Hello Mustachians! I’ll dive right in...
Life situation41M, living with my fiancée (36) in the Chicagoland area, no kids yet. Last month my job was eliminated. I wasn’t very happy there towards the end, so despite the not-so-great timing (global pandemic / economic dumpster fire), it feels more like a creative challenge than a terrifying setback so far.
I’m using this surreal, job-free, socially-distant time to recenter and consider possible futures. Even if new job miraculously fell into my lap, the idea of jumping right back into another 9-5 isn’t very appealing to me right now. I’ve been feeling burned out and would like to pursue a passion project I’ve been nudging along for awhile.
Thanks to some real estate investments I’ve made over the last several years, I think I'm in a decent position to take a break from the 9-5 world. I own and manage three multiunit buildings with nine total apartments. I live in one with my fiancée, and the other eight have been 99% occupied since the renovation of the third property in March 2018. I keep diligent records in Mint and just compared all of my life expenses from then until today to my total rental + passive income from interest and cash back from credit cards:
Rental & passive income = $318,260
All expenses = $319,625
Freakishly close! Had I been unemployed these last couple years, I would have essentially broken even in terms of available cash. And since this doesn't include property value appreciation, dividends/earnings in retirement accounts, or a $35k+ gain in equity through mortgage principal reduction, my net worth would have actually gone up a decent amount. This has allowed me to plow nearly all of my job income into retirement, cash savings and paying off 100% of a $95k HELOC balance I used for renovations.
And now, the numbers. My fiancée and I keep our finances separate, so the all the figures below are just for me. (As far it's relevant to evaluate my situation, her net worth is about equal to mine or slightly higher, and her income is well into six figures.)
Assets- Real estate: Approximately $1.5m total value for all three buildings. I don’t have current appraisals but consider these to be fairly conservative estimates:
- Property 1: $550k
- Property 2: $400k
- Property 3: $550k
- Retirement accounts: $256k as of today. Most of it is in ETFs split approximately 90% equities / 10% bonds. $15k is in a 403b from a former employer that earns a lame but guaranteed 3% (dropped from 5% after the Fed rate cuts).
- $135k in cash. Between tax refunds and severance from my ex-job, this should be $155k-$160k by July. I keep $10k in checking and the rest in a Marcus savings account earning 1.7% interest.
- TOTAL = approx. $1.9m
Liabilities30 year mortgages on each property:
- Property 1: $270k balance on $320k mortgage from 2012 (3.75%)
- Property 2: $223.6k balance on $240k mortgage from 2016 (4.125%)
- Property 3: $271.7k balance on $295k mortgage from 2017 (4.625%)
- TOTAL = $765.3k
Rental Income, Actual Expenses, and DepreciationAll properties are performing similarly, so for the sake of simplicity I’m lumping them together here. All expenses are averages from the last couple years, except for PITI which is the current monthly total. These expenses also cover the apartment we're living in.
Monthly rental income: $12,675
Monthly property expenses:
- PITI: $6720
- Repairs and maintenance: $1018
- CapEx: $1148 (from two major projects—roof replacement for property #3 and basement waterproofing system installation for property #2)
- Landscaping & snow removal: $159
- Utilities: $860
- Vacancy: $90
- TOTAL: $9,995
Depreciation for 2019 totaled over $56k. This included $15k of unallowed losses from prior years, so it won’t be that high moving forward.
All other income and expensesMonthly income from interest + average cash back from credit cards: $240
Monthly expense averages from the last couple years:
- Travel: $512
- Restaurants: $469 (ouch)
- Groceries: $154
- Transportation: $181 (Uber, Lyft, etc…we don’t own a car)
- Alcohol & bars: $219 (includes going out + making cocktails for friends, which I love and do semi-regularly)
- Charity & gifts: $206
- Entertainment: $106
- Phone service: $97
- Internet: $65
- Clothing & shopping: $106
- Membership to climbing gym: $79
- Other health & wellness: $60
- Subscriptions: $51 (Spotify, Netflix, Amazon Prime, etc)
- Cash spending and misc: $164
- TOTAL: $2470
Anticipated changes to monthly income & expensesWith no changes to the income and expenses above, I’d get by with $450 left over per month. But there’s obviously a lot of fat for the trimming, particularly in food & booze department, so I plan to do better than that. Not going to work and the accompanying lunches, dinners and happy hours will help quite a bit. Health insurance will be a new expense after my employee coverage ends in June. Seems like the cost will be around $400/mo through healthcare.gov, at least until I can get a better deal through my fiancée’s insurance after we get married (in October, if the COVID situation allows).
One risk to my income is my tenants' employment and ability to pay rent. None of them work in an industry immediately affected by COVID, and nearly all can work from home. So far, no issues…but this could change. If it does, I’m hoping I can work out a deferred payment arrangement with them and get some form of mortgage relief from my lenders.
As for additional income, my fiancée recently purchased a 4-unit building, which we plan to move to a month or two (also COVID-dependent). Once we’re out of our current apartment, I'll get some renovation work done and rent it out. This should bring in an additional $1000 per month, although a portion of this will go towards expenses in the new apartment.
Anticipated one-time expenses in the next year - Basement waterproofing system for property #1: $15k
- Renovation to current apartment after we move out: $15k-20k
- Garage maintenance for property #2: $5k
- Wedding: $15-20k
- Honeymoon: $5k
- TOTAL: $55-65k
This would still leave me with roughly $100k in checking + savings, even if I added nothing after my last severance check.
All of this leads me to believe I’m in a reasonably safe space to explore and dream a little. For awhile I’ve been tinkering with a business concept at the intersection of my career (design and strategy), my experience in real estate, and my passion for social impact—specifically targeting wealth inequality in my native Chicago. This post is already long enough, so I won’t go into the details, but it’s an idea that inspires me and hasn’t let go of me for the last few years. I want to take a real swing at it and, at the very least, prove that it won’t work so I know to move on. If I feel the need to make some extra money while I’m pursuing this, it should be possible to pick up freelance and teaching gigs through my connections. And if all else fails, I can always go back to full time work.
Specific Question(s)- What might I be missing? Do you see any potential blind spots in my thinking or calculations?
- For those of you who have done something similar (using FI to pursue a project that's meaningful to you), what advice would you offer? What were the biggest surprises and lessons learned along your path, either positive or negative?
Thank you in advance for any insights you have! I already feel deep gratitude for the mindset and approaches to life I’ve learned from this blog and forum.