Hi Everyone. Below is my case study outline. I am hoping to get some guidance on what our best next step should be toward Early Retirement. Thanks!
Life Situation:
Married filing jointly,
No children or dependents,
Living in Southern California,
Ages 32 and 29 (wife),
I work on a commission basis as an independent contractor for a small business,
Wife is a teacher
Gross Salary/Wages:
Me: fluctuates, but about $36,000 per year so far in this new position, I expect this to grow
Wife: $50,000 per year
Pre-tax deductions:
Wife Retirement: $4,500 per year
Other Ordinary Income:
Interest from Real Estate Loans: $9,540 per year ($4,770 in 3 years, $0 in 7 years as notes get paid off)
Qualified Dividends & Long Term Capital Gains: n/a
Rental Income, Actual Expenses, and Depreciation:
8 Income Properties
Rent ranges from $600 to $800 per month
Net income: ~$4800/mo.
Expenses: ~50% of gross income
Split w/ partner: 50% of net income
My net Income: ~$1,200/mo. ($14,400/yr.)
*Owned free and clear between me and a partner. We split profits 50/50.
*Plan to use this income to cover part of our spending in ER.
*All rentals are outside CA. I guess I could go live in one if we were desperate.
(Note: much of this income just started this year)
Adjusted Gross Income: $105,440
Taxes: We got a refund for 2014. I believe based on losses on our income property and the fact that I was unemployed for most of the year. I’m not sure how to calculate this exactly so I’ll estimate a 20% effective tax rate.
Taxes: ~$19,180 (I would love some help with this part if anyone is up for it)
Current expenses:
Average spending is $3,600 per month.
May 2015 broke down as follows (via Mint):
Rent: $1,695
Gas: $295 (2 cars driven in opposite directions for work)
Groceries: $737 (out of control! Grass fed beef, organic everything, farmer’s market, etc)
Other Food: $306 (also out of control. Eating out, coffee shops, Mother’s Day dinner)
Utilities: $60 (gas, electric, water)
Wife Fun Money: $100
My Fun Money: $50
Misc: $301 (trips to Target, household goods, etc)
Gifts: $76 (baby shower)
Entertainment: $7.99 (Hulu subscription)
Internet: $40
Pet Food/Supps: $25
Cell Phones: $0
Expected ER expenses:
I want to say our ER expenses will be less than they are currently. I think it will greatly depend on what we do about our housing cost.
I estimate ER expenses to be about $3,000 per month.
Assets:
$11k in cash
8 Rental Properties valued at about $350k
4 Seller Financed Properties (I am the lender)
$2,500 at Lending Club spread across 100 notes
Liabilities: Recently paid off student loan. No other debt.
Specific Question(s):
I’m clear that we have some work to do on our expenses if ER is the goal, especially in the food and housing department. My main question is about housing. The rent vs. own battle continues to rage on the Internet. Everyone seems to have a break down of why one is better than the other. If the goal is ER should we save for a down payment, buy a house, and pay off the mortgage rapidly to decrease our living expenses? After a mortgage is paid off the cost of owning will be much less than renting a similar home, right? Or should we continue renting and invest the down payment money? We might have to move out of Southern California to even think about buying as this area seems to be well out of our price range. Thank you for any guidance, advice, and questions.
- David