Case Study - Family of 5 Selling Everything & Moving to Costa Rica?

[MikesMoolah]

We are considering a complete life change. Before I keep dreaming, I figure I should ask someone much smarter than myself.

My wife and I are both about 35 years old we have 3 kids almost 5,3,2 years old. We currently live in Northern VA 20 miles outside of DC were cost of living is pretty steep.
My wife stays at home with the kids and I run a carpet cleaning business that I started with a friend 10 years ago.
I know the cost of living in costa rica is NOT terribly low, but it is less then where we live now in Northern VA. The climate and lifestyle is what appeals to us. We have been there before and are planning a 1 month trip in January to really scope it out.  We would probably rent there at first and either decide to stay long term or move again… maybe even back to the states who knows! I would look at this as the beginning of my semi retirement journey.
I won’t go into the future plans anymore as my main question is… am I in a good enough position to take a risk like this if we decide to?

We have NO Credit card debt, but do a little credit card hacking for extra cash and maybe travel in the near future.
We have NO car loans
No cable TV, we share a netflix with my brother

My business - I own 50% of a carpet cleaning company with a good friend.  We have 3 employees who do most of the work… answering phones, scheduling, and the actual cleaning.  However, we still work 10-20 hours a week in the busy season and 0-10 hours in the slower season.  My take home pay this year will be around 60k, last 2 years were closer to 100k. Total sales the last 3 years were around 400-475k.  Assets are probably around 150k with 50k in equipment loan debt.
Ideally my friend would buy me out and I could maybe get 200k-250k for that (really rough guess). Other options would be selling most of my shares, but keeping a small portion and continue doing online marketing for them …. or... Selling part to the one or all employees and part to him etc...
Any ideas on how to structure this would be great! He is a good friend and it has been a great partnership, so I want to be very fair to him. I think a deal like this would increase his income dramatically, but of course he would also have to pick up my slack.

We own 3 homes
My initial plan would be to keep all 3 homes and rent them out for now (2 are already rented self managed). We absolutely love our current home and would be hesitant to sell it until we are sure we are not returning (we back to woods and a stream on are on pipestem, walking distance to Elementary school, great neighbors)

1st Rental
Rent $2,250
PITI $1695
Value $390k
Mortgage Bal $230k
Equity $159k
Cashflow $430/Month (after $170 in Maint Reserve Hoa etc..)

2nd Rental
Rent $1450
PITI $902
Value $240k
Mortgage Bal 120k
Equity $120k
Cashflow $350/Month

3rd Rental (Current Residence)
Rent $2600
PITI $2000
Value $500k
Mortgage Bal 300k
Equity $199k
Cashflow $325/Month

RE Equity $478k
Vanguard Taxable $201k
My Roth IRA $22k
Wifes Roth IRA $22k
WIFES OLD Roth IRA $5k
Wifes 401K $34k
2 Cars $15k
Savings/Cash $10k
Sale of Business 200k?
TOTAL NET WORTH 978K

Potential Income
4% of 284k in stocks = $11,360
200k from sale of business invested in stocks 4% = $8,000
Real Estate Cashflow = $13,260 (does not include debt paydown of $1,400/month… not sure if/how to include this, but I think I am missing something)
Total $32,620

I need to do a little more research, but I estimate our expenses will drop from 60k to 30k as we currently pay $1250/month for health insurance (lowest cost plan w/ highest premium - Health insurance in CR is very cheap), and will find a rental in Costa Rica for around 1k/month vs the 2k we pay now.

I cannot wrap my head around how to account for the $478k in RE equity in terms on income… 4% of equity, cash flow only, etc…

Should I just be basing everything off of the 978k net worth (minus cost to sell RE) *4% Since we may end up selling it all?

I am not opposed to working part time in the future probably on the internet somehow (in fact I am sure I will do something small at least), but not terribly motivated to right now while all 3 kids are not in school, so I do not want to rely on needing a side income.

Thank you all so much for your time, this site has quite literally changed my life!

[tralfamadorian]

My take home pay this year will be around 60k, last 2 years were closer to 100k.

A few things off the top of my head-

-Why is your business income dropping by 40% for 2018? Traditional rule of thumb business valuation is 2.5-3x yearly income plus assets. Business that are turnkey towards the top end; businesses that require specialized knowledge to run or owner working hours towards the bottom end. At 60k 2.5x --> 150k plus 50k assets. Are you confident that the assets are actually worth 100k now or is that just what the business paid for them?

Should I just be basing everything off of the 978k net worth (minus cost to sell RE) *4% Since we may end up selling it all?

-Taxes are not included in any of your calculations and need to be to make anywhere near an educated guess to your sabbatical income. Normal income tax rates for the business sale. Depreciation tax and long term capital gains tax for any sold real estate.

-As a RE investor, to me your maintenance and repair expenses seem very low and do not appear to include vacancy. You most probably would do better to sell them and put the funds in VTSAX.

I need to do a little more research, but I estimate our expenses will drop from 60k to 30k as we currently pay $1250/month for health insurance (lowest cost plan w/ highest premium - Health insurance in CR is very cheap)

-Will you will be getting a Rentista visa in Costa Rica? If so, you need $2500 demonstrative monthly income for the past two years that will continue during your time in their country. How do you plan on doing that? I presume you will be seeking a temporary resident visa instead of renewing tourist visa since you will need them for health insurance.

I cannot wrap my head around how to account for the $478k in RE equity in terms on income…

Quick answer- you don't unless you sell or refinance the debt to pull out cash. Your return on your invested equity is part of your ROI calculation on the rentals.

Real Estate Cashflow = $13,260 (does not include debt paydown of $1,400/month… not sure if/how to include this, but I think I am missing something)

Your debt pay down increases your equity and net worth but not your cash flow.

[MikesMoolah]

Wow Thank you so much for the response, I now have much more to research...

- Business income dropped for two reasons
1) A few Large commercial jobs being pushed back (they replaced the carpet and delayed their regular cleaning schedule) We should be able to get these back on the schedule next year, but no guarantees.
2) We also Hired an additional Technician (40k/year)and stepped back a bit ourselves. Yes I am confident we have at least 100k in assets (professional carpet cleaning equipment is shockingly expensive and we run 3 Vans)

- Selling the real estate would definitely be the long term plan if we are not returning to the area.  I currently manage the houses myself, and have done all repairs, maintenance, and upgrades. I have been managing residential real estate first professionally and then just for myself for 15 years... Since I have had my own rental properties (about 10 years now) I have not had a single day of vacancy(knock on wood.. I start advertising them 60days before end of lease). You are definitely right of course and going forward I will need to adjust these numbers (which I am sure will make me want to sell them sooner then later).

- I will do my research on the taxes and talk to my account about what I could potentially expect to pay on the sale of the business and real estate. I may be misinterpreting what I have read, but if my income falls below 15% Ordinary Bracket (which it will) I could end up pay very little/no tax on the business sale? If I structure it so that I either receive an installment payment or receive payment partially by offering "consulting service" back to the company over a period of several years (married filing jointly) that would keep me under that threshold.

- I am for sure in the preliminary research into this idea, but it did look like there were a few other options for residency like the 60k in a costa rica bank that is paid out to me over the course of 2 years (again I am a still learning and there is a lot to take in, would strongly prefer not to do that)

[Cassie]

You have a great income for not much work. I wouldn’t give that up at your age. Things can change in these countries. Look at what happened in Venezuela.

[reeshau]

- Selling the real estate would definitely be the long term plan if we are not returning to the area.  I currently manage the houses myself, and have done all repairs, maintenance, and upgrades. I have been managing residential real estate first professionally and then just for myself for 15 years... Since I have had my own rental properties (about 10 years now) I have not had a single day of vacancy(knock on wood.. I start advertising them 60days before end of lease). You are definitely right of course and going forward I will need to adjust these numbers (which I am sure will make me want to sell them sooner then later).

Even with your extensive background in rental management, I expect you will need more help from Costa Rica than you do locally.  You might still do the advertising yourself, and can arrange for people to fix things, but in any case where you need to be on site, you need a contingency:  either enough set aside for an emergency trip back to the US, or a management company to do some in-person work for you.  (contract signing?  Answering service?  Inspections?)  I don't have any experience landlording, but I did just move overseas.  While iPlum and other tools have helped me maintain my "US persona," there are still plenty of government and company processes that are paper-based, in-person things.

In terms of tax, since you are looking at US sources of income, then US taxation is pretty clear.  But I would also look into the tax status / proof required for money remitted into Costa Rica.

[ThaiSmile]

The climate and lifestyle is what appeals to us. We have been there before and are planning a 1 month trip in January to really scope it out.

Very bold to even consider such a major move, so I don't want to go into the long list of things that might dampen your spirit for an international move. That being said, I would suggest that you do quite a bit more research as you will find the complexities and challenges of living permanently in a foreign country much more than visiting. Having observed numerous cases of this in South East Asian countries that I have lived, my universal observation is that the charm that was created during vacations quickly wears with long-term residence.

For the 3 kids who will soon enough be of school age, how do you intend to handle education? Expat schools will cost a bomb and local schools may not be accessible (or advisable).

Do you speak/read the local language (Spanish?) fluently enough to deal with landlords, government offices, etc.? You won't have a hotel concierge to handle day to day happenings.

What kind of visa can you get for long-term stay? Some countries have retirement-friendly setups (Thailand, Philippines, Malaysia, etc.), but those tend to cater to traditional older retirees and not early retirees with families.

There are many expat forums that you might want to access and try to assess if living in your target country is practical for your current situation. I don't know the details of CR enough, but I can say if you were going to do the same in Thailand, you might find it a challenge. One final thought to consider... if climate and lifestyle is the key attraction, you might find places in the US with more accommodating climate and lifestyle. Good luck. -TS

[MikesMoolah]

Thanks ThaiSmile a lot to consider for sure. It helps a lot to type this out and read your responses.  We love the idea of Costa Rica, but are definitely not married to it... I should have been more clear on that in my original post... my hope is to find out if we are close enough to FI to do something that feels a bit crazy (like selling everything and moving somewhere). 
IF we did move to costa rica, it might just be for the short term... to kick off our "new life" before finding a more permanent location in the US. At that point we could move back to Norther VA sell our RE in the most tax advantaged way possible.

Honestly nobody around me understands the "early retirement" or "work optional" idea, I think we are in pretty good shape... but if we are several years out from FI then I might just keep my easy life here for now.

My wife and I keep getting a bug to do something a little crazy... this area is so busy and hectic, traffic, stressed out kids in elementary school, crazy sports parents, etc... We love the idea of moving to a slower pace area that might also be better for our kids. Life is short and we kind of want to be a bit different.

[MishMash]

As someone who has looked into moving to Costa Rica, are you aware of the INSANE import taxes?  Also the luxury taxes on real estate?  Like we would of had to pay 19k just to bring our one car into the country.

[MrThatsDifferent]

I’m not sure what’s motivating your move? You just want cheaper rent and living expenses? There are so many places in the US you could move to for that. Maybe what you really need is a break? Here’s an idea, talk to your partner and look into hiring a manger who will cover your work for a year, you can still keep tabs on everything. Then take your family and visit 4-6 places across the globe, have an adventure. The kids are young enough you won’t be disrupting school too much. Maybe you homeschool the 5 yo? See what that is like. Meet locals, other expats and learn what it will take. After a year, then work out what you want to do. Meanwhile think about how you will stricture your money and understand the tax implications for what you want to do. And if a year is too long (that should say something), at least take a 3 month break, I’m sure you’ve been working hard supporting 5 people.

[bwall]

I’m not sure what’s motivating your move? You just want cheaper rent and living expenses? There are so many places in the US you could move to for that. Maybe what you really need is a break? Here’s an idea, talk to your partner and look into hiring a manger who will cover your work for a year, you can still keep tabs on everything. Then take your family and visit 4-6 places across the globe, have an adventure. The kids are young enough you won’t be disrupting school too much. Maybe you homeschool the 5 yo? See what that is like. Meet locals, other expats and learn what it will take. After a year, then work out what you want to do. Meanwhile think about how you will stricture your money and understand the tax implications for what you want to do. And if a year is too long (that should say something), at least take a 3 month break, I’m sure you’ve been working hard supporting 5 people.

I like this idea.

Why not do a month (or two) in Spain? Or Italy? Greece? and then do a month in Thailand? Or Indonesia? Then move on to Argentina/Chile? Mexico? You can find a fully furnished apartment/house in these countries on AirBnB at great prices. You can get an insight into local lifestyles without the coldness (and expense!) of a hotel.

Then come back to your regular job and pick up where you left off.

[ZMonet]

I used to live in Springfield/Alexandria (near the metro) about 15 years ago.  I recently was back in the area and through Manassas, etc.  The whole area has just become strip malls and new McMansions with no lawns, interspersed with old housing.  It was depressing to me and seemed to lack any character/identity.  Is this part of the reason you want to move?  Or do you like the area, aside from the cost, well enough?  Have you looked at areas like Staunton, VA, where at least housing is a bit more affordable and where you could possibly be close enough to manage your business/properties?  Lots of people on here seem to like the area and, after a couple of visits, I can see why.

I went to Costa Rica last year on vacation.  I can see why you would want to move there as I think it is one of the most beautiful places in the world.  I'm not sure I'd want to raise my kids there though.

Whatever you do, congrats on organizing your life pretty well to date.  35, nearly 1 million net worth, and semi-retired is no small accomplishment.

[MikesMoolah]

Thank you very much ZMonet
I like all the ideas about testing the waters with a short 3 Months - 1 Year Sabbatical... traveling around to experience other places and then settling down back here or maybe somewhere else...So we can make a more educated decision.  I think exploring some other locations in the US would be great too, maybe an RV/Camper trip if I can talk my Wife into it!

I used to live in Springfield/Alexandria (near the metro) about 15 years ago.  I recently was back in the area and through Manassas, etc.  The whole area has just become strip malls and new McMansions with no lawns, interspersed with old housing.  It was depressing to me and seemed to lack any character/identity.  Is this part of the reason you want to move?  Or do you like the area, aside from the cost, well enough? 

My Wife has lived here her entire life, I have lived in 7 states (Air Force brat) but have been here 22 years. My Wife is a bit jealous that I have experienced that and really wants to try living somewhere else.  I have never lived anywhere else as an adult and would also like a change, however I would like to land somewhere permanent in the next couple years for the kids sake. Yes, every new home community builds bigger houses on ever shrinking lots... which I think is a sign of priorities.
Our current house is 22 years old in Bristow/Gainesville area surrounded by new communities. We love our neighbors, and our house... which is why I would wait to sell this house until I was absolutely positive that we were not coming back.
I should say that Northern Va is still a great place to raise kids and an even better place to earn a living.

I went to Costa Rica last year on vacation.  I can see why you would want to move there as I think it is one of the most beautiful places in the world.  I'm not sure I'd want to raise my kids there though.
I will have to look into Staunton, I know the name but not much else.

We love it there, my favorite thing to do was swimming in a waterfall pond in the middle of the jungle.  I can not wait to see my Daughter light up when she sees all the Birds, Monkeys, Bugs, Butterflies... and on and on. Amazing there.
The only reason I even consider moving my kids there is a handful of blogs I have been reading about American and Canadian families who have done something similar. Atenas is known for having the "Best Climate in the World" and sounds like it has pretty good public schools. Lots of Ticos speak fluent English and it is taught to all students. The people are genuine and very welcoming. I have read that it is considered extremely rude to not say Hello to someone when you pass by or sit near, quite different here.

I am looking forward to visiting in January... might look a bit different through the eyes of a parent.

[MishMash]

DH and I did a heavy and in depth research about moving there when he retired, we have local Tico friends, the fishing is amazing, the healthcare system is awesome etc.  However, the cost of moving there is beyond astronomical, they tax everything you bring with you outside of like a single suitcase, and the import taxes are super high.  Our Tico friends also say the crime is skyrocketing, with the latest thing being to literally steal foreigners homes.  Say you own property, and go on vacation, one of the local drug cartels moves in, bribes a lawyer (they are the ones who sell property), and then that lawyer files and records the home as sold to said cartel.  Apparently there is almost no recourse if that happens. 

We have been several times, and we love it there, but I would be hesitant moving kids down there between the abject poverty that abounds (the luxury taxes help pay for housing), the crime rate (they are getting significant influence from the drug cartels in Nicaragua apparently), and then the general cost of bringing anything into the country.

[Exhale]

You might want to check out the Knorpp and South family youtube (https://www.youtube.com/playlist?list=PLzNO03bnhiYBPTihkd8ti0rtWHj3OHt1h). First they had a blast traveling around the US in a RV. Then they lived abroad moving every couple of months. Now they're back in the US to have a home base with plans to go on international trips every so often.

[Rdy2Fire]

I am looking forward to visiting in January... might look a bit different through the eyes of a parent.

Just stumbled across this thread and wondered how the visit was and if you decided to move there or somewhere else?

[travel2020]

Looks like OP was last active ~ 2018 so doubt we’ll ever find out.

[LibrarianFuzz]

Some food for thought: there was a couple who "escaped" to Costa Rica and wrote a series of hilarious memoirs/manuals about their new life there and how to deal with the culture shock. Worth reading before you take the plunge. See the "Happier Than a Billionaire" series by Nadine Hays Pisani.