Author Topic: Critique our plan to get to FI earlier!  (Read 4006 times)

Hunny156

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Critique our plan to get to FI earlier!
« on: July 08, 2013, 03:56:56 PM »
Hubby & I have been thinking about this for a while, and SLOWLY researching, as we tend to move quickly and it sometimes backfires.  Overall we've done well and we are grateful, but I suspect it gets harder the closer you get to FI, and like I said, we are both the impatient type...

Here's some details:
We both work full time jobs that we aren't fond of.  Hubby works a territory w/a company car, so commuting isn't an issue for him.  My job is 7 miles away from my current home.   

We are looking at early retirement in 5 years or less.  :)

Only debts we carry are mortgage debts.  Hubby is comfortable w/leverage, I prefer to deal with cash.

We own a whole bunch of rental properties.  Had some issues earlier this year, cleaned out bad management, and getting control over the whole business.  We should be back in cash-flow positive range in the 4th quarter of this year.  Now just hoping for some consistent income from that business!

We (& the bank) own a very large house, most of which goes unused.  It's a very pretty box, and we purchased it b/c hubby & I each had a must-have, and the rest of the house came with it.  We live in the land of McMansions built on postage stamp lots.  Great neighborhood though, we both agree that the positives far outweigh the negatives for us.  We hope to maintain our friendships here even if we move just a wee bit away.

Our area has recently been experiencing quite a bit of appreciation, so much so that it's often the topic of conversation at every neighborhood outing.  We did some cursory research, and we do not believe it's a bubble, just a location thing that has begun to seriously pay off.  Our city is growing rapidly, and even w/all the new construction, we have a housing shortage. 

We've done some rough math, and realized that if we downsized and moved a little further north, we can take the proceeds from our current home and purchase a new home in cash.  Maybe not 100% paid off from the proceeds, but really close.  We would come up w/the rest either from savings, hopefully from rental income proceeds, and/or waiting out the market a little longer - 10-15 month time frame.

Over the weekend we found a semi-custom home builder that we really like.  The size of our home will seriously shrink, which feels weird, but we'll actually be using up all the space we have, and the quality of the home is slightly better than our current home.  Plus, no mortgage!  Who wouldn't want that?  But, the lot size we are looking for is not currently available, so we are trying to find out when the next phase will open.  This gives us time to continue exploring our options, and hopefully make the right decision for us.

My commute will be slightly longer in terms of mileage, but roughly the same in terms of time.  I will have to pay about $15/week in tolls.  Not having a mortgage payment and cutting my property tax bill, utilities, etc, will mean that the difference will go into savings/investments.  Conservatively I estimate we will save about $1,500/mo, and we should be able to retire in 2-3 years.  This would also shave down our expense budget to mustachian levels, about $27-30K/year.

We aren't married to living in this area after we stop working for the man, but the new house could easily be our final home, or if this potential new place appreciates like our current place has, we'd be totally OK w/finding an even cheaper COL area, and packing up.  We moved from the east coast 4 years ago for this very reason, we just never expected to see this type of appreciation in our current area.

Soo, if you read this far, what are your thoughts?  I'll be happy to answer any additional detail questions you may have.  What are we missing, if anything?  What would you do if you were in our shoes?

Mrs WW

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Re: Critique our plan to get to FI earlier!
« Reply #1 on: July 08, 2013, 04:12:24 PM »
You made me curious - what were the must haves, and how big is your house? I love hearing about how other people live and what they prioritize in housing!

olivia

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Re: Critique our plan to get to FI earlier!
« Reply #2 on: July 08, 2013, 05:30:22 PM »
You're probably already aware of this but custom homes can get expensive SUPER quickly.  My parents built one several years ago and stuff just kept adding up and adding up.  They ended up well over what they had originally planned to spend, and I think it was close to $100k over.  (It's not a McMansion either.)  They had the money and paid for the house in full, but I think once you're in the middle of it it's hard to turn down certain upgrades.  Even ones that make sense, like "green" technology stuff that will probably pay for itself in the long run.  But otherwise, owning a smaller, better planned house outright (or close to outright) sounds fantastic!

Hunny156

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Re: Critique our plan to get to FI earlier!
« Reply #3 on: July 08, 2013, 07:13:43 PM »
You made me curious - what were the must haves, and how big is your house? I love hearing about how other people live and what they prioritize in housing!

LOL - hubby's must have was a big lot.  Ideally, he wanted at least an acre, but I was leaving a 120 mile round-trip commute back east, and not looking to replicate it here just so he can have some land.  We settled on 1/4 acre, but our lot is huge in comparison to most other people around here.

My must have was a large Master Suite.  I think it's 20' x 20' with the sitting area, so I certainly got what I thought I wanted!  Our bathroom actually has double doors, and I jokingly refer to our closet as "the baby's room".  It's easily big enough for a nursery.  It's been fun to have, but certainly not necessary to life!

When we bought the house, we certainly put a lot of thought into other people, over ourselves.  We rationalized the big house b/c we'd need all the extra space for when family came to visit.  Well, they don't show up nearly as much as we assumed they would, and since you can get a decent hotel around here for $50/night, we now realize its far cheaper to just pay for a hotel room when company is in town!

Sq footage is just over 3,600, plus a 3.5 car garage.  I used to joke that each kitty needed their own bedroom.  Hopefully they'll get used to the much smaller house we are now considering... ;)

Hunny156

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Re: Critique our plan to get to FI earlier!
« Reply #4 on: July 08, 2013, 07:17:22 PM »
You're probably already aware of this but custom homes can get expensive SUPER quickly.  My parents built one several years ago and stuff just kept adding up and adding up.  They ended up well over what they had originally planned to spend, and I think it was close to $100k over.  (It's not a McMansion either.)  They had the money and paid for the house in full, but I think once you're in the middle of it it's hard to turn down certain upgrades.  Even ones that make sense, like "green" technology stuff that will probably pay for itself in the long run.  But otherwise, owning a smaller, better planned house outright (or close to outright) sounds fantastic!

For sure, which is why I said semi-custom.  In comparison to your typical home builder, these guys are offering a much higher level of finish, and what I really like is that almost all the usual upgrades are included in the base price.  It's one of the reasons we usually buy spec houses, there's no way you are getting me into one of those design centers, where the price of the house increases 20% once you add in all the must-haves!  I was soo excited to learn that this builder includes tankless water heaters - as a mustachian, I drool over energy efficiency, not granite... ;)

oldtoyota

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Re: Critique our plan to get to FI earlier!
« Reply #5 on: July 08, 2013, 09:42:05 PM »
Something you might consider: Use proceeds from your old house and invest what you do not need for a down payment. Most likely, you'll get a better return on your money. Investigate on your own and see if you agree.


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Re: Critique our plan to get to FI earlier!
« Reply #6 on: July 09, 2013, 10:47:33 AM »
Having never had a house built for me, I can't comment on the specifics. But one thing always holds true: what's your plan for when/if things go wrong? Possibilities include:
 - construction delays
 - cost overruns (how much "slop" in the budget can you handle?)
 - new home doesn't save you as much as expected (taxes/utilities are higher)
 - rental income drops significantly

None of these are insurmountable, but it might be worth it to run the numbers on various scenarios will affect your FI plan. You don't mention how much cash or semi-liquid assets you have, nor how much you have invested in rental properties.

What amenities are available in the newer location? Can you walk/bike to entertainment? Grocery stores? Parks? Or are you going to be stuck with even more time in the car?

Hunny156

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Re: Critique our plan to get to FI earlier!
« Reply #7 on: July 09, 2013, 01:26:44 PM »
Having never had a house built for me, I can't comment on the specifics. But one thing always holds true: what's your plan for when/if things go wrong? Possibilities include:
 - construction delays
 - cost overruns (how much "slop" in the budget can you handle?)
 - new home doesn't save you as much as expected (taxes/utilities are higher)
 - rental income drops significantly

None of these are insurmountable, but it might be worth it to run the numbers on various scenarios will affect your FI plan. You don't mention how much cash or semi-liquid assets you have, nor how much you have invested in rental properties.

What amenities are available in the newer location? Can you walk/bike to entertainment? Grocery stores? Parks? Or are you going to be stuck with even more time in the car?

All valid points.  I was just informed today that the new phase won't open for about another year, so that gives us a significant amount of time to save, plan, look at other options, etc.  Plus build time of another 5 months.

Timing the sale of the old house and the closing date of the new house will certainly be a challenge.  Hubby & I are pretty resourceful and flexible, but we have pets, so trying to not disrupt their routine too much will be the hardest part.  I've already got a kitty on Prozac b/c of stress from the last move, not looking to add any more like her to our new house.

Since we have a year +, we should be in a much better position to handle any cost over-runs or unplanned expenses as a result of the move.  I'm glad I at least have some experience in this, sicne I managed to move us across the country 4 years ago for about $2K, and only had one broken mug.  And a missing vase, which I suspect is still packed in a box somewhere in the attic.

Taxes here in TX are pretty straightforward to calculate, but since costs go up every year, I expect to see diminishing returns from that every year.  However, I'll be going off a much lower base price, so my taxes would increase at a faster pace the longer I stay in my current home.  Utilities will decrease - same utility company and rates, and the same energy efficiency features - actually, a little bit better than what we currently have, as this house will be LEED certified.  Also, just the sheer volume of space to heat and cool - we'd be going from 3,600+ sq feet to a little less than 1,700.  We also have a pool and a hot tub at our current home, but we aren't quite sure what we'd do at the new home.  This community has a pool, and I'm reminded of a MMM post about being able to do things at off-peak times.  We would certainly wait and see if the community pool is a peaceful alternative while everyone else is out working.  If so, then that cuts expenses in two ways - not installing a pool and not paying to run a pump 12+ hours/day in summer.

We've owned these rental houses for a while and while the rent rolls don't increase all that much, they have at least maintained their value.  We generally don't keep a lot of liquid around, and given the amount of rents coming in and going out, we generally add to that pile just long enough to purchase another rental, and continue the process that way.  We have roughly one year of expenses tucked away, and if the rentals continue to perform, we could add 2-3 months worth of expenses to our savings every month.  It's actually gotten to a point where we are finally thinking we should ease off our purchases, and start diversifying into other things, like Index funds and possibly peer lending sites.

Before MMM, my catch-all, no worries retirement plan involved getting to $25K/mo NET income.  The current rent rolls should provide a cushion of 3X living expenses, but since we currently live well beneath our income and don't actually touch any rental income, our final numbers when we do retire would likely be a lot higher.  Yes, I am risk averse!

I generally don't pay too much attention to what the supposed value of our properties are worth, but I would estimate that they are worth about $800K Net.  Our version of an annuity/income replacement.

As for amenities, the new neighborhood will have some trails/pool/parks - almost every subdivision out here does.  Nothing in either neighborhood is walking distance, and biking for groceries would be a stretch, especially w/the heat we have out here, so our car time would be about the same, slightly longer.  Another big factor for us is we do most of our shopping at Costco, and they are building one now, almost equidistant between both neighborhoods.  We currently drive further away to the other Costco, so once this one opens, it would decrease our car time even further - I plan on getting groceries done on my lunch hour, to free up more of our precious weekend time until we retire.

Mrs WW

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Re: Critique our plan to get to FI earlier!
« Reply #8 on: July 09, 2013, 01:51:00 PM »
You made me curious - what were the must haves, and how big is your house? I love hearing about how other people live and what they prioritize in housing!

LOL - hubby's must have was a big lot.  Ideally, he wanted at least an acre, but I was leaving a 120 mile round-trip commute back east, and not looking to replicate it here just so he can have some land.  We settled on 1/4 acre, but our lot is huge in comparison to most other people around here.

My must have was a large Master Suite.  I think it's 20' x 20' with the sitting area, so I certainly got what I thought I wanted!  Our bathroom actually has double doors, and I jokingly refer to our closet as "the baby's room".  It's easily big enough for a nursery.  It's been fun to have, but certainly not necessary to life!

When we bought the house, we certainly put a lot of thought into other people, over ourselves.  We rationalized the big house b/c we'd need all the extra space for when family came to visit.  Well, they don't show up nearly as much as we assumed they would, and since you can get a decent hotel around here for $50/night, we now realize its far cheaper to just pay for a hotel room when company is in town!

Sq footage is just over 3,600, plus a 3.5 car garage.  I used to joke that each kitty needed their own bedroom.  Hopefully they'll get used to the much smaller house we are now considering... ;)

The smaller the house, the bigger the usable land on the lot will be :)

Hunny156

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Re: Critique our plan to get to FI earlier!
« Reply #9 on: July 15, 2013, 11:36:03 AM »
Quote
The smaller the house, the bigger the usable land on the lot will be :)

Very true!  We continued our search over the weekend, and hubby got to see this in real life.  Even on a standard lot, the smaller house print made the yard a whole lot bigger.  Still, we will wait a little longer to make sure this is the right move, get the savings beefed up a little more for the unexpected, and wait for the new phase to be released so we can cherry pick our future homesite.
« Last Edit: July 15, 2013, 11:45:19 AM by Sparafusile »