Author Topic: Case Study: Burning Out, Am I Ready for Partial FIRE?  (Read 3776 times)

Vee2001

  • 5 O'Clock Shadow
  • *
  • Posts: 21
Case Study: Burning Out, Am I Ready for Partial FIRE?
« on: March 16, 2016, 10:48:44 PM »
Topic Title: Case Study: Burning Out, Am I Ready for Partial FIRE?

Life Situation:
Mid 30’s, Single, No Dependents
California Resident

Gross Salary/Wages:
$85k/year at the regular job (private industry, not federal employment)
$10k/year National Guard (one weekend a month, two weeks a year)

Qualified Dividends & Long Term Capital Gains:
~$8k/year in Dividends

Rental Income, Actual Expenses, and Depreciation:
4 Rental Properties (7 total rental units)
~$10,400/month Rental Income (perfect month, all units rented)
~$7,750/month Actual Expenses (Mortgages, Insurance, Tax, HOA, utilities, etc), does not include non-scheduled costs (random maintenance/emergencies)
- I consistently get a $25k deduction on taxes from my Schedule E thanks to depreciation
- From the Actual Expenses portion, about $1,500/month from the mortgage payments goes towards loan principal (included as part of the $7,750/month total)

Expected ER expenses:
-  I err on the high side
$1,000/month auto payment (yes, I know, facepunch, I plan to keep it, $56k left, Tesla)
$500/month for place to live (includes utilities/internet)
$500/month healthcare (ACA Silver from state exchange)
$250/month food
$100/month auto/rental insurance
$100/month hobby & entertainment
$50/month clothes
$50/month cell phone (I plan to find a better deal)
$50/month wear/tear on the vehicle
$100/month other (catch all/buffer)

Total: $2,700/month

Assets:
$1.06M - Equity in Rental Properties ($2.04M Value, $0.98M Loans)
$290k - Taxable Stock Account
$75k - Checking/Saving
$55k – TSP (retirement account)
$20k - Roth IRA (retirement account)
$12k - 401k (retirement account)

Liabilities:
Auto Loan – Tesla Model S - $56k @ 2.5%, $1,000/month
Property payments include mortgage, insurance, property tax, property management, HOA (if applicable)
Property #1 - $675k @ 4.375%, $4,650/month ($6,000/month in rents)
Property #2 - $128k @ 4.375%, $1,230/month ($1,610/month in rent)
Property #3 - $97k @ 5.375%, $811/month ($1,530/month in rent)
Property #4 - $82k @ 5.625%, $735/month ($1,290/month in rent)

Pensions:
$18k/year(?) @ 65 - Fully qualified for Social Security when I hit the 62+ starting age
$24k/year @ 60 - Military retirement (need 5 more years National Guard)
$15k/year @ 60 - FERS government retirement (need 3 more years in a Federal position to vest)

Some Financial Plans After Partial FIRE (in no particular order):
-  Pick up 3-4 months of full-time military duty with National Guard so I qualify for 100% Post-9/11 GI Bill benefits (I am currently 80% or 90% of full benefits)
-  Use Post-9/11 GI Bill for Master’s degree and maybe second Bachelors
    --  Pays for tuition, plus ~$3.5k to $4.1k per month tax free for 36 months for living expenses ($126k-$148k tax free total)
-  Try to add a unit to one of the multi-unit rental properties.  Space is there, just need to fight it out with the city.  Costs would be about $100k (if I used contractors for everything) and it would add ~$1.5k/month in rental income.
-  Work at a Federal job for 3 years to vest for the FERS retirement (I already worked in a position for 2 years, the high FERS pension is due to buying back my military time for retirement credit)
-  1031 Exchange (sell existing property and roll profits tax-free into new investment property) at least one of the rental properties into a larger property with more cashflow


Specific Question(s):
I am burning out at my full-time job.  Typical cubicle life, fairly easy work with random bouts of coworker/company stupidity and I am slowly going brain-dead.  Work was interesting at first but after several years of doing the same thing and a recent change in the company dynamic (cut positions/cost, raise workload, implement changes without full study of the impact), I’m about ready to put in my two week notice.

I am applying here and there at jobs that look interesting but I feel that I am financially stable enough to go into partial FIRE if none of the applications pan out.  To me, that means continue doing the part-time duty with the National Guard and start working towards the items in the “After Partial FIRE” section.

Is it financially viable for me?  My estimated short-term Partial FIRE costs are $32,400/year until the car payment drops off in about 5 years, then it’s $20,400/year. 

On the income side, I have the 1 weekend per month / 2 weeks per year with the National Guard (at least $10k/year in income), dividends ($8k/year) and around $15k/year in cashflow from rentals ($33k total).  That roughly breaks even with my estimated Partial FIRE costs.  I can also pay off the $83k balance mortgage for property #4 and free up about $6k/year in additional cashflow.  The stuff in the “After Partial FIRE” section would all add additional income/funds to my finances.

Thoughts?

mxt0133

  • Handlebar Stache
  • *****
  • Posts: 1559
  • Location: San Francisco
Re: Case Study: Burning Out, Am I Ready for Partial FIRE?
« Reply #1 on: March 17, 2016, 12:26:12 AM »
Basically you are borderline FI with the Tesla and past FI without it.  Is the car worth you having to go to work?

But you also have many other option, getting a minimum wage part-time job will allow you to be very comfortable.  Just think of all the people that will have your attention pulling into your minimum wage job in a Tesla.  On second thought you might not even get the job if they know you own a Tesla.

Please be aware that having a car payment that takes up 37% of your monthly expense for most people here is BAT SHIT CRAZY!

I would recommend you work long enough to pay of the car, but I'm afraid you'll probably get the Model X after you are tired for your current one.

bearkat

  • Stubble
  • **
  • Posts: 122
  • Age: 29
  • Location: California
Re: Case Study: Burning Out, Am I Ready for Partial FIRE?
« Reply #2 on: March 17, 2016, 05:00:12 AM »
Are you burned out enough to change your car? Just curious.

If not, you're likely fine anyway as long as you keep doing the National Guard.
As you mentioned National Guard, dividends, and rentals cover your expenses and once you hit 60-65, you've got some sweet pensions waiting in the wings. In the meantime you can  supplement your income by living off 4% of your accounts and not just the dividends if you need extra money for a model X. By 60-65, all the rental mortgages will have paid themselves off and you'll have even more money to buy Telsas with than you do now.

pbkmaine

  • Walrus Stache
  • *******
  • Posts: 8296
  • Age: 62
  • Location: The Villages, Florida
Re: Case Study: Burning Out, Am I Ready for Partial FIRE?
« Reply #3 on: March 17, 2016, 05:11:16 AM »
Is there another position in the company you can move to for 3 years to qualify for the FERS pension? Or can you go part time for longer? And please explain why the Tesla is so important to you.

Vee2001

  • 5 O'Clock Shadow
  • *
  • Posts: 21
Re: Case Study: Burning Out, Am I Ready for Partial FIRE?
« Reply #4 on: March 17, 2016, 08:34:28 AM »
I would recommend you work long enough to pay of the car, but I'm afraid you'll probably get the Model X after you are tired for your current one.

No plans to get anything else.  I drove a 4-door commuter car for 10 years and ~160k miles before the Tesla.  My goal is for it to be the last car I ever buy.  Only major purchase might be a battery upgrade in 10 years (perhaps doubling the range by that point).

I could pay off property #4 and the Tesla right now from my checking/savings and the taxable investment account ($138k in loans out of $365k in funds).  I just figured that at a 2.5% interest rate for the car loan, it’s better to leave the money in the market.  That would change my overall numbers to $20,400/year in expenses and $39,000/year in income/cashflow.

Is there another position in the company you can move to for 3 years to qualify for the FERS pension? Or can you go part time for longer? And please explain why the Tesla is so important to you.

My current job is non-government, it does not give me credit towards a FERS retirement.  The credit I do have is from a previous job.  The Tesla is important because I plan to drive it forever.  Once paid off, the maintenance/running costs are extremely low.  Right now I pay ~$2 per month for “fuel” (I charge for free 90%+ of the time, when I pay it is $0.50/day for a Chargepoint terminal in the company parking lot), no oil change, no regular maintenance, the only significant expense is new tires once every two years or so.

I plan to go on cross-country drives to sightsee, visit friends and go to events.  With the Tesla, I don’t have to pay for fuel (free access to Tesla managed Supercharger system along the highways).  I can fold down the rear seat, spread a futon and sleep in the back.
« Last Edit: March 17, 2016, 09:11:09 AM by Vee2001 »

onlykelsey

  • Handlebar Stache
  • *****
  • Posts: 2172
Re: Case Study: Burning Out, Am I Ready for Partial FIRE?
« Reply #5 on: March 17, 2016, 08:39:15 AM »
Wow, I did not know Teslas were that expensive!  Sounds like you've thought it through.

If you're committed to the tesla, I think you have a borderline case for not taking a new job, but if you could stick it out another year (or find a hobby that brings in 10K a year), you'd be in good shape. 

SKL-HOU

  • Pencil Stache
  • ****
  • Posts: 508
  • Location: Houston, TX
Re: Case Study: Burning Out, Am I Ready for Partial FIRE?
« Reply #6 on: March 17, 2016, 08:56:42 AM »
I want a Tesla too after reading your post.

I think you are doing great. Since your current job is not giving you credit towards FERS, I don't see why you need to hang around. Can you increase National Guard income if you quit? You can quit now, get your National Guard credit to get to 100% of GI bill. That will more than pay for your expenses for 3-4 years from what you explained. After school, you can always re-assess and go back to working if you feel it is necessary.

Vee2001

  • 5 O'Clock Shadow
  • *
  • Posts: 21
Re: Case Study: Burning Out, Am I Ready for Partial FIRE?
« Reply #7 on: March 17, 2016, 09:56:13 AM »
Can you increase National Guard income if you quit? You can quit now, get your National Guard credit to get to 100% of GI bill. That will more than pay for your expenses for 3-4 years from what you explained. After school, you can always re-assess and go back to working if you feel it is necessary.

Yes.  I tried to stay away from getting too in the weeds on details.  The $10k/year from the National Guard is from the gross pay for one weekend a month duty.  I could also do 30 Annual Training days (essentially, per diem) per year that would add another $7.5k/year gross pay.

I didn't mention it in the original post but I would like to try and come up with at least $36k/year in taxable earned income per year.  That would ensure full use of my deductions ($6,300 Single Standard Deduction + $4,050 personal exemption + $25,000 Passive Loss From Real Estate Investments).  The part-time National Guard work could come up with about $18k/year gross.  I'd consider another part-time job that seems interesting to make it the rest of the way.  Maybe substitute teacher?  Maybe restaurant delivery service?  Maybe just find temp work when I feel like it?

Axecleaver

  • Magnum Stache
  • ******
  • Posts: 3366
  • Location: New York
Re: Case Study: Burning Out, Am I Ready for Partial FIRE?
« Reply #8 on: March 17, 2016, 10:29:55 AM »
Just wanted to tell you how much I like your story. You have plenty to retire tomorrow and fund it: 17.5k from the Guard, 8k in dividends, 31k from rentals. That's 56k in income right there, with just 32.4k in expenses.

You also have 24k a year in "buffer" against unexpected rental property problems. The 1% rule says you will spend around 20k a year to maintain $2m in properties, but you probably have a really good sense for what that number is already. Sure, you miss out on some depreciation deductions with only 17k in wage income. Maybe you should consider pruning your rental real estate, turning it into cash, and adding that to your equities stash. That may also reduce risk of high, unexpected expenses, which you could handle anyway. Or you could carry those depreciations forward until you can use them in retirement.

When you're 60 and your pensions come in, you'll have more money than you know what to do with.

You're done, congrats! Enjoy the Tesla in your new retirement.

lhamo

  • Walrus Stache
  • *******
  • Posts: 9550
  • Location: Seattle
Re: Case Study: Burning Out, Am I Ready for Partial FIRE?
« Reply #9 on: March 17, 2016, 10:43:06 AM »
Can you be an Uber driver in a Tesla?  That might be an interesting niche market to explore (my son would pay a premium to ride in a cool car, for example...)

Sounds to me like the best option is picking up more time with the National Guard.  How easy it is to get the kind of assignments you are interested in?   I would probably do that first and see how it goes financially, and then maybe look for a federal job down the road a bit if you feel you are cutting it too close both short- and long-term.  Will kind of depend on how your rental portfolio appreciates, too.

Another option would be to start applying for federal jobs now, and shift out of your current job once you get one.  But that might take awhile and it sounds like you are burned out and could use a break.  If the National Guard option is easier/more streamlined, that still seems like the preferable option.  And you may find you don't even need the federal job/FERS pension.

On the rental remodel idea, can you explain why putting $100k and a lot of effort fighting bureaucracy into expanding a current unit is preferable to investing that 100k in something else? Seems like a lot of money and effort for a fairly slow payback (5.5 years if your estimates are correct). 

Vee2001

  • 5 O'Clock Shadow
  • *
  • Posts: 21
Re: Case Study: Burning Out, Am I Ready for Partial FIRE?
« Reply #10 on: March 17, 2016, 11:05:45 AM »
Just wanted to tell you how much I like your story. You have plenty to retire tomorrow and fund it: 17.5k from the Guard, 8k in dividends, 31k from rentals. That's 56k in income right there, with just 32.4k in expenses.

You're done, congrats! Enjoy the Tesla in your new retirement.

Thanks for the kind words!

Can you be an Uber driver in a Tesla?  That might be an interesting niche market to explore (my son would pay a premium to ride in a cool car, for example...)

On the rental remodel idea, can you explain why putting $100k and a lot of effort fighting bureaucracy into expanding a current unit is preferable to investing that 100k in something else? Seems like a lot of money and effort for a fairly slow payback (5.5 years if your estimates are correct).

Yes, could do the Uber thing.  Don't plan to, though.  I like the idea of Uber/Lyft but don't like the implementation.  In my opinion, there are somewhat shady games being played in regards to liability.  Uber/Lyft off-load their risk to the individual drivers and the typical driver doesn't get commercial car insurance because of the cost.  If you get in an accident and your insurance finds out that you were driving commercially, you could be in a world of hurt.

For the rental, I don't have firm prices on the work.  I think $100k is on the high end but I am not sure.  Once work is complete and the unit is rented, that's like an immediate 18%+ return on the investment.  Plus it adds value to the property probably 2+-times my actual out of pocket.  To me, that's a great deal.  Not sure where I can find something better these days.

SKL-HOU

  • Pencil Stache
  • ****
  • Posts: 508
  • Location: Houston, TX
Re: Case Study: Burning Out, Am I Ready for Partial FIRE?
« Reply #11 on: March 17, 2016, 11:23:58 AM »
As far as i know uber has the option to purchase insurance from them to cover for that purpose.

lhamo

  • Walrus Stache
  • *******
  • Posts: 9550
  • Location: Seattle
Re: Case Study: Burning Out, Am I Ready for Partial FIRE?
« Reply #12 on: March 17, 2016, 11:28:01 AM »
As far as i know uber has the option to purchase insurance from them to cover for that purpose.

Was just listening to this guy on Farnoosh Torabi's So Money podcast -- he might have some useful information about insurance.

http://therideshareguy.com/

I do know that my insurance policy now explicitly states that they will not cover you if you are in an accident while providing rideshare services.  The rideshare companies MUST have some way of dealing with this -- I don't think they would be able to get enough drivers otherwise.  And wouldn't you technically be violating the law if you were driving without insurance?

Cassie

  • Walrus Stache
  • *******
  • Posts: 5534
Re: Case Study: Burning Out, Am I Ready for Partial FIRE?
« Reply #13 on: March 17, 2016, 02:57:17 PM »
It sounds like you are in a great position. why not do the NG thing to raise that pension. After resting for awhile look for a fun p.t. job that you will enjoy doing.  YOu have a ton of options.