Author Topic: 29 y.o. able to FIRE now!? Someone check my math/sanity...  (Read 2342 times)

FruGal

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29 y.o. able to FIRE now!? Someone check my math/sanity...
« on: April 14, 2017, 07:45:18 PM »
I have an interesting financial situation: I just turned 29, have been at my (first and only) engineering job for 2.5 years, got an amazing deal on an investment property last summer, and I'm considering FIRE. Like, now (okay, mid-May).   

The impetus for this change is two-fold:
1) When I applied to my job, I really thought it was my dream job. However, I've been unhappy since the start. I'm pretty sure that I'm getting laid off in two weeks and assuming a two weeks notice, that means I'll be done around 5/10.
2) I'm in the process of doing a cash-out re-finance, which should be done around the same time (eek). The cash-out will allow me to partially pay off my dad who lent me $100k for the majority of the downpayment (he's charging me 4%), and increase the earning potential of the property by about $1000.

Monthly breakdown after the refi:
Rental Income:        $6,200
Mortgage:                $2,600 (the cash-out is included)
Personal Loan 1:      $   800
Personal Loan 2:      $   487
Property Manager:   $   403
______________________
Monthly Profit:         $1,910 (While the story of this investment property is interesting, it's not necessarily relevant to this post)

So, after the refi, the house will gross about $1910 per month. I have about $37k in the bank in cash (I know this amount is silly, but before I knew I was getting laid off I started saving for another downpayment) and about $29k in retirement accounts. If I pay my dad $50k with the cash-out I should be done with the remaining payments in 5-ish years. At that point I'll be making an extra $800 per month for a total rental income of $2710 per month. If the refi is large enough, I may be able to pay him back more and be making the extra $800 a year or two sooner.

As a fairly frugal mustachian (although, granted I've been the victim of lifestyle inflation recently), it's completely do-able for me to live off about $1,600 per month without feeling like I'm sacrificing in any big way. Initially, there will be a small surplus of about $310 that I'm taking in every month from the rental, after paying off my dad the surplus will increase to about $1110 per month. Additionally, as a fairly curious person I fully expect to cultivate side hobbies that will bring in additional income. Also, I have my retirement accounts and the money in the bank (although I'll probably move at least half of it into ETFs and index funds), which will still be there as fall-backs that I hopefully won't have to dip into (much?) during this time.

I know shit happens with rental houses and there's potential issues with damages, turn-over, etc. However, running the numbers it seems like I don't need to get a new job(!). I don't plan on having kids, I don't have a car (or a huge desire to buy one), my housing is rent-controlled... Is there something big that I'm missing? Is it possible that I can actually retire at 29?!?
 
« Last Edit: April 14, 2017, 07:49:25 PM by FruGal »

makinbutter

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Re: 29 y.o. able to FIRE now!? Someone check my math/sanity...
« Reply #1 on: April 14, 2017, 08:33:52 PM »
I appreciate the enthusiasm, and mean this in the nicest way possible, but are you fairly new to the LL game?  I only ask because you haven't quoted any of the 'typical' costs associated with owning a rental.

A VERY rough back-of-the-envelope calculation would suggest that you'll need about 50% of your gross rental proceeds to pay for operating expenses before even touching the mortgage:
-- 10% for Property management (which I see you accounted for, good!)
-- 10% for projected vacancies
-- 10-20% for a combination of maintenance costs + capital expenditures (that baby will need a new roof someday, etc.)
-- 10% for taxes, etc.

So, again, very rough calculations... your $6200 rental will PROOOOBABLY bring in somewhere around $3000-3500 average per month (after expenses).  When you subtract out your $2600 mortgage payment, you're suddenly pocketing a whole lot less (again, these are all WAG numbers). 

I think you're off to a great start, that's for damn sure.  Why not roll some of those proceeds from the 'good' rental months (where you have no broken sinks, no vacancies, no water heater repairs) into picking up another 1, or 2, or 5, and then reassess?

I say this as someone who has done just that - on a 'good' month, I have 2k+ coming in from rental income... so I'm free, right??  Not so fast, says the fickle hand of fate.  Eviction, vacancy, etc. have reared their ugly head, and some months I have been lucky to break even.
  You haven't said how long you've owned yours, but I'd wager dollars to donuts it'll be the same story.

Homework: get thee over to biggerpockets and read read read

Good luck, let's all meet at the finish line and warm ourselves with a big pile of 100s lit on fire

I have an interesting financial situation: I just turned 29, have been at my (first and only) engineering job for 2.5 years, got an amazing deal on an investment property last summer, and I'm considering FIRE. Like, now (okay, mid-May).   

The impetus for this change is two-fold:
1) When I applied to my job, I really thought it was my dream job. However, I've been unhappy since the start. I'm pretty sure that I'm getting laid off in two weeks and assuming a two weeks notice, that means I'll be done around 5/10.
2) I'm in the process of doing a cash-out re-finance, which should be done around the same time (eek). The cash-out will allow me to partially pay off my dad who lent me $100k for the majority of the downpayment (he's charging me 4%), and increase the earning potential of the property by about $1000.

Monthly breakdown after the refi:
Rental Income:        $6,200
Mortgage:                $2,600 (the cash-out is included)
Personal Loan 1:      $   800
Personal Loan 2:      $   487
Property Manager:   $   403
______________________
Monthly Profit:         $1,910 (While the story of this investment property is interesting, it's not necessarily relevant to this post)

So, after the refi, the house will gross about $1910 per month. I have about $37k in the bank in cash (I know this amount is silly, but before I knew I was getting laid off I started saving for another downpayment) and about $29k in retirement accounts. If I pay my dad $50k with the cash-out I should be done with the remaining payments in 5-ish years. At that point I'll be making an extra $800 per month for a total rental income of $2710 per month. If the refi is large enough, I may be able to pay him back more and be making the extra $800 a year or two sooner.

As a fairly frugal mustachian (although, granted I've been the victim of lifestyle inflation recently), it's completely do-able for me to live off about $1,600 per month without feeling like I'm sacrificing in any big way. Initially, there will be a small surplus of about $310 that I'm taking in every month from the rental, after paying off my dad the surplus will increase to about $1110 per month. Additionally, as a fairly curious person I fully expect to cultivate side hobbies that will bring in additional income. Also, I have my retirement accounts and the money in the bank (although I'll probably move at least half of it into ETFs and index funds), which will still be there as fall-backs that I hopefully won't have to dip into (much?) during this time.

I know shit happens with rental houses and there's potential issues with damages, turn-over, etc. However, running the numbers it seems like I don't need to get a new job(!). I don't plan on having kids, I don't have a car (or a huge desire to buy one), my housing is rent-controlled... Is there something big that I'm missing? Is it possible that I can actually retire at 29?!?

KungfuRabbit

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Re: 29 y.o. able to FIRE now!? Someone check my math/sanity...
« Reply #2 on: April 15, 2017, 07:12:37 AM »
First of all, I'm curious about the story of the property, but you are correct it's not relevant.

I agree with the above poster, rental properties are not free, and on many levels they are a gamble.  Here are two case studies for you, one is my brother and one is my best friend

Brother:
-Had the same tenant for 7 years, no significant damage to the house, no real maintenance aside from a few small things here and there, and the tenant even fixed some of them himself.  Landlords have dreams about that.  When the tenant moved out my brother actually just sold the house, he knew the situation he had was too good to be true and didn't want to deal with a more normal situation (and, in that 7 years the housing market recovered and he had 2 kids, so the justification to rent wasn't quite there anyhow). 

Friend:
-Over the past 5 years hasn't held a tenant for more than 6 months.  The A/C and the furnace went out even though they were relatively new.  A very large window needed to be replaced.  And almost every tenant (mind you there have been 7 or 8 of them) left fairly significant damage to the house such that he has replaced the carpet 2x, patched and painted walls many times, replaced the granite countertops, and replaced the stove (both of the previous were cracked beyond repair from abuse), etc. 

Both of them had a budget like yours above.  For my brother it worked out great.  For my friend he has lost a SIGNIFICANT amount of money (we're not just talking he didn't make profit but he was paying down principle on the loan, we're talking all things included he has lost TONS of money not to mention the insane stress) - luckily he didn't quit his engineering job. 

So in my opinion in a BEST CASE scenario your numbers above are razor thin.  In anything but a best case scenario you'll be asking for another loan from your parents and applying for another job.

Engineering is a hard field to get back in to after a long leave.  If you don't work for 5 years trying the landlord thing and you decide you need a job again, it'll be really hard to find one (and for good reason, with 2 years of job experience and 5 years of forgetting everything you knew, another employer would be better off hiring a new grab in all likelihood...). 

I guess I'd fairly directly tell you if your life plan is landlord you aren't quite ready, but with another 5-10 years (depending on if you hit situation 1 or situation 2) of building equity and buying another property or two - no sweat. 

maizeman

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Re: 29 y.o. able to FIRE now!? Someone check my math/sanity...
« Reply #3 on: April 15, 2017, 07:43:15 AM »
Not to pile on, but does your $1,600/month budget include the cost of healthcare/health insurance? (Which you presumably get through your employer right now.)

I lived on about about that amount in grad school and had a great time of it but A) had healthcare provided through the university B) saw a doctor all of once in the whole time I was there.

bacchi

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Re: 29 y.o. able to FIRE now!? Someone check my math/sanity...
« Reply #4 on: April 15, 2017, 10:21:07 AM »
Not to pile on, but does your $1,600/month budget include the cost of healthcare/health insurance? (Which you presumably get through your employer right now.)

I lived on about about that amount in grad school and had a great time of it but A) had healthcare provided through the university B) saw a doctor all of once in the whole time I was there.

And, of course, there's little money for the out of pocket costs associated with an HDHP.

Yeah, this is cutting it too close. Maybe doing contracts with vacations in between would suit the OP better.

webguy

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Re: 29 y.o. able to FIRE now!? Someone check my math/sanity...
« Reply #5 on: April 15, 2017, 02:18:47 PM »
This is a very risky plan. I'd only feel comfortable doing this if I had other sources of income or a stache that could support a good chunk of my expenses. Relying on one rental property is a high risk strategy.

SwordGuy

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Re: 29 y.o. able to FIRE now!? Someone check my math/sanity...
« Reply #6 on: April 15, 2017, 02:46:51 PM »
I just add an "Amen!" to all the good advice you've already gotten on the financial side.

Now, in what rosy world do people get a "two week notice" they have been laid off? 

Any layoff I've ever seen was based on "You don't have a job anymore.  Your computer account is locked out.  Go pack up your stuff at your desk.  (Possibly while being watched.)  We will escort you to the door.  Bye."

Civex

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Re: 29 y.o. able to FIRE now!? Someone check my math/sanity...
« Reply #7 on: April 15, 2017, 05:10:18 PM »
Not to pile on, but does your $1,600/month budget include the cost of healthcare/health insurance? (Which you presumably get through your employer right now.)

I lived on about about that amount in grad school and had a great time of it but A) had healthcare provided through the university B) saw a doctor all of once in the whole time I was there.

+1

Definetly take into consideration healthcare costs- the two people I know that pay out of pocket for health insurance pay between $500-900/month.

Could you move forward with your plan, but find a part time job in something less stressful/enjoyable that offers (even somewhat) subsidized health insurance? A lady I work with only works 3 shifts per period, which allows her to be eligible for our health insurance- her whole check goes to it, but it allows her and her husband to pursue other things outside of work.

cchrissyy

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Re: 29 y.o. able to FIRE now!? Someone check my math/sanity...
« Reply #8 on: April 15, 2017, 09:10:06 PM »
I agree with the others.  how about you get a job you like better in engineering and keep landlording another 5 years and then re-assess? 

advantages
your personal loans paid off
get experience with the rental's typical expenses and vacancy rates
prove to yourself you can live on this budget
save up your salary for several years

places where i disagree with others posters
i think you should learn to be your own property manager. especially given the retire early scenario, make it a priority to gain those skills and save that money. of course I don't know how many units this is and if you live at all close by. but if possible, you can save $400/m, a figure that will grow as rents rise from inflation.
i don't think you need to worry about taxes in your RE scenario. After subtracting mortgage interest, depreciation, and expenses, if you stopped having wage income, the remaining taxable income is going to be very low.