Author Topic: Can you please help a history teacher FIRE one day?  (Read 4373 times)

nsmall

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Can you please help a history teacher FIRE one day?
« on: November 10, 2018, 11:28:42 PM »
Life Situation: Married, 3 small kids

Gross Salary/Wages: 95,000-105k

Other Ordinary Income: 5k a month (foster parent, one kid has way special needs hence the large amount of money) This is tax free income I will get for the next 10 years, then it will be 2k a year for 5 years, then it will be $0

Rental Income, Actual Expenses, and Depreciation:  $1,200 a month cash flow (bought them in 2012)

Adjusted Gross Income: 160k

Taxes: 7k a year

Current expenses: 45k  Honestly, this is just a guess

Mortgage payments of current home $1,800 per month

Assets:
Rental #1 I owe 125k, Its worth 300k so 175k of equity

Rental #2 I owe 112k, Its worth 260k so 148k of equity

Personal Home: I owe 140k, its worth 410k so 270k of equity

ROTH 403B 45k Vanguard index funds

My ROTH IRA 51k Vanguard index funds

My wifes ROTH IRA 46k  Vanguard index funds

Emergency fund/savings/Checking 45k

My 1973 Plymouth Cuda 50k (sorry if this upsets anyone)

I just sold a rental home and I currently have 105k in cash AFTER taxes and fees

Lastly, I have 15 years of credit in the CA retirement program CALStrs which I can draw from when I am 55.

Liabilities: None besides home

Specific Question(s):  I think I have too much money in real estate (593k) vs the ROTHS (142k) and need to focus on Non ROTH options.  Please see below.  Sorry for the long response.

1.   Should I take the 105k I have in cash and A) use it towards paying off my home or B) buy Vanguard Total Stock Market shares as I just opened a brokerage account last week with Vanguard and I have so much tied up in Real Estate?  I am STRONGLY leaning towards option A

2.   Should I STOP funding the ROTH 403b and fully fund a traditional 403b for 2019 and years to come?

3.   Should I keep funding my ROTH IRA and my wifes ROTH IRA or should I switch to a traditional IRA?

4.   Should I open a traditional 457 and fund it for 2019 and years to come?  (right now I am working on getting Vanguard listed for the 457 and this may or may not happen as my school district only has high fees (around 2.5%) if I use one of their vendors for a 457.

5.   My son with special needs will probably always live with us, as for my other 2 kids, I would love for them to go to college and I want to pay for college for them and I have NOT saved money for them yet so maybe I should start a 529 plan for them?

I love my job, dislike where I live (I live in suburbia).  I want to move to eastern Washington in 3-5 years and buy 3-10 acres and a house with the sale of my home in CA.  I plan to get a teaching job in WA and work until I can FIRE.

Even though I love my job, there is no way I can afford a bigger piece of property in CA and I grew up in eastern WA and would like to return sometime soon and raise my 3 kids in the forest.
I am 39.

I always planned on working until I was 59.5, but this site has made me think I would like to FIRE when I am 50-55ish.

I donít want to own real estate in CA when I move to WA so I was thinking I will sell one rental in 2019 and the other in 2020 for tax purposes and so the move will be less of a shock as I lived in CA for 15 years, but my original plan was to only live here for a year or two.  I was thinking I would buy Vanguard Total Stock Market shares when I sell each home.

Looking for advice as I have extra money to invest now and monthly. 

If I pay off my home with the 105k I have now my home will be paid off in March of 2019 (I add 5k a month towards principle) and I will have even more extra money to invest.


I really appreciate this site and all of you as my mind has been blown from what little I have read on this great site.

Thanks in advance!!! Let me know if you need more info.

I will keep reading as much as I can on this great site and fill free to add links or suggestions to help me achieve my goals.


Sincerely,

nsmall

MDM

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Re: Can you please help a history teacher FIRE one day?
« Reply #1 on: November 11, 2018, 01:55:40 PM »
If you put your actual numbers into the case study spreadsheet, how does the chart of your marginal rates compare with the one in https://forum.mrmoneymustache.com/ask-a-mustachian/first-post-need-some-5-year-advice/msg2190701/#msg2190701?

MarciaB

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Re: Can you please help a history teacher FIRE one day?
« Reply #2 on: November 11, 2018, 05:42:24 PM »
The Gross Salary/Wages: 95,000-105k - is that just you, or is it both you and your spouse? Are you a public school teacher (or a professor?). Where does a history teacher make 6 figures? (I'm thrilled for you, just wanting to know!)

Also, are there expenses associated with your foster child?

nsmall

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Re: Can you please help a history teacher FIRE one day?
« Reply #3 on: November 11, 2018, 07:43:12 PM »
yes I am a high school teacher.  Its a long story why its so much and not really relevant to this thread.  But yes, I am very thankful as I will only make 50k in WA.

As for the foster care situation finances, its included in my yearly budget. 

Still waiting for opinions on what to do. 

The more I read on this site the more I think I need to go all out on these pre-tax investments....403b and 457

Boofinator

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Re: Can you please help a history teacher FIRE one day?
« Reply #4 on: November 11, 2018, 09:38:00 PM »
For most Mustachians, tax-deferred investments are the way to go. Max out the 403b and invest in a total market index with a low expense ratio, if available. If you can fully deduct a traditional IRA, I would fund that as well (check IRS income limits). Not too familiar with 457 plans, but from what little I read it seems like a similarly good deal (even with the heavy fees listed; just make sure you move the money as soon as you can). I'm not a fan of funding college education, so no comment on the 529.

As for the current cash, my play would depend on mortgage interest rate and years to FIRE. It seems like you plan to work for a while still, and I'm guessing you have a relatively low interest rate on the mortgage. These two factors lend themselves to investing that lump sum in a taxable account over paying off the mortgage. However, if you are risk averse, than paying off the mortgage is not a bad option.

nsmall

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Re: Can you please help a history teacher FIRE one day?
« Reply #5 on: November 11, 2018, 11:17:44 PM »
Interest rate on home is 3.75.

I'm leaning towards using the 105k for the home.  It seems like the safer move.

I plan to leave CA in 3-5 years.  Work another 10, retire around 2033.

Thanks Boofinator

reeshau

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Re: Can you please help a history teacher FIRE one day?
« Reply #6 on: November 12, 2018, 03:09:10 AM »
I love my job, dislike where I live (I live in suburbia).  I want to move to eastern Washington in 3-5 years and buy 3-10 acres and a house with the sale of my home in CA.  I plan to get a teaching job in WA and work until I can FIRE.

To me, it seems like your thoughts on moving to Washington are more wishes than plans.  Several questions around them:

1) Do you have a specific city or area in mind to move to?

2) If so. do you have contacts in the school system there?  Do you know the job prospects there, other than salary amount? (i.e. retirements / subject needs, etc.)

3) What will come of your fostering in WA?  Do you know the requirements and economics?
     --I say this because you give a long-term forecast for fostering, but then talk about moving relatively soon.

To me, 3-5 years is a fuzzy future which will never come.  Does that mean 2-4 years in 2019, just 2 months away?  If you are serious, I would think about taking my money and preparing for *the rest of my life*, rather than optimize the short time you have left in CA:  focus your vacations hunting for a new hometown; address any qualification needs for teaching or fostering in WA; maybe buy a house or some land, or at least connect with a good realtor to be looking for you.  If, however, it is not the dream of your family, or if there is some other roadblock preventing it from becoming a real goal, then focus on those, and otherwise follow the advice given so far.

nsmall

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Re: Can you please help a history teacher FIRE one day?
« Reply #7 on: November 12, 2018, 09:43:17 AM »
I love my job, dislike where I live (I live in suburbia).  I want to move to eastern Washington in 3-5 years and buy 3-10 acres and a house with the sale of my home in CA.  I plan to get a teaching job in WA and work until I can FIRE.

To me, it seems like your thoughts on moving to Washington are more wishes than plans.  Several questions around them:

1) Do you have a specific city or area in mind to move to?

2) If so. do you have contacts in the school system there?  Do you know the job prospects there, other than salary amount? (i.e. retirements / subject needs, etc.)

3) What will come of your fostering in WA?  Do you know the requirements and economics?
     --I say this because you give a long-term forecast for fostering, but then talk about moving relatively soon.

To me, 3-5 years is a fuzzy future which will never come.  Does that mean 2-4 years in 2019, just 2 months away?  If you are serious, I would think about taking my money and preparing for *the rest of my life*, rather than optimize the short time you have left in CA:  focus your vacations hunting for a new hometown; address any qualification needs for teaching or fostering in WA; maybe buy a house or some land, or at least connect with a good realtor to be looking for you.  If, however, it is not the dream of your family, or if there is some other roadblock preventing it from becoming a real goal, then focus on those, and otherwise follow the advice given so far.

1. Spokane, well outside of the city in any direction.

2. No solid contacts besides I did grow up in Eastern Washington until I was 25, I have some friends who are teachers

3. I will NOT be foster parenting in WA as I will have three adopted kids by then, you get a monthly stipend once you adopt

Yes I need to get my teaching credential to clear in WA

I dont know much about WA retirement program, I am working on it.

I have a history degree, so I need to get aggressive about looking for a job in WA as I will be competing against multiple applicants.  This is the part of my plan where I may be the most screwed.

I am going to Spokane this upcoming summer to spend some time. 

I was thinking I would just rent for 1-2 years, then buy a house once I settle down and find a school district I enjoy.

My whole family is interested in leaving the CA desert we currently live in.

Thanks

Boofinator

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Re: Can you please help a history teacher FIRE one day?
« Reply #8 on: November 12, 2018, 10:22:27 AM »
Interest rate on home is 3.75.

I'm leaning towards using the 105k for the home.  It seems like the safer move.

I plan to leave CA in 3-5 years.  Work another 10, retire around 2033.

Not a bad plan since you are planning to sell your house in 3-5 years. Let me just add if I didn't stress it enough earlier that I highly encourage you to make sure you max out tax-deferred accounts. Not sure what your combined state and federal income tax brackets are, but I'm guessing at least 25%. You make 33% (1/(1-federal-state)-1) right off the bat for every dollar you invest in tax-deferred, plus market returns. Cannot beat that return by a ten-foot pole. And if you go the FIRE route, you'll likely never pay taxes on that money.

reeshau

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Re: Can you please help a history teacher FIRE one day?
« Reply #9 on: November 12, 2018, 10:44:13 AM »
I love my job, dislike where I live (I live in suburbia).  I want to move to eastern Washington in 3-5 years and buy 3-10 acres and a house with the sale of my home in CA.  I plan to get a teaching job in WA and work until I can FIRE.

To me, it seems like your thoughts on moving to Washington are more wishes than plans.  Several questions around them:

1) Do you have a specific city or area in mind to move to?

2) If so. do you have contacts in the school system there?  Do you know the job prospects there, other than salary amount? (i.e. retirements / subject needs, etc.)

3) What will come of your fostering in WA?  Do you know the requirements and economics?
     --I say this because you give a long-term forecast for fostering, but then talk about moving relatively soon.

To me, 3-5 years is a fuzzy future which will never come.  Does that mean 2-4 years in 2019, just 2 months away?  If you are serious, I would think about taking my money and preparing for *the rest of my life*, rather than optimize the short time you have left in CA:  focus your vacations hunting for a new hometown; address any qualification needs for teaching or fostering in WA; maybe buy a house or some land, or at least connect with a good realtor to be looking for you.  If, however, it is not the dream of your family, or if there is some other roadblock preventing it from becoming a real goal, then focus on those, and otherwise follow the advice given so far.

1. Spokane, well outside of the city in any direction.

2. No solid contacts besides I did grow up in Eastern Washington until I was 25, I have some friends who are teachers

3. I will NOT be foster parenting in WA as I will have three adopted kids by then, you get a monthly stipend once you adopt

Yes I need to get my teaching credential to clear in WA

I dont know much about WA retirement program, I am working on it.

I have a history degree, so I need to get aggressive about looking for a job in WA as I will be competing against multiple applicants.  This is the part of my plan where I may be the most screwed.

I am going to Spokane this upcoming summer to spend some time. 

I was thinking I would just rent for 1-2 years, then buy a house once I settle down and find a school district I enjoy.

My whole family is interested in leaving the CA desert we currently live in.

Thanks

Well, that all sounds well-thought-out.  Particularly the openness to renting--I hadn't expected that, since you are heavy into real estate now.  One question, out of my personal ignorance:  does the stipend cross state lines?

nsmall

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Re: Can you please help a history teacher FIRE one day?
« Reply #10 on: November 12, 2018, 03:24:17 PM »
@Boofinator I am going to FOR SURE invest into a traditional 403b beginning in Jan. 2019

I am also going to go with a traditional 457 if I can get Vanguard added as a vendor for 2019.

I will max out both my 403b and 457.

As for my ROTH IRA and my wifes ROTH IRA, Boofinator, are you suggesting I stop the ROTH IRA and make my 2019 contributions to a traditional IRA?  I still dont understand how this works as I buy my Vanguard funds for my IRA outside of my job. 

I will take a 50% pay cut when I move to WA.  If I FIRE before 59.5, Lord willing I will, yes my income will be lower so these tax deferred accounts are making more and more sense. 

Reeshau-yes the stipend crosses state lines.  Group homes are WAY more expensive vs paying my wife and I a small stipend to raise foster kids.  The reason mine is so high is my son with special needs adds 5x to what one would traditionally see per month.

nsmall

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Re: Can you please help a history teacher FIRE one day?
« Reply #11 on: November 12, 2018, 03:32:01 PM »
@Boofinator

I am thinking whatever money I have left over from investing into the 403b, 457, and IRA, buy Vanguard Total Stock Market Admiral shares as I just opened a brokerage account last week with Vanguard and I have so much tied up in Real Estate?

Sell a rental in 2019, boom buy Vanguard Total Stock Market Admiral shares?

Sell a rental in 2020, boom buy Vanguard Total Stock Market Admiral shares?

I think I just planned out the next two years.  If anyone can see problems with the current plan, by all means let me know.

Whats ridiculous is I actually thought I was pretty good at planning for retirement.  This site has humbled me and helped me realize I have a lot to learn. 

Thanks again in advance.

Boofinator

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Re: Can you please help a history teacher FIRE one day?
« Reply #12 on: November 12, 2018, 03:57:33 PM »
@Boofinator

I am thinking whatever money I have left over from investing into the 403b, 457, and IRA, buy Vanguard Total Stock Market Admiral shares as I just opened a brokerage account last week with Vanguard and I have so much tied up in Real Estate?

Sell a rental in 2019, boom buy Vanguard Total Stock Market Admiral shares?

Sell a rental in 2020, boom buy Vanguard Total Stock Market Admiral shares?

I think I just planned out the next two years.  If anyone can see problems with the current plan, by all means let me know.

Whats ridiculous is I actually thought I was pretty good at planning for retirement.  This site has humbled me and helped me realize I have a lot to learn. 

Thanks again in advance.
Seems like a reasonable approach. The only caveat would be to mentally prepare for the next inevitable market crash if you are investing heavily in equities. Last thing you want to do is lose confidence and pull out when you see your net worth tumble on paper. If you don't think you can hold on if your net worth drops by half, then holding on to the rentals a bit longer might be prudent. (Assuming of course you're able to max the tax-deferred accounts.)

reeshau

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Re: Can you please help a history teacher FIRE one day?
« Reply #13 on: November 13, 2018, 03:24:29 AM »
Seems like a reasonable approach. The only caveat would be to mentally prepare for the next inevitable market crash if you are investing heavily in equities. Last thing you want to do is lose confidence and pull out when you see your net worth tumble on paper. If you don't think you can hold on if your net worth drops by half, then holding on to the rentals a bit longer might be prudent. (Assuming of course you're able to max the tax-deferred accounts.)

I would add that you might want to specifically hold aside the money you plan for your place in WA in something less volatile than stocks.  Traditional advice is not to invest in the market for anything you need in less than 5 years.  The market being where it is, and you generating the cash you are, I think within the 4 years until you are planning to buy,  Boofinator's scenario is likely to happen along the way.

You don't necessarily need to hold off the whole amount--it's the same general question: "What lets you sleep well at night?" But rather than some esoteric feelings or distance retirement security, you have a clear plan for some of that cash.  It will, of course, eat into your overall return during this timeframe--that's the cost.  But, it will also be certain as to not be a new roadblock to your plans.

I have an analagous situation, actually:  I am currently on an international assignment.  Since real estate is even more insane in Dublin (officially now 36% above the 2008 peak) I am paying a premium to rent and opt out of a likely bubble.  On the flip side, I have $200k in home equity from the sale of my US house, which I will need in 3-5 years.  Since I may be called home earlier than my current plans, I have the equity parked in boring  12 month CD's, letting the Fed's interest rate hikes work for me over this time.  (and not impact the market value of a bond fund)  When I come home, this money plus my savings here in Europe will be our new, fully-paid-for US house.  I could do a number of more interesting things with this money, but I don't need performance from it, so I am not taking the risk.  I am much more interested in a low-hassle repatriation than I am in another $50k from performance:  it's literally worth it to me.

So, how much is certainty once you reach WA worth to you?
« Last Edit: November 13, 2018, 03:32:24 AM by reeshau »

nsmall

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Re: Can you please help a history teacher FIRE one day?
« Reply #14 on: November 14, 2018, 09:20:53 AM »
Thanks Reeshau and Boofinator, you as well as others like MDM have given me a lot to think about. 

Whats crazy is that everyone has a different situation and you folks are helping me think long term.  Each person has their own goals and tolerances.

I would Not enjoy seeing big chunks of my money crash if I needed that money.  But it would be best for me personally if there was an upcoming market correct/sale as I have 10-15 years before I can FIRE.

However, for those who use the 4% rule, they are drawing 4% and leaving all their money in the market.  Correct?  I thought people using the 4% rule are putting their 25 years of their annual needed expenses in a mutual fund like Vanguard Total Stock Market fund?

But if I plan to buy a house for lets say 300k with cash, being how the market is so high, maybe I should set aside the 300k until I am ready to buy my next home in WA?

I could keep investing and just wait until I sell my home in CA, I cant imagine a real estate correction of over 30% coming in the next 5 years, but I could be wrong.  As long as its a minimal correction, I will have a nice chunk of equity to put somewhere safe as I move.

Thanks


Boofinator

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Re: Can you please help a history teacher FIRE one day?
« Reply #15 on: November 14, 2018, 10:12:34 AM »
Thanks Reeshau and Boofinator, you as well as others like MDM have given me a lot to think about. 

Whats crazy is that everyone has a different situation and you folks are helping me think long term.  Each person has their own goals and tolerances.

I would Not enjoy seeing big chunks of my money crash if I needed that money.  But it would be best for me personally if there was an upcoming market correct/sale as I have 10-15 years before I can FIRE.

However, for those who use the 4% rule, they are drawing 4% and leaving all their money in the market.  Correct?  I thought people using the 4% rule are putting their 25 years of their annual needed expenses in a mutual fund like Vanguard Total Stock Market fund?

But if I plan to buy a house for lets say 300k with cash, being how the market is so high, maybe I should set aside the 300k until I am ready to buy my next home in WA?

I could keep investing and just wait until I sell my home in CA, I cant imagine a real estate correction of over 30% coming in the next 5 years, but I could be wrong.  As long as its a minimal correction, I will have a nice chunk of equity to put somewhere safe as I move.

Thanks

It is worth reading up on the history of the 4% rule (primarily Bengen, but Pfau and Kitces have added insight). This will provide you with an idea of the assumptions built into the model, including asset allocations. I think the study assumed investing roughly 50/50 equity/bonds in low-expense index funds. Historically (in the US), someone using this investment method with 4% inflation-adjusted expenses would not run out of money over any timeframe.

As to your future house expenditures, every investor has their own risk tolerance. And risk is more important over short timeframes. If you would feel comfortable keeping this bucket of money in a low-risk asset (like your current rentals, or bonds), I think that would be a prudent move. Rule of thumb: stocks for the long-term, bonds (or other fixed-income assets) for the short-term.

nsmall

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Re: Can you please help a history teacher FIRE one day?
« Reply #16 on: November 29, 2018, 02:59:45 PM »
@Boofinator and @MDM

You two came to mind.  So I have sitting in my bank 120k to spend. Option #1) With the market down, I am tempted to buy 120k of vanguard total stock market fund via my brokerage account. 

Option #2) My more conservative side says use it for my home as my mortgage would only have 20k remaining. 

I for sure going to stay in CA for 5 years before I move to WA.  Once in WA I think I can FIRE.

Which option would you pick?

Just a reminder, I have 480k in equity in real estate, and around 150k in ROTH's.  I would like to invest this 120k sometime soon.

Thanks in advance

MDM

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Re: Can you please help a history teacher FIRE one day?
« Reply #17 on: November 29, 2018, 03:29:03 PM »
@Boofinator and @MDM

You two came to mind.  So I have sitting in my bank 120k to spend. Option #1) With the market down, I am tempted to buy 120k of vanguard total stock market fund via my brokerage account. 

Option #2) My more conservative side says use it for my home as my mortgage would only have 20k remaining. 

I for sure going to stay in CA for 5 years before I move to WA.  Once in WA I think I can FIRE.

Which option would you pick?

Just a reminder, I have 480k in equity in real estate, and around 150k in ROTH's.  I would like to invest this 120k sometime soon.

Thanks in advance
Depends on the mortgage rate, but if that is anywhere below 4.5% I wouldn't hesitate to invest.  Doesn't mean that would end up being the correct choice, but that's what I would do.  If the mortgage rate approaches 6%, I'd think harder about putting it toward the mortgage.  Exactly what 0.01% difference in rate would trigger the switch would probably depend on what I had for breakfast that day.

We did pay our mortgage early.  All of ~1 year early, when we had a moderate windfall.  Didn't feel any different having or not having a mortgage.  Those feelings will be similar in some and different in others.  Good luck!
« Last Edit: November 30, 2018, 01:10:31 PM by MDM »

nsmall

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Re: Can you please help a history teacher FIRE one day?
« Reply #18 on: November 29, 2018, 08:30:46 PM »
Thanks MDM.  Yeah my concern is how much I have in the real estate market.  My rate for the home is 3.75.  I've paid 170k off the mortgage since buying the home 4 years ago.  Another option is 60k towards the home and 60k to invest.


Boofinator

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Re: Can you please help a history teacher FIRE one day?
« Reply #19 on: November 30, 2018, 08:13:33 AM »
First, I wouldn't categorize the current market as 'down'. There is a theory called the Efficient Market Hypothesis (EMH), that states that stock prices, for the most part, accurately reflect people's best estimate of the forward-looking risk-adjusted returns. So little blips like we've been seeing lately is the market's response to new information coming in, not a sale. Unless you know something I don't and are confident stocks aren't going to drop another 20-30% (at which point I'd begin to think stocks are going on sale).

So, stocks can go up, stocks can go down. That is the risk we take for being fairly confident that in the very long term, they are going to go up higher than any of the other passive investment alternatives.

Your mortgage costs, on the other hand, are essentially risk-free. You've already committed to the real estate risk when you bought the home. So your options are a risk-free 3.75%, or what the market decides to give you over the next five years (until you sell your home). (Being that you live in CA, I assume you have homeowner's insurance that covers wildfire; if not, that may change the risk profile.)

This is really a tough question. If it were me, I'd probably allocate the money somewhat as follows: 1) make sure I am able to fully max-out all tax-advantaged space, which I would invest in stocks, 2) if I don't have much liquidity, invest some in a taxable account (either stocks or bonds, depending on your risk preference; I prefer stocks at the moment given the expectation of rising interest rates), and 3) if I want to guarantee some % of that money five years down the road as a down payment for a new house, I'd put that amount into the mortgage.

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Re: Can you please help a history teacher FIRE one day?
« Reply #20 on: November 30, 2018, 12:52:46 PM »
1) The 4% "rule" is not a "rule".  It is an "observation".   Keep that in mind.   You need to do your homework on what the 4% "rule" actually means and what it does not mean.  Yes, it's pretty darn safe, but it's not fool proof.  If someone insists on being a fool, it can fail.  So, do your reading. A prior poster gave you the names to look up on their writings on this topic.

2) 3.75% is a pretty low interest rate for a mortgage. I'm assuming it's a fixed rate loan and won't change.  My advice might change otherwise.   I get the desire to pay off the mortgage. I really do.  I have a 2.75% fixed rate mortgage and I REALLY want to just pay the damn thing off.  But it makes no sense to pay off a 2.75% debt when the same money could be making 7-10% instead.   (I use 7% for forward planning because that's the historical average US market return after inflation is taken out.  10% is the average with inflation included, and since we're talking about a fixed rate mortgage, this is the number to consider.)

So, unless I'm going to go over the ACA subsidy cliff with the extra income needed to make the mortgage payments, it would cost me a pretty penny to pay off the mortgage early.  (I FIRED this year.)

You will need hard cash in 5-7 years for a down payment.  You want that someplace it will be available when you need it.  Locking it into your current house won't help you come up with a down payment on your new house, instead it will make your offer contingent on the sale of your current house less desirable to the owner of the house you want to buy.

The rest should go into the market after you've maximized your tax sheltered opportunities.

3) Is your part of CA likely to continue to get good appreciation on your houses?   You're making ok money on your rentals (not great, but acceptable) assuming your "cash flow" of $1200 (total) for the two houses includes having already taken out funds to cover future repairs and vacancies.  If it doesn't, then your rental properties are not doing well.
  If you aren't taking into account vacancy and future repairs in your cash flow, it may be best to part with the properties unless you think you'll get lots of appreciation on the values.  The problem is, if you aren't including these two costs, I can't trust your calculations at all, so I can't really tell you to sell or keep them.  I can suggest Gallinelli's book in Cash Flow and Other Measures because that will teach you how to run the numbers correctly.

And if you do included them, good for you!  I only mention it because a whole lot of people don't!



nsmall

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Re: Can you please help a history teacher FIRE one day?
« Reply #21 on: November 30, 2018, 02:10:04 PM »
Thanks again for all your help folks.  For the record, I will for SURE MAX OUT the pre tax options...403b and 457, fund the wife and I's ROTH IRA, next I will fund my brokerage account with  VTSAX, and then I will pay off my personal home and the rentals a little each month.  Basically looking at this as a monthly deal where my money is heading out hitting all of these accounts.

@SwordGuy The homes came with section 8 tenants.  I bought them 5-6 years ago.  They have gone up 60% in value.  I Dont have some stash of cash for future repairs, but I have upgraded the homes significantly and I do have 6 months 40k in my bank.  I dont worry about vacancies at this point as I hope they leave so I can sell.

My issue with the rentals is should I sell one in 2019?  Then another in 2020?

I have made good money, but I dont want to be greedy, I dont want these rentals when I leave CA.  I'm a teacher so the summer is great time for me to work on the property for a future sell.   The tenants have been in each property for over 10 years so it might be a pain to get them out as its hard for section 8 folks to find landlords being willing to rent to them.

I have no idea what the future holds for the local market, my guess is a slight dip for 2019 if rates keep going up.  I would be disappointed if the homes lost tremendous value in the next 5 years as I have done well IMO since buying them.

Thanks

SwordGuy

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Re: Can you please help a history teacher FIRE one day?
« Reply #22 on: November 30, 2018, 03:06:49 PM »
If you don't want to own them once you move, then starting the sales process well before you are ready to move makes sense.    (And investing the proceeds, of course.)   I don't know your area and, as they say, all real estate is local.   

How long do similar properties stay on the market?  If that amount of time doubled and your sales price dropped 15%, would it be horrible?

I try to run my scenario optimizations in two phases:

Phase I: Avoid horrible results.
Phase II: Optimize for good results.

If horrible things don't happen it will all work out for the best given time.  If horrible things happen, they might not.

Thinking this way should let you decide how urgent you need to be to get those properties sold.

Personally, I think property values are going to be exposed to systemic reasons to drop:  higher interest rates and a downward moving economy.   That would be over the next two years.  No idea where we might be in 5.

Decide when you want the properties vacated so you can get them ready for the peak buying season.   
You can always tell your tenants you want to sell the properties well in advance so they have plenty of time to make other arrangements.   Offer them the last two month's rent free if the properties are in good repair and well cleaned if they vacate by that time. 

People on section 8 housing don't have lots of money sitting around.  Be kind.   You are disrupting their life for profit and causing them the expense of moving.  That expense is not just in renting a uhaul, it's also in deposits, possible lost time at work, etc.

Remember, Mustachianism is about optimizing your life and making a good balance between current needs and future needs.  It's always best to start practicing to be the kind of person you want to be in the future.

And yes, I would do that with my rental properties.   

Which reminds me, it's time to go write gift checks to our renters who've done a good job taking care of our properties they rent.  1/2 month's rent to the folks who've been there all year.   $100 to the folks who moved in last month.    And time to do the bills and check our net worth for the month now that the markets have closed.


Best of luck, you're on the right path!

nsmall

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Re: Can you please help a history teacher FIRE one day?
« Reply #23 on: December 11, 2018, 10:45:47 PM »
@MDM @Boofinator @reeshau @SwordGuy

I just wanted to say THANK YOU VERY MUCH!!!

So I bought 105k of VTSAX over the past 10 days.  Took me 3 different transactions as I needed courage.  I also bought 10k of VTSAX in a 529 for the kids.

2019 Goals:
Pay the minimum on the mortgage, already paid off 175k over the past 4 years, I was so focused on that I appreciate you all helping me see an alternative way to invest my hard earned money.
Max out 403b (non ROTH now) and Max out 457
Max out ROTH IRA for myself and wife
Buy 50k in VTSAX via my brokerage account

If I sell a rental or even if I dont, dumping 38k into the 403b and 457 will help me when that time comes.  Thanks again.  I will be monthly investing for the next 5.5 years until I leave CA.

I might even be able to invest another 15k into VTSAX if we get a better hold on our monthly spending. 

I at least have a plan.  I have goals. I have a vision.

SwordGuy

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Re: Can you please help a history teacher FIRE one day?
« Reply #24 on: December 11, 2018, 10:54:45 PM »
Great!!!

Have you read the "JL Collins Stock Series"?  (If not, that's what you google.   Do it NOW, before you have a chance to panic if stock valuations have a sudden drop.  Hint: They will.  It's just a matter of when.  Might be the next time the market is open.  Might be the day after.  Or it might be in 3 years.  No one really knows.    The surest way to lose money is to panic and sell when the values drop.


Just hang in there and hold onto your shares until values go back up.

SwordGuy

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Re: Can you please help a history teacher FIRE one day?
« Reply #25 on: December 11, 2018, 10:57:43 PM »
Stock market volatility is one of the two major reasons we have a four separate types of FIRE income streams.


1) Social Security.   (We didn't get the E in FIRE 'cause we didn't learn how until we were too old.)

2) Rental Homes.

3) Stock Dividends and appreciation.

4) Leasing Farm Land.


Item #4 was an unplanned income stream, we inherited it.