Author Topic: Exit strategy  (Read 4186 times)

gojiberries

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Exit strategy
« on: February 20, 2016, 03:11:02 PM »
After discovering MMM over 5 years ago my wife and I have been trying to gradually move towards FIRE. We haven’t felt a huge urgency because our jobs as symphony musicians afforded us a lot of free time and a good income. You might be wondering how a classical musician can make a good income but it is true that if you can win an audition at the higher levels (very very difficult to do) you can make $80k+. If you win one of these coveted spots you usually go through a process to get tenure which is what my wife did. I have not had the same level of success as she has in auditions and never got a tenure spot with our current employer but did manage to get temporary contracts for the past 6 years. My string of luck with this orchestra has run out and the position has been filled by a younger player so I will be out of work in July. While my wife would be willing to continue working if it made a big financial difference she would much rather quit. So essentially we are approaching a crossroads and trying to develop an exit plan from our current situation.

We are not at the point of being able to rely on passive income to support our desired lifestyle which has led us to consider different options for our next phase. While there are definitely positives to our current situation (steady income with benefits, nice house) we really want to move out of the midwest as soon as possible. We both grew up on the west coast and would love to live in some warm beautiful location that has plenty of outdoor related activities nearby.

My ideal dream would be to find an awesome piece of land and build a house with a very nice separate guest residence. We could live in the guest residence and rent the main house or if it all went really well sell the whole thing for a profit and do another similar project. We built our current house so we are not completely inexperienced in this area, but I understand there are a LOT of things that can go wrong with such a plan. My hope is that what I learned from building this house would translate into being able to act as developer/contractor for a new project. I doubt I would come out way ahead but hopefully it could translate into some modest ‘sweat equity.’ Other alternatives would be to buy/rehab/build an existing multi-family residence and/or vacation rentals. I’m pretty sure I don’t want to be a full time real estate guy for the long term but I could see myself working on a major project for the next couple of years.  My wife doesn’t really like the idea of investing in real estate or rental income but I feel that it offers a good way to capitalize on our excellent credit and ability to manage cash flow.

While I am most interested in house building, other ideas from my current hobbies that could make money are drone piloting and small scale farming. A less speculative idea is for me to teach private music lessons. I feel confident that with my background I could easily charge $50-$60 an hour but I wouldn’t want to teach for more than 10-15 hours a week.

If I had to rank these interests it would probably be the following 1) house building 2) farming 3) drone piloting 4) music teaching 5) being a landlord.

What are the best (or least risky) places to move for pursuing some kind of real estate idea outlined above?

Given we are in our mid 30s, don’t have/want kids, net worth of $320k, and spending about $45k per year - would giving up my wife’s tenured $80k a year job within the next 3 years seem too soon for you fellow risk averse mustachians?

With my varied interests, what mix of the above income ideas would be the best balance of dream situation and real life?

Any other general observations and advice are welcome!

Edit: Thanks for the advice so far, just to clarify while 'hate' may be a little too strong, my wife does not like her job and wants to quit as soon as possible without being reckless. We have agreed that 5 more years of her working is about the max she wants to do. The 'dream' is definitely to move out of Saint Louis to somewhere nice and warm although we are open to a pretty wide range of places that are not necessarily super high cost. I would love to find a warm version of MMM's situation in Longmont. While we are both earning good incomes here it is a no brainer to stay which I know is the safer and likely path. My dilemma is that it is hard for me to say, start building a studio of music students, or anything else if I know we will be moving in 5 years right when I am getting established. I am really looking for ideas for how to make my 'vague' future ideas into a plausible plan. I am also not opposed to working 20-30 hours a week I would just rather it be spread between several things like teaching and real estate for example. I should also note that we have a moderate pension that will kick in post 60's and there is obviously room to improve our spending.
« Last Edit: February 20, 2016, 06:01:46 PM by gojiberries »

Cassie

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Re: Exit strategy
« Reply #1 on: February 20, 2016, 03:15:15 PM »
I would think that given your spending, young ages and amount you have saved that she should keep her good job for awhile longer. I would concentrate on building your stashe to a higher number.

obstinate

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Re: Exit strategy
« Reply #2 on: February 20, 2016, 04:34:58 PM »
It's quite tricky to turn a profit on a real estate deal like what you described. Plenty of people manage it, but others lose their shirts. It's a gamble.

Be aware that your $400k savings are not going to go nearly as far when talking about buying a house in a warm place on the west coast. And it's much less straightforward to find a renter in the countryside.

Have you considered music teaching or tutoring? I'm sure the competition must be fierce, but how many music teachers are former members of the symphony? I think it would be a bit premature to move West and give up your wife's tebured position given what you've told us so far.

That goes double if you are risk averse.

Lski'stash

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Re: Exit strategy
« Reply #3 on: February 20, 2016, 04:43:42 PM »
It sounds like you could easily combine landlording and music lessons and make an income that should meet your needs until you and your wife can fire. Maybe even start building/flipping houses? I'm not sure that your wife needs to give up her job unless you guys have a dream to move.

I made a spreadsheet with our incomes that I fiddle with when I want to know 'what if?' scenarios. Pm me if you want it.

arebelspy

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Exit strategy
« Reply #4 on: February 20, 2016, 05:14:02 PM »
Given we are in our mid 30s, don’t have/want kids, net worth of $320k, and spending about $45k per year - would giving up my wife’s tenured $80k a year job within the next 3 years seem too soon for you fellow risk averse mustachians?

Less than 1/3 of the way to FI, vague future plans, and not wanting to work a semi-ER gig for more than 10-15 hours?

I would stick it out longer. Especially if she likes her job, which I assume you would.

Right now is the time to crank up your earnings. She keeps her job, you start a tutoring business, bank as much as you can for a few years, then move over to a semi-ER position where you tutor 10-15 hours/week and make 20-30k to cover half of your ER spending, with the rest covered by your larger stache at that point.

If she hates the job, yes, make a change. Otherwise no, don't rush into anything.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
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DebtFreeBy25

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Re: Exit strategy
« Reply #5 on: February 21, 2016, 08:16:22 AM »
Here's the way I would look at your personal work situation moving forward.

- What three income producing skills are you best at/most qualified to pursue? (Music will definitely be one of them.)
- What three income producing activities do you enjoy the most? (Looks like these are home building, farming and drone piloting.)
- What three potential gigs would net you the most money per the amount of time invested?

Look for the overlap in these three groups. I would recommend doing your research on your expected rate of return for any particular real estate investment. You definitely need to factor your time investment, effort and associated stress when considering an option. What's your potential to monetize farming (still has unknown risks) or drone piloting? I would definitely recommend that your wife stick with her current position at least until you figure out your next move (read: successfully transition and start earning income). Look for some quick wins in your spending patterns to help accelerate your FIRE. 


EnjoyIt

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Re: Exit strategy
« Reply #6 on: February 21, 2016, 10:29:46 AM »
My back of the envelop math.  If she makes $80K and you can do part time work for $20K, maximizing her 401K, you will be paying about $12K in taxes.  You are down to $88K/yr.  You spend $45K which will allow you to save $43K per year or about $3500 per month.

Saving $3500K/month at 5% return you will have $642K in 5 years.  If after those 5 years you can both work part time that just satisfies your spending, that $642K will grow to your required $1,125,000 in 11 years and 4 months.

Variables:
You make more money and able to save more
Actual rate of return will vary.

backyardfeast

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Re: Exit strategy
« Reply #7 on: February 21, 2016, 11:09:36 AM »
A couple of things.  If you are planning to ER or semi-ER from your professions in your late 30s, what were you thinking about how you wanted to spend your remaining decades?  Is there another hobby or "occupation" (as in occupation of your time, not necessarily a job) that you were hoping to spend more time enjoying? (It doesn't sound like you were thinking of real estate this way.)

If so, look at these next few years as a time to gain skills that will help you to hit the ground running when you're ready to move.  Find an entry-level job in that field, even if you don't plan to actually have a new career in it, just to learn some skills.  Or, get a low-stress, part-time job and start giving lessons just to make some cash to save over these next few years, develop your teaching skills, and spend your down-time doing the self-work that will help you to figure out what you'd like to do next.

Personally, I wouldn't consider farming as a new option.  You'll be putting in long hours for very low pay for a number of years, and if you're headed to CA or somewhere similar, you'll be looking at land prices that make it tough to pull in much income.  Nothing wrong with farming for passion, and it is possible to earn a modest living once you've figured out how to optimize (this can take some years), but it's a steep learning curve and low pay for a lot of labour; often you're very lucky just to eat for free and break even on the rest of your costs.  In our (high land price) area, (very) full-time farmers typically gross $100,000, but only come out ahead by about $30K.  And that's full-on work, including managing interns and staff, contracting with restaurants, delivering CSAs, etc in a place with a wealthy foodie population and a long growing season.  Hobby farmers break even or do it to keep their own living and food expenses low.

But again, if you're in MO, there will be farms where you could intern or work to get a better sense of whether you've got the passion to make the numbers worth it for you.

If I were in your shoes, I would be saving as much $ as possible right now, while your wife is still working (ie get your living costs down as low as possible and consider this your big push for short term max saving), then pick a place to move that has as low a COL as you can stand (in the area you want to be) while still having a rental market.  Then I would look for a fixer-upper home that you were allowed to build the "laneway" house or cottage on (rather than building a more expensive house and cottage)--you might also find something already purpose built; we see this configuration pretty regularly out here.  Then I would have you and your wife each work part-time doing lessons or whatever and try to live on this income + the rental income while letting your stash grow in the background.

Keep it simple!  If you could get $1000/mo rent from a cottage, and pull in another $1000-$1500 from lessons between you, some other petty cash from the occasional side-gigs or another hobby, you could be close to $3000/mo, which can be pretty comfortable without a mortgage.  But it sounds like it might be a simpler life than what you have in mind...

(Just for reference, our plan shortly is to have no mortgage, move to a larger acreage where DH will manage the property and earn a small income from it--maybe $5-10K/year--and work part-time.  I will continue working full-time for another 15 or so years, partly to earn a very nice pension.  We estimate our living expenses at about $40K (Canadian), but that includes a small sailboat and assumes that DH's small income will cover all farming and property expenses.  We're older than you and DH will draw SS in less than 10 yrs.  So my income will cover living expenses and savings; his will cover everything else.  In about 15 yrs, my pension+both our SS will cover us comfortably.  It's a simple life, but an awesome one.)

Good luck; I love hearing FI stories from musicians and artists, and I went to school in MO many years ago...look forward to following your story.

spokey doke

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Re: Exit strategy
« Reply #8 on: February 21, 2016, 12:03:26 PM »
A version of some of the above rec's is: your wife sticking it out for a few years while you do part-time work for cash and part time work setting up the next phase for both of you (by finding a place to live that has a reasonable COL, access to a population that coud support private music students (at least as a backup), and all the outdoor stuff you are looking for and where you can grow food (not as a business, but as a badass mustachian who likes good food); you could also explore the piloting thing and see what shakes out).

And before posting, go lookup all the threads on where to move to out west, there are quite a few...

gojiberries

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Re: Exit strategy
« Reply #9 on: February 22, 2016, 08:42:14 AM »
This has been a very helpful process. Just sitting down with my wife and talking through the replies posted here has produced a lot of interesting discussion.

I'm beginning to recognize a large part of my dilemma is internal and will not be solved by moving. I have a habit of brainstorming about the future that often makes me feel unsatisfied with my current situation (which is really pretty good). It's a hard area for me to navigate because a certain amount of forethought is obviously important but not if it completely overshadows being present in my daily life.

As an aspiring buddhist, the middle path recommended by several of you seems to make the most sense. Farming as a source of significant income always seemed a stretch to me but as we eat a ton of vegetables I do think I can make quite a dent in our grocery spending by improving those skills. I already have experience teaching older students but I may focus on getting certified to teach the Suzuki method which focuses on how to start children and beginning students. I'm going to keep practicing my piloting with my $30 drone and maybe think about investing in a Phantom 3 if I really think doing freelance real estate photography is something I like. Real estate ideas will be put on hold for at least a year or so to see if we continue to seriously want to move.

Thanks again for your input and I always welcome additional ideas.




arebelspy

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Re: Exit strategy
« Reply #10 on: February 22, 2016, 10:12:46 AM »
I'm going to keep practicing my piloting with my $30 drone and maybe think about investing in a Phantom 3 if I really think doing freelance real estate photography is something I like.

Have you actually looked into the requirements if you're flying drones commercially (i.e. selling the photos)?

From what I understand, it's not viable if you want to do it legally, above the table.

Definitely look into it before you put any money into it.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

backyardfeast

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Re: Exit strategy
« Reply #11 on: February 22, 2016, 10:26:04 AM »
Sounds like a very practical and constructive way forward, gojiberries.  The only thing you don't have listed is working on reducing your expenses...as professional musicians, you're likely used to living pretty frugally, but at $45K projected retirement expenses in a pretty low COL area, there may be ways that you can use your new free time to optimize this too.

Good luck--you might think about starting a journal so that we can follow your journey.  I would follow! :)

gojiberries

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Re: Exit strategy
« Reply #12 on: February 22, 2016, 10:58:36 AM »
I'm going to keep practicing my piloting with my $30 drone and maybe think about investing in a Phantom 3 if I really think doing freelance real estate photography is something I like.

Have you actually looked into the requirements if you're flying drones commercially (i.e. selling the photos)?

From what I understand, it's not viable if you want to do it legally, above the table.

Definitely look into it before you put any money into it.

I have looked into it. From what I understand, to do it legally you need a FAA 333 exemption which is not actually so hard to get right now. The catch is that to use that exemption for commercial use the person piloting the drone has to have at least a sport pilot license (which I do not). This will likely change soon though.

arebelspy

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Re: Exit strategy
« Reply #13 on: February 22, 2016, 12:15:59 PM »
Okay, cool.  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.