So, I discovered MMM about a year ago and have significantly reshaped my life as a result. However, I am not the passive sort, and have been since working to develop the absolute fastest method to speedrun the retirement process.
("Speedrun" is a term gamers use for recorded timed trials to beat classic video games in the shortest possible time, exploiting any known shortcuts or overlooked bugs in the process no matter how small.)
MMM's recent article about "constant optimization" make me chuckle, because I already do so- to an extreme.
I make about 50k annually at a salaried job. I currently have a small pile of cash in my 401k due to having left it at employer match for the last few years, a couple rental properties that almost cover my cost of living (which is low- $1k - $1.5k monthly), and a nice pile of savings, as well as access to a lot of money via HELOC.
My goals for this year:
* Increase net worth by 100k.
* Have a taxable income of $0, excluding Roth contributions.
* Roll my 401k in to my (empty) Roth 401k at almost no cost due to the above
* Max out my Roth 401k contributions and open and max out a Roth IRA
So, as I said, I am a madman. But, I am going to attempt this. Here is how I intend to accomplish each point:
How will I increase my net worth by double my salary?
I only purchase distressed properties to use as rentals. After repairs, I've yet to have a house add less than 30k to my net worth, including (based on my math) the one I am currently fixing up and have not yet rented out yet.
Purchasing and fixing up three properties plus saving 50% of my salary will accomplish this, even ignoring rental income.
How will I have a tax bill of zero?
Fixing up a rental property is tax-deductible. I simply have to spend more money on home repairs in the year than I make via salary (thank you, savings). I can reuse the same money via HELOC. If I spend 60k on repairs to those three homes, I can deduct $60k from my taxes. This gives me the opportunity to roll my 401k to a Roth with minimal (or no?) tax bill.
The last point is actually potentially the hardest. I'd need to probably go the last five months of the year with no paycheck (funneling it all in to the Roth), relying on my rental income and savings, since I've only done employer match the first five months so far. Depending on my situation I may not fully max out the Roth 401k, but I'm going to try my best.
Why do I care so much about maxing out the Roth?
While I typically just do buy and hold (leveraged real estate as discussed by MMM), I would love to have the ability to flip a property using a self-directed Roth IRA- tax-free. I just need to get my Roth IRA big enough. This is my long-term (i.e. in a year or two) plan.
If your rentals almost cover your cost of living now, aren't you almost retired?
Unfortunately not. I can't safely retire off of having rental income that matches my cost of living for the following reasons:
* Rental income has risk associated with it; I need to have sufficient margin to cover inevitable repairs.
* My rentals are rent-to-own deals, which reduces risk (better tenants). However, that means they'll all sell in five years, if all goes well. Sufficient margin is needed to cover this loss of income.
* I need margin to grow the investment. Inflation and all that.
* My cost of living will eventually go up; I will not always be a single man in a small apartment. My girlfriend will be moving back in town later this year.
Thoughts? Questions? Comments? Mockery?