Option A, B, or something else?

[BlackDog]

DW and I are both 37, have been actively working towards FIRE for the last five years, and I recently sold my shares in my small tech business for $1.3MM cash.

Other key assets:
$500k in own home equity, $800k owing (HCOL area).
$65k cash in bank.
$120k equity in rental property #1 with $430k owing.
$70k equity in rental property #2 with $340k owing.

Currently building rental property #3 for $350k (to be valued at $500k).

btw - interest rates for borrowing are currently around 5% (not USA!).

We would like a minimum of $60k p/a (net) from our investments and will reinvest any excess.

So, to achieve this goal I can think of two (hopefully solid) options:

Option A
Sell our own home, buy another home for us for less than $500k (current own home equity) = no mortgage.
Pay off the 3 x rental properties which will deliver $76k (net), with $180k left over to invest elsewhere.

Option B
Sell our own home, buy another home for us for less than $500k (current own home equity) = no mortgage.
Invest the $1.3MM in the stockmarket and let the tenants pay off the rental property mortgages over the next 20 years.

BTW, I'll probably still bring in $20-$40k p/a from some other work.

So, what do you think I should do? Option A, Option B, or something else? Thanks ; )

[forummm]

You don't say what the interest rates are. Or if you'll need to save any of that cash for taxes. Or whether you want to manage more rental properties. But this all sounds like a lot of personal preferences. And you have a lot of money. I think you're pretty much set as long as you aren't a big spender.

[BlackDog]

You don't say what the interest rates are. Or if you'll need to save any of that cash for taxes. Or whether you want to manage more rental properties. But this all sounds like a lot of personal preferences. And you have a lot of money. I think you're pretty much set as long as you aren't a big spender.

Thanks. Interest rate for rental property mortgages is currently around 5%, tax rate is around 30% for income (both from rental income and income from shares/dividend). I'm happy managing those properties and could happily manage a few more. Spending up to $60k p/a for our family of 3.

[Financial.Velociraptor]

Short answer is a question: do you think the market will return more than 5% on average going forward?

Paying off mortgages provides a guaranteed 5% return.  Market pays ???

Are you a 'sure thing' person or a 'gambler'?

My home mortgage was at 6%.  I paid it off before starting to invest in the market.  It was a conscious decision because I wanted to dial up risk to chase better returns during accumulation phase.  I couldn't take big risks with the mortgage payment.  Once it was gone, I had hundreds a month to go wild with.  And I made a guaranteed 6% return on every dollar put on the 'extra principle' line.

[Guesl982374]

Personally, if there weren't family ties holding me to the HCOL area, then I would choose A. I would take some time off to figure out what I would want to do next now that I would have plently of rental income coming in and my costs were lower.

The real question is: What are your (and your family's) goals? Note that I didn't say financial but rather what are your life goals? Are you looking to slow down / enjoy a similar life / enjoy family? Start another business? Travel? Hobbies? Volunteer? Gamble/Drink?

[BlackDog]

The real question is: What are your (and your family's) goals? Note that I didn't say financial but rather what are your life goals? Are you looking to slow down / enjoy a similar life / enjoy family? Start another business? Travel? Hobbies? Volunteer? Gamble/Drink?

Thanks. DW is fully on board with our plans to slow travel more whilst the child is young plus get back into excellent health. No plans whatsoever to start another business at this stage though I'm realistic that the bug may again bite down the line. I'm aware of my 'how much is enough?' and therefore have plans to continue developing property with all profits going to the dogs (SPCA/animal rescue, etc.) No gambling ever but certainly regular drinking!

Am I horribly overexposed to one asset class though? Should I diversify by not further investing in our rental properties, instead getting into the sharemarket?

[patrickza]

The real question is: What are your (and your family's) goals? Note that I didn't say financial but rather what are your life goals? Are you looking to slow down / enjoy a similar life / enjoy family? Start another business? Travel? Hobbies? Volunteer? Gamble/Drink?

Thanks. DW is fully on board with our plans to slow travel more whilst the child is young plus get back into excellent health. No plans whatsoever to start another business at this stage though I'm realistic that the bug may again bite down the line. I'm aware of my 'how much is enough?' and therefore have plans to continue developing property with all profits going to the dogs (SPCA/animal rescue, etc.) No gambling ever but certainly regular drinking!

Am I horribly overexposed to one asset class though? Should I diversify by not further investing in our rental properties, instead getting into the sharemarket?

You're in a great situation, those shares you cashed in have given you a huge opportunity. If I was in your situation would lower the risk by diversifying into ETFs, ideally in diversified markets.

[Guesl982374]

The real question is: What are your (and your family's) goals? Note that I didn't say financial but rather what are your life goals? Are you looking to slow down / enjoy a similar life / enjoy family? Start another business? Travel? Hobbies? Volunteer? Gamble/Drink?

Thanks. DW is fully on board with our plans to slow travel more whilst the child is young plus get back into excellent health. No plans whatsoever to start another business at this stage though I'm realistic that the bug may again bite down the line. I'm aware of my 'how much is enough?' and therefore have plans to continue developing property with all profits going to the dogs (SPCA/animal rescue, etc.) No gambling ever but certainly regular drinking!

Am I horribly overexposed to one asset class though? Should I diversify by not further investing in our rental properties, instead getting into the sharemarket?

Its definitely a personal choice but I prefer to be more heavily weighted to RE. It's a more inefficient market (easier to make more) and its somewhat more in your control vs. the stock market. Given you and the family want to slow down and do some slow travel, I would recommend selling the house & paying off the rentals to maximize cashflow in the short to mid term. Then I would start interviewing / using a management company so when the time comes to travel, you should have everything on autopilot. I'd keep the remaining $1-200K in something lower risk like bonds or CDs depending on the country. After you are done traveling is when I would look to buy the next (<$500K) house.