Life Situation: 44F, Head of Household, 7 year old daughter, live in HCOL area – Bay Area. Single mom. Dad is local, helpful but daughter is much closer to me and I have her 80% time and all nights. Never married. I am a business owner.
Gross Salary/Wages: It’s my company, so I am taking a 75k salary and another $50k in self employed income for 2017 (net 25k self employed income). Next year will likely be the 75k plus up to 108k in profit and my business partner believes we can grow at 10% per year or more. (Gross receipt around $520k and expenses at $420k)
Individual amounts of each Pre-tax deductions: Simple IRA contribution this year of $12,500. If I’m not making too much money I will contribute to an IRA or Roth in addition and next year I plan to go back to an HSA healthcare plan to be able to make a full family contribution for 2018, although I periodically do have some chunky health costs due to chronic illness.
Rental Income, Actual Expenses, and Depreciation: Business expenses are high due to payroll and paying off a note but we still expect profits to grow over time.
Adjusted Gross Income: Might be as high as $82,000 this year, may be higher in coming years.
Taxes: Last year AGI was $103k, total federal was $33k and total state was 4k. Self employment tax do take a bite. But last year was all sole prop. This year will be mostly S-corp.
Current expenses:
Category Average Annual Rent 1,650 19,800 Groceries/Office Supp 749 8,990 Childcare 854 7,527 Health Insurance & Med/Dental 566 6,789 Household 473 5,628 Vacation & Airfare 555 6,665 Vet/Pet Care 337 4,092 Dining Out/Meals & Ent 220 2,635 Disability Insurance 208 2,500 Car Insurance 164 1,966 Self Care 152 1,826 Life Insurance 106 740 PG&E 89 1,071 Gas 82 986 Internet 69 831 Gifts 64 766 telephone 59 706 tax accounting 57 686 Clothing 43 513 cloud backup? What would MMM do? 41 489 Auto Service & Transportation 38 458 Garbage (32) 34 408 Fun Money 32 389 Water bill 27 327 Total Annual 76,787 Monthly 6,399
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Sorry, I can't get the table to insert like a table. I’m sure these expenses look high to many. Some can be brought down fairly easily (like summer camp costs). Besides the dad there is no family in the area to help with childcare. It’s been difficult for me to meal plan and buy groceries strategically due to exhaustion and overwhelm. Advice on ways of cutting expenses I haven’t thought of is welcome.
Assets:
Personal Checking and Savings: $57k
Business Checking: $92k
SEP IRA: $147k
Roth IRA: $29k
Business value: Around $540k (this is my share, the total is split with partner)
Cash amounts are high due to cyclical nature of business and the need for a good cash cushion for hard times or cash flow problems. Asset allocation is more like permanent portfolio which would be seen as conservative by many Mustachians, but I’m comfortable with my asset allocation and not really looking for advice there.
Liabilities: Only debt is the business loan currently $162k balance at 3%. Financed by seller who would like the payments to be sped up but we want to be sure of cash flow before committing. Currently the 6 year amortization schedule would mature 2020 but seller/financer wants paid off by 2018 if possible.
Specific Question(s): I would like to speed up process to FI without sacrificing my daughter’s childhood to do it. After listening to podcasts by Coach Carson, I am considering a househack, but where I live currently there is an extreme real estate bubble which may only go flat for awhile rather than truly pop as the area is so crazy. I would like to get into real estate to diversify and annuitize income. There are many considerations. Below are the three I most consider.
1) Move to Chicago where there is family and buy a duplex/triplex/quadplex in good school system near them.
a. Pros – Much more reasonable housing cost, near supportive family, would net approximately $22k in lowered housing costs if I can break even on househack.
b. Cons – Deals I’ve seen listed in bigger pockets don’t look like positive cash flow from day one, slow growth in the area and Chicago metro has had people moving away the last couple of years, away from daughter’s father during the school year, could need to be away from daughter for weeks to do business back in the Bay, travel and AirBNB costs (which are figured into the net number), I could be limiting growth of my business that could net much more than $22k by not being physically available year round – this last is an unknown how much or little effect this could have.
2) Stay renting in the Bay and just invest remotely in real estate.
a. Pros – I can invest anywhere that makes the most financial sense and therefore hopefully more likely to have higher cash flow deals, don’t risk business.
b. Cons – Rent costs would not go away or go down, the risk of renting and having the property sold and kicked out and being unable/unwilling to afford to stay in daughter’s school system is a real concern (SFRs currently rent for $4k in my town).
3) Try to househack in the Bay Area?
a. Pros – If I could make it happen then I would have security of staying in a school system with hopefully lowered home costs, don’t risk business.
b. Cons – May not be possible/profitable at current values, may or may not be able to find a deal in a good school system, most multi-family properties are listed at 1.2million and up and rare in my town. I may have to wait for unknown length of time for a good deal to show up and the down payment and financing would likely be a larger more undiversified position than buying several properties in more reasonable parts of the country.
Any thoughts/suggestions/things I haven’t considered would be so appreciated. Thanks so much!