Advice for a MIT with a growing family

[bark34fan]

My wife and I recently welcomed some new additions to our family so we are interested in receiving some advice from The Money Mustache Community:

-Our expenses hover around $4,000/month at the moment and we have a rental that brings in roughly $900/month.  Using the 4% Rule we are trying to amass a Net Worth of $775,000 to downsift out of the daily grind to some degree so we can spend more time with our growing family.  How should we factor home equities and investments into this number though?  We currently have $370,000 in home equities and $330,000 in investments that range from mini-bonds to Vanguard funds so would you estimate that we are $75,000 away from ER or should our investments total $775,000 to make it work?  The sleepless nights have been taking their toll so any advice would be greatly appreciated!

-If we did downshift out of the daily grind how would you proceed with medical insurance?

Thank you so much!!!

Sincerely,

bark34fan, MIT

[terran]

Only count home equity that you're willing and able to put to productive use when you FIRE. So if you plan to sell your home and move elsewhere then you can count it, but if not then you shouldn't. Having a paid off house should, however, reduce you're expenses meaning you need less invested.

[bark34fan]

Thank you so much for this information terran!!  What would you do in our situation?  Should we keep our rental property (a duplex nearby one of the most popular parks in Denver) or sell it to increase the total of our investments so we are closer to that number ($775,000)? 

Also, would you say that we are behind schedule, on track or ahead of schedule being a couple in our mid-30s?  I feels awkward to chat about our financial situation with family members and friends who may put more emphasis on the latest SUV...

[terran]

Whether or not you sell the duplex should really depend on whether it's a good investment. Given the income and expenses would you buy it for the amount you could sell for less closing costs? Do you want to be a landlord? If so, then presumably you've made the decision that it's a better investment than the stock market or other investments available to you, if not then you should sell and invest in something else. The net profit you see from the rental should act to reduce the income that you need to get from other investments, so while you shouldn't count the value of the home towards the 4% you should count the income against your expenses.

Where are you getting $775k? My match says ($4000 expenses - $900 rental income) x 12 months = $37200/year. Divide by 4% (or multiply by 25) and I get $930k. You should also research the "4% rule" and decide for yourself if that's a withdrawal rate you're comfortable with.

As far as if you're behind "schedule" I guess it depends what your schedule is. You're certainly ahead of a lot of people your age, then again there are people on this forum that are already FIRE'd by your age. I wouldn't worry about it. You can only do what you can do, so decide when you want to get where you want to get, and what you're willing to do to get there, and there you go :-)

You might benefit from doing an "official" case study following the format outlined at http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/