Author Topic: FIRE strategies  (Read 3341 times)

Zikzin

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FIRE strategies
« on: October 18, 2016, 01:17:35 PM »


For Mustachian landlords,

Does this make sense? thoughts?  I am looking for the fastest option to get to FIRE, let me know what you think

FIRE strategy:

Strategy 1:
$5000 in 401K
$5500 in IRA
$5500 in Roth
$6500 in HSA
the rest in taxable
all invested in Vanguard (except for 401K) and do the waiting game for the next 12-15 years
investing $30,000/year

Strategy 2:
$11000 in IRA
invest $20,000 per year in downpayment for a rental property ($100,000 purchase price)
save the rest in taxable
purchase 1 house per year with net profit of $500/month.
rinse and repeat for 10 years until $5,000/month in net profit.

Strategy #2 will be sooner but riskier, it involves hardwork, and loose capital. but guarantee is solid than Strategy #1, with the market fluctuating a lot lately.

Cwadda

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Re: FIRE strategies
« Reply #1 on: October 18, 2016, 01:51:44 PM »
I don't think what you're proposing can be simplified to just the numbers.

My general advice is: invest in what you know. For some people, that's investing in low expense index funds. For others, it's real estate. If you make 7% in real estate and have the experience to do it, why not? But if you want to get 7% returns in a Vanguard account, it's not all that different.

There are risks associated with any sort of investment, so do what you know best and which will make you most comfortable.

Crazydude

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Re: FIRE strategies
« Reply #2 on: October 19, 2016, 08:46:30 AM »
You have yourself investing in a traditional IRA and a Roth IRA each year. Is that possible?

Zikzin

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Re: FIRE strategies
« Reply #3 on: October 19, 2016, 09:31:05 AM »
You have yourself investing in a traditional IRA and a Roth IRA each year. Is that possible?

It's for me and husband,  I have the 401k and Roth,  he will have the traditional IRA


Zikzin

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Re: FIRE strategies
« Reply #4 on: October 19, 2016, 09:34:19 AM »
I don't think what you're proposing can be simplified to just the numbers.

My general advice is: invest in what you know. For some people, that's investing in low expense index funds. For others, it's real estate. If you make 7% in real estate and have the experience to do it, why not? But if you want to get 7% returns in a Vanguard account, it's not all that different.

There are risks associated with any sort of investment, so do what you know best and which will make you most comfortable.

Thanks,  that's true,  I just wanted to get an idea if the strategies are realistic,  if what I am seeing could be a possibility.

Dicey

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Re: FIRE strategies
« Reply #5 on: October 19, 2016, 12:30:26 PM »
...purchase 1 house per year with net profit of $500/month.
Are you positive this is even possible in your market? $500 gross profit even seems like a stretch. Where are these numbers coming from?

Zikzin

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Re: FIRE strategies
« Reply #6 on: October 19, 2016, 07:55:14 PM »
Definitely not in CA,  planning to purchase out of state

midwesterner1982

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Re: FIRE strategies
« Reply #7 on: October 20, 2016, 01:26:58 AM »
My opinion is the quickest path to FIRE would be to develop the cash flow to cover your monthly expenses.  I think the quickest way to do that is with rental properties.  Yes, there are risks but stock market also has risks and it's a slower process.  My plan is to continue to buy rentals until i have covered my monthly expenses + my retirement savings contributions in index funds.  So far, I have three townhouses, one I own and the other two I'm a 50/50 partner.  Mortgages on all three.  I've stuck with townhouses so far because it's what I'm comfortable with.  I figure I have a competitive advantage buying them because my chief competition is from first-time buyers who are looking for the right kitchen layout, the right color cominations, etc while I'm only interested in the math.  There are strong tenants in my area with good incomes so it's been easy so far.
The quicker path would be to go into multi-family properties but so far I'm chicken as it takes a lot more $ and I feel I'd be swimming with sharks at that point as the other buyers would have more experience than me.  So far I enjoy shopping and competing against the less experienced buyers in townhouses.  At some point I will make the leap to multi-family but I'm not there yet.

hoping2retire35

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Re: FIRE strategies
« Reply #8 on: October 20, 2016, 12:42:15 PM »
that is an incredible cash-on-cash return; 20k invested for a net return of 6k???  I feel like I know of a couple of good areas that are close to that but still those opportunities are small and hard to find.

Also look into self directed ira for rental units. I might try this at some point.

Zikzin

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Re: FIRE strategies
« Reply #9 on: October 20, 2016, 08:14:52 PM »
that is an incredible cash-on-cash return; 20k invested for a net return of 6k???  I feel like I know of a couple of good areas that are close to that but still those opportunities are small and hard to find.

Also look into self directed ira for rental units. I might try this at some point.

The goal is to find the right property,  and in this market it's been tough,. I have yet to start with this strategy coz I want to save some liquid capital for maintenance and vacancies,  I'd be more comfortable getting into the business with a good cushion.  I'm planning to use my Roth for easy access to cash for down payment or rental expenses. 
I heard about self IRA but too scared coz I heard about companies that are scams,  I'd rather have it in Vanguard. 

Zikzin

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Re: FIRE strategies
« Reply #10 on: October 20, 2016, 08:17:30 PM »
My opinion is the quickest path to FIRE would be to develop the cash flow to cover your monthly expenses.  I think the quickest way to do that is with rental properties.  Yes, there are risks but stock market also has risks and it's a slower process.  My plan is to continue to buy rentals until i have covered my monthly expenses + my retirement savings contributions in index funds.  So far, I have three townhouses, one I own and the other two I'm a 50/50 partner.  Mortgages on all three.  I've stuck with townhouses so far because it's what I'm comfortable with.  I figure I have a competitive advantage buying them because my chief competition is from first-time buyers who are looking for the right kitchen layout, the right color cominations, etc while I'm only interested in the math.  There are strong tenants in my area with good incomes so it's been easy so far.
The quicker path would be to go into multi-family properties but so far I'm chicken as it takes a lot more $ and I feel I'd be swimming with sharks at that point as the other buyers would have more experience than me.  So far I enjoy shopping and competing against the less experienced buyers in townhouses.  At some point I will make the leap to multi-family but I'm not there yet.


Never thought about townhouses,  that's a good route,  you're right,  that would be less competition and a good place to start,  Good for you!  Wishing you good luck!  Maybe try duplexes for the next property? 

arebelspy

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Re: FIRE strategies
« Reply #11 on: October 23, 2016, 06:40:42 AM »


For Mustachian landlords,

Does this make sense? thoughts?  I am looking for the fastest option to get to FIRE, let me know what you think

FIRE strategy:

Strategy 1:
$5000 in 401K
$5500 in IRA
$5500 in Roth
$6500 in HSA
the rest in taxable
all invested in Vanguard (except for 401K) and do the waiting game for the next 12-15 years
investing $30,000/year

Strategy 2:
$11000 in IRA
invest $20,000 per year in downpayment for a rental property ($100,000 purchase price)
save the rest in taxable
purchase 1 house per year with net profit of $500/month.
rinse and repeat for 10 years until $5,000/month in net profit.

Strategy #2 will be sooner but riskier, it involves hardwork, and loose capital. but guarantee is solid than Strategy #1, with the market fluctuating a lot lately.

Strategy two is the route I took, and I don't regret it.  I also wouldn't recommend it for everyone.

It very much depends on you.  As you mentioned, it's more work.  Is it worth it to you to put in that work now, to have to do less work later? Can your temperament handle if a tenant is not paying, if a property has issues, etc.?  Will you be dealing with tenants yourself, or hiring management?  There are a lot of considerations to think about.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

MNrealtyguy

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Re: FIRE strategies
« Reply #12 on: October 23, 2016, 02:34:37 PM »
I'm a big fan of the #2 scenario, but I'm not sure you're in the right area where it makes sense. Sounds like you'll be purchasing out of state. Personally, I haven't enjoyed being a long distance landlord, even with a decent property manager in place. Small issues can start to add up and cut into your cash flow when you're long distance. You're at a competitive disadvantage and will have to get a better price compared to local investors. But if you have a system in place and solid contacts, it may work, but wasn't worth the hassle for me.

Metric Mouse

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Re: FIRE strategies
« Reply #13 on: October 23, 2016, 05:28:53 PM »
I don't think what you're proposing can be simplified to just the numbers.

My general advice is: invest in what you know. For some people, that's investing in low expense index funds. For others, it's real estate. If you make 7% in real estate and have the experience to do it, why not? But if you want to get 7% returns in a Vanguard account, it's not all that different.

There are risks associated with any sort of investment, so do what you know best and which will make you most comfortable.

I would argue that one should push their comfort level just a little. No one is born with the knowledge of real-estate, for example, so if one does not explore that option, ask the questions and begin to put in the work, how would they ever learn to be comfortable with it?

mooreprop

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Re: FIRE strategies
« Reply #14 on: October 26, 2016, 05:02:12 PM »
Have you considered option #3:

Buy one property per year using a downpayment of $20,000 to buy a $100,000 that will barely cashflow with a 10 year amortization mortgage.  At the end of year ten, your first property will achieve a zero balance on the mortgage.  You can then take out a new mortgage for $80,000 (or more if the property has appreciated).  You will do this every year forever, thus ensuring an income that is greater than your plan.  Downside:  It is dependent on the banks continuing to lend money, which can be more tricky some decades than others.

I would not get attached to any plan involving real estate until you have purchased your first property and owned it for a year.  I love real estate, but I have friends who found out they hated it.  Try it, and see what your think.

stlbrah

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Re: FIRE strategies
« Reply #15 on: October 27, 2016, 08:29:05 AM »
I would like to follow a mustachian real estate blog. I listened to biggerpockets for a while and it kind of made me cringe. It was the hgtv of podcasts lol

brentwasham

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Re: FIRE strategies
« Reply #16 on: November 04, 2016, 09:27:58 AM »
My opinion is the quickest path to FIRE would be to develop the cash flow to cover your monthly expenses.  I think the quickest way to do that is with rental properties.  Yes, there are risks but stock market also has risks and it's a slower process.  My plan is to continue to buy rentals until i have covered my monthly expenses + my retirement savings contributions in index funds.  So far, I have three townhouses, one I own and the other two I'm a 50/50 partner.  Mortgages on all three.  I've stuck with townhouses so far because it's what I'm comfortable with.  I figure I have a competitive advantage buying them because my chief competition is from first-time buyers who are looking for the right kitchen layout, the right color cominations, etc while I'm only interested in the math.  There are strong tenants in my area with good incomes so it's been easy so far.
The quicker path would be to go into multi-family properties but so far I'm chicken as it takes a lot more $ and I feel I'd be swimming with sharks at that point as the other buyers would have more experience than me.  So far I enjoy shopping and competing against the less experienced buyers in townhouses.  At some point I will make the leap to multi-family but I'm not there yet.

brentwasham

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Re: FIRE strategies
« Reply #17 on: November 04, 2016, 09:58:40 AM »
My opinion is the quickest path to FIRE would be to develop the cash flow to cover your monthly expenses.  I think the quickest way to do that is with rental properties.  Yes, there are risks but stock market also has risks and it's a slower process.  My plan is to continue to buy rentals until i have covered my monthly expenses + my retirement savings contributions in index funds.  So far, I have three townhouses, one I own and the other two I'm a 50/50 partner.  Mortgages on all three.  I've stuck with townhouses so far because it's what I'm comfortable with.  I figure I have a competitive advantage buying them because my chief competition is from first-time buyers who are looking for the right kitchen layout, the right color cominations, etc while I'm only interested in the math.  There are strong tenants in my area with good incomes so it's been easy so far.
The quicker path would be to go into multi-family properties but so far I'm chicken as it takes a lot more $ and I feel I'd be swimming with sharks at that point as the other buyers would have more experience than me.  So far I enjoy shopping and competing against the less experienced buyers in townhouses.  At some point I will make the leap to multi-family but I'm not there yet.


Never thought about townhouses,  that's a good route,  you're right,  that would be less competition and a good place to start,  Good for you!  Wishing you good luck!  Maybe try duplexes for the next property?
I have achieved FIRE with duplexes (and a govt job).  Always stayed away from townhouses/condos due to homeowner assessments which are a large risk area for escalation if the association is managed poorly and also are a big drag on cash flow.  It is important to shop around and buy when the market is right.  You need a good cash flow, and high purchase prices tend to torpedo that objective.  My case was a slow burn, three duplexes for 20 years, then moved into another for 10 years (still there), and then close to Retirement eligibility time I bought 6 properties within 3 years.  Only did cash-out refinances when money was needed for the kids' college costs.  Timing and geographical region is critical, I'm blessed to live in Texas and the economic crash in 2008 aided me tremendously in preparing for retirement -- cheap foreclosures were everywhere, and interest rates historically low.  Oh yeah, it also helps if you're handy and keep your expenses down by doing management, maintenance, improvements, and property turn-around yourself.  A couple of other principles I've picked up along the way:  the more units in a multi-family property the more profitable it is, lower income tenant properties tend to generate more cash flow (but typically don't appreciate like single-family, better neighborhood properties), and screen-screen-screen when it comes to picking tenants.  There are specific neighborhoods to avoid, word-of-mouth and police blogs can help you there.  In my case being less picky proved a boon to profitability, there are people wanting to live in most any neighborhood.
« Last Edit: November 04, 2016, 10:05:26 AM by brentwasham »