Author Topic: Case Study - What should I do?  (Read 2883 times)

Kaminoge

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Case Study - What should I do?
« on: January 23, 2014, 04:44:19 AM »
I recently discovered MMM and I'm having a lot of fun reading back through the postings and also checking out the forums - I'm slowly coming to grips with all the acronyms. After reading a year's worth of posts (still quite a few to go!) I think I can safely say I naturally have a fairly large mustache.

I love the idea of being FI - I quite like my job (I'm a teacher) but my ideal scenario would probably be take a year off every couple of years. Sort of a part time retirement. The trouble is I can't quite wrap my head around what, if anything, I need to change to make that happen. So - here are the details as best I can give them. There are wild variations because I tend to work in each country for around 4 or 5 years at a time - the country I choose makes a huge difference in the package I receive. I started by using the case study proforma but I just don't feel like it really applies so here's the information I have. (All amounts are in $AUD - doing rough currency conversions when appropriate).

1. I have 4 rental properties, approximate value about $1.1 million. Mortgages totally just under $670,000. Required monthly payments on the mortgages is about $5300 - I pay roughly $1000 extra a month. These are all in Australia, interest rates currently 5.2%. All variable interest rates.

2. In addition I have around $100,000 worth of other money (mostly in an offset account against the mortgage but also a little bit in a mutual fund and a tiny amount in superannuation). I need to keep a reasonably decent buffer incase of issues with the rental properties which is why I've got so much in the offset account.

3. I have no other debt except for a small amount of credit card debt that is paid off each month (used to make necessary payments in Australia and then automatically paid in full).

4. In my current job (Bulgaria) my package is quite low (it's one of the poorest countries in Europe) but I came from Tokyo (where I earned almost triple) and who knows where I'll go next, hence the difficulty of putting a specific number to things like income.

5. My living expenses are quite low in most categories. I'm a stingy vegetarian who doesn't watch tv. Accommodation is part of my package (so it's not possible for me to change that) and I'm as frugal as can be with appliances (the apartment has a dish washer, airconditioning and a dryer, I've never switched any of them on, I keep the central heat on a very low setting). I have a car which I use to get to/from work but I cycle most other places (both the car and the bike were purchased second hand). I have a non-smart phone and I only pay for calls (most months it costs me less than $1). I do all these things because that's just how I live, I've never thought of it as being any sort of effort.

6. The biggest discretionary spending I can see is charitable giving and travel and I'm not really prepared to change either of those (I travel quite a lot but do it as cheap as possible - think tents and hostel dorms).

7. I have only the legally necessary insurance on the car. I do have landlord insurance on the properties but I don't have any kind of mortgage insurance or income insurance despite my bank's desperate attempts to sell it to me.

8. I'm 40, single, no dependants. My parents are ok financially (where do you think I got all my good habits from) but I'm hoping they live long enough to spend every penny they've saved.

So what am I asking? I guess for opinions/advice on what I should do if I wanted to be able to afford to work only say 3 years out of every 4. Should I keep trying to pay off the rental properties until they are to the point where the rent comfortably covers the mortgages (with a bit of buffer for the inevitable repairs etc that happen)? Should I sell one of the properties and then only have 3 (which would mean I'm already at the point when I didn't have to pay anything in). Should I have some other kind of investments (keeping in mind I'm a little risk adverse)?

I realise that there's no right/wrong answers to these questions. I'm just curious to hear if anyone has any thoughts/suggestions which I'll then try and research.

Honestly the idea of early retirement has never really occured to me before - everyone I know just keeps working - and now I'm thinking what a lovely idea it is!

If I did take a year off I'd estimate I'd spend around $25,000. Although that's a very rough estimate since I don't even know where I'd want to live.

Paulie

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Re: Case Study - What should I do?
« Reply #1 on: January 23, 2014, 05:18:30 AM »
Great that you already have such a big mustache! I really like the goal that you have, taking a year off now and then!

Are you making any money on the rental properties? Or do you use all that to pay off the mortgage? Do you have any money in retirmentfunds, or is that difficult since you've lived in so many countries?

What is your savings ratio? Because if you only aim for 1 year off every 3-4 years, you can do that already if you just save 25-33% of your paycheck. Although I guess that only works if you're living in the country you were working in, or a cheaper country.

09ujfew0jids

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Re: Case Study - What should I do?
« Reply #2 on: January 23, 2014, 06:46:28 AM »
Sell all the houses if you can really get 1.1 MM for them, invest net after morgage repayment in index funds, and you are ready to semi-retire.  Return on your 500K in dividends alone is probably around 10K, which is more than enough to live in Bulgaria even without a salary.

Undecided

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Re: Case Study - What should I do?
« Reply #3 on: January 23, 2014, 08:50:11 AM »
Ignore any real estate advice from people who don't understand your market. I've invested in real estate on a model that doesn't reflect the conventional wisdom on this site and it's worked out as I'd hoped.

Kaminoge

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Re: Case Study - What should I do?
« Reply #4 on: January 24, 2014, 03:46:42 AM »
Thanks for the replies.

09ujfew... I wouldn't want to retire in Bulgaria (I'm Australian) and even if I wanted to I couldn't (visa issues as a non-EU citizen). 10K is not enough to retire in Australia that's for sure! While I don't particularly want to go back to Australia permanently any time soon the reality is that I need to have my finances in order so that I can if I need too - again, visa issues mean I'd want to base long term plans off the idea I'll eventually end up in Australia.

Paulie all the rental money goes back into the property - basically it would just cover the mortgages with a little over for maintanance etc. Right now I'm pumping in about $1000 a month which is going to reducing the principle further (the loans are all principle + interest so the basic repayments will eventually eat the principle down but far too slowly for my liking). And yes, you're right about the savings ratio thingy. I save around 20% of my paycheck currently and I could easily live on that in Bulgaria... but there aren't a lot of countries cheaper than Bulgaria! And I have virtually no money in retirement funds - I've started paying in a little over the last few years but we're talking a few thousand dollars at the moment. My employers don't pay in anything (in different countries there's been different ways of dealing with that) and I chose to put the money into property instead of super. A lot of the tax benefits that attract people to super don't apply when you're a non-resident which I am.

Undecided would you care to elaborate? I haven't been around long enough to know what the conventional wisdom on this site is but I'd say my use of real estate is fairly conventional. Right now I'm investing for capital gains with the idea of it being an income stream in the future.