for at least $1.1M based on recent neighborhood comps. We have a 50/50 partner.

DH gets a Defined Benefit Pension and we have more than enough in equities to retire on.

There is no option in the poll that fits our situation, which is exactly why I'm posting. It's a mistake to expect Real Estate to be the sole source of income in retirement. My Realtor has been a friend for over 20 years. She's in her seventies now. She's made shitloads more money than we ever have, but never invested in anything but real estate. Just today, she said that's why she still works. <---- If you haven't guessed, she's our partner in this flip.
allow me to kindly ask you a question. i live in boston and have a 2 family home. prices were better back when i purchased the house in late 2015.. now prices are way out of my reach, just for 20% down id need over 100k hah. how do you do the whole long distance land lording? how  has it worked out for you
Hi @simplyjay, I think I've separated your question out correctly. Being a long distance LL has its challenges. Over time, we have developed a network of trusted providers who fix things when we can't be there. It helps that DH is a very handy kind of guy. He understands the problems and knows what needs to be done to fix them and what it should cost. He has excellent communication and follow-up skills.

All of our rentals have been long distance, because we live in a HCOLA, and nothing nearby pencils out. With the benefit of hindsight, I'd say Index Funds are a lot smarter and easier way to go.

Hope I've answered your questions.

thank you for your response!! I plan to network my way into investment properties in south carolina, I got family there and prices are much more affordable. how did you go about chooseing your single familys? any particular requirements you had in mind?

JasonK

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Re: **POLL** FIRE with high % NW in rental real estate
« Reply #19 on: November 08, 2018, 09:30:13 AM »
I FIREd with 3 rentals in the Dallas market (paid off) and moved about an hour away.  Once I got settled in my more rural environment I realized the local returns on Mobile Homes are crazy.

I'm like Pete and enjoy rehabbing/working with my hands, so for the last four years I've been acquiring mobile homes, rehabbing and renting out.  My minimum net return is 25% (all are cash purchases-no leverage) with some deals as high as 35%.  A typical deal is purchase price of $30,000 (3/2 1,500 SF, 1/2 acre), rehab expenses (materials) of $10,000, rent of $1,200.  Property taxes and insurance are minimal, as are repairs as these are fresh rehabs.

In all fairness, you lose the appreciation aspect of SFR (MH's typically depreciate), but at these returns I don't care.  If the home is trashed in 20 years I'll just move another one on the lot and continue on*

I'm now up to 15 homes with three more under contract (purchase prices of $20K, $28.5K and $30K).  Current rental revenue exceeds $200K per year, of which I live on about $30K.

Just another path if you live somewhere where MH's are common and you enjoy rehab work.  I don't want to work TOO hard, so I'll probably only buy/rehab 3 homes per year, sticking the excess into Vanguard and leaving plenty of time for travel and leisure. 

Jason

* now that I've rehabbed appx 10 of these I realize they will last 40+ years or more as long as you take care of them.  Water is the enemy so address roof leaks and plumbing leaks asap.  Install vinyl plank floors - not carpet, not laminate.  In other words, just maintain them.  And buy doublewides with plywood floors, sheetrock walls, hardiboard or vinyl siding, composition roof - not the 80's era singlewide aluminum cans with particle board floors.

MoneyMatrix

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Re: **POLL** FIRE with high % NW in rental real estate
« Reply #20 on: November 11, 2018, 10:50:55 AM »
I find for my situation the real estate income is kind of erratic due to repairs and capital expenses.  I've been trying to sort out what's causing me to make less than I think I should. I'm thinking of changing property managers, but not sure if that would make a difference.

I kind of look at the real estate like bonds, or at least just a diversification from index funds. I'm looking at using it as supplemental income and figuring I'll get some appreciation over time on top of the income.