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Learning, Sharing, and Teaching => Case Studies => Topic started by: terrifictim on October 05, 2017, 07:42:34 PM

Title: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on October 05, 2017, 07:42:34 PM
Hi Everyone,

Been reading MMM for a while now and figured that this is probably the next step. I've been frugal for a while (engineer with an aversion to spending) but figured there's still alot where I could do better. I've also been inspired to start biking to work more (thank you beautiful San Diego weather)!

EDIT: I'm a heavy work traveler (25-50% of the year on the road). So many of these numbers are low simply due to spending 1/2 my time in my place with the other half of my time being on the company dime (i.e. meals)

Life Situation:
IRS Filing Status: Single
State Income Tax: 6.3% (CA)
Federal Tax Bracket: 28%
Exemptions: 4
Dependents: 0
Location: San Diego, CA

Gross Salary: $106,000 or $8,860/month

Pre-Tax Deductions:
Company 401K: $1150 /month. Company adds $3200/yr
Roth 401K: $620 /month
HSA: Company doesn't offer
FSA: 600/yr
Insurance: $80 /month

Other Ordinary Income:
None

Qualified Dividents & Long Term Capital Gains:
None

Rental Income, Actual Expenses, and Depreciation:
None

Adjusted Gross Income:
$7600 /month

Taxes:
Federal Income: $1167 /month
Social Security: $544 /month
Medicare: $128 /month
CA State: $468 /month
CA SDI: $80 /month

Monthly Average Expenses:    EDIT: These are averaged over time. Took my MINT budget results for the last year.
Mortgage   $1,070
Rent   $0
HOA   $405  (Covers Water, Trash, Outdoor Gardening, and Roof/Outside Stud Maintenance). I still think it's too high but they do cover a reasonable amount of  expenses.
Property Tax   $250
Mortgage Insurance   $0
Home/Rent Insurance   $83
Beauty Shop   $0
Bicycle Maintenance   $12
Cable TV   $0
Car Insurance   $53
Car Maintenance, Registration, etc.   $47
Charitable contributions   $300
Child activities    $0
Childcare   $0
Christmas/Holidays   $10
Clothing/Shoes   $20
College "Qualified Educational Expense"   $0
Computer (paper/software/etc.)   $0
Credit card fees   $0
Dental Insurance  (if not paid pre-tax)   $0
Dentist   $0
Dining (Lunch/Dinner/Etc.)   $100
Gifts (not charitable contributions)   $0
Dry Cleaning   $0
Electricity   $45
Emergency Fund   $0
Entertainment   $15
Financial Fees   $0
Fuel/Public Transport   $50
Gas/Oil for heating   $0
Groceries   $80
Hair Care   $0
Home Alarm System   $0
Household; Maintenance   $50 (Partially Covered by HOA - I'm responsible Studs in)
Internet   $40
Landscaping/Yard work   $0 (Covered by HOA)
Life Insurance   $0
Medical (Doctor, Hospital, etc.)   $0
Medical Insurance (if not paid pre-tax)   $0
Medicine (OTC + Prescription)   $0
Miscellaneous   $50
Parking/Tolls   $0
Pets   $0
Phone (cell)   $20
Phone (landline)   $0
Recycling/Trash   $0 (Covered by HOA)
School (non-college)   $0
Sports/Recreation   $0
Subscriptions (paper/magazines/etc.)   $0
Travel/Vacation   $20
Umbrella Insurance   $0
Water/Sewer   $0 (Covered by HOA)
Wine/Beer/Tobacco   $20
Work/Professional fees   $0
Non-mortgage total   $1,670


Assets:

Townhouse valued at $360,000 (Zillow estimate)
T.Rowe Price Company Retirement Account: $107,000 (Working on transitioning away from the 2055 Retirement Plan @ 0.76% MER to lower cost plan @ 0.15% MER) (87% Stocks, 8.6% bonds, 4.4% other)
Vanguard Taxable Account: $7,000 (92% Stocks, 0% Bonds, 8% Other)
Ally Savings: $4,100 @ 1.2%
Emergency Fund: $30,000 (I know this is really really high relative to others). My job has us purchase travel with personal credit card and then reimburse us - but it's not uncommon to have $5-10k expense waiting to be reimbursed.
Total Assets: $515,000

Liabilities:
Mortgage: $206,000 remaining on a $231,200 mortgage. Been aggressively paying it off so after 2.5 years I'm about 5 years paid off. PMI is 1070 per month. EDIT: Interest Rate is 3.75%
Credit Card Debt: $0 (Always Paid In Full)
Student Loan Debt: $0 (State College with a Full Ride)
Auto Loan Debt: $0 (Used car paid in cash)

When I did my calculations for FI I used the following:
Planned Withdrawal Rate   WR   4%   
Annual Savings Invested   S   $48,552    $/yr
Annual Expenses in Retirement   E   $20,040    $/yr
Current Assets Invested   A   $114,000    $
Investment return   r_   5%   
Time to FI   t   6.25   yr
Saving rate      70.8%   

In conclusion, I currently enjoy my job but don't want to be a slave to it. Please let me know if you have any questions. I'm slowly increasing my financial literacy but still have a ways to go. (I attached my spreadsheet for reference in case anyone wants to check my inputs).
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: OkieM on October 05, 2017, 08:16:30 PM
This is vastly more detailed than most, and usually that means things are good. You might want to look at maxing out the regular 401k, especially with how much you are paying in taxes. And using a Roth would also not be very tax efficient.

Other than that just the HOA fee looks horrifying. That is $121,500 extra you have to save to FIRE.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: ixtap on October 05, 2017, 08:36:08 PM
Is this a snapshot or averaged over time?

I ask, because setting aside $50/ month for home maintenance seems extremely optimistic, as does $0 for dental, but perhaps that is rolled into the FSA. Not to mention some soap for hygiene and laundry.

Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: Laura33 on October 06, 2017, 07:20:32 AM
Holy shit, how do you eat on $80/mo in groceries?  That's phenomenal.  Does that include things like toothpaste and deodorant and cleaning supplies too?  Or is that part of the "household" category?  I do see the $100 in eating out, which can be improved if you are interested, but most folks who spend very little in groceries have much larger restaurant bills, so the overall picture is still good.

I am guessing that some of these categories are estimates, because there are so many round numbers.  If you do not track expenses, I'd suggest doing so, because it's easy to miss the dribs and drabs that pop up here and there.  Normally I would also suggest setting up a "sinking" fund for things like replacing appliances and cars and such, but I think your fluffy emergency fund has that well-covered.

What is your mortgage rate?  My one significant suggestion is that you will very likely do better keeping your mortgage and investing that money in the market instead, given how low current rates are.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on October 06, 2017, 08:47:16 AM
OkieM:
Thanks for the thought. Doing it to this level of detail was definitely helpful for me to get a better sense of where I'm at.
I'm close to the maximum of 18k per year for the regular 401k (16k as of now + 4 more paychecks still to go). And yeah - I suppose a ROTH isn't buying me anything good right now since I'm hoping to get down from this 28% bracket as soon as possible.
Yeah, I don't enjoy the HOA fee. But (added above) they cover water/sewage, recycling/trash, landscaping/yardwork and some of home maintenance (roofs) that the effective HOA cost isn't as bad.

ixtap:
This is averaged over time. I took my mint budget for the past year and got the average spending amounts and used them. I will say that dental covered by insurance and that the house is small but in good condition - so maintenance up to this point has been pretty minor.

Laura33:

That's one of the advantages of being gone alot. I double checked the number against my MINT average for the past year and yeah it was at $83 /month for groceries. Related to that I buy the off brand toothpaste, deoderant, and cleaning supplies as needed. So that number is pretty low (i.e. maybe another $5 a month added to groceries).
These numbers are rounded to the nearest $10 (unless it's a single exact payment) based on my MINT averages for past year. Figured that would be close enough for a financial snapshot.
Mortage rate is 3.75% (also added above). I tend to be like Canadian Torque in this - I know that the market could likely generate a better rate but I really want that mortgage gone.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: OkieM on October 08, 2017, 11:18:35 AM
It’s your choice, but I spend $60/mo to my city for water, trash, sewage, and recycling. I spend less than $10/mo on my lawn since I usually get all the equipment/supplies I have needed on Craigslist. I just buy a tiny bit of weed killer for my beds from Lowe’s. If you are in a condo/townhouse the sq footage of your roof is probably small. An asphalt shingle roof for a 1200 sq ft roof would cost $5000-6000 and last 20 years so that is about $25/mo and that is before discounting cash flow!

So you might at least think of a different place for FIRE unless you want to work an extra year for the HOA. With HOAs you also don’t have control of how they might change rules or future fees. That is all up to a board that probably doesn’t have the same interests as you.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: Gronnie on October 08, 2017, 08:21:55 PM
I'm close to the maximum of 18k per year for the regular 401k (16k as of now + 4 more paychecks still to go). And yeah - I suppose a ROTH isn't buying me anything good right now since I'm hoping to get down from this 28% bracket as soon as possible.

Just double checking here because of the way this is worded, you know that the COMBINED limit is $18,000 right? You can't do $18k in Traditional and then more in Roth.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on October 09, 2017, 08:50:16 AM
OkieM:
You're absolutely right - I don't think this place is my FIRE place. However it is a very close to work location that was the cheapest property I could find. Once I no longer need to be close to work - I'll be finding somewhere else.

Gronnie:
I'm doing the $18,000 in the 401K and then the $5,500 in the IRA. I was contributing to a ROTH IRA, but realizing it's better to contribute to a traditional IRA.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: Raenia on October 09, 2017, 09:32:50 AM
Make sure when you calculate your expected expenses in retirement, you are accounting for the fact that you currently have a lot of expenses paid by your employer.  For instance, once you're not getting meals paid by the company while travelling, your grocery spend will increase to compensate.  Same for health insurance, dental, etc.  20k/yr is possible, but pretty aggressive, so make sure you're accounting for everything and give yourself enough buffer.

Other than that, your expenses look very good.  Agree that you're better off with a trad IRA at this point, in addition to maxing your 401k.  You're in very good shape!
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: Kayad on October 09, 2017, 10:00:35 PM
Congrats, you are crushing it both on income and expenses.  All these suggestions amount to trimming of the sails, at most:

1.  You know that your employers 401k contribution doesn't count against your max personal contribution, yes?  Something not adding up, as you say you will hit that 18k but your monthly contribution is only 1150k (x12= 13800).
2.  Agree with Laura33 that paying off that low interest, tax advantaged mortgage is sub-optimal use of the cash.  You are likely to hit fi sooner investing.  While I get that there is a psychological aspect of owning your home outright, for me that sense of stability would be pretty limited given the hefty hoa and property tax payment.
3. Property insurance seems two or three hundred too high, but maybe a California reality (?).  Might shop around and/or consider raising your deductible.

Obviously, your home is by far your biggest expense, though that really doesn't seem that bad for socal.  I guess the one "low-hanging fruit" is whether you could maintain your job and move your home base to somewhere lower cost.  But you don't need to do something that drastic to hit your goal unless you want to.

I'm also jealous of all the cc rewards you get to rack up with your work arrangement. 
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on October 10, 2017, 09:26:38 AM
Raenia:
Good reminder on this. You're absolutely right - my grocery bill and a couple other expenses will probably multiply 1.5-2X when I'm no longer traveling. I'll probably want to increase my FI # to reflect that my expenses will go up during retirement. Otherwise thanks for the encouragement!

Kayad:
1. I'd forgotten that I had contributed more to the 401K at the beginning of the year and then had ratcheted it down. Thus I'm going to hit the 18k even though the numbers don't match. I think for 2018 I'm just going to do a consistent amount every paycheck rather than trying to do any sort of timing.
2. The more forum posts I've been reading have been slowly prodding me along your recommendation. Coming from a background where my parent's were big Dave Ramsey fans - I think I've taken the concept of no debt a little too intensely. Since I don't have a problem with sticking to a savings strategy, I'm not the ideal target for the pay off house early concept. And I agree, considering the property tax and HOA (650) are ~= to the mortgage payment (1070), the reduction in expenses is not going to be as drastic as might otherwise be. Definitely looking forward to not dealing with an HOA in the future.
3. I've done the State farm combo (auto + house) which was the best deal I found while I was buying the property. It's worth it again for me to take a fresh look - but I doubt I'll find better.
Other. Agreed, it's a reality of living in socal. It's an option I've considered - but not one that's viable with my current position. And yes, the CC rewards are a huge benefit. I've done some calcs and determined between the hotel, rental car and airline points earned it's anywhere from $2-10k a year in perks (+ the huge credit score boost it's given).
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: robartsd on October 10, 2017, 10:21:50 AM
Assets:[/b]
Townhouse valued at $360,000 (Zillow estimate)

Liabilities:
Mortgage: $206,000 remaining on a $231,200 mortgage. Been aggressively paying it off so after 2.5 years I'm about 5 years paid off. PMI is 1070 per month. EDIT: Interest Rate is 3.75%
I'm assuming you meant payment is $1070 (PITI), not private mortgage insurance is $1070 month. Based on your value and mortgage, I'm guessing you had a large enough down payment to avoid PMI. If not, look into getting PMI removed, your current loan to value ration should support no PMI. At an interest rate of 3.75%, I would not be aggressively paying the mortgage down.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on October 11, 2017, 07:02:31 PM
robartsd:
Correct, got my acronyms mixed up. Yes, my principal and interest is $1070, I did put the downpayment of 20% and have no PMI. And I think I'm slowly getting on board the no mortgage early club - I'm confident I can be just as dedicated with putting in those extra amounts into my Vanguard taxable account instead of the mortgage.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on November 09, 2017, 05:45:04 PM
Update for the beginning of November:

* Hit my $18,000 401K contribution for the year. This is the 2nd year in a row I've maxed it. I think my goal for next year is to try to even out my contributions so I hit my number during the last paycheck of the year.
* Reduced the amount of cash on hand from $30k to $25k and moved $10k of it from BOA savings account earning 0.05% to Ally earning 1.20%.
* Will pay just the normal PITI for mortgage for this month, and use my excess funds to pay into Vanguard.
* Increased my Vanguard taxable account from $7k to $11k
* Created Vanguard Roth and Traditional accounts. Funded Roth to 4.0k and Traditional to 1.5k
* Bought an electric bike used off craigslist for $300 and biked 3-4 days each week of the past month. At 6 miles round trip figured I saved ~ $60 in car costs, but more importantly dropped 5 lbs!
* Made more of an effort to cook using budgetbytes. Made a couple great crockpot recipes that I will go back to. This coincided with being a very limited travel month - my grocery bill went up significantly ($80 to $200) but purchased alot of food that will last (both pantry and meats I can freeze).
* Helped SO with her '95 camry finally giving up the ghost (blown head gasket @ ~ 300k miles). Helped talk her down from getting an all new clown car and went with a gently used car (2014 camry @ 40k miles) at $13k. She had to go car loan (ugh), but got good rates from the local credit union. She also is seeing it as a big bad debt so optimistic no lifestyle creep will set in.

My next goal is to convert VTSMX to VTSAX in my taxable account. Current bal is at $6k, so hope to hit this goal to ring in the new year.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: msheldon on November 10, 2017, 08:18:52 PM
Does your employer 401k allow for the mega back-door Roth option? Above 18k you can contribute after tax money and then immediately (or monthly or whatever) convert it to Roth. This gives you an extra ~35k of tax advantaged savings you can use each year.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on November 13, 2017, 09:03:54 AM
msheldon - No, nor can I contribute to an HSA. So My Investment Order has a few less rungs on it.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: ritz on November 13, 2017, 03:19:59 PM
Update for the beginning of November:
* Created Vanguard Roth and Traditional accounts. Funded Roth to 4.0k and Traditional to 1.5k

Assuming that this is your IRA, you make too much money to deduct traditional contributions. You should only be contributing to your Roth IRA.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on November 13, 2017, 04:32:08 PM
ritz - correct me if I'm wrong, but the MAGI for single filing is $118,000. Since I'm below that, I should be able to contribute the whole $5,500. Since I'm at a high tax bracket, I intend to contribute the full $5,500 next year to traditional.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: Lady SA on November 13, 2017, 06:42:52 PM
The MAGI for single filers is actually more like $73k. I think it is around $118k for married filers.

https://www.irs.gov/retirement-plans/plan-participant-employee/2018-ira-contribution-and-deduction-limits-effect-of-modified-agi-on-deductible-contributions-if-you-are-covered-by-a-retirement-plan-at-work

If you can't deduct for a traditional IRA, then you should do the roth (you are possibly in the range where you make too much to qualify for a trad deduction but not enough to NOT qualify for a roth). Less-optimal tax advantaged savings is better than non-tax advantaged savings (which is what a non-deductible trad IRA would be).
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on November 13, 2017, 07:43:35 PM
Lady SA - I learn something new every day. I hadn't realized that MAGI was also dependent on whether you had a retirement plan at work, although I guess it makes sense. Do you have a link/calculator that helps list this out? I'm planning on working on my budget soon for next year.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on January 30, 2018, 06:32:18 PM
Hi All,

Some big updates since last I posted. I got engaged (Yay!) to the SO. I did my best to channel MMM in my engagement ring purchase but still spent more than I probably needed to ($2k). We are also working to balance the large friends and family guest list (150ish) with a desire for an affordable wedding. Our top choice is a backyard wedding reception with a mountain top wedding. Initial estimates are $12k - which is much more than MMM but not horrible for SOCal.

However, I could use some help from finances/taxes standpoint. Our plan is to get married Oct 2018 which would qualify us to file jointly for next year. So as we work on joining finances - here's my plan (based on MDM's list). (I plan on putting up a revised case study spreadsheet for our combined budget soon)

Our combined working income is going to be about $170k. We anticipate another $10k from the rental. She is a public school teacher and so can contribute to both a 403b and a 457. I have a 401k through work. We both own condos - we plan to move into one and rent out the other.

1. Do any replenishing of the emergency fund needed.
2. Fund both our IRAs (most likely Roth)
3. Pay off her auto loan ($15k). It's only at 2.69%, but this is a loan that's not doing any good.
4. Pay off enough of her mortgage to get her below 80% LTV to take off of the PMI from her payment.
5. Max all of our retirement accounts pre-tax. This should allow us to put $55,500 into retirement and reduce our tax burden significantly.
6. Pay off the minimum on both of our mortgages each month. Right now I'm firmly in the don't pay off camp (3.75% APR on both).
7. Contribute excess to taxable account.

 Sorry for the somewhat disjointed nature of this post. This year will be a slow process of joining finances and figuring out what works collectively/effectively.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: reeshau on January 30, 2018, 07:30:00 PM
msheldon - No, nor can I contribute to an HSA. So My Investment Order has a few less rungs on it.

Just to ask the dumb question: are you saying this because you do not have a high deductible health plan?  (If so, you lucky devil)  If it's just because your company does not offer an HSA, you can get one yourself, as long as you are in a qualifying plan.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on February 19, 2018, 11:21:21 AM
reeshau - Correct, I do not have a high deductible health plan. So I have very low medical costs which is probably better than having the HSA.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on February 19, 2018, 11:58:31 AM
I also have a question on real estate that I'm hoping people can help with. My fiancee had also bought her own place a few years ago. Now that we're planning into moving into one place, I'm looking for advice on what to do with the 2nd property. Our places are about 40 minutes away - she is a teacher so we are hopeful she can get move districts. My office is only 3 miles from where I live so it makes it really advantageous to make this our residential property.

Property 1. 2BR/1.5BA (1172SF) Townhouse
Market Value:   $370,000 (Zillow)
Original Purchase price:   $289,000
Original Mortgage Amount:   $231,200
Interest Rate:   3.75%
Mortgage Term:   30 years
Term remaining:   27 years, 4 months
Mortgage Remaining:   $201,175.93
Estimated Rent:   ~$2,200/month
Principal and Interest:   $1,070.72
Taxes: $3,100/yr
Insurance:   $1,060/yr
HOA costs:   $405
Deferred maintenance notes:   HOA covers all exterior. Roof just replaced via HOA. Putting aside $200/month to cover expected maintenance in future.
Other notes:   This home is in San Diego, CA. Location is a very desirable school district and most properties in this area are 750k-1.5M range. Most condos in this area are currently in the 350k-450k range.

Property 2. 2BR/2BA (936SF) Townhouse
Market Value:   $313,000 (Zillow)
Original Purchase price:   $251,000
Original Mortgage Amount:   $225,000
Interest Rate:   3.75%
Mortgage Term:   30 years
Term remaining:   28 years, 3 months
Mortgage Remaining:   $218,840.79
Estimated Rent:   ~$1,800/month
Principal and Interest & Taxes:   $1,369.80/month (includes $50 in PMI) that will be removed in 4 months once we get an updated appraisal to lower the LTV ratio.
Insurance:   $660/yr
HOA costs:   $330
Deferred maintenance notes:   5k in plumbing performed when place bought.
Other notes:   This home is in San Diego, CA. Location is close to beach.

Neither of these satisfies the 1% rule (especially with the HOA fees) so I wouldn't have bought either of them from a pure cash flow basis. Given that we will have two properties, however, which of these options would be recommended (note: see earlier posts for the non-real estate portion of my financial profile. For tl:dr, maxing out all retirement accounts and expect to have combined income of $160k once married)
1. Live in Property #1 and rent out Property # 2. This is my current thinking. In this scenario Property 2 is slightly cash flow negative(the rent covers the mortgage+taxes+HOA fees). We pay property manager + maintenance fees out of our combined income. We somewhat optimistically bank on rent increasing to put us into cash flow positive - but take advantage of the mortgage paying off every month by itself.
2. Live in Property #1 and sell Property #2. I've seen some suggestions on other case studies that would recommend this. Would nominally yield $45k after closing costs. Reason I don't like this is that having the mortgage for only two years means lots of closing costs paid relative to value of house.
3. Other strategy (Sell both and rent?)


Related to this, planning on having 1-2 kids in the 4-8 year window. This would most likely require us to move to a new property.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: Gronnie on February 19, 2018, 05:59:00 PM
Option two.

The previously paid closing costs are a sunk cost (https://en.wikipedia.org/wiki/Sunk_cost) and shouldn't play a factor in your decision (unless you are planning on buying a different rental property instead, then you could factor in having to pay closing on the new one vs not on the already owned property).
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: swashbucklinstache on February 19, 2018, 06:09:48 PM

<snip>

I got engaged (Yay!) to the SO.

<snip>

3. Pay off her auto loan ($15k). It's only at 2.69%, but this is a loan that's not doing any good.
6. Pay off the minimum on both of our mortgages each month. Right now I'm firmly in the don't pay off camp (3.75% APR on both).

Yay!

Can you rectify #3 and #6 for me? Once you have the car and the house and the two loans, what's the difference? Reading this, if it were me and I had neither cash flow nor cash reserve concerns and nothing else out of the ordinary coming along if I would hold off overpaying on #6 I would definitely hold off overpaying on #3 at those rates. I'd argue that loan is doing good if it is allowing you to invest 15K on margin at a < 3% rate a.k.a. cheap leverage. If I were to buy a car today I would use a loan at that rate even if I could buy it with cash...would you? What about a house?

On housing, no way would I hold a property where the money doesn't work and HOA is high. Too much risk and being a landlord is more work.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on February 20, 2018, 08:53:15 AM
swashbucklinstache - The main difference I see between #3 and #6 is that the car loan requires higher levels of insurance, and is what I would call a "bad loan" aka it's going to a non net-worth asset. However, I agree that from a financial standpoint the loan is cheap enough that it's not mathematically optimal.

swashbucklinstache, Gronnie, and others - Some additional thoughts running through my mind that makes it seem like #2 is not such a slam dunk. Let me know if these are valid considerations or they would still keep you suggesting option #2.

I'm not opposed to selling the property, but I do want to make sure that it's a better decision in the long term. Our plans are to be here for the next 5-10 years at a minimum.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: MrThatsDifferent on February 20, 2018, 12:48:51 PM
I like option #1.  I think one main property and one investment property is pretty good diversification. The rent will almost cover the mortgage. Your fiancé can add what she was paying for the mortgage to Prop #1, speeding that up and paying it down quicker. I’d keep both and then, when you’re ready, sell Prop #1 for a place for kids, keep Prop #2. Why? Cause in 25 years, you’ll have it paid off and the kids will be out the house and you might want to use it as your beach house.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: boarder42 on February 20, 2018, 12:58:16 PM
swashbucklinstache - The main difference I see between #3 and #6 is that the car loan requires higher levels of insurance, and is what I would call a "bad loan" aka it's going to a non net-worth asset. However, I agree that from a financial standpoint the loan is cheap enough that it's not mathematically optimal.

swashbucklinstache, Gronnie, and others - Some additional thoughts running through my mind that makes it seem like #2 is not such a slam dunk. Let me know if these are valid considerations or they would still keep you suggesting option #2.
  • Right now all of my tax-advantaged accounts are being filled, so I'm not sure where I would best put the profit from the sale. The obvious answer seems to be just to put it in the Vanguard brokerage account
  • Related to #1, the tax situation seems like it will be significantly worse if I sell. I'll be paying a high premium on the taxes as they will be in the 160-200K AGI range.
  • Even with the change in tax law we are planning on itemized deductions (charity donations). With the two mortgages + the charitable we will be over the 24k standard deduction.
  • Both loans are at great rates (3.75%). Keeping both rather than selling one means we can have double the cheap money we would otherwise.
  • All properties I am seeing in San Diego don't meet the 1% rule (our places are actually closer to 1% than most).
  • We have a family friend property manager who is trusted and responsible. We wouldn't have that in other areas of the country
  • We are not currently interested in getting into full-time real estate. Keeping this property allows us to be more diversified

I'm not opposed to selling the property, but I do want to make sure that it's a better decision in the long term. Our plans are to be here for the next 5-10 years at a minimum.

you should look into DAF's Donor Advised funds if the charitable contributions are whats pushing you over the 24k - you can better optimize your tax planning if you do so and either invest more or give more.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: robartsd on February 20, 2018, 01:00:42 PM
swashbucklinstache - The main difference I see between #3 and #6 is that the car loan requires higher levels of insurance, and is what I would call a "bad loan" aka it's going to a non net-worth asset. However, I agree that from a financial standpoint the loan is cheap enough that it's not mathematically optimal.
Convert the difference in the insurance premiums to an effective interest rate on the loan, then decide if the loan is worth paying off.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on February 21, 2019, 03:12:36 PM
Hi All,

Lots of life has happened since last I posted. Now that all the dust has settled with getting married, renting out the SO property, and combining incomes and expenses, figured it was worth taking the updated budget and spreadsheet to the MMM community for insight. Anything that jumps out? Currently no kids but planning on having in next year or two but trying to stay financially responsible before we have them.

Me: 30
DW: 28

Life Situation:
IRS Filing Status: Married
Dependents: 0
Location: San Diego, CA

Gross Salary 1: $113,000 or $9,428/month
OT: Anywhere from $0-10K depending on how much I travel
Bonus: Anywhere from $0-$6k depending on how company does

Pre-Tax Deductions:
Company 401K: $1,584/month. Company adds $3200/yr
HSA: Company doesn't offer
FSA: 600/yr
Insurance: $80 /month

Gross Salary 2:  $4475/month or $53,700/yr
OT/Bonus: None

Pre-Tax Deductions:
Company 403b: $1,584/mth
Pension: $550/mth

Adjusted Gross Income:
$11,521/month

Other Ordinary Income:
None

Qualified Dividends & Long Term Capital Gains:
None

Rental Income, Actual Expenses, and Depreciation:
Rental Income: $1850/mth or $22,200/yr
Rental Expenses: $5000/yr (HOA Fees + Prop Mgmt+ $200 for misc per year). Have only had this for a few months so far and expecting this to go up.

Post-Tax Deductions:
Roth IRA (Me): $6000/yr
Roth IRA (DW): $6000/yr

Monthly Average Expenses (These are averaged over time. Took my MINT budget results for the last 6 months.)
Mortgage   $1,070
Rent   $0
HOA   $405
Property Tax   $250
Mortgage Insurance   $0
Home/Rent Insurance   $37
Beauty Shop   $0
Bicycle Maintenance   $0
Cable TV   $0
Car Insurance   $145
Car Maintenance, Registration, etc.   $33
Charitable contributions   $990
Child activities    $0
Childcare   $0
Christmas/Holidays   $25
Clothing/Shoes   $30
College "Qualified Educational Expense"   $0
Computer (paper/software/etc.)   $0
Credit card fees   $0
Dental Insurance  (if not paid pre-tax)   $0
Dentist   $0
Dining (Lunch/Dinner/Etc.)   $162
Gifts (not charitable contributions)   $25
Dry Cleaning   $0
Electricity   $40
Emergency Fund   
Entertainment   $14
Financial Fees   $0
Fuel/Public Transport   $101
Gas/Oil for heating   $20
Groceries   $256
Hair Care   $20
Home Alarm System   $0
Household; Maintenance   $50
Internet   $44
Landscaping/Yard work   $0
Life/LTD Insurance   $0
Medical (Doctor, Hospital, etc.)   $50
Medical Insurance (Enrollment Premium if ACA)   $0
Advance Premium Tax Credit (use negative)   $0
Medicine (OTC + Prescription)   $10
Miscellaneous   $250
Pets   $0
Phone (cell)   $100
Phone (landline)   $0
Recycling/Trash   $0
School (non-college)   $0
Sports/Recreation   $0
Subscriptions (paper/magazines/etc.)   $0
Travel/Vacation   $50
Umbrella Insurance   $0
Water/Sewer   $0
Wine/Beer/Tobacco   $87
Work/Professional fees   $0
Non-mortgage total   $3,194


Assets:
Primary Residence valued at $400,000 (Zillow estimate)
Rental Residence valued at $320,000 (Zillow Estimate)
401K: $142,000
403b: $12,000
Vanguard Taxable Account: $33,000 (100% VTSAX)
Roth IRA: $17,000
Cash on Hand/Emergency Fund: $38,000 (I know this is really really high relative to others). My job has us purchase travel with personal credit card and then reimburse us - but it's not uncommon to have $5-10k expense waiting to be reimbursed.
Total Assets: $980,000

Liabilities:
Mortgage: $195,320 remaining on a $231,000 mortgage. Rate is 3.75%. PITI is 1069/mth. I had been aggressively paying this off initially - now I've switched to investing extra into taxable rather than  paying off principle.
Rental Mortgage: $214,420 remaining on a $225,850 mortgage. Rate is 3.75%. PITI is 1045/mth.
Credit Card Debt: $0-$5k on a given month (Always Paid In Full)
Student Loan Debt: $0 (State College with a Full Ride)
Auto Loan 1 Debt: $0 (Used car paid in cash)
Auto Loan 2 Debt: $12,939 remaining (7 years @ 2.69 for a $15k 2014 Toyota Camry). PITI is $210/mth
Total Liabilities: $429,105

Total Net Worth: $551,000



Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: MrThatsDifferent on February 21, 2019, 11:46:00 PM
Nice update, you’ve come far in two years! I think you have everything sorted. Your biggest expense is charity and that’s going to be your call. I’m of the mind that if your in accumulation phase working towards a FIRE goal, best to funnel that into investments and then when you get to FIRE donate your time, but that’s just me. You don’t have an HSA, is that because neither of you have it as an option? If you have kids, forecast the increase in expenses and saving for college and how that will impact your FIRE plans. Otherwise steady as it goes.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: doggyfizzle on February 22, 2019, 09:34:20 AM
OP, are you still traveling a lot for work?  If so, and you’re still able to pay for your expenses with your own CC, I’d look into opening a couple credit cards to optimize cash back from spending that can be invested.  For meals, I’d suggest Cap1 Savor (4% on dining), Ft Knox for Gas (5% back), and a card that earns at least 3% for travel (maybe Chase Reserve).  I’m also in CA, and I have a CC from a local credit union that awards 5% cash back on gas and travel up to $6k, per year.  If you’re looking at 5-10k a month in travel expenses and can earn about 4% back on that, that’s almost $5k a year in tax free cash back that can be used to invest in either taxable or t/Roth IRA space.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: robartsd on February 22, 2019, 09:50:01 AM
Why aren't you maximizing tax advantaged space?

401k: 792/mo * 12 mo = 9502/yr (about half of the contribution limit).
No contribution to a plan sponsored by employer of Salary 2 (is this where the 403b with 12k balance is located?)
No Roth IRA contributions listed (6k available for each of you) - if you can max two employer sponsored tax deferred plans (401k and 403b) you should easily get your modified AGI below the limits for direct Roth contribution. You might be able to get under this limit with just maximizing contributions to just the 401k. No traditional IRA funds means you can backdoor Roth IRA if you exceed the modified AGI for direct contributions.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on February 22, 2019, 11:44:03 AM
Why aren't you maximizing tax advantaged space?

401k: 792/mo * 12 mo = 9502/yr (about half of the contribution limit).
No contribution to a plan sponsored by employer of Salary 2 (is this where the 403b with 12k balance is located?)
No Roth IRA contributions listed (6k available for each of you) - if you can max two employer sponsored tax deferred plans (401k and 403b) you should easily get your modified AGI below the limits for direct Roth contribution. You might be able to get under this limit with just maximizing contributions to just the 401k. No traditional IRA funds means you can backdoor Roth IRA if you exceed the modified AGI for direct contributions.

Robartsd,

Oops - I am doing those things but forgot to move them over from the spreadsheet to the post. I've updated my original post to reflect those changes.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on February 22, 2019, 11:48:00 AM
Nice update, you’ve come far in two years! I think you have everything sorted. Your biggest expense is charity and that’s going to be your call. I’m of the mind that if your in accumulation phase working towards a FIRE goal, best to funnel that into investments and then when you get to FIRE donate your time, but that’s just me. You don’t have an HSA, is that because neither of you have it as an option? If you have kids, forecast the increase in expenses and saving for college and how that will impact your FIRE plans. Otherwise steady as it goes.

MrThatsDifferent ,

Thanks for the encouragement! Agreed - our biggest expense after housing is charity - something that's important to both of us. I do like the thought of thinking about charity from a time rather than money standpoint. And yes - understand that kids are going to upend this budget - which is why being as diligent on this now will help us when we no longer are DINKS. Correct - neither of us have the option of an HDPD so can't do the HSA.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on August 12, 2019, 02:03:33 PM
All,

Coming back to the MMM community for some additional brainstorming/advice.

Since last post (Feb 2019):
*DW decided to switch from full-time teaching to part time teaching (15-20 hrs/week) for the 2019-2020 school year. This has significantly improved both her mental/physical health and by proxy mine as well.
*We are going to start trying for pregnancy at the end of this year.

Our current dilemna is with regards to our primary residence. Per details in previous posts we had each bought a place in HCOL (San Diego) before we met and when we were married moved into one (mine) and rented out the other. Our primary residence is a 2BR/1.5BA 1100 SF 2-Story Townhouse. It has served me/us well up to this point. Currently, however, DW is expressing that she is unable to fully "nest" due to the combination of: us not having bought the place together so she doesn't feel like it's fully hers + concern that the layout is not well suited for raising a child + being able to host grandparents/others who would visit. Her desire would be to move into a larger house 3BR/2BA ~1750 SF in the same general area.

The question I'm trying to answer is when/if do we move into a bigger place, and if so do we sell 0, 1, or both properties?

Key details below:
Adjusted Gross Income: $12,500/month (Anticipated - mine is known, DW is waiting on final numbers, $1850/mth for rent). If we rented mine out I believe we could get $2200/month.
Retirement Contributions: 19k/yr for 401k + 2x $5500 Roth IRA.

High Level Monthly Expense: $7k with both mortgages or ~$3.5k without. Currently our surplus has been going into the taxable account.
*Auto/Home/Rental/Umbrella Insurance: $215
*Auto Loan: $243
*Gas/Fuel: $200
*Auto Service: $33
*Internet: $44
*Mobile Phone: $100
*Gas/Electric: $65
*Eating Out: $300
*Groceries: $300
*Charity: $1000
*Shopping: $200
*Home Maintenance: $150
*Mortgage (2x) + HOA (2x): $3100

Property 1 (Current Primary): $420k Zillow estimate. $190k mortgage remaining.
Property 2 (Rental): $330k Zillow estimate. $210k mortgage remaining

$200k Pre-Tax Retirement
$20k Post-Tax Retirement
$50k Taxable Account
$50k Cash on Hand

Total NW: $650k

Desired Property Cost: $600k which is ~$3k/mth mortgage with 20% down payment.

I know the plan is to buy smallest house you can tolerate - but is 1100 SF unreasonably small for raising a young kid? Current Fire projections show us being able to FIRE in 2030 - but it's not quite close enough to be able to convince her to stick it out until that point. I'm trying to balance being wise/frugal but also not being unnecessarily restrictive. Open to suggestions and comments.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: Ben Kurtz on August 12, 2019, 07:23:43 PM
There is a strong case to sell both when you move; but at the very least sell one. As you already know, the rental analysis is not favorable on these properties.  If you didn't own the properties and had the chance to jump into them as rental investments, would you?  On these numbers, the answer ought to be no.  So don't let inertia carry you along too far.

Past transaction costs are sunk, and you're better off just biting the bullet on selling costs, so you can come up with a down payment on your next property without having to shift even more net worth from diversified securities investments into concentrated San Diego real estate assets.

When should you move? In my experience (and the experience of many friends with kids), 1,100 square feet ought to be more than adequate until your first child is around 1 year old.  At first, children are very small and immobile and don't take up much space.  Many parents will keep the bassinet or crib in the master bedroom during the first year; at the very least, they can be parked there when the grandparents visit and take up the second bedroom.  In most countries, even highly developed European counties, 1,100 square feet is plenty even if you have 2 kids.  But let's concede that your wife is American and not particularly badass in this regard.  Still, if you start trying for kids within the next few months, moving day is probably 2 years away.

Another advantage to moving when your first kid turns 1: You won't buy the wrong house.  Meaning, by that point you and your wife will probably have developed well-informed views as to whether you will stop with a small family or aim for a larger one.  The ethos around here is not to buy more house than you need, but at the same time, it's also about overall efficiency.  Buying and selling houses every few years, when at least one member of the family is not a real estate professional, racks up a lot of transaction costs and hurts your efficiency.  So if you're sold on the idea of having a larger number of children, you might try moving straight into a 4 bedroom house, or look very carefully for that 3 bedroom house with room to grow -- a basement or attic you can easily finish into more living space, or a lot with enough size and the right zoning to accommodate an extension -- so you don't have to go through needless extra cycles of buying and selling.  Your views on the subject of family size might be more solid by the time you've survived your first.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: robartsd on August 13, 2019, 02:33:54 PM
So she listed 3 concerns:
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on August 14, 2019, 02:12:34 PM
Ben Kurtz - thank you for the good advice. I always appreciate when you comment on other case studies and value your insight into mine.

I agree - these are not good rental investments per the 1% rule. We've gotten somewhat lucky with our appreciation up to this point - but I know banking on continued appreciation is not a good strategy. Especially with the high HOA fees for both units- it really kills their investment potential. My current thinking says to sell our current primary since that would give us ~200k which allow for a good downpayment on the next. I still somewhat like keeping the other property as a rental since the location is good (near large military base) and the rents have been going up even since we've had it.

In regards to when to move - I certainly would like to stay in our current space as long as possible. We would nominally be increasing our monthly budget by $2k + all of the supplemental lifestyle inflation that occurs along with it. In addition our current location is ideal from work standpoint (3 miles) and going to this new location would add to the commute (15-20 miles). Unfortunately SFH are even more expensive in our current town ($700-800k) which is causing us to look elsewhere.
From a non-financial viewpoint, however, I am working on making sure I understand her concerns and not dictating to her. Reading the MMM articles/threads about having the SO on board is helping me frame the discussion as less "here's how much we would lose by moving" and more "here's the better quality of life we can get by staying put for another year or two". I'm sure this will be a continuing discussion.

I do like your idea of buying the right house by waiting. Certainly the cost to go from 3-4 bedrooms can beless than the transaction cost of buying a house - waiting a couple of years and then selling and buying again. Being intentional about the space is key.

robartsd - thank you for your advice as well.

Agree on all three - these concerns are definitely driven by emotional concerns - so spreadsheets won't necessarily work. Per my comment above, reading the SO on board posts and discussion will be the way to go for us to come to a decision.
I do agree on the layout - I'm trying to identify specifics of "poor layout" and see if there's ways to address. Certainly a 2nd floor full bath and a galley kitchen are not ideal - but perhaps getting into some basic home "flow" websites can help us do some optimizing.
We also definitely have more stuff than needed - so I'm sure doing some Kondo-ing will do wonders.

I'm glad to hear that while her concerns are valid I'm not out of line for trying to make our current situation work. This won't get solved in a day - but I appreciate the feedback.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on October 09, 2020, 10:45:21 AM
It's been about a year so figured it was worth an update.

Personal: Big news is that since last post we did have a baby! DD is now 3 months old and is a happy and healthy child. Between caring for DD and the insanity of COVID and teaching right now, DW is a full-time SAHM. I've been working from home since mid-March which has allowed me to help out significantly with the kid.
We also ended up compromising on staying in the current house for the time being. We were able to do some significant rearranging of furniture/used our attic to be able to store the next size(s) baby clothes/excess baby furniture, and that has allowed us to both be happy in the current space. The galley kitchen definitely gets busy when we're alternating between doing dishes, laundry, infant bath time, and cooking, but we're making it work. We have both agreed that when Kid#2 comes along that we will look for the next house.

Not sure if there's any pressing questions - just wanted to say thanks to the MM community for all the wise wisdom since I started. Being able to feel confident about our finances allowed DW to not have to work if she didn't want to and also allowed us to focus on DD and not stress about finances during COVID. I appreciate how fortunate we are and how few people are able to say the same.

Both Personal Capital and MadFientist Lab currently showing mid- 2030 as FI date. Items impacting that date are: DW back to work or SAHM, Kid#2, lifestyle inflation, stock market returns.

Key details below:
Adjusted Gross Income: $12,300/month ($10300 - me, $2000-rent).
Retirement Contributions: 19.5k/yr for 401k + 2x $6000 Roth IRA.
After Tax, Benefits, Contributions,  Income: $8000 ($6000 - me, $2000-rent)

High Level Monthly Expense: $5.5k
*Auto/Home/Rental/Umbrella Insurance: $230
*Auto Loan: $243
*Gas/Fuel: $50 (Dropped $150/mth working from home)
*Auto Service: $33
*Internet: $60
*Mobile Phone: $100
*Gas/Electric: $100
*Eating Out: $0 (No eating out since March)
*Groceries: $350
*Charity: $1000
*Shopping: $300
*Home Maintenance: $150
*Mortgage (2x) + HOA (2x): $2800 (Re-fi'd primary mortgage to a new 30-yr at 3%, saving $280/mth)

Property 1 (Current Primary): $450k Zillow estimate. $187k mortgage remaining. (+$33k)
Property 2 (Rental): $350k Zillow estimate. $206k mortgage remaining (+$24k)

$270k Pre-Tax Retirement (+$70k)
$45k Post-Tax Retirement (+$25k)
$60k Taxable Account (+$10k)
$40k Cash on Hand (-$10k)

Total NW: $830k (+$180k since Aug 19!)
Liquid NW: $415k
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: MaggieD on October 10, 2020, 07:29:02 AM
Is there some reason you’re not maxing our your 401k and Roth contributions at 19.5k and 6k?
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on October 10, 2020, 03:42:37 PM
@MaggieD - you caught me :). I copied and pasted from last year and forgot to update the amounts. I am contributing the full amounts.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: MaggieD on October 11, 2020, 06:54:10 AM
I thought that was likely to be the case.  Your after-tax income line also looks suspicious.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: BikeFanatic on October 11, 2020, 01:31:06 PM
Thanks for the update, your net worth seems a little off are you adding your equity from both homes into the 830k? Your home doesn’t count unless you plan on selling it and investing the proceeds and renting.

Retirement by 40 will be amazing accomplishment I wish you the best.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: nippycrisp on October 12, 2020, 01:22:49 AM
Agree w/BikeFanatic. At most, your NW would be invested assets plus the value of the rental property (net existing mortgage) minus transaction costs to access that cash via sale. Unless you're planning on selling your residence, that value isn't generally available in retirement. Obviously this is flexible if you're planning on holding the rental as a cash-generating asset post FIRE, but otherwise I'd put your liquid-able assets around $525K. I'd also encourage you to consider the financial drag of kids on your projected spend. Everything from braces to smartphones to travel soccer to college is coming out of your pocket.

As to your original question of FIRE by 40... maybe? For a data point, it took us (also San Diego residents) around six years to go from $500K to $1.6-1.7M (25X a $5,500 monthly spend), albeit with higher household income and good market tailwinds to push us.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: Gronnie on October 12, 2020, 08:25:15 AM
Bollocks, of course your home equity is part of your net worth.

What it isn't part of is how much income you will have based on the 4% rule.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on October 13, 2020, 03:53:14 PM
@MaggieD - Can I blame getting it wrong twice on being a new parent :)? Updated the after-tax number.
@BikeFanatic & @Gronnie - I agree with both of you, my home equity is part of my Net Worth - but it's not part of my FI number.
@nippycrisp - See above for comment about liquid vs. total net worth. Agreed that the financial drag of kids is going to have a non-zero affect on the finances. Thanks for your point that it took you six years to get there. I would love for that to happen, but am not optimistic. Like I mentioned above, a couple different calculators are guesstimating age 42 for me. Will be interesting to see. 
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on October 19, 2020, 02:36:57 PM
Hi All,

I'm planning the next couple of years and could use some advice.
As mentioned in the previous posts - we currently have a 3 month old and are planning on having 1 (or 2) more kids over the next 5 years. Our current condo is a 2Br/1.5Ba - which currently works for us but will not work when Kid # 2 arrives. With somewhere between 1-2 years before I am anticipating we will start looking for a new place, I would like some wisdom on how to prep.

The two issues are:
1. Do I prioritize the commute or the home cost in the next move?
2. Do I keep either of the current properties as rentals or collect the gain for either/both of them?


Possible Home Location Costs & Distance From Work for a Larger Home (Nominally a 3 BR/2BA 1700SF place)
Current Location ($775k, 10 min)
Medium Commute ($650k, 25 min)
Long Commute ($550k, 1 hr)

Key Details (paraphrased from case study):
Income After Tax, Contributions and Benefits: $6000
Rental Income: $2000
Expenses: $3800
Rental Expenses: $1700
Current Cash Flow: $2,500

Property 1 (Primary)
Market Value (Zillow): $440,000
Current Mortgage: $187,000
P&I: $780/mth
HOA: $415/mth
Prop Taxes: $260/mth
Prop Mgmt: $75/mth
Projected Expenses: $100/mth
Projected Rent: $2200/mth
Projected Cash Flow: $570/mth
Estimated Gain if Sold: $253,000


Property 2 (Rental)
Market Value (Zillow): $350,000
Current Mortgage: $206,000
P&I& Prop Taxes: $1300/mth
HOA: $350/mth
Prop Mgmt: $75/mth
Average Expenses: $50/mth
Actual Rent: $2000/mth
Cash Flow: $225/mth
Estimated Gain if Sold*: $144,000
* 2 out of 5 year living in home Gain Exclusion would expire Sep 2021

Other Assets:
$270k Pre-Tax Retirement
$45k Post-Tax Retirement
$60k Taxable Account
$40k Cash on Hand

I genuinely enjoy my job and appreciate the benefits associated with it - company is currently WFH but don't expect that to be permanent. I'm still about 10 years out from FI.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: nippycrisp on October 19, 2020, 09:28:31 PM
If you don't sell the properties, what's your plan for getting together the downpayment for the new place? You'd need to save close to $100K to get to 20% on your most expensive option if you tapped out your non-retirement assets to buy, right?

I suspect we're in something of a bubble. Moreover, my personal opinion is that prices will go down as the interest rates return to more normal levels. Going from 2.75% to 4.5% makes the PI on a 30yr fixed about 25% more expensive. In a market like San Diego that's going to make prices unaffordable real fast. I have no clue how long it'll take for interest rates to return to historic levels, but we're far to one side of the spectrum. There's also an increasing disconnect between rental prices and purchase now in this market, in favor of renting. We're paying $2K/mo for a condo that would sell for $540K. From my perspective, the owner's crazy to sit on the property.

Because of this (and the simplicity of not being a landlord), I'd sell while prices are high and maybe try and lock in those low rates on a place with a low commute. It's likely a worse financial outcome than renting and investing the balance, but you do you.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: robartsd on October 20, 2020, 07:20:21 PM
I'd sell the rental in time to capture the capital gains exclusion and use the proceeds to purchase your new home. I agree with nippycrisp's analysis that property values are too high to make land lording worthwhile; but you could wait to decide what to do with your current home until after you've decided where you're moving. I'd consider renting out your current home for 12-21 months then take the capital gains exclusion again.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on October 26, 2020, 02:17:17 PM
@robartsd and @nippycrisp - yeah, you identified my dilemma. If I could keep both rentals and have enough money for the down payment on a place with a low commute that would be ideal - but  I'm struggling trying to figure out how to satisfy everything. I like the option to take the capital gains as it gives me a lot of freedom to purchase and still have the current residence as a possible rental down the line. Without the capital gains time crunch I would keep on renting, but the 15-20% haircut from losing that exemption is significant. I've still got a few months to decide (renter is in until Feb), but so far no one is telling me it's a slam dunk the other way.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: GoCubsGo on November 03, 2020, 09:26:12 AM
I say selling the 2nd condo in February is a slam dunk.  The tax reasons combined with it being a 'meh' rental per the numbers are the big reason.  Also, if the market is in a bubble, at least you get to capture some of that appreciation now and lock in that gain.  You might be buying your long term house in a bubble but if you plan on living there a long time it has time to re-appreciate after a drop.

A $775k house on your salary alone would make me a little skittish (I'm surprised no one else has said it). A house will add quite a bit to your budget just in upkeep and unexpected repairs, not to mention furnishing, utilities, etc.  I guess if your wife DEFINITELY commits to going back to work it's maybe ok (although 2 kids will add a lot into your budget as they get older).  The school district should definitely be top of mind when choosing between houses as you will be fully utilizing them. 

If this is a long term house, I might be persuaded that you should buy the more expensive one just because rates are soooo cheap and the commute is so amazing.  I think a lot of this depends on your wife's income as life will only get more expensive from here.  You are doing a great job though so keep it up!
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on November 03, 2020, 11:03:16 AM
@GoCubsGo - Thanks for the encouragement! The more I think it over the more I'm agreeing with you and the other posters. Take the gains and get out.

In regards to the $775k house, I agree that it's a stretch. Right now DW is enjoying being a SAHM and if push comes to shove I would rather allow her to be able to keep doing that vs. forcing her to go back to work. Then if she decides she does want to go back to work it's bonus income - but we're not relying on it. There's also the possible option where she decides that she wants to home school - in which case the school district loses some importance. Unfortunately the future house is going to be that triangle of commute, price, and space and you only get to choose 2 of 3.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on March 16, 2021, 02:27:43 PM
All,

Update since last post. We decided to sell the investment condo in February and just finished closing. Ended up netting ~$140k after all was said and done. Thanks all for the encouragement on selling - we had great experiences landlording for 2 years and am equally happy to give it up for now. Having a significantly larger chunk of cash will give us the flexibility when we decide to purchase. Are currently targeting staying in the current place and not buying while the post pandemic/WFH gets sorted out. I'm hopeful that by the time we're ready to purchase in 1-2 years the market will be a little less frenzied. For now focus is on staying healthy, focusing on time with the little one, and continuing to invest.

Income After Tax, Contributions and Benefits: $6000/mth
Expenses: $3800/mth
Current Cash Flow: $2,200/mth

Other Assets:
$321k Pre-Tax Retirement
$59k Post-Tax Retirement
$72k Taxable Account
$190k Cash on Hand
$480k Primary Residence

Other Debt:
$186k Primary Mortgage
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: 2KidFIRE on March 17, 2021, 10:10:23 AM
Congrats on selling the rental!  I enjoy reading your updates and am happy to see you progressing towards your FIRE goals :)
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on March 17, 2021, 01:03:00 PM
Thanks @2KidFIRE . This case study/ very infrequent journal helps me stay on track and provides encouragement when it feels like I'll be working forever to look back and see how much progress I've made.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: legalstache on March 17, 2021, 04:50:57 PM
I've also enjoyed the updates on your thread. Nice work :)

What's your plan for the 190k in cash? Are you holding that as a possible down payment in case you decide not to sell your current house when you move? If so, that's more cash than you'd need for a down payment and also ties up a pretty significant chunk of your NW in cash while you wait to make a decision. My fear would also be that you'd let that large amount of cash convince you to buy a bigger house than actually makes sense.

If it were me, I'd invest most of that and look to sell your current house when you move (I'm very averse to being a LL though). Even if not, I'd look to invest a significant chunk of it. Otherwise you have like 30% of your liquid NW tied up in cash for a couple years.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on March 18, 2021, 10:53:34 AM
Thanks @legalstache . You've hit the nail on the head with my current struggle in thinking. On one hand I know that short term money shouldn't go in the stock market - but I also don't want to have excess cash for no reason. Without having the crystal ball of knowing what the next couple of years looks like with the real estate market, I'm being conservative and keeping "dry powder" in the hopes that I don't need to use it all when I do purchase. Also see my previous posts for the struggle between commute time and the cost of the property.

My tentative plan is to do some small scale DCA'ng (~$1k/mth) into taxable (already fully funding my 401k and both Roth IRAs). This keeps me from staying out of the market with the gains - but also keeping the balance of it available for the next property. Ideally I end up paying much less than the full amount for the downpayment in 1-2 years. I'd also keep the current primary as a rental for 2 years and then decide if I want to keep or sell.

I guess my overall thought process is flexibility - keeping enough different options open that I can pivot as needed.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: nippycrisp on March 18, 2021, 11:20:41 AM
As hot as the real estate market has been in SD, money invested in the market over the same period would have outperformed run-ups in inflation. Past performances =/= future and all that, but.

Keeping your residence as a rental is something I'm not totally sure on the rules of, as far as depreciation, the tax hit when you eventually sell, and the ability to still do the tax-free reinvestment (1031 exchange, I think?), but I am certain that two years of time in market with a third of your liquid portfolio is something I'd not want to miss.

Consider this option: mentally commit to selling your primary residence before (or when) buying a new "permanent" home. Your current property should mirror the local market, hedging you against big run-ups in price. You've got a lot of equity, which means you shouldn't be cash poor for a downpayment when the time comes, and you get the bulk of your cash invested ASAP. If housing declines for some reason, your home might be a better rental proposition (I'm assuming you've refi'd it efficiently), or a piggybank for a cash-out if rates are still good. Regardless, you have more options.

As an onlooker, I see few things that could push the housing market a whole lot higher. Interest rates are likely to increase and are really unlikely to sink lower. Foreclosures have been artificially stymied by legislation. As we emerge from Covid there's going to be some shake-up as people go back to work and/or prize having more space at home. And there's really no way locals can continue to afford price run-ups, as salaries haven't kept pace. Then again, I was saying this same crap last year...
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: legalstache on March 18, 2021, 03:46:08 PM
I agree with @nippycrisp . I'd commit to selling your current house as part of a future move. From what I can tell based on this thread (mostly from other posters), keeping your current house as a rental doesn't make financial sense.

Holding cash gives you flexibility, sure, but at the expense of investment gains. Plus you already have a lot of flexibility as a result of the equity in your current house. Over half of your NW is currently in cash and home equity which seems unnecessarily concentrated. I'd max out your 2021 tax advantaged accounts ASAP and then dump a bunch into taxable, personally.

And full disclosure, we held more cash than we needed to when we were house shopping, but we also didn't already own a home.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on March 18, 2021, 05:06:28 PM
@nippycrisp , @legalstache  - thanks for both of your comments and insight.

In regards to keeping the residence as a rental - as long as I've lived in it for 2 of the last 5 years gains are tax-free up to $500k/couple. So my thinking there is that I have a 2-year buffer window where I can sell it at any time tax-free, but I don't have to sell immediately. This means that I can take time moving and not juggling both buying and selling simultaneously. I would have to pay whatever depreciation I charged against while renting it if I sold - but that will be pretty small if I only rented it for 2-3 years. I did re-fi in August at a 3% 30-yr mortgage. The new cash flow would be ~570/mth which is pretty good for San Diego. One slight issue with it mirroring the local market is that it's a condo - so it's not quite going to match single family homes.

I guess I need to keep mulling over the mental hurdle of investing this cash now vs. holding onto it. I think I'm doing a form of market timing - and just need to dive in. There's also a part that likes the idea of being a landlord and being able to give my DD down the line a tax-free paid-off property. But the fact that you both are thinking the same is definitely causing me to re-evaluate.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: robartsd on March 18, 2021, 06:09:42 PM
I would have to pay whatever depreciation I charged against while renting it if I sold - but that will be pretty small if I only rented it for 2-3 years.
Actually as I understand it, you have to pay taxes on reclaimed depreciation you could have claimed (even if you failed to claim the depreciation). If you rent it out for more than 2 years after vacating (or any amount of time prior to using as your primary) you also have to attribute some of the gains to investment use (therefore non-exempt). With lots of people now working from home, if they claim a home office deduction, that's another source of depreciation to reclaim and non-primary use gains that cannot be exempted.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on March 19, 2021, 01:33:39 PM
Interesting @robartsd . I'll have to look into this some more.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: robartsd on March 19, 2021, 05:43:08 PM
With lots of people now working from home, if they claim a home office deduction, that's another source of depreciation to reclaim and non-primary use gains that cannot be exempted.
I just looked up the rules, apparently working from home for an employer cannot qualify anymore (went away with the expanded standard deduction in the TCJA - I imagine that some people who structured their relationship as on site consultants that now work remotely may have newly claim the deduction). Previously you simply had to use the space regularly and exclusively for business and not be compensated by your employer for use of the space.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: MiatAccountant on March 31, 2021, 09:25:58 AM
Hi fellow San Diegan,

Enjoy seeing your progress over few years. Keep it up.

I thought I share my 2 cents.
Don't feel pressured to invest your cash balance now. I think you're doing the right thing by thinking things through before you make any significant changes.
I personally you prefer to keep most of the $190K as cash for several reasons.

1. You may purchase a house before you sell your current primary residence. 20% down (more would be better) in San Diego would easily be over $100K here. You won't be able to do this unless you keep the current cash balance or sell the primary residence first before purchasing the new house.
2. Keep the equity in your home and cash balance separate. Equity in home is not a liquid asset. Back in 2008, many thought they were secure because they had equity in their home. We all know how that turned out.
3. You'll still need emergency fund of 6 to 9 months which would be around $30K.
4. Everyone has different set of guidance but I usually follow if I'm not willing to keep my funds in stock for next 5 years, I would not invest these funds in stock.

So what I recommend:

1. Do the DCA that you're doing. Like you said, you're still participating in investing in your taxable account without committing the current cash balance.
2. Figure out your housing situation first. Once you figured this out and settle things down and if you still have excess cash, you can then consider further investing.
3. In today's environment (covid, expensive housing and stock market, potential flux in tax policy, young child, etc), I think it's prudent to keep excess cash than historically recommended balance.
4. Yes, keep cashing may be playing little bit with timing but you also have other reasons to keep cash. Who knows, when the stock market have correction, you may also have more options then as well when you have cash (just ask Warren Buffet).
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on April 07, 2021, 02:17:25 PM
Hi @MiatAccountant , thanks for dropping by! Thanks for giving me a different take on my situation that more closely aligned with my own thinking. I pretty much agree with your recommendations and I agree that once my housing situation gets sorted then everything else will become a lot clearer.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on May 26, 2021, 10:20:57 AM
Just wanted to say thanks to the MMM community. I don't think I've permanently joined the club - but I just hit the $1M mark yesterday. Crazy to see what steady investing + an intense housing market and stock market have done.

Assets:
$343k Pre-Tax Retirement
$64k Post-Tax Retirement
$76k Taxable Account
$178k Cash on Hand
$524k Primary Residence

Other Debt:
$185k Primary Mortgage
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on January 12, 2022, 01:23:52 PM
Hi All,

Just an end of the year update. Right now we're in the day-to-day slog of dealing with an energetic and defiant toddler, so pretty much all excess time is focused on DD. As part of our end of the year discussion DW and I are still in agreement with staying with our current property at least until she gets pregnant with kid #2, and then we start more seriously looking/considering our next place. But even then we still feel like we're 1-2 years from pregnancy announcement to our house being uncomfortably cozy.

Assets:
$382k Pre-Tax Retirement
$80k Post-Tax Retirement
$89k Taxable Account
$165k Cash on Hand
$524k Primary Residence

Debt:
$182k Primary Mortgage

Expenses for the Year:
$59k
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: Gronnie on January 12, 2022, 01:25:19 PM
Nice, looks like you are over 70% of the way to FI!
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on August 01, 2022, 02:07:58 PM
Uggh! It's been quite the first half to the year. Definitely been feeling it in the finances a little bit - we bought a minivan from FIL for cash + cost of everything increasing. There's also been a fair amount of Amazon purchases for DD that just accumulate over time. I know multiple people on this site have stated that these years are more focus on staying above water. Crossing fingers that the raise coming soon will help give us a little margin and we can avoid more lifestyle creep. Definitely starting to get antsy about looking for a bigger place but can't justify either the cost or the increased commute at these prices.

Average Income/mth (After 401K and Taxes): $5800
Average Expense/mth: $5700
Cash Flow/mth: $100

Assets:
$344k Pre-Tax Retirement
$77k Post-Tax Retirement
$88k Taxable Account
$133k Cash on Hand
$566k Primary Residence

Debt:
$180k Primary Mortgage
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: smisk on August 01, 2022, 04:24:27 PM
I appreciate your regular updates to the thread - I'm a couple years younger and in a similar place financially: also in a HCOL area (though on the opposite coast), recently married and looking at kids in a couple years, and my wife has been wanting a larger house! So reading through your posts definitely gives me some perspective and encouragement.

It's a rough time to contemplate buying, since the stock market is down and housing values have plateaued, but not really plummeted. Bet you're glad you kept the $ you got from the rental property out of stocks now! Keep up the good work, I think you're in a good place.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on August 02, 2022, 01:36:49 PM
Thanks @smisk . It's helpful for me to post just to remember what I was feeling at given times and to also stay the course. Best of luck with your decisions as well!
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: afuera on August 02, 2022, 01:54:16 PM
Its crazy to see your progress over the last 5 years!   I'm posting because my family is in a pretty similar situation to you. 
We had our first baby 2021 and my husband FIRE'd to be a house spouse.  Then we had our second surprise baby a few months ago and are starting to look at moving across the country for a new job closer to family.  We are trying to balance the desire to buy a house in the new place (which won't be our forever location) against the higher interest rates and transaction costs.  We are definitely in the treading water phase of our financial plan and trying to give ourselves grace when we give into expensive convenience purchases that make life a little easier with two under 2.

Are you still planning to FIRE by 40 like you alluded to in your thread title?
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on August 02, 2022, 04:26:07 PM
Thanks @afuera and double congratulations to you! Yeah - grace is the key for this phase of life, I know that they won't be this age forever and so trying to enjoy it even if it means financial priorities get put on the back burner. That's a tough call to make balancing housing, family, and everything else. No real advice on how to make that choice - just good luck with the decision!

In a perfect world I would still like to retire by 40 and both Personal Capital and Mad Fientist's Lab show that as a possibility (obviously depending on the next couple of years performance). However the items that will significantly whack that plan are 1A. if we have a 2nd kid and 1B. if we move into a bigger house. The flip side is I'm really happy with how we've really saved alot of retirement savings, so it's encouraging to know that even if I have to take the foot of the gas all those little green workers will still be working behind the scenes. Check back in a couple years to see what happens!

Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on September 02, 2022, 02:55:42 PM
Hey all,

I'm hoping for some wisdom/advice from the group. If you reread my earlier posts you'll continue to see real estate questions keep popping up (since I got engaged back in 2018). Especially with the HCOL in San Diego, definitely on my mind.

So we've been in the condo I bought in 2015 (1100 SF, 2BR/1.5BA), taking advantage of a re-fi to lower rates in 2020 and seeing the property value continue to climb. It's been nice seeing our housing payment continue dropping to a lower % of our budget (currently ~10%- also just got a nice Inflation adjusted raise). It's also been nice with it being so close to work (8 min) and allows me to maximize my time at home. It's also allowed DW to be a SAHP without stressing our finances. We're also close to FIL/MIL (20 mins) which has been helpful for child care.

However, we now have a rambunctious 2-year old and DW is feeling trapped in the space. Because it doesn't have a garage and just a small fenced in back-patio, it's becoming increasingly difficult to keep the child entertained and the house clean. As a result we're constantly getting/getting rid of kid's stuff and also it's been difficult to have people over since the living room is also the main kid area (DD's bedroom is small and on the 2nd floor so she doesn't spend much time there during the day). So specific complaints about the current property are:

Being an engineer and not being home all day I would be content to stay in the current space for a while longer, but I'm also not the one at home with the kid. Our finances are strong so we could afford up to a $1M house, but that would definitely impact our budget/quality of life in other areas. I'm also watching the market start to drop with the current mortgage rates and wondering if now is the time to start looking. DW is very much a "seize the day" person, so FIRE thoughts don't excite here nearly as much as the here and now. That being said she's not materialistic, so doesn't need the bells and whistles, but wants to be in a home she can be excited about.

So with this information would you recommend I:

Thoughts? Am I being inflexible, overly optimistic, etc.? FIRE is still a goal but not at the expense of the family.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: ixtap on September 02, 2022, 06:40:45 PM
Wait, why would more space be easier to keep clean?!?
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on September 02, 2022, 08:54:12 PM
@ixtap - we wouldn’t have the kids area and the living room area being commingled so she could have a space that didn’t feel so kid focused. Right now she can’t escape DDs presence as her stuff is in every room of the house.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: Dicey on September 02, 2022, 10:40:44 PM
Fellow Californian, so I'm used to our crazy housing costs. I would absolutely wait a while longer, because things are definitely cooling off, mostly because people are scared and they believe all the doomsday predictions. Even rising interest rates don't scare me much, because it knocks a lot of marginal buyers competition out of the game.

I get pings from Zillow and Redfin every time prices drop in the markets I track. Today I got four in a row. Intrigued, I opened them. Seems they're brand-new houses and the builder is lowering the price. Absurd! Normally builders will do backflips to avoid dropping prices: Interest rate buydowns and "free" upgrades are typically offered in lieu of actual price drops.

Don't be in a rush.

And damn, you've made a lot of progress. Congratulations!
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on September 02, 2022, 11:03:36 PM
Thanks @Dicey , I really enjoy your voice and your wisdom so much appreciated that you’re chiming in.
With the understanding that you don’t have a crystal ball, any thoughts as to how long to  wait/what metric to look for? I’m going to have a much easier time selling more waiting if I can give a timeline versus just keep on waiting. I know metrics for investment property, but for a primary house not sure what to use. And thanks for the encouragement!
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: nippycrisp on September 02, 2022, 11:11:50 PM
A month ago you wrote you were cash flowing about a hundred a month. Now you say you're saving 50% of your post-tax. Am I missing something, or do these statements not jive?

Going by your last set of numbers, if you're pulling $6K a month take-home, and you have, for example, a $600K mortgage on a $1M property, your PITI are gonna be about 60% of your salary, maybe more. You're also incurring transaction costs, increasing your tax basis, trading a lower interest rate for a higher one, and buying into a market where prices are actively dropping, while interest rates are rising, albeit towards historically normal averages. (Also, you may be considering adding a second kid to the mix, but that's only relevant as a hypothetical)

Imagine you were presented these facts for someone else - how would you advise them?
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on September 02, 2022, 11:36:29 PM
Hi @nippycrisp ,

I probably should have been more explicit in my previous post, the $100 per month cash flow is after 401k deductions. So my 50% post tax is really saying that I’m saving about 40k a year ( 20.5k 401k + 2x 6000 Roth IRA + 4800 principal payoff). And I did round up my savings rate a little bit. And my salary from last months post jumped up so now I’m making just over $11k/mth gross.

And to your comments-I absolutely agree and it’s why I’ve been holding off on purchasing. We would definitely be dropping to an almost 0% savings rate for a little bit and lose a lot of flexibility. But whatever plan I end up doing has to have the DW on board. And yes a 2nd kid is hypothetical but also can’t completely discount it.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: TacheTastic on September 03, 2022, 03:11:01 AM
I'm in the UK, so I cannot look at this from a financial perspective, as I don't have more than a basic grasp on the US financials. From an emotional/logistical perspective however, I think it might be time to think about the housing situation. You and your wife initially thought about looking to move once the baby was one and mobile. You've passed that stage. Maybe have a good long think between you about whether number two and number three are hypothetical or actual plans, and also about whether your wife is going back to work. Then buy something as close to your work and this good school area as possible. It might feel like a lot of money, but if you plan to be in the house for 10 or more years, it's going to be worth it for the time you spend with your kids rather than commuting.

I've not had kids, but my parents always said to borrow the most you can to buy a house, as then you can save/invest the rest, and after the first 18 months it feels cheap in comparison to before. I am probably more risk averse than they were, but I agree with the 18 month thing. At first you feel a bit stretched and worried, but then it just becomes more manageable once you have settled.

Congratulations and good luck, it's been lovely reading your journey over the last five years in a morning. :)
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: Dicey on September 03, 2022, 09:33:11 AM
Thanks @Dicey , I really enjoy your voice and your wisdom so much appreciated that you’re chiming in.
With the understanding that you don’t have a crystal ball, any thoughts as to how long to  wait/what metric to look for? I’m going to have a much easier time selling more waiting if I can give a timeline versus just keep on waiting. I know metrics for investment property, but for a primary house not sure what to use. And thanks for the encouragement!
Very hard to predict. I watch DOM (Days on Market), I watch price reductions, I go to a lot of open houses, and I know a lot of Realtors. I have purchased ten houses in my lifetime and have always trusted my gut. Do enough research and you will "know" when you have found a good one.

True story: My parents lived in a small 3+2 with five children. They finally moved into a bigger, brand-new house when mom was 8.5 months pregnant with #6. However, they did this during a huge market slump. The house they bought was the last one in a new subdivision and it had fallen out of escrow twice. Dad bought it with his GI Bill. They couldn't sell the first one and made two mortgage payments for 10 long months. I remember them checking their pockets and mom finding a $50 bill. (We suspect my far-away grandmother had tucked it there on a previous visit.) They lived in the 5+2.5 happily for the next 40 years. They made a nice profit when they sold it at the peak of the market in 2005. It's been foreclosed upon twice since then. The RE market has always, always been cyclical. (Fun fact: parents also had a weekend hideaway in Leucadia. They made very little on it when it sold, but they enjoyed the hell out of it for 30 years.)

Don't be in a rush. One thing to thoroughly discuss with your wife is how you would feel if you bought a house that lost value. Lots of folks walked away from houses during the Great Recession only to see the values soar not very many years later.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: JupiterGreen on September 03, 2022, 01:54:46 PM
Fellow Californian, so I'm used to our crazy housing costs. I would absolutely wait a while longer, because things are definitely cooling off, mostly because people are scared and they believe all the doomsday predictions. Even rising interest rates don't scare me much, because it knocks a lot of marginal buyers competition out of the game.

I get pings from Zillow and Redfin every time prices drop in the markets I track. Today I got four in a row. Intrigued, I opened them. Seems they're brand-new houses and the builder is lowering the price. Absurd! Normally builders will do backflips to avoid dropping prices: Interest rate buydowns and "free" upgrades are typically offered in lieu of actual price drops.

Don't be in a rush.

And damn, you've made a lot of progress. Congratulations!

May I ask how you get a market update in Zillow? Is it through the saved search option?   
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: nippycrisp on September 03, 2022, 03:11:15 PM
Re: the current SoCal RE scene, I have two recent anecdotes: last week, received two cold calls from realtors (probably from the "sign in here" thing at open houses) looking to drum up business. Six months ago you couldn't get a call returned. This suggests that things are changing rapidly, at least by real estate standards. 

Anecdote #2: We're friends with a different realtor. She advised us to wait. I rarely hear realtors say this. Now, words are words, but there's more to this: the realtor friend is also looking to buy, but their rental was recently sold and they needed somewhere to live. Instead of buying, they went back into the abysmal rental market. They went from a really good situation (like $2200 for a 2BR) to $3400 for the something similar.

My point isn't that this they know something we don't, but to show that this professional believes in the near-term future of the market so little that they were content to accept a much less optimal rental situation rather than buying now.

Most people buy homes based on two things: can I make the downpayment and how much is the monthly payment? That second part is largely a product of interest rates. Interest rates going up will be compensated by prices dropping. Powell has said they're not screwing around on rates re: getting inflation under control. If these efforts weaken the job market further that's going to soften demand. Markets impacted? Same effect.

There's no crystal ball here, but we can make the best bet we can.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: Dicey on September 03, 2022, 07:12:04 PM
Fellow Californian, so I'm used to our crazy housing costs. I would absolutely wait a while longer, because things are definitely cooling off, mostly because people are scared and they believe all the doomsday predictions. Even rising interest rates don't scare me much, because it knocks a lot of marginal buyers competition out of the game.

I get pings from Zillow and Redfin every time prices drop in the markets I track. Today I got four in a row. Intrigued, I opened them. Seems they're brand-new houses and the builder is lowering the price. Absurd! Normally builders will do backflips to avoid dropping prices: Interest rate buydowns and "free" upgrades are typically offered in lieu of actual price drops.

Don't be in a rush.

And damn, you've made a lot of progress. Congratulations!

May I ask how you get a market update in Zillow? Is it through the saved search option?
Probably. I search a several very specific areas frequently, and I do save searches for those areas. Also if you "Heart" a listing, it updates you when the house goes pending and when it sells.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: JupiterGreen on September 04, 2022, 09:40:55 AM
Fellow Californian, so I'm used to our crazy housing costs. I would absolutely wait a while longer, because things are definitely cooling off, mostly because people are scared and they believe all the doomsday predictions. Even rising interest rates don't scare me much, because it knocks a lot of marginal buyers competition out of the game.

I get pings from Zillow and Redfin every time prices drop in the markets I track. Today I got four in a row. Intrigued, I opened them. Seems they're brand-new houses and the builder is lowering the price. Absurd! Normally builders will do backflips to avoid dropping prices: Interest rate buydowns and "free" upgrades are typically offered in lieu of actual price drops.

Don't be in a rush.

And damn, you've made a lot of progress. Congratulations!

May I ask how you get a market update in Zillow? Is it through the saved search option?
Probably. I search a several very specific areas frequently, and I do save searches for those areas. Also if you "Heart" a listing, it updates you when the house goes pending and when it sells.

Okay great thanks!
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on September 04, 2022, 10:10:07 PM
Hi all,

Thanks so much for the feedback and advice. We talked it over last night and agreed to continue watching but to not feel any need to rush (will revisit in January). For her the biggest peace of mind was knowing that we’re not in our current location forever so she can tolerate waiting a while longer. Goal now is to continue saving and keeping an eye out so that when we are ready to pull the trigger we can make as best a choice as we can. Appreciate everyone taking the time to write and offer feedback. You all are awesome!
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on October 20, 2022, 04:33:36 PM
Hi All,

So of course about a month after that conversation she sees a house she falls in love with and sees as a forever home...

Here's my question. I internally wrestled with purchasing at this time (market timing vs. buying when you need to) and the property. We just started escrow so still are in the inspection/appraisal phase where we can back out if needed. Rate has been locked so I can feel reasonably confident on costs. Where I've landed on this is that I know that in the short term we are going to be house poor. And I know that if someone else presented these numbers I would likely tell them to keep looking. But is going temporarily house poor but planning on refinancing in 1-3 years too optimistic or reasonable? We both have talked pretty extensively and understand the sacrifices we will have to make in the short term in order for this to work. I also know that this is going to significantly impact my possible FIRE date, but am okay with that trade.

Current Balance Sheet(Pre House Purchase):
Primary Residence: $540k value, $180k debt
Cash: $140k
Traditional IRA/401k: $300k
ROTH IRA: $80k
Taxable: $81k
Total: $960k

Planned Property:
$745k
4 BR/3BA 2000 SQFT in good location (parks, school district, etc.)
10% Downpayment
6.99% Rate: Monthly Payment (P&I, Property Taxes, Insurance, PMI) = $5390

Existing Condo (Turning into Rental):
$540k Zestimate
$180k existing mortgage
3.00% Rate: Monthly Payment (P&I, Property Taxes, Insurance, HOA) = $1600
Estimated Rental Income: $3,000

Planned Budget:
$9,700/mth W2 net (reducing 401k contributions to $500/mth to get company match)
+ $3000 rental
- $5400 new house expenses
- $1600 old house expenses
=  $5700 for everything else
- $500 groceries
- $200 utilities
- $180 Auto insurance
- $350 gas
- $150 internet/phone
-$200 fast food/restaurants
-$250 household expenses
-$150 child expenses
= $3,720 Net

However, for every percentage point we can refinance off our housing costs drops by ~ $500. We also know that we have fall back options to sell the current house or have DW go back to work.



Hi all,

Thanks so much for the feedback and advice. We talked it over last night and agreed to continue watching but to not feel any need to rush (will revisit in January). For her the biggest peace of mind was knowing that we’re not in our current location forever so she can tolerate waiting a while longer. Goal now is to continue saving and keeping an eye out so that when we are ready to pull the trigger we can make as best a choice as we can. Appreciate everyone taking the time to write and offer feedback. You all are awesome!
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: Gronnie on October 20, 2022, 04:43:36 PM
Feels to me like this will make you pretty house poor.

How much of an upward trajectory do you see your income (and also how secure)? Does she plan on working at some point or no?
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on October 20, 2022, 04:55:18 PM
Hi @Gronnie ,

Income has been pretty consistent at about 4% per year increasing for 10 years (first couple of years were closer to 6-7%). Job is reasonably secure - it's a medium sized aerospace company that didn't have to lay anyone off during the GRC and prioritizes taking care of employees. DW does plan on working at some point, she knows she isn't cut out to be a SAHM long-term. To this point we've decided that being a SAHM is better than working and doing child care.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: Gronnie on October 20, 2022, 04:58:30 PM
I'd think long and hard about this - your budget seems very optimistic.

How did you come up with $200 for utilities? That seems awfully low for SoCal.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on October 20, 2022, 05:36:04 PM
Hi @Gronnie ,

We've been averaging just under $5,000 month currently (or $3400/month without housing) - but we've also been a little slack with our spending (i.e. Amazon) because we knew we had some buffer. So I think our budget is optimistic but not unreasonably so.

$200 for utilities is a guesstimate - we don't have numbers yet from the seller, but they do have Solar and have updated windows and doors so it should be fairly energy efficient. In our current place we don't get charged water so don't have numbers for that either. Hoping to get some better numbers for this amount.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: Gronnie on October 20, 2022, 08:08:29 PM
Ah yes, solar. That would indeed make it much more reasonable :)
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: firestarter2018 on October 20, 2022, 09:14:45 PM

Existing Condo (Turning into Rental):
$540k Zestimate
$180k existing mortgage
3.00% Rate: Monthly Payment (P&I, Property Taxes, Insurance, HOA) = $1600
Estimated Rental Income: $3,000

Planned Budget:
$9,700/mth net (reducing 401k contributions to $500/mth to get company match)
+ $1400 rental
- $5400 new house expenses
- $1600 old house expenses
=  $4100 for everything else
- $500 groceries
- $200 utilities
- $180 Auto insurance
- $350 gas
- $150 internet/phone
-$200 fast food/restaurants
-$250 household expenses
-$150 child expenses
= $2,120 Net


Is your math correct here? If your rental income is $3,000 and rental mortgage is $1,600, then your net income for the rental is $1,400, but here you added in $1,400 and then still subtracted the $1,600 mortgage payment. Seems like you double counted? If you just factor in your net rental income then your total after all mortgages but before other expenses is $5,700.  I don't think you're fully accounting for all possible expenses in this quickie budget (clothes? health care? home maintenance? car maintenance? travel?), but $5,700 makes this feel more doable than $4,100 for sure.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on October 21, 2022, 12:32:53 PM
Hi @firestarter2018 ,

Doh! Yup - definitely double counted the existing mortgage. I went ahead and updated my previous post.

Agreed - that the existing budget is probably barebones. I went back and ran our overall expenses for the year and after subtracting out our current mortgage we are at $41,000 for the current year to date or roughly $4,300 per month. I know there's some definite fat in that budget, so I think we can be down to $3,700 which would give us $2k/month surplus.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: Dicey on October 21, 2022, 11:43:29 PM
Being house poor made me rich. CA real estate is a whole different beast, one that even some very smart mustachians just can't grok. My advice would be to put 20% down, because you can and because PMI sucks. Also, you must know yourself well enough to be sure of how you will react if the market continues to soften and your down payment goes poof! It could happen, but if it's really your forever house, it won't matter in the long run.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on October 22, 2022, 09:01:00 AM
Hi @Dicey ,

Agreed it’s crazy- I wish I had better understood it’s craziness a few years ago and bought back when I got married in 2018. Oh well.
I do feel like I can handle the market softening and knowing that is temporary. I haven’t changed my investing in the stock market this year so I believe I have the stomach for it.
To remove the PMI what would you recommend I sell? My initial thought about doing 10% is that I only have to touch my on hand cash and can leave all my other assets alone and not trigger any taxes. This also gives me a starting out 4-5 month cash buffer which will help with any first year costs until I can rebuild it.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: Gronnie on October 22, 2022, 10:43:40 AM
Being house poor made me rich. CA real estate is a whole different beast, one that even some very smart mustachians just can't grok. My advice would be to put 20% down, because you can and because PMI sucks. Also, you must know yourself well enough to be sure of how you will react if the market continues to soften and your down payment goes poof! It could happen, but if it's really your forever house, it won't matter in the long run.

I lived in SoCal, I get it. I still think it's extremely risky -- CA can't get a pass on math forever.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: nippycrisp on October 22, 2022, 01:05:17 PM
You asked about interest rates, so I'll address that. You could think of this decision in terms of best/average/worst-case scenarios.

Best: the current reversion towards historically average mortgage rates reverses. Rates plunge back to low single digits, while the economy remains strong. Home values reverse their current slide and you gain a bit of equity. No major problems with rental or job loss. In three years you are able to refinance and save maybe $1200-1500 a month.

Average: rates remain near their current historical average. Home prices go sideways. Economy is mixed. You remain house poor, and miss the opportunity to go in on a down market. on the other hand, you have a cash-flowing rental at a good interest rate, but are stuck with 7-8 years of PMI on your new purchase and have limited liquid assets to deploy. 

Worst: This is your nightmare scenario. Mortgage rates continue to climb, and/or the broader economy tanks. The good news is you have locked in a lot of debt at a "low" rate relative to the 9-18% mortgages we've seen in the past fifty years. The bad: home values have shrunk as borrowing costs increased, and nearly fifty percent of your net worth is tied up there. You will pay PMI forever, and will be blocked from refi-ing due to low LTV. Two other things are also likely to happen: inflation has continued (the likely reason the Fed has increased the rates that are fueling the high borrowing costs) and the rate hikes have pushed us into an unsurprising recession. Unemployment increases (this may not affect your job, but what about your tenants? CA isn't a landlord-friendly state), and your limited free dollars are eaten into. Instead of buying depressed equities, you may be selling them.

Obviously there's some more nuance than I've sketched out, but you get the idea. No one can say how likely each of these scenarios is but, if I can editorialize, I don't see much in the way of upside to offset the risks.

If you absolutely must upgrade, I'd suggest looking at the numbers if you sell property #1. Your loan looks late stage, so you're probably not saving too much on interest/tax deductions. You can carry the profits into the new sale (I think) without taxes, you lose PMI, the hassle of managing a rental, reduce your exposure to the mortgage industry, and have some extra to deploy into the current market. And you can still refi if that avenue becomes attractive.

You can't control the broader economy, but you can control your risk.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: Dicey on October 22, 2022, 04:37:36 PM
Being house poor made me rich. CA real estate is a whole different beast, one that even some very smart mustachians just can't grok. My advice would be to put 20% down, because you can and because PMI sucks. Also, you must know yourself well enough to be sure of how you will react if the market continues to soften and your down payment goes poof! It could happen, but if it's really your forever house, it won't matter in the long run.

I lived in SoCal, I get it. I still think it's extremely risky -- CA can't get a pass on math forever.
I do not disagree in theory, only degree. CA does not get a pass on the math. We bought our primary NorCal home on a short sale in 2012. We bought SoCal  rentals in 2015 and 2016 below market. Each had been on the market for 12+ months for reasons that didn't scare us.*

Real estate is a roller coaster. Those for no stomach for it should stay renters forever. Ditto for those who dislike home maintenance. Also, anyone ewho believes RE "must go up" should get an automatic DQ.

*Yeah, one of them smelled of sewage. We replaced the wax ring that had failed for $5.00. Problem solved.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: terrifictim on November 10, 2023, 06:17:04 PM
Hi @nippycrisp and others,

It's been a while so figured I would update. Basically just want to confirm that everyone goes "No-Brainer" before I do this.

We ended up buying a property in December 2022 for $800kish at 6.25%. Wife and daughter love it, so definitely a win on the family side. We're having a second daughter soon, so we would have been forced to buy at some point - which would have hurt even more now.

We've definitely had some lifestyle expenses + the increased mortgage - right now I make about $11k/mth and we're spending it all, 1/2 on the mortgage, 1/2 on everything else. Our cash on hand is about 2-3 months of expenses.

We decided to rent the existing property through a property manager for the past year and it's been wonderful - no issue, payment every month. Getting close to renewal of lease where we have to decide whether to renew lease or sell.

As of the last post the general consensus was to sell. I'm now much more inclined to do that, any thoughts about why I should not?

Key Stats:
Estimated Selling Price: $575k
Current Mortgage: $170k at 3%
Current Rental Income: $2650/mth
Net Rental Income (after Mortgage, HOA, Insurance, Prop Tax and Mgmt Fee): $700/mth
I have until Dec 2025 to sell before I get hit with capital gains tax.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: EchoStache on November 11, 2023, 07:07:19 AM
You are netting $700/month on the rental property, with the risk and headaches associated with land lording.

$400k from the sale of property in a MMF would pay you ~$1700/month.

Unless you can drastically increase net profit on the rental, it seems you would be much better off re-allocating your $400k equity even in the safest no risk investment that exists.
Title: Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
Post by: nippycrisp on November 11, 2023, 08:21:55 PM
Agree w/Echostache. Hell, putting it in one of those 5.25% saving accounts would outperform the net rental income.

The only arguments I see for keeping the rental is the possibility of appreciation (in rent or property itself). Don't see that happening with rates where they are.

If you have some flex, might want to toy with trying FSBO, especially if the comps are easy. 5-6% realtor commissions are going to take a big chunk of your net.