Author Topic: Growing Family - Short term vs. Long term planning  (Read 6492 times)

Flyingstache

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Growing Family - Short term vs. Long term planning
« on: February 26, 2024, 09:12:25 AM »
Hi Everyone,

I have posted on here before but not for a few years & there have been LOTS of changes! Trying to improve my family's chances of experiencing financial independence & appreciate any insights or ideas from the experts!

Life situation - Married filing jointly. Age 32 soon to be 33 (wife & I), 3 kids (ages 5, 3, 11 months) & another on the way (wife took a pregnancy test this weekend! Panic is helping drive this post!!! haha) Both are teachers living in central Ohio.

The last 2yrs have been crazy for us! In July of 2022 we bought an investment property from the lunch lady at my school! Then a house came up across from my parents & grandmother so we moved there & kept our prior house as another rental. During this time we found out we were pregnant with our 3rd child. In April of 2023 my grandmother had to go into assisted living & the family needed to sell her house to help pay for it. My grandparents built the house & their dream was for it to stay in the family & I spent most of my childhood in that home so we agreed to buy the house. After some family drama (to put it lightly) when money got involved, the price raised $90k from the agreed upon price & we didnít get to move in until Halloween. We sold the house across the street (that was purchased in July 2022) to the son of the folks we bought it from so that worked out. There have been LOTS of projects with the house as my grandmother was in poor health the last few years & my aunt who lived there to assist did not keep up on maintenance. During this time we also had some personal & family emergencies that took a toll on our finances. The buying/selling of personal residences in addition to getting into the real estate investing game, plus having more kids has made life quite the adventure!

Goals:
- Explore ways to achieve FIRE as quickly as possible while balancing short term vs. long term plans
- Find ways to add additional revenue & possibly expand our real estate investing
- Set some money aside for our kids futures
- Simplify our financial life to help us live our best life possible!

Gross Salaries:
Wife - $83k - instructional coach for our school district. All insurance (HSA) is deducted from her pay.
Me - $72k - middle school teacher in 6th year of teaching. Worked in business for 4yrs prior.

Expenses (Monthly)
Personal Residence Mortgage w/escrow - $2,560 - Purchased Sept. 2023 for $420k, loan amount of $330k. 5yr ARM at 6.25%
Auto insurance - $180 we pay annually in full but this is monthly estimate
Utilities (trash/water/sewer) - $100
Gas - $85
Electric - $85
Food - $800
Babysitter - $1,400 - We donít pay during months where we are off school or during school breaks.
Gas (Auto) -$100
Phone - $100 (AT&T)
Internet - $45
YouTube TV - $35 - split with family
Educators Union Dues - $172 - unfortunately this is not something we can control & is actually more expensive if we arenít in the union
Netflix/Spotify - $35
Horse care - $500 - I know this is a frivolous thing but it's a passion
Miscellaneous - $100 (gifts/entertainment/dog care)
Total - $6,297

Assets:
HSA - $5,400
Checking - $5,200 (used to pay bills)
Savings (Ally) - $39,856
Rental LLC - $2,000 (just paid both properties taxes in full - usually around $7k in this acct)
Horse LLC - $3,000
Vanguard Traditional IRA - $52,532 (this is from my previous jobs 401k)
Vanguard Roth IRA - $46,917 (mine)
Vanguard Roth IRA - $20,214 (wifeís)
Vanguard Index Fund - $176,713
Cars - $15k - we own our cars outright & have a 2013 Honda CRV & 2009 Honda Odyssey
529s - $2k between our first 2 children havenít put any in for awhile.
Total between Checking/Saving/Investments - $346,432
*As teachers, we are required to put money into the state pension fund. 14% of our paychecks go towards that every pay*

Rental Properties: *Both properties were previously rented out at much lower rates to family friends who needed place to stay for a yr after going through major life changes*
Rental #1 - Purchased February of 2018 - former primary until July 2022
Mortgage balance - $145,400
Interest Rate - 2.75%
Value - $275,000
Monthly Payment (Mortgage only) - $700
Taxes $3,011/yr & Insurance $961/yr
Monthly Rent - $1,900 (new tenant as of Nov. 2023)


Rental #2 - Purchased July 2022
Mortgage balance - $112,682.76
Interest Rate - 5.85% - 20yr mortgage
Value - $175,000
Monthly Payment (Mortgage only) - $690
Taxes $2,538/yr & Insurance $733
Monthly Rent - $1,200 (new tenant as of Nov. 2023)


Additional Income:
My wife makes about $350/month tutoring at a rate of $75/hr
The last 3yrs I have made about $5k/yr in horse related consulting projects

No debt other than houses. Credit cards paid in full each month

Upcoming Expenses:

With purchasing my grandmother's house ďas-isĒ we have some expenses coming up for projects we need to accomplish. This includes re-staining the house (cedar siding), fixing a basement leak issue, & potentially getting new windows as the current ones are original to the house. Quotes we have gotten for these projects total up to between $20k-30k.

Future Plans/Thoughts:
- With the surprise recent news about my wife being pregnant (we are very blessed & want a big family but timing is sooner than planned!) It obviously brings some additional financial stress. My wife has 1 more year of a training program where she will be able to train teachers at school districts across the country. Her mentor makes $200k+ doing this remotely & my wife is one of 3 people currently finishing the training. We have discussed the potential of her going this route after finishing the training next year. That would be a big change but is an option & would likely help with childcare costs as my wife would have some flexibility with working from home.

- We were just offered an exciting opportunity to buy into a Airbnb property in Hocking Hills with one of our good friends. This friend & her husband (happen to be a real estate lawyer & vice president of lending at a bank) bought the property in September & offered us the chance but with buying my grandparents house the timing wasnít right. They had another friend join but that friend recently had a major life change & is moving & leaving their job. We can buy in for as low as 10% & they would base the buy in on the amount of money they have into the home so far. Our 10% buy in would be $16k. The property is beautiful & there is tons of potential!


- Planning for college or future savings for our children. We do not plan on covering all future education expenses for our children but would like to set something up now to let it grow & give them a boost.


Specific Questions:

1) I struggle greatly with taking advantage of opportunities in the short term vs. thinking end game. Should we take some money out of Vanguard to have the ability to take advantage of some of these opportunities, be able to complete all the house projects we want at once, & give ourselves a little breathing room? I very much want to set ourselves up for success in the long run but often wonder if we took some money out right now, could we use that to increase the speed of growing our finances. If we did take money out of Vanguard, what would the best way to do it be?

2) Would it be dumb to pursue buying into the Hocking Hills Airbnb opportunity. Obviously it would be a big chunk of our money to buy in at the 10% ($16k) but the property has a lot of potential, it has already been very successful, & the partners are wonderful people with a real estate portfolio they want to continue growing & would be a good team. We would be responsible for 10% of the expenses which would likely be about $300/month.

3) Are there ways to utilize the money in Vanguard for real estate investing? I recently heard someone talking about using a Roth IRA as collateral to buy properties they were flipping. Or they were using the funds from an IRA to participate in real estate investing. Not sure about this but again just wondering if we can/should use that money.

4) Kidís Saving - We set up the 529 accounts for my first two & put some money in for both but havenít done anything since. Is the 529 account the best option or should we pursue a Roth IRA for the kids? If we go the Roth route, it would have to be a custodial account correct? Would love any thoughts on how best to handle this. I see this more as something we set up early, put money in to let it grow, & then if family members want to put money in they can but we would mostly rely on time to let it grow.

5) Any obvious face punches or areas of improvement?

Any insights, tips or advice would be greatly appreciated. I apologize for the length! Thanks so much & if you have any questions or want further clarification, please let me know!

Mustache ride

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Re: Growing Family - Short term vs. Long term planning
« Reply #1 on: February 26, 2024, 10:15:27 AM »
1) I would not do all of the projects at once unless it was required or saved a good chunk of money. I would fix/replace things as needed.

2) You are already overweight in RE, so I would focus on growing my equity allocation. More importantly, I would never consider having a partner(s) in a RE deal. Too many things can go sideways and the fact that it's a good friend makes it even worse in my opinion since you can lose money and a close friend.

3) Not my area of expertise.

4)Roth IRA would be great but the kids need to have earned income in order for them or anyone else to contribute on their behalf.

5) Obviously the horse is frivolous as you mentioned, but I certainly understand that people value things differently. The babysitter seems pretty high, but I only have one child so perhaps that's why. I am not very mustachian though so I'm sure others will have more valuable input on this.

aloevera1

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Re: Growing Family - Short term vs. Long term planning
« Reply #2 on: February 26, 2024, 10:27:40 AM »
Personally, I would not enter into any joint ownership of properties with friends. They could be wonderful people but your views might diverge in the future with potential financial or legal consequences. I am not sure that their RE expertise in this case is a benefit or not. IMHO Not worth the risk.

As the other commenter pointed out, you seem to be overweight in the RE. Is this intentional? Are you not pursuing investing in the market because you have a market linked pension through your work? Do you have any idea of what the benefits will look like? Current values?


lucenzo11

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Re: Growing Family - Short term vs. Long term planning
« Reply #3 on: February 26, 2024, 02:24:19 PM »
1) I'm not sure what you quite mean by take advantage of opportunities. You define your life as crazy the last 2 years, it's not going to get easier with another kid on the way and you want to be ready for more opportunities? I think you need to simplify, not add on more projects/active investments. It seems like most of the opportunities you have taken on have related to real estate and have been ones that found you, not ones that you found. It's not a solid rule, but I tend to find that deals that find you, don't tend up being very good. I don't know if you really have the time to fully evaluate some of these opportunities, so I'd recommend just sitting back a bit and letting the chaos settle. If you have extra money and it seems like you should based on your monthly numbers and income, then put it towards house projects, index funds or college savings.
As for house projects, sure you can do the ones that are necessary now, but defer the ones that aren't absolutely necessary until you have the cash to do them.

2) Yes, without knowing more details, this is dumb. See above comment about deals that show up on your doorstep. I don't care how nice or experienced they are, there's risk involved in this and if they are that successful, why do they need you to take on a share of it? They could be actually nice people and really wanting to do you a favor/give you an opportunity but without all the details, it's a easy no for me. Don't pursue this further unless you have plenty of time to fully vet it and feel totally comfortable in what it's going to generate for you. Basic question that I just can't shake: why do you need to put in $300/month? If the property is successful then shouldn't it be cashflowing positive and not requiring you to put in money each month?

3) Someone more advanced on here can comment on this, but this seems like you are trying to leverage your investments to get more return. No offense, but you are already deep into real estate and I don't think going in deeper is the best right now for you given your life circumstances. Unless you have some other investment type that you want to diversify into, then I think you just leave it in index funds. If you really want to go all in on real estate, then I'd go over to the real estate group and ask about this there.

4) Nothing to contribute other than I think 529 is fine.

5) Nothing obvious. Babysitter is a big chunk but for three kids it doesn't seem terrible and you are going to need some kind of childcare for years to come.

Overall thoughts:
You're in the messy middle of life and lots of things are changing so it's hard to accurately plan for the future at the moment. You have goals which is good, but any plan needs to be flexible. You just went through a slew of real estate transactions and I'm impressed that you've been able to pull out actual monthly costs right now. I'd recommend taking a step back and focusing on family right now and priority house projects. Get a good sense of whether your monthly spend and real estate projects are actually in line with your estimates above and then develop a plan, but be ready to change it as your life evolves. See below for some questions to help guide that plan.

Questions:
1. You mentioned wanting to FIRE, but is the RE side of that an actual desire of yours or is FI the real goal. I ask because a big benefit you have is possible pension. Have you looked into how many years you need to get pension and what the min and max amounts are? 14% of your salary is going into this so what's the payoff and do you think you'll be working long enough to get that? Would your wife still be in the pension program if she gets into the new position?
2. Your wife's future position seems like it could be a big jump up for your family. Is the $200k a realistic value or is that years down the road? It's not critical but it would be good to lock in on what a realistic starting salary is.
3. Is your goal to build up a real estate portfolio to cover all your monthly expenses?
4. Do you feel like your properties are actually making money right now (other then building equity)? I'm not a real estate guy but on a glance, they don't seem like there is much room for maintenance costs, especially on the second one.
5. Going back to your goals at the start of your post, think about what each of these mean and define them clearly.
5a. You want to balance short and long term goals. What are your short and long term goals? You've listed kids future as long term. Anything else? What's in the short term?
5b. Your money is already working for you in your investments so I read additional income as increase salary at jobs or take on more jobs. Is this what you mean? As for real estate, see above to my previous comments, but think about what the purpose of your real estate is.
5c. For kids future, how much do you want to set aside? We talking full college for all of them?
5d. If you want to simplify, then I don't see how taking on more real estate fits in with this. Some properties may be simple and very hands off, others are time consuming. Index funds are pretty darn passive and hard to beat on simplicity.
6. Do you feel like your monthly numbers are accurate? It might be tough to tell with all the real estate transactions, but you should have money left over each month to save or use. It would be good to confirm this so you know your spending budget is in the right ballpark.

Laura33

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Re: Growing Family - Short term vs. Long term planning
« Reply #4 on: February 27, 2024, 09:10:02 AM »
Wow.  You have so much going on -- no wonder you're feeling a little freaked out right now!  Congrats on #4, btw.

My question:  are you one of those people who craves excitement and change and a gazillion things going on?  Or are you tired out by all the recent changes?  Or both -- maybe you enjoyed all the upheaval at first, but now you're on overload? 

It seems to me that a lot of the upheaval is because you have been in a very reactive mode -- you are jumping on this opportunity and that one when they present themselves, because they seem like good opportunities and you hate the idea of missing an opportunity.  The problem is that financial success tends to be boring.  Very, very few people succeed financially by jumping from one idea to the next; they get there by doing the research and work to really know an area and following a plan to then pursue that -- or, you know, by just throwing everything at VTSAX. 

So that's why I ask about your personality.  If you really, really like having a gazillion things going on, and actually doing things that make you feel like you are making progress, then you might want to focus more on real estate, because that is very hands-on and will require your time both to manage the properties and look for new/better deals.  But if that's what you decide you want, you need to be intentional and focused about it.  You need to do the research to understand what separates a good deal from a bad deal.  You need to be looking for properties that fit your specific pre-defined criteria, not just jumping on the next thing that comes across your desk.  Most profitable real estate comes from very unexciting, un-sexy properties, like 4-plexes and the like.  You've been lucky so far that the homes you have bought have turned into decent rentals (although the second is very, very borderline).  Take it from me:  that's not always the case.  You absolutely cannot count on that kind of luck to continue to lead you into great new investments.  So if that is your preferred path, put a complete moratorium on new purchases until you put in the work to understand what you're doing. 

OTOH, if you've been sort of overwhelmed by circumstances, then skip the real estate -- to the point of considering whether to sell at least the second property.  The nice thing about VTSAX is that it does all the work for you.  You can just throw your money there and it will magically grow along with the market.  If you actually do want to simplify your financial life, that's the way to do it. 

If you were me, here is what I'd do:

1.  Moratorium on major changes in investment strategy.  You have enough going on with three young kids, a pregnant wife, and a new home with many repairs.

2.  Focus current energy on getting the house up to a decent condition.  This will simplify the amount of crap you have to deal with when #4 arrives.  Plan on getting the primary work done before that date.  Pay as you go, unless you need to dip into savings for the big stuff like windows.  Sit down and develop a plan to implement and pay for the projects in the next 6 months.

3.  Look at what college is actually going to cost for the # of kids you have.  Go to your state school's website or the federal financial aid website, look at total costs, put in your numbers to get your expected family contribution.  For many people, that's a lot higher than they expect it to be.  Make sure you have 529s for each kid that are on track to hit 4 years of the EFC by the time they go to college. 

4.  Figure out pension options and payouts -- how much you could get when, whether your DW would still be in the pension plan if she took the new opportunity, etc.  Talk with our DW about a tentative FIRE date.  Figure out how the pension plays into that FIRE date, and how much your current investments should be worth by then.  That will then give you a target of how much else you will need as of your FIRE date to fill the gaps. 

FWIW, I suspect that with 14% going into two pensions and the amount you have invested otherwise, you're likely on a really good path already.  But it's not that complicated to confirm that - it's just math and spreadsheets and the like.  So do that, figure out how much you need to be putting aside to hit your FIRE date, set that aside monthly, and then go live your life with the rest.


roomtempmayo

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Re: Growing Family - Short term vs. Long term planning
« Reply #5 on: February 27, 2024, 11:39:38 AM »

5) Any obvious face punches or areas of improvement?


I would absolutely not take on additional risk, and I would work to deleverage yourself.

I don't mean to be a downer, but it doesn't seem in your post that you're appreciating just how close you're cutting it, and how this could all go sideways. 

An Ohio paycheck calculator says your monthly takehome is $9904.  You account for $6297/mo, leaving $3607 each month. 

However, in you budget you don't include:

- vehicle maintenance and replacement
- ongoing home maintenance, and you mention there's already 20-30k in deferred maintenance
- health care out of pockets
- kids activities, gear, one-offs
- clothing for anyone

But the big risks are:

- your primary home is in a 5 year ARM at 6.25%.  What if that goes up in five years?
- your rentals barely cashflow with minimal maintenance, and you have $2k in the rental account to cover problems.
- rental vacancy or nonpayment.
- four kids are a massive expense, and you mention wanting to put money toward college.  There is little or no room in this budget to save a meaningful amount toward it.

Right now, you're fine.  But this budget is not set up to be resilient in the face of major upheaval like a job loss or disability.  It works as long as the economy keeps rolling, everyone stays employed, the tenants pay rent, and one of the rentals doesn't need some immediate repair like a new furnace or digging up the sewer line.

I don't mean to say you're doing poorly.  At 33, I think you're doing fine.  But also spend some time thinking through how you'd withstand multiple bad financial forces occurring at once.

Flyingstache

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Re: Growing Family - Short term vs. Long term planning
« Reply #6 on: March 04, 2024, 05:44:03 AM »
1) I would not do all of the projects at once unless it was required or saved a good chunk of money. I would fix/replace things as needed.

2) You are already overweight in RE, so I would focus on growing my equity allocation. More importantly, I would never consider having a partner(s) in a RE deal. Too many things can go sideways and the fact that it's a good friend makes it even worse in my opinion since you can lose money and a close friend.

3) Not my area of expertise.

4)Roth IRA would be great but the kids need to have earned income in order for them or anyone else to contribute on their behalf.

5) Obviously the horse is frivolous as you mentioned, but I certainly understand that people value things differently. The babysitter seems pretty high, but I only have one child so perhaps that's why. I am not very mustachian though so I'm sure others will have more valuable input on this.

Thanks so much for your response & for sharing your thoughts! I really appreciate it

1) This is helpful & a good plan. I am guilty of wanting to get everything at the house perfect because my grandparents kept it so well kept when they were healthy. We will attack the needed items first & prioritize.

2) I assume by overweight you mean we have more money allocated in real estate than other areas? Sorry not familiar with that term in investments though it currently applies to my waistline!!!

4) Dang! I thought for some reason that you could open a roth for children even if they weren't making income yet. I will look into other options

5) Since posting, I am working on reducing costs on the horse by offering a percentage of the upcoming foal (the mare is pregnant) in exchange for reduced board cost. Hoping that works out & for a few months at least it will reduce my expenses. The childcare is a little high but the nice part is for 3 months of the year (the summer months) we don't pay anything as the kids only go during the school year. Didn't include those 3 months of $0 in the month amount.

Thank you again for your time & thoughts! Have a great day!

Flyingstache

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Re: Growing Family - Short term vs. Long term planning
« Reply #7 on: March 04, 2024, 06:59:17 AM »
Personally, I would not enter into any joint ownership of properties with friends. They could be wonderful people but your views might diverge in the future with potential financial or legal consequences. I am not sure that their RE expertise in this case is a benefit or not. IMHO Not worth the risk.

As the other commenter pointed out, you seem to be overweight in the RE. Is this intentional? Are you not pursuing investing in the market because you have a market linked pension through your work? Do you have any idea of what the benefits will look like? Current values?

Thank you @aloevera1 for your response!

Thank you for sharing your thoughts regarding the potential partnership in the Airbnb property. I will admit I tend to be extremely trusting with folks & think everything will work out. It can be a blessing & a curse!

In regards to being overweight in RE, it is more about the opportunities that came up within the last 2yrs that led us to having the 2 rentals. I have always been interested in RE investing as a way to help achieve financial freedom & enjoy real estate in general.

In the past we have done a good job of maxing out our Roth's but have not the last 2yrs. I forgot to include this but we do have $100 automatically invest into our Vanguard VTSAX every Monday. Don't have a true reason for the $100 amount but that is just what I have done. We need to get better at focusing on maxing out our Roth accounts & could likely invest more into VTSAX as well.

We need to reach out to our pension provider (STRS for OH) & get more information as they are notorious for making it extremely difficult to get info! There have also been huge changes recently with the pension fund & it keeps requiring teachers to work longer & get less of a pension. For example, my aunt retired about 15yrs ago & only had to work 30yrs (retired at 52) & gets 100% of the average of her top 3 highest earning yrs. A colleague who retired last yr had to work for 35yrs or until they were 65yrs old & they are getting closer to 70%.

According to their website & the estimates they provide for ranges of yrs of service, I would likely get $499/month (5-9yrs of service range) if I left teaching now. My wife would likely get $1,064/month (10-14yrs of service). I would assume you wouldn't be eligible to receive this until you reach a certain age. I will set up a meeting with them to delve deeper into this!

Thanks again & have a great day!

aloevera1

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Re: Growing Family - Short term vs. Long term planning
« Reply #8 on: March 04, 2024, 08:49:54 AM »
Personally, I would not enter into any joint ownership of properties with friends. They could be wonderful people but your views might diverge in the future with potential financial or legal consequences. I am not sure that their RE expertise in this case is a benefit or not. IMHO Not worth the risk.

As the other commenter pointed out, you seem to be overweight in the RE. Is this intentional? Are you not pursuing investing in the market because you have a market linked pension through your work? Do you have any idea of what the benefits will look like? Current values?

Thank you @aloevera1 for your response!

Thank you for sharing your thoughts regarding the potential partnership in the Airbnb property. I will admit I tend to be extremely trusting with folks & think everything will work out. It can be a blessing & a curse!

In regards to being overweight in RE, it is more about the opportunities that came up within the last 2yrs that led us to having the 2 rentals. I have always been interested in RE investing as a way to help achieve financial freedom & enjoy real estate in general.

In the past we have done a good job of maxing out our Roth's but have not the last 2yrs. I forgot to include this but we do have $100 automatically invest into our Vanguard VTSAX every Monday. Don't have a true reason for the $100 amount but that is just what I have done. We need to get better at focusing on maxing out our Roth accounts & could likely invest more into VTSAX as well.

We need to reach out to our pension provider (STRS for OH) & get more information as they are notorious for making it extremely difficult to get info! There have also been huge changes recently with the pension fund & it keeps requiring teachers to work longer & get less of a pension. For example, my aunt retired about 15yrs ago & only had to work 30yrs (retired at 52) & gets 100% of the average of her top 3 highest earning yrs. A colleague who retired last yr had to work for 35yrs or until they were 65yrs old & they are getting closer to 70%.

According to their website & the estimates they provide for ranges of yrs of service, I would likely get $499/month (5-9yrs of service range) if I left teaching now. My wife would likely get $1,064/month (10-14yrs of service). I would assume you wouldn't be eligible to receive this until you reach a certain age. I will set up a meeting with them to delve deeper into this!

Thanks again & have a great day!

That's good to see you taking some steps towards figuring out your pension!

You say that so far you've been grabbing at the upcoming opportunities. I challenge you to re-think this approach. Taking advantage of opportunities is great when it fits your overall course. It sounds that you are kind of lacking the course at the moment though.

What is your goal? What is your overall strategy? What is the time horizon for achieving your goal?

What is the most beneficial way to get there?

Why are you not taking full advantage of tax sheltered accounts in favour of random things that pop up? This might be a valid choice but it looks really unexamined at this point.

What is your desired asset allocation now and in RE (if you decide to do so)?

I don't suggest you respond to me with the answers to all of these. Just you could think about this yourself, maybe write stuff out and assess how your actions actually fit into your goals.

Good luck.

Flyingstache

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Re: Growing Family - Short term vs. Long term planning
« Reply #9 on: March 04, 2024, 08:50:04 AM »
1) I'm not sure what you quite mean by take advantage of opportunities. You define your life as crazy the last 2 years, it's not going to get easier with another kid on the way and you want to be ready for more opportunities? I think you need to simplify, not add on more projects/active investments. It seems like most of the opportunities you have taken on have related to real estate and have been ones that found you, not ones that you found. It's not a solid rule, but I tend to find that deals that find you, don't tend up being very good. I don't know if you really have the time to fully evaluate some of these opportunities, so I'd recommend just sitting back a bit and letting the chaos settle. If you have extra money and it seems like you should based on your monthly numbers and income, then put it towards house projects, index funds or college savings.
As for house projects, sure you can do the ones that are necessary now, but defer the ones that aren't absolutely necessary until you have the cash to do them.

2) Yes, without knowing more details, this is dumb. See above comment about deals that show up on your doorstep. I don't care how nice or experienced they are, there's risk involved in this and if they are that successful, why do they need you to take on a share of it? They could be actually nice people and really wanting to do you a favor/give you an opportunity but without all the details, it's a easy no for me. Don't pursue this further unless you have plenty of time to fully vet it and feel totally comfortable in what it's going to generate for you. Basic question that I just can't shake: why do you need to put in $300/month? If the property is successful then shouldn't it be cashflowing positive and not requiring you to put in money each month?

3) Someone more advanced on here can comment on this, but this seems like you are trying to leverage your investments to get more return. No offense, but you are already deep into real estate and I don't think going in deeper is the best right now for you given your life circumstances. Unless you have some other investment type that you want to diversify into, then I think you just leave it in index funds. If you really want to go all in on real estate, then I'd go over to the real estate group and ask about this there.

4) Nothing to contribute other than I think 529 is fine.

5) Nothing obvious. Babysitter is a big chunk but for three kids it doesn't seem terrible and you are going to need some kind of childcare for years to come.

Overall thoughts:
You're in the messy middle of life and lots of things are changing so it's hard to accurately plan for the future at the moment. You have goals which is good, but any plan needs to be flexible. You just went through a slew of real estate transactions and I'm impressed that you've been able to pull out actual monthly costs right now. I'd recommend taking a step back and focusing on family right now and priority house projects. Get a good sense of whether your monthly spend and real estate projects are actually in line with your estimates above and then develop a plan, but be ready to change it as your life evolves. See below for some questions to help guide that plan.

Questions:
1. You mentioned wanting to FIRE, but is the RE side of that an actual desire of yours or is FI the real goal. I ask because a big benefit you have is possible pension. Have you looked into how many years you need to get pension and what the min and max amounts are? 14% of your salary is going into this so what's the payoff and do you think you'll be working long enough to get that? Would your wife still be in the pension program if she gets into the new position?
2. Your wife's future position seems like it could be a big jump up for your family. Is the $200k a realistic value or is that years down the road? It's not critical but it would be good to lock in on what a realistic starting salary is.
3. Is your goal to build up a real estate portfolio to cover all your monthly expenses?
4. Do you feel like your properties are actually making money right now (other then building equity)? I'm not a real estate guy but on a glance, they don't seem like there is much room for maintenance costs, especially on the second one.
5. Going back to your goals at the start of your post, think about what each of these mean and define them clearly.
5a. You want to balance short and long term goals. What are your short and long term goals? You've listed kids future as long term. Anything else? What's in the short term?
5b. Your money is already working for you in your investments so I read additional income as increase salary at jobs or take on more jobs. Is this what you mean? As for real estate, see above to my previous comments, but think about what the purpose of your real estate is.
5c. For kids future, how much do you want to set aside? We talking full college for all of them?
5d. If you want to simplify, then I don't see how taking on more real estate fits in with this. Some properties may be simple and very hands off, others are time consuming. Index funds are pretty darn passive and hard to beat on simplicity.
6. Do you feel like your monthly numbers are accurate? It might be tough to tell with all the real estate transactions, but you should have money left over each month to save or use. It would be good to confirm this so you know your spending budget is in the right ballpark.

@lucenzo11 thank you so much for all the great information & additional questions! I will do my best to respond!

I very much appreciate your suggestion to simplify & focus on family & what we currently have. I fully acknowledge this is something I struggle with as I always feel this pressure to be producing or doing "something" to improve the lives of those I care about. My family is fairly prominent in my community & the community has made it very clear my whole life they expect all kinds of great accomplishments from me! The reminder to simplify & slow down is a great one for me to hear!

In response to your questions:

1) I view RE as a vehicle to help achieve FIRE. A struggle I have since switching to teaching is the lack of opportunity to really boost your income. No bonuses or commissions like I had previously so while we do get a slight raise each year, our earning potential is set in stone. Because of that I started looking into other ways to increase our chances of FIRE & RE seemed like an interesting option. In regards to the pension, we do need to look into this further. My concern is I don't see myself working long enough to fully maximize the pension. I would have to work at least 30yrs to get the majority of the benefits but they recently adjusted it up to 35yrs to fully max out. I will set up a meeting with the pension fund to get more information for myself & my wife.

2) Since posting we have talked more about this & she has talked more to her mentor & peers in the same space to get more info. It sounds like while the $200k is a very realistic goal, it would take a few years to develop the client base to reach this. Starting out the likelihood is more around the $90k range with it being 3-4yrs to get to the $200k mark based on her mentors experience. With my wife's current job as a district instructional coach, she could likely start by training some folks within our district to get some experience & get additional income on the side. She would not qualify for the pension (we don't believe but will clarify)

3) I would like to add a few more RE properties to give us additional streams of income. I haven't figured out how to do this yet or if I want to focus on single family homes or multi family but I would like to get further involved in RE investing if possible.

4) The first rental is definitely making money & we have very little to no maintenance costs (knock on wood) currently. This was our primary home until 2022 & we did all the major things (new roof, HVAC, water heater, etc) so we don't except any major expenses with that house. The current tenant is also amazing, takes great care of the property, & wants to stay long term. The 2nd rental is a bit tricky as there isn't much room right now in terms of extra income. However, one of the reasons I was intrigued with the house is the location as I had heard rumors of a potential development happening in the area that would really boost the property values. The great news is a month ago the plans were revealed (& work has already started) on a $81 million renovation project for the area that should not only increase the property value but allow me to increase rent.

5a) This is a great question & something we ask ourselves often! Until recently, my wife has always viewed herself as someone who would work in education until the day she died as she loves her job! Once we started having kids this has started to change as she loves being a mom & wishes she could be home more often. I have always had tons of different interests & honestly don't know what I want to do with my life! The career I thought I wanted & was super passionate about is a career that is awful for families so I didn't pursue it (confident I made the right choice with it) but in the 3 careers I have had (sales, finance, teaching/coaching) I have been successful in all of them, enjoy parts of all of them, but still feel like something is missing! This makes it hard for me to determine short term goals. Long term I think we both want the freedom & simplicity to have options to not have to rely on paycheck to live our lives & be able to spend time with those we love.

5b) I think sometimes I feel stuck with our money situation since there isn't really any way for us to increase our $$$ without taking on other jobs or just being super strict about saving. Not having the opportunity for bonuses/commissions often makes it feel like we don't have much wiggle room for things financially because we can't just come up with a big chunk of money from a great month of sales or something like that. Then when I see the money in Vanguard, I sometimes wonder if we just took out $50k (randomly chosen amount for this) & used that for either home projects, or RE investing, or paying down mortgages on higher interest rate properties, would that give us more impact right now financially vs. what that $50k will do long term. I do love the long term view of VTSAX but also wish we had more accessible money to do things now

5c) I am not thinking covering all of college. Really it is more about wanting to have some money for them to help set them up for success whether it is for college or just some money to help them out starting their lives. One thing my parents did that I thought was great was they had a set amount of $ set aside for my each of siblings for college. They shared what this number was & said if we picked a school that cost more, we would be responsible for the rest. If we had scholarships then we could get that money to help with other things (buying a car, savings, etc). So don't have a set number in mind but figured getting a start now would allow the money to grow over time. Wasn't sure if we should go the 529 route which is strictly for educational or if a Roth would be best for the kids but I heard we can't do that for kids until they have income.

5d) I understand this point. I would love to get to a point where we have a property manager if we continue on the RE investing path so then it is more passive. My old neighbor is a very successful RE investor & he has a property manager handle everything

6) I would say the numbers are close to being accurate but I also feel like the last yr or so have included so many changes that we do need to tighten up the numbers & really have a better idea/plan.

Hopefully this helps & thank you again for taking the time to share your thoughts. Have a great day!

lampstache

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Re: Growing Family - Short term vs. Long term planning
« Reply #10 on: March 04, 2024, 08:53:16 AM »
@Flyingstache - Regarding the Airbnb opportunity. You mention needing to pay $300 a month in expenses. Wouldn't this be covered by your portion of the revenue generated from the property? I'd hate for you to buy in for $16k and then still need to pay monthly costs.

Also, we have 4 kids ourselves. It's hard at times and your schedule is only going to get crazier as they get into more activities. It's great though! We have two rental properties ourselves that we self-manage and are looking to get more. We are open to more risk still being relatively young-ish (at least we think so, 37/34) and have jumped into ventures when the timing wasn't right or the budget was a bit tighter than we wanted. Up to this point it's worked out well, but be very diligent around the options you're considering.

zolotiyeruki

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Re: Growing Family - Short term vs. Long term planning
« Reply #11 on: March 04, 2024, 09:18:43 AM »
Here's my tl;dr:
0) you need to figure out a plan for your life
1) don't invest in any more RE for now
2) focus on fixing up your own house
3) sell the second rental.  It's not giving you a better RoR than an index fund, it takes time and attention, and it's illiquid.  If the development drives up your equity and the possible rent, it *still* may be better to sell it and plow the money into an index fund.
4) build a spreadsheet to plan out your investment and withdrawal strategy
5) DW's transition from an $80k/year job to a $200k/year WFH job will do WAY more for your finances than fine-tuning your asset allocation


long version:
In terms of spending facepunches, it seems to me that >$2k/year for car insurance on two old cars is excessive.  We have *four* cars and two teenage drivers, and we pay about that much, although we carry liability-only.  I'd suggest you do some shopping around.  Your cell phone bills are double what they should be (I recommend RedPocket instead), and others have already poked at your horse hobby, but other than that, I don't see anything super outrageous.

0)  You've been successful in three different fields, but it seems like your current career is not meeting your ambition.  You have two options here:  either A) resolve to be content in the rigid compensation structure of public education, or B) find a new job.  Since you're flexible about what kind of work you do, I'd suggest you take some time to explore career options that would meet your desire for income growth and work-life balance.

1) You're in a very chaotic phase of your life.  And that chaos will continue for the next 18 years.  As someone with 6 kids (ages 9-19, so we're several years ahead of you), I think what you're going to need is simplicity.  If I were in your shoes, I'd graciously decline your friend's offer on the real estate deal, and focus on fighting the fires you've already got.

2) The state of your current home is going to affect you every. single. day.  Fix it first.  I know a guy who, five years ago, got an amazing deal on a house that, similar to yours, had a lot of deferred maintenance.  Rather than address the outdated kitchen, the crumbling basement bathroom with a terrible layout, or the dangerously sagging and rotting deck 10 feet in the air, he's put in a pool and built a second garage for the side-by-side and his tractor.  It's definitely a case of chasing the new-and-shiny rather than recognizing where more important places to invest time and money.

3) These RE investment opportunities might give you a better rate of return than VTSAX.  But it's not a guarantee.  And even if they *do*, they still require time and attention, which VTSAX does not.  You have to factor in the value of your time.

Or, put more concretely, let's take rental #2 as an example.  $1200 rent, $825/mo in taxes, insurance, and interest.  That leaves you $375/mo profit plus $140/mo equity, before you even consider maintenance.  Using round numbers, that's $500/mo profit on $60k of investment, or about a 10% rate of return.  Let's say you get lucky, and maintenance is only $100/mo (ha!).  All of a sudden, you're only getting 8% returns on an asset that requires your active management.  You can get similar returns (and at long-term capital gains tax rates!) by investing in an index fund.  Yes, it's boring.  Get over it.

You say the value will go up.  Let's say it doubles in value, and so does your rent.  Ok, so now you have $1700/mo profit on $235k of equity.  Woohoo, you're now getting....7.2% returns.  Sure, you can hold the house now until the development finishes and the value goes up, but once that's done, you should probably sell it.

4) When it comes to FIRE planning, I think what you need is a spreadsheet.  You need to plot out current investments, what you plan to contribute in the future, expected pension payouts, etc.  Once you have that spreadsheet built, you can model different strategies.  This may help you identify ways to accelerate your retirement.

Laura33

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Re: Growing Family - Short term vs. Long term planning
« Reply #12 on: March 04, 2024, 09:57:30 AM »
I always feel this pressure to be producing or doing "something" to improve the lives of those I care about. My family is fairly prominent in my community & the community has made it very clear my whole life they expect all kinds of great accomplishments from me!

Deal with this first.  You have good insight into why you are driven and never feel like you're doing enough.  But as long as you are motivated by impressing other people, you will never, ever be able to be happy and comfortable where you are. 

I'm also interested in why you translate that external expectation of "great things" into "make more money to put my family ahead."  Is everyone in the community going to know how much you make?  Would they actually care? 

What kind of impact do you want to leave on the world?  What gives your life meaning?  If you want to create a wonderful life for your family, you know what they need most?  You.  You telling your kids every day what your priorities are by how you spend your time.  If you're spending all of your spare time managing rental properties or chasing new/better ideas to make more money, they don't see that you're doing that for their benefit.  They see that those things are more important than spending time with them.

The people I've known who are the most impressive are not the ones who are constantly chasing a buck or making their families wealthy.  They're the ones who are fully involved in their daily family life.  They're the ones who are dedicated to good causes that help the people around them.  They're the kind of people who donate anonymously to charity.

What you're doing for your family is incredibly valuable:  you are working hard to provide them a safe and secure home.  But that is not the only value you provide them.  You are more than your paycheck.  And really, you know that; you've just decided that the best way to show them your love and dedication is to bring in more and more money.  Don't lose the forest for the trees.  Whatever plan you make going forward, make sure it includes lots of time for things like cooking dinner, doing the grocery shopping, going to kids' sports, having date night with your wife, and all those other little invisible daily things that tell the people around you how important they are to you.

Laura33

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Re: Growing Family - Short term vs. Long term planning
« Reply #13 on: March 04, 2024, 10:21:18 AM »
And on the rental properties:  again, if you want to manage real estate as a path to wealth, put in the work and learn the business.  The way you make real money in real estate is leverage; if you have 10% in a property, and the property gains 5%, that's a 50% return.  So if you can have little money down and have a tenant cover both the mortgage and repairs and throw off some profit, that's fantastic.  But then you need to keep taking the money out and adding new properties for the math to continue to work.  And you know the problem with leverage?  It works both ways.  If you have 10% equity and prices drop 5%, that's a 50% loss for you.  So while rentals often feel "safer" and more "real" than investing in the stock market, they can be just as risky as anything else, and so you need to go into it with your eyes open and fully educated. 

13 years ago we bought a condo in our retirement destination -- figured if we could get the tenant to cover the mortgage and condo fees and such, we could have a fully-paid-off retirement home by the time we were ready to call it quits.  Turns out now it doesn't actually fit our future retirement plans, so we're selling it.  The good news is that it has basically doubled in value -- so huzzah, yeah?  Well, DH just did the math: we're no better off than if we had put the money in VTSAX -- and that was with a fair bit of time and hassle on our end, including a lawsuit against the developer that I did a ton of free legal work for.  And if we continued to rent it out?  We'd be getting something like a 2% return -- because now it's fully paid-off, and so there's no benefit from leverage.  Yep:  several hundred grand of investments, locked up in an illiquid asset that is earning 2%.

Oh:  and this is the best deal we've ever seen in this town; we'd been looking for literally years, and I knew the market and the properties and jumped on this place with glee (it was a well-maintained foreclosure post-2008-crash and was listed at a huge discount to prior sales price).  And we weren't looking for the best investment; we were looking for our future home, so all we focused on was whether the rent would cover mortgage/condo fees/expenses.  Yet the reality is that no "real" real estate investor would have ever bought this place, because the rental rates didn't support the home values.

Yes, there is a ton of money that can be made in real estate.  But the people who make that money are in the business of doing so, and they have put a ton of time and money into learning, planning, and building that business.  If you want to compete with professionals and reap some of those same rewards, you also need to put in the work.  Do the research.  Do the math.  Make a plan.  And then have the discipline to limit your investments to only those things that fit the criteria in your plan. 

The nice thing about having money is that there are an infinite variety of options available to help that money grow.  No one can do it all; there will always be opportunities you miss, and some good opportunities won't turn out so well in retrospect.  And if you want to follow a path beyond simply throwing all your money at VTSAX, the key to success is limiting your focus to those areas you can really put in the work to understand.  It's about saying no more often than saying yes, no matter how tempting an opportunity may look at first blush.

Flyingstache

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Re: Growing Family - Short term vs. Long term planning
« Reply #14 on: March 04, 2024, 10:44:44 AM »
Wow.  You have so much going on -- no wonder you're feeling a little freaked out right now!  Congrats on #4, btw.

My question:  are you one of those people who craves excitement and change and a gazillion things going on?  Or are you tired out by all the recent changes?  Or both -- maybe you enjoyed all the upheaval at first, but now you're on overload? 

It seems to me that a lot of the upheaval is because you have been in a very reactive mode -- you are jumping on this opportunity and that one when they present themselves, because they seem like good opportunities and you hate the idea of missing an opportunity.  The problem is that financial success tends to be boring.  Very, very few people succeed financially by jumping from one idea to the next; they get there by doing the research and work to really know an area and following a plan to then pursue that -- or, you know, by just throwing everything at VTSAX. 

So that's why I ask about your personality.  If you really, really like having a gazillion things going on, and actually doing things that make you feel like you are making progress, then you might want to focus more on real estate, because that is very hands-on and will require your time both to manage the properties and look for new/better deals.  But if that's what you decide you want, you need to be intentional and focused about it.  You need to do the research to understand what separates a good deal from a bad deal.  You need to be looking for properties that fit your specific pre-defined criteria, not just jumping on the next thing that comes across your desk.  Most profitable real estate comes from very unexciting, un-sexy properties, like 4-plexes and the like.  You've been lucky so far that the homes you have bought have turned into decent rentals (although the second is very, very borderline).  Take it from me:  that's not always the case.  You absolutely cannot count on that kind of luck to continue to lead you into great new investments.  So if that is your preferred path, put a complete moratorium on new purchases until you put in the work to understand what you're doing. 

OTOH, if you've been sort of overwhelmed by circumstances, then skip the real estate -- to the point of considering whether to sell at least the second property.  The nice thing about VTSAX is that it does all the work for you.  You can just throw your money there and it will magically grow along with the market.  If you actually do want to simplify your financial life, that's the way to do it. 

If you were me, here is what I'd do:

1.  Moratorium on major changes in investment strategy.  You have enough going on with three young kids, a pregnant wife, and a new home with many repairs.

2.  Focus current energy on getting the house up to a decent condition.  This will simplify the amount of crap you have to deal with when #4 arrives.  Plan on getting the primary work done before that date.  Pay as you go, unless you need to dip into savings for the big stuff like windows.  Sit down and develop a plan to implement and pay for the projects in the next 6 months.

3.  Look at what college is actually going to cost for the # of kids you have.  Go to your state school's website or the federal financial aid website, look at total costs, put in your numbers to get your expected family contribution.  For many people, that's a lot higher than they expect it to be.  Make sure you have 529s for each kid that are on track to hit 4 years of the EFC by the time they go to college. 

4.  Figure out pension options and payouts -- how much you could get when, whether your DW would still be in the pension plan if she took the new opportunity, etc.  Talk with our DW about a tentative FIRE date.  Figure out how the pension plays into that FIRE date, and how much your current investments should be worth by then.  That will then give you a target of how much else you will need as of your FIRE date to fill the gaps. 

FWIW, I suspect that with 14% going into two pensions and the amount you have invested otherwise, you're likely on a really good path already.  But it's not that complicated to confirm that - it's just math and spreadsheets and the like.  So do that, figure out how much you need to be putting aside to hit your FIRE date, set that aside monthly, and then go live your life with the rest.

@Laura33 thank you so much for your response & for the congrats!

Your question is very timely as this is a topic I struggle with & am currently trying to figure out! It is a complex answer!

I will say this, I am a people pleaser! My family is fairly prominent in our community & my whole life I have had super high expectations & pressure to accomplish things & seem like everything is perfect (the pressure was never from my family who is great but from others). Because of this, I do have a tendency to try & do everything that comes my way & do it well. I am super competitive & sometimes get caught up in trying to show people I can do anything I put my mind to. However, your description of being "reactive" vs. intentional is 100% correct. Not trying to get too deep here but I & am not good at truly knowing what I want or what my own goals are other than trying to make people happy/proud & provide for my family. I also always tend to think that I can somehow make things work which I know isn't smart financially as it can backfire if you cut it too close.

Along with that, I do not love my job but am not sure what I want to do. Obviously teachers have a great pension but I see no way that I will teach long enough to fully take advantage of the pension. I think real estate investing is enticing to me because it provides an additional income stream when my wife & I currently are on a fixed income with no chance of of bonuses. I know just being super strict about saving & using that money to invest will eventually lead to financial freedom but I often wish we had some additional income streams to assist us.

So, I do want to be more intentional & have a better plan. At the same time, I know I do like doing lots of things too! Just trying to find that balance is what I need to do.

Thank you again for the question & all the great advice!

Flyingstache

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Re: Growing Family - Short term vs. Long term planning
« Reply #15 on: March 04, 2024, 11:53:11 AM »

5) Any obvious face punches or areas of improvement?


I would absolutely not take on additional risk, and I would work to deleverage yourself.

I don't mean to be a downer, but it doesn't seem in your post that you're appreciating just how close you're cutting it, and how this could all go sideways. 

An Ohio paycheck calculator says your monthly takehome is $9904.  You account for $6297/mo, leaving $3607 each month. 

However, in you budget you don't include:

- vehicle maintenance and replacement
- ongoing home maintenance, and you mention there's already 20-30k in deferred maintenance
- health care out of pockets
- kids activities, gear, one-offs
- clothing for anyone

But the big risks are:

- your primary home is in a 5 year ARM at 6.25%.  What if that goes up in five years?
- your rentals barely cashflow with minimal maintenance, and you have $2k in the rental account to cover problems.
- rental vacancy or nonpayment.
- four kids are a massive expense, and you mention wanting to put money toward college.  There is little or no room in this budget to save a meaningful amount toward it.

Right now, you're fine.  But this budget is not set up to be resilient in the face of major upheaval like a job loss or disability.  It works as long as the economy keeps rolling, everyone stays employed, the tenants pay rent, and one of the rentals doesn't need some immediate repair like a new furnace or digging up the sewer line.

I don't mean to say you're doing poorly.  At 33, I think you're doing fine.  But also spend some time thinking through how you'd withstand multiple bad financial forces occurring at once.

@roomtempmayo thank you so much for your response & honest feedback! I really appreciate it.

You are 100% right that we are cutting things too close right now. Honestly that is why I initially was asking about taking a little chunk from Vanguard to give ourselves more of a cushion. I know that is likely the wrong approach but that is why I wanted to hear from the experts!

We are going to look at our expenses/budget & add in those items. Hopefully we won't have any car replacements as we bought a mini van 5 months ago but we do need to take into account the other items mentioned.

In regards to the 5yr ARM at 6.25% the reason we went with that was it would get us the lowest rate at the time. Is there a certain interest rate that would make you refi & lock into a 30yr loan at a fixed rate?

Thank you again & have a great day!

Dee18

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Re: Growing Family - Short term vs. Long term planning
« Reply #16 on: March 04, 2024, 11:57:30 AM »
With the new regulations, which go into effect in 2024, 529 plan account owners or beneficiaries can roll over 529 funds into a beneficiary-owned Roth IRA owned tax-free and penalty-free. I transferred the account to my daughter and she is using money she didn't need for college to fund her Roth account. So setting up 529 plans for your kids is more useful now than ever. However, given that you and your wife seem to not be expecting pensions, you may want to put any available money toward your retirement before setting aside money for your kids.

I just read through your questions and all the responses.  What stood out to me is that you asked your questions; you received very consistent and clear advice (from some of the top advice givers on the Forum) to not invest more in real estate at this time (and to invest in RE in the future only if you have researched the heck out of it) and to consider selling your second rental.....and you are reluctant to take their advice. 

 

roomtempmayo

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Re: Growing Family - Short term vs. Long term planning
« Reply #17 on: March 04, 2024, 12:14:27 PM »
5b) I think sometimes I feel stuck with our money situation since there isn't really any way for us to increase our $$$ without taking on other jobs or just being super strict about saving.

My impression from reading your profile is that you're trying to use leverage to get past this midlife stage, which is a grind.  You have the fundamentals in place, but the finish line is still a long way off.  That's not particularly fun, but taking on even more risk isn't a good alternative.  There's nothing in particular to be done at this point to shorten your time horizon, you just need to keep going.

Laura33

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Re: Growing Family - Short term vs. Long term planning
« Reply #18 on: March 04, 2024, 01:19:30 PM »
I will say this, I am a people pleaser! My family is fairly prominent in our community & my whole life I have had super high expectations & pressure to accomplish things & seem like everything is perfect (the pressure was never from my family who is great but from others). Because of this, I do have a tendency to try & do everything that comes my way & do it well. I am super competitive & sometimes get caught up in trying to show people I can do anything I put my mind to. However, your description of being "reactive" vs. intentional is 100% correct. Not trying to get too deep here but I & am not good at truly knowing what I want or what my own goals are other than trying to make people happy/proud & provide for my family.

What about instead of focusing on what strangers might think, you focus on what your wife and kids might think?  Why not ask your wife what she wants out of life, and devote your efforts to making that happen?  Obviously, it's not good to be a people-pleaser to the detriment of yourself and your family.  But if you tend that way, why not take advantage of it to focus on pleasing the people who really matter, instead of the ones who don't? 

Added bonus: your wife is an adult and can tell you directly what she wants!  It seems to me that you are driven by the things that you think other people will be impressed by.  But how do you know you're right?  Maybe you're spinning your wheels on something that no one else cares about.  The nice thing about spouses, though, is they can speak for themselves.  So you really don't have to wander around guessing whether XYZ will be sufficiently impressive, or whether if you do ABC, it will make your wife happy -- you can ask your wife if she likes the rental property sideline or if she'd rather you spend that spare time with her/the family.

I'm going to tell you a big secret:  there's no secret sauce.  There is no day in which you magically wake up and, poof!, your life's purpose is clear.  I've got 25 years on you and I'm still waiting for that magical moment.  In vain.  At some point, you realize that this is what your life is, and that there is no one to point out some hidden path where all the tradeoffs drop away -- you're not off in some metaphorical waiting room until someone calls your name and you step into your perfect future existence.  What you're doing now IS your life, it is not perfect, and any choice you make to change things up will also not be perfect.  Your only job is to find the best version of not-perfect for you and your family.

By all means, please do investigate real estate, and alternative careers, and anything else that sounds good.  Maybe in 10 years you'll write back and report that you're now the biggest real estate guru in the area and you quit your day job years ago.  ;-)  But just don't expect that that new path will be "the one," and that somehow both meaning and vast sums of cash will suddenly appear.  Some people get meaning from work; others work to support their family and get meaning outside of the job.  You just need to investigate your various options and find out which set of pros and cons suits you and the family best.

[I will also reiterate what others said:  everything you're saying is completely normal for where you are in life.  If that helps any.]

Flyingstache

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Re: Growing Family - Short term vs. Long term planning
« Reply #19 on: March 14, 2024, 06:44:32 AM »
Personally, I would not enter into any joint ownership of properties with friends. They could be wonderful people but your views might diverge in the future with potential financial or legal consequences. I am not sure that their RE expertise in this case is a benefit or not. IMHO Not worth the risk.

As the other commenter pointed out, you seem to be overweight in the RE. Is this intentional? Are you not pursuing investing in the market because you have a market linked pension through your work? Do you have any idea of what the benefits will look like? Current values?

Thank you @aloevera1 for your response!

Thank you for sharing your thoughts regarding the potential partnership in the Airbnb property. I will admit I tend to be extremely trusting with folks & think everything will work out. It can be a blessing & a curse!

In regards to being overweight in RE, it is more about the opportunities that came up within the last 2yrs that led us to having the 2 rentals. I have always been interested in RE investing as a way to help achieve financial freedom & enjoy real estate in general.

In the past we have done a good job of maxing out our Roth's but have not the last 2yrs. I forgot to include this but we do have $100 automatically invest into our Vanguard VTSAX every Monday. Don't have a true reason for the $100 amount but that is just what I have done. We need to get better at focusing on maxing out our Roth accounts & could likely invest more into VTSAX as well.

We need to reach out to our pension provider (STRS for OH) & get more information as they are notorious for making it extremely difficult to get info! There have also been huge changes recently with the pension fund & it keeps requiring teachers to work longer & get less of a pension. For example, my aunt retired about 15yrs ago & only had to work 30yrs (retired at 52) & gets 100% of the average of her top 3 highest earning yrs. A colleague who retired last yr had to work for 35yrs or until they were 65yrs old & they are getting closer to 70%.

According to their website & the estimates they provide for ranges of yrs of service, I would likely get $499/month (5-9yrs of service range) if I left teaching now. My wife would likely get $1,064/month (10-14yrs of service). I would assume you wouldn't be eligible to receive this until you reach a certain age. I will set up a meeting with them to delve deeper into this!

Thanks again & have a great day!

That's good to see you taking some steps towards figuring out your pension!

You say that so far you've been grabbing at the upcoming opportunities. I challenge you to re-think this approach. Taking advantage of opportunities is great when it fits your overall course. It sounds that you are kind of lacking the course at the moment though.

What is your goal? What is your overall strategy? What is the time horizon for achieving your goal?

What is the most beneficial way to get there?

Why are you not taking full advantage of tax sheltered accounts in favour of random things that pop up? This might be a valid choice but it looks really unexamined at this point.

What is your desired asset allocation now and in RE (if you decide to do so)?

I don't suggest you respond to me with the answers to all of these. Just you could think about this yourself, maybe write stuff out and assess how your actions actually fit into your goals.

Good luck.

@aloevera1 just wanted to say thanks for the challenge to truly think through things & adjust our mindset on being reactionary vs. intentional in our decision making. Appreciate it!

Flyingstache

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Re: Growing Family - Short term vs. Long term planning
« Reply #20 on: March 14, 2024, 07:03:29 AM »
@Flyingstache - Regarding the Airbnb opportunity. You mention needing to pay $300 a month in expenses. Wouldn't this be covered by your portion of the revenue generated from the property? I'd hate for you to buy in for $16k and then still need to pay monthly costs.

Also, we have 4 kids ourselves. It's hard at times and your schedule is only going to get crazier as they get into more activities. It's great though! We have two rental properties ourselves that we self-manage and are looking to get more. We are open to more risk still being relatively young-ish (at least we think so, 37/34) and have jumped into ventures when the timing wasn't right or the budget was a bit tighter than we wanted. Up to this point it's worked out well, but be very diligent around the options you're considering.

@lampstache thanks so much for your response!

In regards to the Airbnb I probably should have clarified more where that $300/month. The tough part with this opportunity is my friends are really only 1.5 months into having it open to renters so they are still figuring out what realistic numbers will be. They do know there will be some bigger projects coming up (new HVAC, new roof, etc) so the $300/month estimate likely will be covered by the income from the property but I wanted to include something to cover potential upcoming big expenses on the property. I do know for the month of March they have already fully covered their fixed expenses & since posting, I have asked them for additional information to try & get a better idea of if there would be additional costs after the $16k investment. Should have that info soon.

That is great to hear from someone who has 4 kids & has rentals! Are you guys actively looking for more rentals & if so, do you guys look for single family or multi family? Do you plan on going the traditional financing route or seller financing?

Thank you again for your response & best of luck on your rental adventure!

Flyingstache

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Re: Growing Family - Short term vs. Long term planning
« Reply #21 on: March 14, 2024, 08:34:42 AM »
5b) I think sometimes I feel stuck with our money situation since there isn't really any way for us to increase our $$$ without taking on other jobs or just being super strict about saving.

My impression from reading your profile is that you're trying to use leverage to get past this midlife stage, which is a grind.  You have the fundamentals in place, but the finish line is still a long way off.  That's not particularly fun, but taking on even more risk isn't a good alternative.  There's nothing in particular to be done at this point to shorten your time horizon, you just need to keep going.

@roomtempmayo I appreciate you sharing this & I would agree with your assessment! This post, along with some good conversations with loved ones & deep thought, has made me realize I tend add more things to my plate when I feel overwhelmed & that is not good or a successful way to do things! Thank you very much for sharing your thoughts & wisdom!

Flyingstache

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Re: Growing Family - Short term vs. Long term planning
« Reply #22 on: March 14, 2024, 11:53:18 AM »
@Laura33

Thank you so much for taking the time to share your thoughts & wisdom. I know this takes a lot of time & I genuinely appreciate that you take the time & effort to talk not only about finances but life in general! A lot of what you said really hit home for me!

The things you touched on are all very true. This is something I have come to realize & I am taking steps to try & change my mindset about this. I have recently stepped down from coaching varsity football which has been a big part of my life (football is one of the main things my family is known for). It was a really hard decision since I knew it would disappoint many people but it was the first time I felt like I made a decision truly for myself & my family. Last season was the first time I felt like I couldn't balance being the best husband, father, teacher, & coach due to the time commitments that come with coaching. Taking this upcoming season off to enjoy time with my family! It especially works out well with the news of baby #4 coming in the fall! I have even started counseling to help with these feelings! Not an easy thing for me to do but I am determined to be the best person I can be so I can then be the best husband & father possible! For too long I felt like I had to do everything for everyone else before I worried about myself. So, like I said above, a lot of the things you said really hit home for me & were great reminders of what I am striving towards! Thank you!

I think my view of money is not as much about "status" but more the ability to live life as I want & how my family wants. I know this is flawed but my thought was money would allow the freedom to pursue things that we couldn't do when we were constrained by lack of money. This is something I am still trying to better understand & articulate about what our goals truly are.

Thank you for sharing your experience with the condo as I really enjoyed it!

Thank you again!


Flyingstache

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Re: Growing Family - Short term vs. Long term planning
« Reply #23 on: April 01, 2024, 12:19:56 PM »
With the new regulations, which go into effect in 2024, 529 plan account owners or beneficiaries can roll over 529 funds into a beneficiary-owned Roth IRA owned tax-free and penalty-free. I transferred the account to my daughter and she is using money she didn't need for college to fund her Roth account. So setting up 529 plans for your kids is more useful now than ever. However, given that you and your wife seem to not be expecting pensions, you may want to put any available money toward your retirement before setting aside money for your kids.

I just read through your questions and all the responses.  What stood out to me is that you asked your questions; you received very consistent and clear advice (from some of the top advice givers on the Forum) to not invest more in real estate at this time (and to invest in RE in the future only if you have researched the heck out of it) and to consider selling your second rental.....and you are reluctant to take their advice.

@Dee18 thank you so much for sharing your experience with the 529 plans. I really appreciate the info as that is great to know about the availability to roll over into a Roth!

I am sorry if it came across as me not wanting to take their advice as that is truly not my intention! I genuinely appreciate the wonderful advice that folks share on here! I have since turned down the opportunity to invest in the Airbnb that I mentioned & I am not looking to participate in RE investing anytime soon! While we likely won't sell the 2nd rental right now (mostly because we have a good tenant who really benefits from the home), we will look into that if the tenant moves out or if our life situation changes & we need the money.

Again, I apologize if I came off as not appreciative or unresponsive to the advice shared!

Flyingstache

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Re: Growing Family - Short term vs. Long term planning
« Reply #24 on: April 03, 2024, 09:10:01 AM »
Here's my tl;dr:
0) you need to figure out a plan for your life
1) don't invest in any more RE for now
2) focus on fixing up your own house
3) sell the second rental.  It's not giving you a better RoR than an index fund, it takes time and attention, and it's illiquid.  If the development drives up your equity and the possible rent, it *still* may be better to sell it and plow the money into an index fund.
4) build a spreadsheet to plan out your investment and withdrawal strategy
5) DW's transition from an $80k/year job to a $200k/year WFH job will do WAY more for your finances than fine-tuning your asset allocation


long version:
In terms of spending facepunches, it seems to me that >$2k/year for car insurance on two old cars is excessive.  We have *four* cars and two teenage drivers, and we pay about that much, although we carry liability-only.  I'd suggest you do some shopping around.  Your cell phone bills are double what they should be (I recommend RedPocket instead), and others have already poked at your horse hobby, but other than that, I don't see anything super outrageous.

0)  You've been successful in three different fields, but it seems like your current career is not meeting your ambition.  You have two options here:  either A) resolve to be content in the rigid compensation structure of public education, or B) find a new job.  Since you're flexible about what kind of work you do, I'd suggest you take some time to explore career options that would meet your desire for income growth and work-life balance.

1) You're in a very chaotic phase of your life.  And that chaos will continue for the next 18 years.  As someone with 6 kids (ages 9-19, so we're several years ahead of you), I think what you're going to need is simplicity.  If I were in your shoes, I'd graciously decline your friend's offer on the real estate deal, and focus on fighting the fires you've already got.

2) The state of your current home is going to affect you every. single. day.  Fix it first.  I know a guy who, five years ago, got an amazing deal on a house that, similar to yours, had a lot of deferred maintenance.  Rather than address the outdated kitchen, the crumbling basement bathroom with a terrible layout, or the dangerously sagging and rotting deck 10 feet in the air, he's put in a pool and built a second garage for the side-by-side and his tractor.  It's definitely a case of chasing the new-and-shiny rather than recognizing where more important places to invest time and money.

3) These RE investment opportunities might give you a better rate of return than VTSAX.  But it's not a guarantee.  And even if they *do*, they still require time and attention, which VTSAX does not.  You have to factor in the value of your time.

Or, put more concretely, let's take rental #2 as an example.  $1200 rent, $825/mo in taxes, insurance, and interest.  That leaves you $375/mo profit plus $140/mo equity, before you even consider maintenance.  Using round numbers, that's $500/mo profit on $60k of investment, or about a 10% rate of return.  Let's say you get lucky, and maintenance is only $100/mo (ha!).  All of a sudden, you're only getting 8% returns on an asset that requires your active management.  You can get similar returns (and at long-term capital gains tax rates!) by investing in an index fund.  Yes, it's boring.  Get over it.

You say the value will go up.  Let's say it doubles in value, and so does your rent.  Ok, so now you have $1700/mo profit on $235k of equity.  Woohoo, you're now getting....7.2% returns.  Sure, you can hold the house now until the development finishes and the value goes up, but once that's done, you should probably sell it.

4) When it comes to FIRE planning, I think what you need is a spreadsheet.  You need to plot out current investments, what you plan to contribute in the future, expected pension payouts, etc.  Once you have that spreadsheet built, you can model different strategies.  This may help you identify ways to accelerate your retirement.

@zolotiyeruki thank you so much for your response & excellent advice. I apologize for my delayed response.

In regards to the car insurance, how do you determine if you should only carry liability only coverage?

Thank you for the recommendation about Red Pocket as I was not familiar with them. I have previously used Google Fi before my wife switched us to AT&T. I will look into Red Pocket!

0) I 100% need to do this & have slowly started the process! I have made a list of companies & individuals in my area that I admire & have reached out to many of them to discuss opportunities & seek their advice.

1) 6 kids is awesome!!!! I imagine that keeps you busy! Simplify is a word my wife & I were just talking about recently! We both have always been high achievers/people pleasers that struggle saying no to things. We are working on this & have recently made some positive changes! We did turn down the offer on the Airbnb investment & will focus on our stuff first!

2) Appreciate this perspective! We are narrowing down the main things we need/want done & gathering the quotes & information needed to make the best choices.

3) Since this post, we have stopped looking for other RE investing opportunities. We have also had some good discussions about the 2nd rental & what our goals are with it. We have agreed to keep it currently as the tenant is awesome & (knock on wood) we haven't had any issues. If/when she moves out we will re-evaluate & be open to selling. At this time the development will be further along or completed which hopefully will increase the value. It has been a good mindset change to be open to selling the place if the right opportunity comes up or if it fits our needs at the time.

4) This is a great idea! Are there any spreadsheet templates you recommend?

Thank you again for all of your help, suggestions, & the time you took to respond! Have a great day!

zolotiyeruki

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Re: Growing Family - Short term vs. Long term planning
« Reply #25 on: April 03, 2024, 10:11:17 AM »
I have a fairly simple spreadsheet that I built.  Here's how it works:
--Each row represents a year
--For each type of investment (401k, Roth IRA, trad. IRA, brokerage), I have two columns: one for contributions/withdrawals in a particular year, and one for the total balance for that type of investment
--I also have columns for our mortgage and Social Security, because once the mortgage is paid off, those payments can be put towards retirement, and because SS will impact our retirement income.

For each type of investment, I do a simple simulation:  each year's balance is (last year's balance * 1.07)+new year's contribution. (the 1.07 represents 7% returns, adjust as needed)
There's a column for total liquid assets (helpful for seeing when I hit 25x), and a column for my age, so I can see when IRA withdrawals can avoid penalty.

With the spreadsheet mocked up, you can then populate it with your current balances, how much you expect to contribute each year, and when/how much you will start withdrawing from the various accounts.  And then you can estimate how your current plans will shake out.  For example, you might find that your current investment strategy will give you enough in total assets to retire at age 45, but too much of it will be in your traditional 401k/IRA, and therefore inaccessible without penalty, so you'll want to shift more of your contributions to taxable or Roth accounts.

I've taken my spreadsheet, tweaked it to better match your description and reflect one way you could retire, and attached it here.  Hopefully you find some use in it.  It doesn't include pensions or 529s, though.

When to drop to liability-only car insurance: when your car is worth little enough, and your finances secure enough, that you can total your car and replace it without worry.  For our family, that means that our >20-year-old cars that are worth $1500-2000 each get liability-only.  The much newer minivan, which is worth several times that much, has collision, because replacing it would be a lot more expensive.

Remember that your rental business is that:  a Business.  Keeping that house because "the tenant is awesome" only makes sense if the tenant's awesomeness generates extra profit, and it isn't.  You're barely making long-term average market returns, and you're having to work for it.  If you're actually willing to simplify your life, you need to sell that property, stick the proceeds in an index fund, and shed that extra work.  If you're keeping it in hopes of massive appreciation, that's fine, but recognize that for what it is: speculation and market timing.

Your life is only going to get busier and more complex over the next 15 years.  Young kids keep you constantly busy, but their problems are generally simple to solve (hunger, tired, hurt, "he hit me").  It gets *way* more complex and emotionally demanding as they go through puberty and into teenagerhood.  Their expenses will also skyrocket.  Braces, driver's ed, car insurance, trips to visit college, activities, band, teenage appetites...it adds up REALLY fast.  But it is also really rewarding!

Flyingstache

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Re: Growing Family - Short term vs. Long term planning
« Reply #26 on: April 09, 2024, 11:55:52 AM »
@zolotiyeruki

Thank you SO much for sharing the spreadsheet! It is super helpful! Just to confirm - does WR stand for withdrawal rate?

My wife & I are working on filling this in with our information & I think it will make a big difference for us in helping us understand where we are.

Again, thank you for all the great information & wisdom you have shared!

zolotiyeruki

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Re: Growing Family - Short term vs. Long term planning
« Reply #27 on: April 09, 2024, 06:33:22 PM »
Yep, WR is withdrawal rate.  It's just there for reference, and is less relevant when you have an expected future income stream like social security or a pension, but it can still be useful.  I'm happy the spreadsheet is of some benefit!

Flyingstache

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Re: Growing Family - Short term vs. Long term planning
« Reply #28 on: April 10, 2024, 07:35:08 AM »
@zolotiyeruki awesome! Thanks for the clarification & thank you again for sharing your knowledge! Have a great day!