Thanks for the reply's all,
To Christof : your right that might be wiser to keep 55k in reserve but having another 20k sitting in a checking account earning me nothing would really chap my hide. I have a 25k line of credit at about 7.5% with a 0 balance. So between the 30k in cash and that 25k line available as an additional emergency fund I sleep ok at night and don't feel I need a larger reserve.
And as for paying off the highest interest rate mortgage and snowballing I've debated it but I have a really hard time justifying investing at 5% when I think I can do better else where.
To So Close : Yes reloading the gun means piling up so cash to buy something else or invest in something.
As to my current situation ok here goes on my case study:
Let me start with a story to justify some of the bad and then I'll take the face punches.
In 2009 I spent somewhere on the order of 50k fighting a very ugly legal battle, lost my job wrecked two cars and moved to a new city with no job about 40k of debt and 5k of cash in the bank. in 2010 I think I made somewhere around 35k-40k (my head was buried in the sand and I swear to god I was suffering financial PTSD) 2011 was a bit better at about 60k, 2012 and 2013 were better at 100k and 120k respectively. But I had absolutely no control over our household spending and in all honesty it was probably somewhere on the order of 6k-8k a month I really don't know as my wife and I still had our heads buried in the sand and I was more worried about earning money and acquiring real estate and wasn't paying attention to playing defense. Which brings me to now I've made 56k YTD (on track to hit 80k) but due to some mismanagement from the owner and some family health issues with my wife's family I got promoted to being self employed and we are currently in the process of relocating to Seattle (wish me luck job hunting!)
I’m 34 and my wife is 32 we have an 18 month old daughter and are hoping for a second child soon (more about the cost of fertility treatments later)
I work in the mortgage industry most recently managing a small team of loan officers. My income has fluctuated wildly over the last 5 years and I always have to plan for that. But I can reasonably expect 80-120k a year at any position I land in Seattle.
My wife stays at home with our 18 month old, she does hold a real estate license but brings in only 4k-8k a year on deals with friends or family (although she has saved us the 3% every time we’ve bought which adds up fast)
30k Cash reserves
10k spread between Lending Club and a S&P 500 index fund (.5% expense ratio if I remember correctly)
25k line of credit to borrow against in an emergency
265k of equity split pretty evenly between the 5 4-plexes, the best one has 78k the worst one has 20k
Total real estate today's value 1.1 mil total mortgages owed 835k
0 debt anywhere else
2005 ford escape we bought for 8k cash
Here's our monthly outlay:
Mortgages - $5500
What we should be budgeting for on the rentals is
Gross in 13,000 - $1300 (10% vacancy late pay eviction etc.) - $950 (property management 8%) - $1600 (maintenance repairs garbage etc) - $5500 mortgage = $3500 net
What has actually been happening on the rentals over the last 2 years
Gross in 11,500 - $1800 (15% vacancy late pay eviction etc.) - $975 (property management 10%) - $2000 (maintenance repairs garbage etc) - $5500 mortgage = $1200 - $1800 net
My numbers are a little fuzzy there as I really wasn't paying close enough attention to my prior manager. I really got active with her about 3 months ago and tried to address some of the glaring problem (the units where under rented, not enough was being collected in initial deposits and utilities where not being passed on to the tenants appropriately) This month I decided probation was over fired her and hired a larger more organized management team. This will be an area for me to manage more closely in the coming months but my new team is reassuring me that my net figure of $3500 is very achievable with conservative estimates.
The upside to all of this is that I live rent free in one of my units, I guess it’s not free as it could be rented for about $825 but on my books the roof over my head puts money in my pocket every month right now. That might change soon with the relocation, but we’re going to be moving in with family for the first 2 months and are seriously looking at living with her grandparents to save them from having to pay for long term care for themselves.
Monthly budget
net flix $8.00
MLS/Realtor fees $120.00 renewal fees and monthly subscriptions
electric $125.00
Water $50.00
Groceries $1000.00 This includes cleaning supplies and misc.
Gas $150.00
Auto Exspence $100.00 Budgeted for repairs etc
Medical $400.00 $5000 deductible we've hit every year for the past 3 years
health insurance $380.00
auto insurance $50.00 Liability only, rounded up
internet $60.00
laundry and cleaning $10.00
Books $50.00
Games $50.00
Misc / Shopping $250.00
E-cig $80.00 Better than smoking
Gym Membership $100.00
phone $110.00
Kids stuff $250.00
Pets $250.00 2 dogs 2 cats
eating out $250.00
Total $3843
We really only started paying attention to budgeting about 3 months ago, and I know for a fact that it’s actually been closer to about $4000 a month that has flowed out of our account in the last 3 months. And as I said before was likely in excess of 6-8k prior to that, I know it was excessive, we both identified it as a problem and we don’t want to go digging in our finances just to dig up dirty laundry to throw at each other. Additionally last month we spent about $10,000 on fertility treatments and will need to budget about the same for 2 years from now (still better than the 20-25k we spent on fertility in 2012.
Areas we’ve already identified
My eating out habit has to go, and I don’t need $100 bucks a month for books and video games, the gym membership has got to go, my wife had better have everything for the baby by now (just recently swapped over to cloth diapers, going to start paying attention to buying “cute” things on amazon etc.), the pets have all been neutered now, and we’re dropping the wasteful vet insurance we where paying for. The phone is going to a $50 plan we found from one of the MMM blogs. And over the next few months this is the budget we’ve agreed on:
net flix $8.00
MLS/Realtor fees $120.00 renawal fees and monthly subscriptions
electric $125.00
Water $50.00
Groceries $750.00 This includes cleaning suplies and misc.
Gas $150.00
Auto Exspence $100.00 Budgeted for repairs etc
Medical $400.00 $5000 deductible we've hit every year for the past 3 years
health insurance $380.00
auto insurance $50.00 Liability only, rounded up
internet $60.00
laundry and cleaning $10.00
Books $25.00
Games $25.00
Misc / Shopping $50.00
E-cig $80.00
Gym Membership $0.00
phone $50.00
Kids stuff $50.00
Pets $50.00
eating out $50.00
Total $2,583.00
With a little bit of fluff I’ll be satisfied if we can on average spend less than 3k a month. I don’t have the fertility treatments budgeted in there for 2016. So that would add an extra 400 a month. And I don’t have the OBYN and delivery costs for next year, but since I’m allowing for us to max out our $5000 deductible this year and next I think I’m good.
Assuming I can land a job at 80k a year or more and assuming a 3% a year appreciation of the real estate values (and no annual increases in rent) then this is what my next few years should look like
Income Annual Monthly Taxes Net
Scott's Job $80,000.00 $6,666.67 1667 $5,000.00
bonnie $4,000.00 $333.33 250 $250.00
Net Rent $42,097.56 $3,508.13 $3,508.13
Principle Reduction $22,140.00 $1,845.00
Expected Appreciation $33,150.00
$181,387.56 $12,353.13 $1,916.67 $8,758.13
Total Income $8,758.13
Cash Flow $6,175.13
Annualized Income $105,097.56
Annualized Cash Flow $74,101.56
Net Worth Increase $129,391.56
And that's me... I hope :)