Author Topic: I've had enough - do my numbers work?  (Read 3682 times)

freeatlast

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I've had enough - do my numbers work?
« on: May 01, 2017, 06:54:48 PM »
I am so tired of the constant criticism and no recognition from my micromanaging boss. I think I am ready to finally actually at least take a break,i f not retire fully at the end of June - do my numbers pan out???

my numbers: 47 yrs old. One kid going to college fall 2018 but in-state tuition pre-paid for. College LIving expenses 25% planned for. She could live at home if she needed to.
Rental  house 1 - no mortgage - would clear at least $250k if I sold it. $1275 rent
Rental house 2 - no mortgage would clear at least $300k if I sold that. $1500 rent.
My house - will own it soon. Can rent out bottom (separate kitchen, entrance, bathroom etc...)for at least $1000 once kiddo vacates. Hubby agrees on future rental plan.
$425k 401(k).
$20,000 cash.

Hubby works but we don't share finances (second marriage). However, I will be able to split the property taxes on my HCOL house (my part $300 per month). Also can get health insurance through his plan. He has a smaller 401(k) and his own mostly paid off rental house.

I know I don't have much cash - but I have the rental income. My spend rate is about $1900 per month not including health care.

What do you guys think? Thanks!!!!!

MarioMario

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Re: I've had enough - do my numbers work?
« Reply #1 on: May 01, 2017, 06:59:01 PM »
Sounds like planning for health insurance, especially worst case is in order.

Could you try going part-time at your job?

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freeatlast

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Re: I've had enough - do my numbers work?
« Reply #2 on: May 01, 2017, 07:21:14 PM »
Thanks MarioMario! I can get on my hubby's plan - so I think I am ok there. Other than that - what do you think?

Zamboni

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Re: I've had enough - do my numbers work?
« Reply #3 on: May 01, 2017, 08:37:53 PM »
I say try living off the rental income and see how it goes . . . in any case you shouldn't keep working for someone you hate. Life is too short, and there are lots of employers who will appreciate your efforts more if you decide to go back into the workforce. I vote for an Epic FU money story the next time your boss picks at you.

If you have a company name for your property management business, then just give yourself an honorary title and you won't even have a gap on your resume if you do go back on the market. ;-)

MayDay

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Re: I've had enough - do my numbers work?
« Reply #4 on: May 02, 2017, 11:24:54 AM »
You say you can go on hubby's insurance, but what about oop costs? Is it a HD plan? And does he plan to retire before you are 65?

I don't think it's unreasonable but especially if healthcare costs continue to skyrocket, and HD plans continue to be more common, you could be looking at a lot of health expenses even on his plan. I'd be budgeting a number for that personally, and make sure you can handle it.

Chrissy

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Re: I've had enough - do my numbers work?
« Reply #5 on: May 02, 2017, 01:46:29 PM »
Retire immediately.  You're there.

Live off the rental income, and backdoor ROTH your 401k, so you can access it 5 years from now if necessary.  Should you run into a vacancy or repair on the rentals, use your $20k in cash.  And, when you can, start renting the lower half of your home.

Congratulations!

scantee

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Re: I've had enough - do my numbers work?
« Reply #6 on: May 02, 2017, 02:20:13 PM »
Your rentals seem way underutilized. Caveat: I'm not an RE expert by any means, but my understanding is that rentals should turn out around 1% in monthly rent to be considered good cash flow assets. Yours are about half that.

You might want to explore selling the two rentals which would bring your liquid NW to around $1MM. At a 4% safe withdrawal rate, you'd clear around $40k a year, higher than the $33k you'll cash flow through the rentals.

RichMoose

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Re: I've had enough - do my numbers work?
« Reply #7 on: May 02, 2017, 02:29:35 PM »
You should seriously consider selling your rentals. After maintenance, tax, and insurance costs you would be better off investing in a passive account. Less work too!

You have basically $1m in assets and your spend is under $24,000 a year without healthcare. At $1m, you should be able to withdraw around $40,000 a year.

I say you're good to go whenever you wish. You have a good margin of safety, but you can always do a part-time gig if you want for extra cash.

Alternatively you can tell your boss to pound sand, quit, and go find a new job in your own time.

My rule is that I will quit my job when more than 20% of my workdays in a given time frame are unpleasant and the situation is not going to get any better soon. Good luck with your decision!

Cwadda

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Re: I've had enough - do my numbers work?
« Reply #8 on: May 02, 2017, 02:32:19 PM »
Sell the rentals. If a property is worth $300k and you're only getting $1500 a month in rent, you're a heck of a lot better off taking that cash and investing it in the market. 4% still applies.

Bonus: take your time in selling them and do FSBO. Save a ton of cash.

nereo

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Re: I've had enough - do my numbers work?
« Reply #9 on: May 02, 2017, 02:37:41 PM »
Your rentals seem way underutilized. Caveat: I'm not an RE expert by any means, but my understanding is that rentals should turn out around 1% in monthly rent to be considered good cash flow assets. Yours are about half that.

You might want to explore selling the two rentals which would bring your liquid NW to around $1MM. At a 4% safe withdrawal rate, you'd clear around $40k a year, higher than the $33k you'll cash flow through the rentals.
my read exactly.  In good months you more than clear your monthly expenses, but over long time periods most estimate 50% of rental income will go towards maintenance and vacancies.   Neither of your rentals is what I'd consider a cash-cow right now, and if you could get $550k+ by selling them you would have a passive income stream of >$1850/mo @4% WR.  That's without touching your 401(k) or renting out space in your own home.

Your 401(k) then can become an enormous 'safety blanked' and/or old-woman money, and renting out your basement - even sporadically - will make your plan pretty solid and allow you to whether some serious financial storms.

congrats

scantee

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Re: I've had enough - do my numbers work?
« Reply #10 on: May 02, 2017, 04:30:51 PM »
My numbers were wrong in the above comment because I forgot to include your retirement if you keep the rentals.  I still think you should seriously think about selling! It will be a lot less work, as other have mentioned, for a similar or slightly higher return.

Bicycle_B

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Re: I've had enough - do my numbers work?
« Reply #11 on: May 03, 2017, 10:46:56 AM »
You can retire.  Take care of the details ASAP and do what you want.

Fwiw, if you don't want to sell the rentals, you could take a mortgage on one of them and gain great liquidity.  In your shoes, I'd pick one to keep, then mortgage the other as intermediate step that's not selling them.  But I'm comfortable thinking that stock returns exceed mortgage costs; you might not be.  If you don't want to sell or mortgage a rental, just make sure you've planned out how to withdraw money from the 401k if you need it.  You have enough resources, your issue is liquidity (and return on investment, to the extent that the rentals' ROI is low, but you have enough excess to survive low ROI, so liquidity is the key).  And for short term liquidity, maybe get a line of credit on one of the rentals.

Cwadda

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Re: I've had enough - do my numbers work?
« Reply #12 on: May 03, 2017, 01:32:45 PM »
You can retire.  Take care of the details ASAP and do what you want.

Fwiw, if you don't want to sell the rentals, you could take a mortgage on one of them and gain great liquidity.  In your shoes, I'd pick one to keep, then mortgage the other as intermediate step that's not selling them.  But I'm comfortable thinking that stock returns exceed mortgage costs; you might not be.  If you don't want to sell or mortgage a rental, just make sure you've planned out how to withdraw money from the 401k if you need it.  You have enough resources, your issue is liquidity (and return on investment, to the extent that the rentals' ROI is low, but you have enough excess to survive low ROI, so liquidity is the key).  And for short term liquidity, maybe get a line of credit on one of the rentals.

Given what the OP has said so far, it sounds like taking a mortgage would cause the OP to lose money every month. In that case, sell sell sell.

Hotstreak

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Re: I've had enough - do my numbers work?
« Reply #13 on: May 03, 2017, 02:15:08 PM »
You can retire.  Take care of the details ASAP and do what you want.

Fwiw, if you don't want to sell the rentals, you could take a mortgage on one of them and gain great liquidity.  In your shoes, I'd pick one to keep, then mortgage the other as intermediate step that's not selling them.  But I'm comfortable thinking that stock returns exceed mortgage costs; you might not be.  If you don't want to sell or mortgage a rental, just make sure you've planned out how to withdraw money from the 401k if you need it.  You have enough resources, your issue is liquidity (and return on investment, to the extent that the rentals' ROI is low, but you have enough excess to survive low ROI, so liquidity is the key).  And for short term liquidity, maybe get a line of credit on one of the rentals.

Given what the OP has said so far, it sounds like taking a mortgage would cause the OP to lose money every month. In that case, sell sell sell.

With today's low mortgage rates, the expectation is that by putting the mortgage cash-out funds in to an index fund and withdrawing 4% of that, cash flow would be better than leaving those funds tied up in the property.  It's an optimization strategy - you have to look at it as a whole instead of only thinking that rents would no longer cover expenses + debt service. 

In this case, since rents are so low compared to invested capital, it doesn't make a lot of sense to keep it and I recommend selling.  OP if you do sell both homes you have enough money for a comfortable retirement based on the 4% rule, at $39k per year of incoming cash versus only $23k in expenses.  If that's not enough of a safety net, you will also be eligible for social security in ~15 years.  If that's STILL not enough safety net, you have potential rental income from the bottom story of your house.  Considering all of those, you are over-saved and can easily retire at any time.

chasesfish

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Re: I've had enough - do my numbers work?
« Reply #14 on: May 03, 2017, 02:22:11 PM »
How much would you owe in Capital Gains taxes on both of the rentals?  Is your monthly rent income after expenses or before?

If that's before expenses, you're better off selling the rental houses and parking the money in a few REITs and dividend paying stocks. 

I think you have enough to retire.  If you don't sell the rental houses, I think you should do a 72t on your 401k.  The only issue I have with your finances is they're a bit illiquid.

Alternatively you could put a $100,000 mortgage on one of the houses before you retire and do a roth conversion ladder instead of a 72t.

How much do you spend a month?

freeatlast

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Re: I've had enough - do my numbers work?
« Reply #15 on: May 03, 2017, 05:35:21 PM »
Omg - thanks! This thread has given me a lot to think about with regard to the rentals. Also, after a decompression I might indeed see if I can't get a part time gig given that hubby wants to work 5 more years. I feel a lot more confident about the situation and appreciate the input!

the_fixer

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Re: I've had enough - do my numbers work?
« Reply #16 on: May 03, 2017, 06:10:18 PM »
If it were me I would give it a try. I personally would try it out for 6 months or a year without changing anything with my 401K or rentals and see how it is going and adjust as needed.

From my perspective

I could always go back to work full or part time if I needed extra money and I could choose to do something that I enjoyed

Who knows if they will miss working and want to go back so a short trial could help one decide prior to making major changes such as selling rental property or starting a 72t.

I would try to setup a HELOC on one of the properties prior to leaving employment as it would be harder to get one after separation from employment.

But what do I know, I am just starting out on this journey