Need advice on retiring early - rely on stocks or real estate?

[arebelspy]

As an update for everyone, I took the least likely option probably.  A large company recruiter called me and offered a high-paying position a long commute from our current residence so I accepted and am back in the rat race for now.

Probably the smartest choice, solidifying your position financially first.

Of course, accelerating the loans doesn't make sense anymore since tax avoidance is again the objective of the rental properties.

That's fine, just don't get yourself in the situation again where you're asset rich but cash/cash flow poor.  If you aren't going to pay down the mortgages, start building up your cash and/or taxable investments that you can live on so you can FIRE properly whenever you desire.  :)

Thanks for the update!

[Jim2001]

Gary123,

  Glad to hear you found a solution and didn't have to liquidate.  Any thought given to refinancing the 15 year loans at 30 years?  You could still make the monthly payment as if they were 15s to bring the principal down, but when this job ends (and it will eventually), you'd be in a much better cash flow position.

I'm curious for your perspective on this.

[Gary123]

Jim2001,

Well, I have done exhaustive comparisons between refinancing the 15 year loans to 30 year loans along with a slow withdrawl of the IRA (including 10% penalty) by comparison.

Since about half are already 30 year loans, I could do it but the income bump is only about $2,000 to $2,400 per month.  The alternative of simply drawing down the IRA until the 15 year loans pay-off appears more attractive for a number of reasons.  Refinancing isn't free so when you consider loan fees and transactional costs it adds up quickly.

Selling one or two properties to pay another is a bad solution because as we use the "real estate professional" loophole than I don't pay capital gains but regular income tax on those earning thus limiting significantly the equity from one to pay-off another after the IRS bight is taken out.

[arebelspy]

1031 some leveraged ones with good equity into a paid off one that will cash flow well?

[Gary123]

Another update: got through a 1031 but there is an important element people should know.

Selling leveraged properties to acquire non-leveraged properties through a 1031 doesn’t work well at all.  Essentially, the IRS considers any “first money out” as profit even if it only covers an existing loan.  You can google “1031 napkin test” to get more information. 

Accordingly, the acquired proerties (or property) must have a total value that is equal or more than the property sold.  Therefore, a $300,000 property you owe $100,000 on cannot be used profitably in a 1031 exchange to acquire a $200,000 property free and clear.  That is because you will be required to pay taxes on the $100,000 thus negating any benefit of a 1031 exchange.

We acquired one for cash but had throw in an additional property that required a loan to ensure the acquired properties exceed in value the sold property.