Author Topic: Do you figure this number in your FIRE calcs?  (Read 1193 times)

Alim Nassor

  • Stubble
  • **
  • Posts: 164
Do you figure this number in your FIRE calcs?
« on: June 29, 2017, 09:17:43 PM »

Our pathway to FIRE is going to come majority from rental incomes.  The 4% rule really doesn't apply, but I like to play with it because it's a decent metric to compare to.   Anyhow, calculating our return on rentals, adding in my wife's small pension, plus the modest amount of investable cash and doing the calc to see how much money that would represent in a 4% WR gives me a number I'm sorta pleased with.

But today, I thought, well, what about the money my tenants are paying towards the principal on the rental mortgages, should I include that?    Figuring up the average principal payment times the number of houses times 12 and then times 25 gives me another semi pleasing number.  Add the 2 together, and it made me feel pretty good.   Would you agree with that calculation?

gspeicher

  • 5 O'Clock Shadow
  • *
  • Posts: 13
Re: Do you figure this number in your FIRE calcs?
« Reply #1 on: June 30, 2017, 07:54:07 AM »
I am new, but I would not consider both concurrently. The principal they are paying down is only useful to you if you leverage or sell. If you leverage, you'll likely be expanding your portfolio versus using it to pay retirement expenses, so I'm not sure I would even count that. The sale will have no bearing on your retirement income until it actually occurs.

Myself, I would either consider cash flows for the time horizon you plan to own the property or properties and then a liquidity event. Interested in this topic as well because, well, opinions are like a-holes....

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5218
Re: Do you figure this number in your FIRE calcs?
« Reply #2 on: June 30, 2017, 08:25:32 AM »
I would not include that unless the houses will be paid off when you retire and the portion of the rent that is going to principal and interest will at that point be income to be used for your living expenses.

srad

  • Stubble
  • **
  • Posts: 151
Re: Do you figure this number in your FIRE calcs?
« Reply #3 on: June 30, 2017, 09:58:54 AM »
Well the tax man counts it as income!  But i'm not sure you'd want to.  You can't pay any bills, aside from the mortgage, with the principal pay down.  You can add it to your Net worth each month though, and yes, that can be a fun number to look at from time to time.

SwordGuy

  • Walrus Stache
  • *******
  • Posts: 7678
  • Location: Fayetteville, NC
Re: Do you figure this number in your FIRE calcs?
« Reply #4 on: June 30, 2017, 11:34:04 AM »
I don't count rental property equity for FIRE purposes because rental property equity does not produce income.  I do count it in net worth.  Ditto for any other property that has value but does not provide income.  (Well, except for cash, which I consider unspent income. :) )

If my intent were to sell the property and invest the proceeds in the market, I would track the equity value - (8% of sale price) as available for stock purchase. (8% allows for realtor commission and other sale costs.)   I would not include that value in a current stock holdings category in a financial calculator because it's value will not grow at the same rate stock would.   After the planned sell date, I would include it as being in the stock/bond category (assuming that's where the money would go).