**UPDATE BELOW**
Hi all. Long time MMM reader and forum visitor, first time poster. I feel fortunate for my financial situation but have a ways to go reach FIRE. My wife and I paid off our house almost two years ago and have since moved in to another house, keeping the paid off house as a rental. We use the rental income to pay a good chunk of a mortgage on the newer house. I would like your opinions about whether we should maintain our current situation or get rid of the rental, apply that principal to the new house, and pay down the new mortgage asap. Please let me know if I failed to include anything and thanks for your input!
Life Situation:
Married filing jointly
2 Kiddos - 4yrs & 1.5yrs
We live in Boise, Idaho. I am 34 and my wife is 30.
Gross Salary/Wages: $8,333/mth ($100,000/yr)
Pre-tax deductions:
401k - $1,468.51
Employer Match - $333.33
HSA - $273
Insurance - $153
SubTotal = $6,440
Rental Income, Actual Expenses, and Depreciation:
Rental House - $1,450
less $309 for property tax, HOA, insurance, and misc. maintenance ($50)
Adjusted Gross Income: $7,580.49
Income Taxes:
$1068
Income before other expenses: $6,512.46
Current expenses:
Mortgage $1,641
(Loan is with wife's parents, so refinancing to a 15 yr if/when I sell the other house would be very easy and essentially cost free.
$350,000 30yrs fixed 3.85%
Started June 1, 2015 - Feb breakdown is $529.66 Principal $1,111.17 Interest.
Property Tax $448
Home/Rent Insurance $35
Car Insurance $83
Car Maintenance, Registration, etc. $76
Charitable contributions $644 (10% tithing)
Child activities $50
Christmas/Holidays $42
Clothing/Shoes $25
Dentist $25
Dining (Lunch/Dinner/Etc.) $85
Electricity $60
Emergency Fund
Entertainment $25
Fuel/Public Transport $150
Gas/Oil for heating $55
Groceries $500
Hair Care $35
Internet $35
Life Insurance $25
Miscellaneous $4
Recycling/Trash $25
Water/Sewer $25
Non-mortgage total expenses: $2,451
After tax investable: $1,962
Assets:
Rental House (no mortgage), Zillow estimate $242,500
Taxable savings account $5,000
401k $48,131
Traditional IRA $5,116
Roth IRA $31,280
HSA $1,695
Total Assets: $334,470
Liabilities:
Mortgage on primary residence $350,000 30yrs 3.85% (we are only 8 months in)
UPDATE:
In an effort to compare what my situation would look like in 10 years, selling the rental vs. keeping it, I came up with the following numbers. In short, it seems like selling looks like a good idea.
Keeping the Rental
Safe Withdrawal Rate 4%
Real return on tax-deferred investments 5.00%
Real, after tax, return on taxable investments 5.00%
Expected retirement total tax rate 15%
Projected Savings at Retirement
Taxable $304,278
Tax-deferred (e.g. trad. IRA/401k) $358,860
Roth + HSA $165,092
Total projected stash $828,229
Projected Expenses in Retirement
Non-loan, non-work expenses $29,416
Income taxes $5,191
Total $34,607
Total loan principal due at FI $274,337
Stash needed for retirement @4.0% SWR $1,139,502
Need $311,273 more.
Selling the Rental
Safe Withdrawal Rate 4%
Real return on tax-deferred investments 5.00%
Real, after tax, return on taxable investments 5.00%
Expected retirement total tax rate 15%
Projected Savings at Retirement
Taxable $258,124
Tax-deferred (e.g. trad. IRA/401k) $358,860
Roth + HSA $165,092
Total projected stash $782,076
Projected Expenses in Retirement
Non-loan, non-work expenses $29,416
Income taxes $5,191
Total $34,607
Total loan principal due at FI $47,717
Stash needed for retirement @4.0% SWR $912,881
Need $130,806 more.
**UPDATE**
After thinking some more about this I had a faint recollection of a simple comparison I did of holding the rental vs. selling. Looking into some old spreadsheets I found the chart below. It is simple, maybe too simple, but it is basically a balance sheet with the rental and a balance sheet without the rental. The underlying assumptions are a 30 yr mortgage (350K with the rental - 125K without). This analysis shows that holding the rental actually provides better monthly cash flows. Am I missing something with this or does this provide a better, more narrow, look at the situation?
Rental No Rental
$1,450.00 Income $0.00
-$1,641.00 Mtg -$586.01
-$191.00 Sub Total -$586.01
-$1,810.00 Taxes $0.00
-$640.00 Insurance $0.00
-$660.00 HOA $0.00
-$3,110.00 Annual Total -$7,032.12
-$259.17 Monthly Total -$586.01