Author Topic: Case Study: The Next Steps  (Read 5690 times)

pappyvanwinkle

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Case Study: The Next Steps
« on: January 09, 2015, 12:32:50 AM »
Hi,

I have been following the site for a while, and really enjoy it.  Thanks to all the contributors!

Here is the short story: My wife and I decided to leave Colorado in 2011 and continue our careers as educators at an international school.  The finances beforehand were scary with over 6 grand a month in bills, multiple car payments, a mortgage and a half plus $75,000 in student loans.

Here is our situation now:

2014-2015
Annual Combined Salary             $176,000   
Matching Pension Contribution     -$21,120   
Net Income                           $154,880   
      
Monthly Income                $13,002
Local Living Expenses                -$1,000
U.S. Balance                        $12,002
Rental Income                       +$1,525
Net U.S. Income                 $13,527

Monthly Expenses
Tuition                              $0 (beginning in August 2015:$3300/month)
Rental Mortgage                      $1,047
Life Insurance                      $32
Credit Card                      $1,500
Car Insurance                      $93
Net Expenses                      $3,672

Vanguard Investment             $1,000

Remaining                     $9,855



All debt except for the rental property is paid off.  We owe $155,000@2.37% with 20 years left and are making about $450/month in profit.  The market value is probably about $250,000.

We live overseas on less than $1000/month but that doesn't include travel expenses, which have been budgeted for in the monthly credit card payment and is paid off each month. The first $99,500 of income per person is tax-free. Our bills in the U.S. are currently less than $200/month.  We are not paying college tuition but in the fall will be spending about $3300/month there. Our retirement savings at this point equals $255,000 (not counting the equity in the house).  We are in our mid 40's and do not really want to work full time until we are 60 as one financial planner suggested we do.

As you can see, until the fall of 2015, we have nearly $10,000 USD a month to do something with. When the tuition kicks in it will drop to about $7000/month.

Here are the scenarios I have imagined:

1. Keep renting the house at a profit of approximately $450 for the next 20 years until it is paid off and invest net savings in the market
2. Pay off the house over the next 16 months and then begin making approximately $1500/ month and invest the net savings in the market
3. Sell the house in the spring of 2016 and buy a property west of Denver (when we are in the U.S. for about 9 weeks a year, we bounce around between family and friend's homes which we are tired of doing) and invest the net savings in the market. Also use this as a vacation rental
4. Stockpile the net savings until Spring of 2016, keep the rental and also buy a property west of Denver (with a smaller down payment that would still be greater than 20%) and invest less in the market. Also use this as a vacation rental.

Which is optimal? Is there something else you would suggest?

I feel that we finally have some options.  Although we did not make the decision to expatriate based solely on finances, it has worked out nicely.  The downside is that we are far away from family and old friends but we enjoy not being immersed in the consumerism of U.S. culture. Believe me, I had many sleepless nights worrying about finances (and occasionally still do) but if you are feeling trapped, make a plan, stick to it and hopefully it will work out.

My apologies for the formatting issues.

Thanks to any and all who reply to this post!

deborah

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Re: Case Study: The Next Steps
« Reply #1 on: January 09, 2015, 12:45:22 AM »
If  you are only going to be in Denver 9 weeks a year, is there any chance of having a tiny house built on your parents' land or somewhere? Holiday rentals (particularly when you are out of the country) tend to be somewhat problematic, especially if the 9 weeks you are there are usually the peek holiday rental times.

kathrynd

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Re: Case Study: The Next Steps
« Reply #2 on: January 09, 2015, 01:59:12 AM »
check in the Denver area, for anyone looking for house sitters.
« Last Edit: January 09, 2015, 02:01:42 AM by kathrynd »

mveill1

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Re: Case Study: The Next Steps
« Reply #3 on: January 09, 2015, 08:35:00 AM »
I'm sorry but I have to ask - what country are you living in now?

thedayisbrave

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Re: Case Study: The Next Steps
« Reply #4 on: January 09, 2015, 08:42:46 AM »
I would follow either plan #1 or #2.  Vacation rentals are tough enough as it is, and with being abroad it means  you'll have to have someone else manage it which will take a large chunk of your profits.  Not really worth it to me IMO.

Whether you should pay off your rental or not depends on your personal preferences.  #1 would probably put you a smidge ahead financially, but if paying it off gives you more peace of mind, well there's not really a $ amount you can put on that.

Kaminoge

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Re: Case Study: The Next Steps
« Reply #5 on: January 09, 2015, 09:20:29 AM »
Do you really want to spend 9 weeks a year in the US? It would be a lot cheaper if you visited for a shorter time/less regularly and spent more time somewhere cheaper - that would make the housing situation easier too.

Owning a house that you only live in for 9 weeks of year has always seemed crazy to me. I mean do you really want to spend your entire summer holiday in one spot? What about the worry of what happens to it when you're not there? (or would you plan to try and let it part time too).

One option you could consider (I've been in international education a long time so I know people who work all sorts of variations of this theme) it you wanted to sell and buy something else, would be some kind of house with a granny flat or similar where you could rent out the house at a slightly reduced rate with the understanding that 9 weeks a year you'd be living in the flat (and the rest of the year it would be locked up with your stuff in it - not for them to use).

skunkfunk

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Re: Case Study: The Next Steps
« Reply #6 on: January 09, 2015, 10:29:02 AM »
With that kind of cash flow you cannot go wrong as long as it is getting invested. Incredible situation there!

frugalfedmom

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Re: Case Study: The Next Steps
« Reply #7 on: January 09, 2015, 12:26:00 PM »
If I were you, I'd probably just go with option 2, pay off the house and invest everything else after that. And figure something else out with the 9-week visit. Obviously, you do have options now, even if you aren't totally in love with it - I don't think you should spend $200K+ on something you'll only "use" 9 weeks a year.

I'm also curious as to where you currently live. I didn't know about the tax benefits of working abroad! Sweet deal!

pappyvanwinkle

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Re: Case Study: The Next Steps
« Reply #8 on: January 09, 2015, 05:26:41 PM »
If I were you, I'd probably just go with option 2, pay off the house and invest everything else after that. And figure something else out with the 9-week visit. Obviously, you do have options now, even if you aren't totally in love with it - I don't think you should spend $200K+ on something you'll only "use" 9 weeks a year.

I'm also curious as to where you currently live. I didn't know about the tax benefits of working abroad! Sweet deal!
There are many countries that have reciprocal tax treaties with the U.S, I happen to be in India.

pappyvanwinkle

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Re: Case Study: The Next Steps
« Reply #9 on: January 09, 2015, 07:33:50 PM »
I'm sorry but I have to ask - what country are you living in now?
We have lived in India for 4 years.

pappyvanwinkle

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Re: Case Study: The Next Steps
« Reply #10 on: January 10, 2015, 01:45:48 AM »
If  you are only going to be in Denver 9 weeks a year, is there any chance of having a tiny house built on your parents' land or somewhere? Holiday rentals (particularly when you are out of the country) tend to be somewhat problematic, especially if the 9 weeks you are there are usually the peek holiday rental times.
Hi Deborah, I am a huge tiny house fan for a variety of reasons, but at this point I do not think that it is a good option for us.  We would like space for the adult kids to visit and host friends.  Nonetheless, I hope that I do eventually get the chance to build one at some point, as it would be a fun design challenge. I agree that the rental issues can be problematic.

skunkfunk

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Re: Case Study: The Next Steps
« Reply #11 on: January 12, 2015, 11:03:07 AM »
huge tiny house

What is that?! Bigger on the inside?

frugaliknowit

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Re: Case Study: The Next Steps
« Reply #12 on: January 12, 2015, 11:57:03 AM »
I would not invest in a rental that you use part of the year.  Using a place part of the year and renting it out profitably (from overseas) the rest of the year without going insane looks great on paper, but in practice is risky.  If you want more real estate, consider REITS.

I would rent as you need to when visiting whereever.  I also would not prepay the rental mortgage.  I would simply plow excess cash into Vanguard and whatever is needed in cash reserves.

NICE!

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Re: Case Study: The Next Steps
« Reply #13 on: January 12, 2015, 12:23:28 PM »
Airbnb for your stateside trips. There's no way that using a house 9/52 weeks makes financial sense. Ok, maybe it would if you had the most incredible location and bought it 20 years ago before rents exploded. Think South Beach in the early 1970s.