So, would it be better in terms of FIRE date to live in one of the two rentals vs. renting both?
Will you save more by living in one than by renting it out?
Let's look. Current housing:
When I remove the cost of rent/mortgage/property tax/home insurance from this figure, I've been able to calculate that my family's spending budget would be about $4200 per month for post-FIRE (as opposed to $6500 per month in my last post, a $2300 per month difference for housing).
$2300/mo = 27,600/yr.
Current rent on that property:
I would reduce my rental income that was at 42k per year to about 24k per year (keeping the rental that has had less expenses and higher rent).
42k-24k= about 18k that rental is bringing in.
So yes, it appears you'd save about 10k/yr by living in it, and reducing your living expenses by 27.6k and your rental income by 18k.
However, you, for some reason, took out property tax and insurance, two things you will need. I'd suspect you may save closer to 5k/yr with this plan.
5k/yr x 25 = $125k less needed to be saved up. So it maybe pulls in your FIRE date by a year or so versus not moving into the rental.
Probably not worth it, to me.. may be, to you.
Thanks arebelspy!
I think I probably was not clear in my OP - property tax and insurance are included in the figure and I agree with the 10k per year result you ended up with, which X25 brings down the FIRE amount by 250k.
I also looked back at my original posts in Q1 2016 and noted my NW was 1.5 million at that time. Today it is 1.7million, so an increase of 200k this year, largely driven by the sale of an investment property under a 1031 exchange after some appreciation in my RE (major driver), obtaining a lower tax bill than we had anticipated (major driver), selling of some stock that had appreciated, plus my annual 45% savings rate.
If I were to put this all together, I think the calculation would go something like this as of today:
Expenses per year = (4200 per month*12) = 50,400
RE income (take home after property tax and insurance) = 2,000 per month*2= 24000
Applying the Calculation (Expenses-RE income)*25 = amount needed for FIRE = (50,400-24000)*25= 660,000
It takes 1.1 million to provide the home to live in and the $24,000 per month RE income. I have 600,000 left over and need 660,000. Given my savings rate, bonus and stock coming at the end of Q1, I believe I could be in the FIRE category living in one of my rentals by this summer.
I'm not an expert at putting this reduction in time to FIRE in mathematical terms re: what has happened. If only I had my 10th grade algebra teacher with me today, this would have been a great mathematical word problem, and I think the equation it would present could be a meaningful way to look at the trade-off with using a house as a rental vs. primary in terms of FIRE. My thoughts are, that I started out with an annual spend estimate in February of this year of $6500 per month or 78k per year, and multiplied by 25 to get a total FIRE amount of 1.95M and had 1.5M NW, a 450k gap. Two major items have shifted since February along with using the new calculation you had proposed (thank you!). First my NW increased by 200k in one year. Second, I am now looking at using one of my two rental homes as a primary residence and changing my calculation to reflect this in the formula (Annual Expenses-RE income)X25 = FIRE amount. Within this calculation, I reduced annual expenses by about 28k and lowered RE income by 18k, with a net savings of 10k per year, which reduced the FIRE amount (using the X25) by 250k.
I wonder if there is an algebraic formula to show the relationship of the paragraph above?
Also, thanks for the comments about having a single rental providing 24k of your FIRE income. Re: this, I'm in a rent to own contract on a piece of property with a married couple with two kids, with an anticipated buy-out date in 2018. If there are no issues, I believe I will become liquid on the asset producing this 24k to the tune of about 560k. My hope is that at that time, I will be in a better position to redistribute the funds into a more diverse portfolio,hopefully in a better overall market, but one never can tell. I thought this was a conservative position and took it as I had a 1031 exchange at the end of 2015 that I needed to invest in within the required time period.
Thank you for the feedback and I think next steps for me will be to a) build the buffer in income 2) along with healthy cash reserves and 3)diversify when I can with the 24k annual income property. Is there a post that shows how people have gone about achieving 1,2, and 3 above?
Like many in the workplace, I rely too heavily on my own income as counting towards diversity of income. I guess these Saturday morning post are some evidence of my efforts towards evolving beyond this point. I may need to change my avatar (do they still call it an avatar) to a caveman.
I am beginning to look into some interesting diversity of income strategies in Europe as an American living abroad. More to come on that topic after some further investigation.