Advice on Retirement Plan

[teachcsg]

Hi All. First time posting here but following MMM for about a year now.

A quick background of our situation:

43 y/o. Married with 2 kids. Wife stays home with kids.
We are debt free including mortgage. Own 1 rental property free and clear.
Income of around 160K/year from our business, the rental property and working PT ( 2 days a week).
Not much in retirement accounts-about 25K (401K)
Have 120K in a regular savings account

I was planning on using the 120K to purchase 2 rental properties this year. Where I live I can find (with some time) houses that I can buy for about 50-60K and rent for $900-$1,000 per month. I figured with 3 (free and clear) rentals they would be my 'safety net' in case anything happens to the business or to me. The rental income would be there for us to live off of as we regrouped (or for my wife to live off of if anything happened to me).

My dilema is I dislike the rental business! I have been in it for about 10 years now and I dont enjoy it.
But when I think about investing in the stock market (Vanguard Index Funds) it seems like it takes a lot of money (>600K) to start yielding any sort of monthly income. Thus, if anything happened to our business in the near future (I dont forsee it but who knows) I would have to go back to work (FT) to make ends meet (which I would hate!).

So any suggestions? Should I stick with the original plan and purchase 2 more rental properties even if they cause me some angst and stress?  Or would you invest the 120K into Vanguard now and be stress free but knowing that it will probably be another 10 years before that account is big enough to actually use?

Thanks for any advice!
 
 

[mohawkbrah]

with an income like that i'd be retired in 3 years. if you really don't like the land lording gig, then id suggest you start investing in index funds, im not sure what the tax shelter investment options are in the USA (ROTH?) but id get started now. what are your current living expenses?

[markbrynn]

Maybe this is too obvious, but why don't you consider hiring someone else to help with the landlording. Figure out which part you like the least and see if it makes sense (economically and otherwise) to offload that part of the work to someone else. It will cost some money, but if the returns are so good in the rental market it may still be worth it.

[firewalker]

In harmony with the comment by markbrynn, try to mentally drill down to the things you don't like about landlording. Your description of your local situation makes it sound worth the effort financially speaking.

[forummm]

My dilema is I dislike the rental business! I have been in it for about 10 years now and I dont enjoy it.
But when I think about investing in the stock market (Vanguard Index Funds) it seems like it takes a lot of money (>600K) to start yielding any sort of monthly income. Thus, if anything happened to our business in the near future (I dont forsee it but who knows) I would have to go back to work (FT) to make ends meet (which I would hate!).

With rentals, you have the risk that people won't pay you, damage your place, etc. And you're on the hook for repairs. And you are required to put in labor (which you don't like) or pay a management firm to do it for you. And your rentals will only appreciate at about the rate of inflation--so no real gains there, just income.

With stocks you have price risk (that they go down at inconvenient times) but over the long run they will go up much faster than inflation. You also don't have to do any work, and there's no risk of needing to put more money into the businesses, etc.

And don't look at just the dividend yields of stocks. Their price appreciation is a return to you as well. There's effectively no difference in Coke paying out a large dividend and Berkshire reinvesting that dividend for you and making its price grow.

[teachcsg]

Thank for the replies.
I have tried a management company in the past but did not have too much luck with them. Seems like I did a better job of managing the properties. But I am looking at going that route again here in the future to see if it will solve my problem.
I thought about the suggestion to think about what I dont like about it...I think its dealing with the tenants...even with good tenants, when something breaks or has to be fixed, and I get a call or a text, I cringe and then have to start calling a handyman or plumber etc..
Bad tenants are, of course, the worst.
I will continue to do some soul searching to see where I really want to be in 5-10 years and go from there. I do plan to use a better property manager and see if that helps.

Thanks again! 

[MDM]

Income of around 160K/year from our business, the rental property and working PT ( 2 days a week).
Not much in retirement accounts-about 25K (401K)
Have 120K in a regular savings account
...
So any suggestions?

Rental pros/cons have already been mentioned.

With an income of $160K one might expect more than ~that same amount in savings/investments at this point.  What's past is water under the bridge so we don't need to revisit that.  Going forward, however, how much money per year will you have available for investing (in rentals/index funds/whatever)?

Have you considered
 - putting the maximum $18K/yr into a 401k? 
 - having your wife contribute $5.5K/yr to a spousal tIRA?

Once you get your AGI below $150K from 401k and/or tIRA contributions, further contributions save ~30-31% (instead of "only" 25%) due to increasing eligibility for the child tax credit.

[teachcsg]

Thanks for the advice MDM.
In regards to our income, it just recently increased in the last 3 years. We were busy paying off a car, the rental property and saving money during that time.. We had 2 rentals but sold one to pay our house. Of course, fixing it up to sell it cost money too. We are not big spenders but Im probably more frugal than the wife. Our monthly expenses are about 3-4K.
Going forward I dont forsee any big change in income. I may stop working PT and then have to purchase health insurance which would add a significant expense but hopefully that will be the only change.
Thanks for the advice-I will look into your suggestions.

[Monkey Uncle]

In my opinion, you need some stock market exposure in your portfolio to round out your diversification.  Perhaps buy one house and put the other half into an index fund?  If you don't like landlording, you could consider getting your real estate exposure from equity REITs instead of managing your own rentals.

[ChrisLansing]

May I ask why you have 120K in a savings account?   Sure, I get that you need some liquidity for emergencies, but 120K?   Couldn't that money (most of it) be working a little harder for you in an iindex fund? 

[teachcsg]

The 120K we have in our savings account was to purchase a rental property this year. Did not want to invest it in an index fund because I knew we would be using this year to purchase a rental property.