I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
JacobTeach
Posts: 48
Joined: Thu Jul 18, 2019 1:19 am

I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by JacobTeach » Mon Nov 11, 2019 1:12 am

My friend made an extremely good investment in bitcoin and mostly cashed out with great timing. These are his current assets:

$1.25M in equity index funds (70/30 domestic/international splits)
$1.25M in real estate generating $7k in monthly rent before taxes and expenses ($84k annually)
~$0.1M in gold
~$0.1M left in cryptocurrency
He has a car, misc electronics, and art, but let’s not count those.

He is 34 years old, single, and his current annual expenses are $36k per year excluding taxes (generated by his property) and health insurance (which his employer provides). I estimate that his property tax might be $15k per year and his tax on his rental income might be $20k, with other property related expenses (insurance and maintenance) being maybe $5-10k a year.

He is currently working at a job he hates making $55k pretax per year. I think he is already financially independent and can quit and pursue something he’s more interested in since his annual rental income already covers his expenses. Then he gets added financial security from his equity index fund, gold, and crypto exposure.

Another way I’ve tried to look at this is that if he sold all his non Boglehead assets, he would have a ~$2.5M portfolio. If we then run this through FIRECalc with a $41k annual expense ($36k spend + $5k per year for health insurance), he also makes it through 50 years 100% of the time.

I think he can comfortably quit his job. He thinks he needs to “slave away” for longer.

My questions for you bogleheads:

1) Do you consider him financially independent? If not, how much more does he need to accumulate?

2) Let’s say he really does convert all his assets to index funds, what asset allocation would you recommend? I’m thinking 70/30 or 60/40.

3) Overall, what do you think of his current asset mix, assuming he doesn’t mind being a part time landlord?

4) What are the common forgotten expenses in early retirement? This is mostly just to see how accurate the $41k annual expense is.

5) Any other advice for him?

AlohaJoe
Posts: 5075
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by AlohaJoe » Mon Nov 11, 2019 1:16 am

JacobTeach wrote:
Mon Nov 11, 2019 1:12 am
$1.25M in real estate generating $7k in monthly rent before taxes and expenses ($84k annually)

He is 34 years old, single, and his current annual expenses are $36k per year excluding taxes

He is currently working at a job he hates making $55k pretax per year.
I'm not sure why you're even asking about bitcoin or index funds. His real estate rental alone clearly pays more than his day job and is almost double his expenses.

If he doesn't think he has enough to retire, I don't think anonymous people on the internet are going to sway him. He's being guided by emotions, not facts.

finite_difference
Posts: 1557
Joined: Thu Jul 09, 2015 7:00 pm

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by finite_difference » Mon Nov 11, 2019 1:21 am

AlohaJoe wrote:
Mon Nov 11, 2019 1:16 am
JacobTeach wrote:
Mon Nov 11, 2019 1:12 am
$1.25M in real estate generating $7k in monthly rent before taxes and expenses ($84k annually)

He is 34 years old, single, and his current annual expenses are $36k per year excluding taxes

He is currently working at a job he hates making $55k pretax per year.
I'm not sure why you're even asking about bitcoin or index funds. His real estate rental alone clearly pays more than his day job and is almost double his expenses.

If he doesn't think he has enough to retire, I don't think anonymous people on the internet are going to sway him. He's being guided by emotions, not facts.
At least he should be able to realize he has enough money to find a job he likes. There is no reason for him to do a job he genuinely hates. Unless perhaps he’s a masochist.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

Topic Author
JacobTeach
Posts: 48
Joined: Thu Jul 18, 2019 1:19 am

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by JacobTeach » Mon Nov 11, 2019 2:21 am

AlohaJoe wrote:
Mon Nov 11, 2019 1:16 am
JacobTeach wrote:
Mon Nov 11, 2019 1:12 am
$1.25M in real estate generating $7k in monthly rent before taxes and expenses ($84k annually)

He is 34 years old, single, and his current annual expenses are $36k per year excluding taxes

He is currently working at a job he hates making $55k pretax per year.
I'm not sure why you're even asking about bitcoin or index funds. His real estate rental alone clearly pays more than his day job and is almost double his expenses.

If he doesn't think he has enough to retire, I don't think anonymous people on the internet are going to sway him. He's being guided by emotions, not facts.
Who’s asking about what?

Though I agree with you, his perspective is that 50 years is a long time and who knows what will happen. His real estate income is not double his expenses after you factor in property tax, rental income tax, insurance, and maintenance.

What do bogleheads think about 2-5?

Luckywon
Posts: 602
Joined: Tue Mar 28, 2017 10:33 am

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by Luckywon » Mon Nov 11, 2019 2:49 am

So you think he is going to put his money in index funds and real estate for the rest of his life, and will never try to replicate his Bitcoin success?

I think the story is far from over.

harvestbook
Posts: 725
Joined: Sat Mar 18, 2017 7:12 pm

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by harvestbook » Mon Nov 11, 2019 7:38 am

If he thinks his bitcoin profits were due to "smart investing," then, no, he's not done. If he views it as a winning lottery ticket and he must nurture that once-in-a-lifetime nest egg through frugal living and wise decisions, then certainly.
I'm not smart enough to know, and I can't afford to guess.

aristotelian
Posts: 6680
Joined: Wed Jan 11, 2017 8:05 pm

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by aristotelian » Mon Nov 11, 2019 8:02 am

Depends on his expenses. If he spends under $60k he is pretty much in failsafe FI territory. If he spends $200k, he isnt even close.

chessknt
Posts: 207
Joined: Wed Jul 13, 2016 3:15 am

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by chessknt » Mon Nov 11, 2019 8:05 am

Unless this person is you then you are already way too involved in his business to have all of these numbers and should just let him figure his own stuff out. There's being friendly and being nosy and this definitely crosses that line.

student
Posts: 4326
Joined: Fri Apr 03, 2015 6:58 am

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by student » Mon Nov 11, 2019 8:08 am

At this age, I would not recommend someone to retire but he can find a more desirable job with health insurance.

Howie
Posts: 162
Joined: Sun Jan 02, 2011 7:46 pm

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by Howie » Mon Nov 11, 2019 8:20 am

What are the specifics behind $5K health care annually? My FIRE timing could be accelerated if this were the guaranteed max exposure of this expense.

User avatar
augryphon
Posts: 124
Joined: Wed Mar 02, 2016 11:35 am

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by augryphon » Mon Nov 11, 2019 8:27 am

Honestly, a 34 yo single guy is financially independent if he’s got beer money for next weekend. With no other commitments he can get by on almost nothing.

Your friend is doing very well, and it sounds like he wants to grow his wealth more before “retiring.” This indicates 2 things to me, 1) he makes decisions wisely, and 2) he doesn’t have a compelling reason to quit his current job or maybe hasn’t found another occupation that really attracts him. While he waits on his revelation, his financial position Improves daily. It’s a great position to be in.

It sounds like he just has a job he doesn’t like. If so, he needs to find another job and keep working his plan, he’s doing great.

User avatar
RickBoglehead
Posts: 5608
Joined: Wed Feb 14, 2018 9:10 am
Location: In a house

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by RickBoglehead » Mon Nov 11, 2019 8:27 am

Howie wrote:
Mon Nov 11, 2019 8:20 am
What are the specifics behind $5K health care annually? My FIRE timing could be accelerated if this were the guaranteed max exposure of this expense.
Made up number IMO. Anyone going on the AHA site can see that you're not going to get health insurance for $5,000 a year. And, whatever you find it for, you probably need to forecast a 5 - 10% increase per year.

We've crested 60, and are holding off retirement for 1.8 years to get quality medical insurance (from the state) at an affordable rate. Just as an example, this rate pre-Medicare is over $9,000 a year TODAY. That's for 1 person. We need it for two people, so that's just over $17,000 a year for 2019.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

9liner
Posts: 182
Joined: Wed Jan 18, 2017 1:03 pm

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by 9liner » Mon Nov 11, 2019 8:30 am

Why is your fully-grown, adult, “friend” not asking his own questions? I never understood the whole “asking for a friend” mentality.

User avatar
snackdog
Posts: 839
Joined: Wed Nov 12, 2014 4:57 am

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by snackdog » Mon Nov 11, 2019 8:43 am

If he is willing to sell the real estate (and pay any tax due), then yes he could probably survive 50-60 years on ~$40k/yr.

Otherwise, it's not clear what he is netting on the real estate (after PITI and actual+planned expenses). If he needs $41K+$15K prop tax = $56K at 3% SWR, he should have nearly $2 million invested to last 60 years.

bob60014
Posts: 1298
Joined: Mon Jul 31, 2017 8:59 pm
Location: The Land Beyond ORD

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by bob60014 » Mon Nov 11, 2019 8:49 am

I never knew this much financial detail about any of my friends!

RubyTuesday
Posts: 333
Joined: Fri Oct 19, 2012 11:24 am

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by RubyTuesday » Mon Nov 11, 2019 8:56 am

Luckywon wrote:
Mon Nov 11, 2019 2:49 am
So you think he is going to put his money in index funds and real estate for the rest of his life, and will never try to replicate his Bitcoin success?

I think the story is far from over.
this.

Rus In Urbe
Posts: 532
Joined: Sat Dec 09, 2017 2:12 pm

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by Rus In Urbe » Mon Nov 11, 2019 8:58 am

Not sure what this thread is about.

I think you should take your nose out of someone else's finances.

Concentrate on your own life. And finances.

The other path is one of envy, greed, despair.
I'd like to live as a poor man with lots of money. ~Pablo Picasso

KlangFool
Posts: 14672
Joined: Sat Oct 11, 2008 12:35 pm

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by KlangFool » Mon Nov 11, 2019 9:01 am

snackdog wrote:
Mon Nov 11, 2019 8:43 am
If he is willing to sell the real estate (and pay any tax due), then yes he could probably survive 50-60 years on ~$40k/yr.

Otherwise, it's not clear what he is netting on the real estate (after PITI and actual+planned expenses). If he needs $41K+$15K prop tax = $56K at 3% SWR, he should have nearly $2 million invested to last 60 years.
+1,000.

Your friend is FI if he sells off the real estate. Until then, he is at risk to be wiped out in a recession.

KlangFool

FireHorse
Posts: 184
Joined: Sat Nov 25, 2017 7:03 pm

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by FireHorse » Mon Nov 11, 2019 9:02 am

He may be able to make it work in the next 50 years if his expenses are unchanged. But life is more than just FI when you are at 34 yr old. At this age, people have desires, interests and beliefs...etc.

He can quit the job he hates and find one that he likes and keep himself in the loop of people in the society. The world is wonderful not only you are on FI but also your surroundings, your family and friends, your fail and your success, your lesson learned experiences and your achievements.....etc.

KlangFool
Posts: 14672
Joined: Sat Oct 11, 2008 12:35 pm

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by KlangFool » Mon Nov 11, 2019 9:12 am

OP,

My friend in my home country is being eaten by her real estate. She could have retired long ago if she sold off all her real estate holding. She did not need the money from the real estate investment. But, in this case, by being greedy, the real estate holding is destroying her financially.

KlangFool

Grt2bOutdoors
Posts: 21760
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by Grt2bOutdoors » Mon Nov 11, 2019 9:14 am

Your friend won a lottery! Congratulations!
Chances of replicating such a win in the future - one in a million if not worse odds.
Financially independent? - remains to be seen, associate with the wrong cast of characters and the money will fly out of his hands quickly.

Pro's - friend is still young, doesn't like his current employment, not currently attached, no commitments? Find a new occupation, one preferably that lets him earn more money.

Con's - your friend needs to stop talking, sharing this information with you, who else has he told about his financial holdings? Honey attracts the flies quickly. Your friend may think he can replicate his "fantastic bitcoin speculation" into more money, again! Maybe not now, maybe not tomorrow, but someday in the future a new fad will come out........

Good Luck!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Dottie57
Posts: 7541
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by Dottie57 » Mon Nov 11, 2019 9:27 am

Suggest 50/50 allocation stock to bonds. Friend needs to have assets which can be sold during a bad, long crash in real estate.
Both rent and selling price can go down drastically.

Encourage friend to get a different job and perhaps training.

Jack FFR1846
Posts: 10808
Joined: Tue Dec 31, 2013 7:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by Jack FFR1846 » Mon Nov 11, 2019 9:36 am

I think your friend will be fine and remain financially independent IF he continues with only that small amount of money in the gambling category. To be clear, he won a gambling bet with crypto. It is not and never has been an investment. Had he gone to Vegas, he could have won just as big and if he went back, might have just as much risk of losing as he could have with further crypto gambling.

If he's interested in having some fun with his money, I suggest he take up auto racing. Having been there, we had a saying....."track addition is similar to drug addiction except it's more expensive and harder to give up". He could certainly buy a well sorted spec Miata for $25k easily, pick up a trailer and SUV to haul it.
Bogle: Smart Beta is stupid

Topic Author
JacobTeach
Posts: 48
Joined: Thu Jul 18, 2019 1:19 am

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by JacobTeach » Mon Nov 11, 2019 10:00 am

I guess it wasn’t obvious enough, but he asked me to make the post on his behalf. Maybe he’ll make an account and chime in if he wants to, but it’s actually because he’s so private that he asked me to post, so I doubt it.

Thanks everyone for the posts, it seems like there’s a group of us that think he’s financially independent, but also a group that isn’t so sure and is with my friend on this one.

Regarding the health insurance cost - it was a ballpark number we found online. We’ll adjust it higher to be more conservative.

Topic Author
JacobTeach
Posts: 48
Joined: Thu Jul 18, 2019 1:19 am

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by JacobTeach » Mon Nov 11, 2019 10:01 am

snackdog wrote:
Mon Nov 11, 2019 8:43 am
If he is willing to sell the real estate (and pay any tax due), then yes he could probably survive 50-60 years on ~$40k/yr.

Otherwise, it's not clear what he is netting on the real estate (after PITI and actual+planned expenses). If he needs $41K+$15K prop tax = $56K at 3% SWR, he should have nearly $2 million invested to last 60 years.
This is me talking now, but doesn’t he currently have $2M invested? 1.25 in real estate and 1.25 in stocks?

Topic Author
JacobTeach
Posts: 48
Joined: Thu Jul 18, 2019 1:19 am

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by JacobTeach » Mon Nov 11, 2019 10:03 am

KlangFool wrote:
Mon Nov 11, 2019 9:01 am
snackdog wrote:
Mon Nov 11, 2019 8:43 am
If he is willing to sell the real estate (and pay any tax due), then yes he could probably survive 50-60 years on ~$40k/yr.

Otherwise, it's not clear what he is netting on the real estate (after PITI and actual+planned expenses). If he needs $41K+$15K prop tax = $56K at 3% SWR, he should have nearly $2 million invested to last 60 years.
+1,000.

Your friend is FI if he sells off the real estate. Until then, he is at risk to be wiped out in a recession.

KlangFool
This is me talking now. Why do you recommend selling the real estate? I figured it was less risky than equity and provided nice cash flow?

User avatar
JoMoney
Posts: 8175
Joined: Tue Jul 23, 2013 5:31 am

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by JoMoney » Mon Nov 11, 2019 10:08 am

An actuarial life expectancy table would peg a 34 year old as having 49.4 more years
If I read your post correctly, His assets amount to about $2.7M, and his expenses are
36,000+15,000+20,000+7,500 = $78,500

(78,500 in expenses) * (49.4 life expectancy) =$3,877,900

So he's quite a bit shy of being able to get by just matching inflation.
Using an amortization schedule/calculation, I figure he would need an annualized return of 1.6% + inflation on $2.7M in order for it to last 49.4 years drawing down $78,500 a year.
You're not going to get 1.6% + inflation currently in TIPS, so some risk that the portfolio will fail has to be taken. I don't think 1.6%+inflation is too far-fetched, but there is some risk. FWIW, there are many young "FIRE" people who are counting on more, and many government ran pension programs that are relying on 7%+ annual returns (which is an absurd amount).
If your friend is just looking at finding some other career that better suits him, I'm sure he'll be alright and is "independent" enough that he isn't locked into a particular employer or pay range.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

KlangFool
Posts: 14672
Joined: Sat Oct 11, 2008 12:35 pm

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by KlangFool » Mon Nov 11, 2019 10:08 am

JacobTeach wrote:
Mon Nov 11, 2019 10:03 am
KlangFool wrote:
Mon Nov 11, 2019 9:01 am
snackdog wrote:
Mon Nov 11, 2019 8:43 am
If he is willing to sell the real estate (and pay any tax due), then yes he could probably survive 50-60 years on ~$40k/yr.

Otherwise, it's not clear what he is netting on the real estate (after PITI and actual+planned expenses). If he needs $41K+$15K prop tax = $56K at 3% SWR, he should have nearly $2 million invested to last 60 years.
+1,000.

Your friend is FI if he sells off the real estate. Until then, he is at risk to be wiped out in a recession.

KlangFool
This is me talking now. Why do you recommend selling the real estate? I figured it was less risky than equity and provided nice cash flow?
JacobTeach,

1.25 million with 20K of cash flow -> Bad cash flow.

It could turn into a negative cash flow easily in a recession when your friend cannot rent out the place. Then, it is negative 60K per year.

<<I figured it was less risky than equity and provided nice cash flow?>>

Really? In a recession, everything can go to hell at the same time.

A) Unemployed.

B) Stock drops 50%.

C) House drops 50% and cannot rent out.

KlangFool

P.S.: An investment that has the potential of generating negative 60K cash flow is not less risky.

Topic Author
JacobTeach
Posts: 48
Joined: Thu Jul 18, 2019 1:19 am

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by JacobTeach » Mon Nov 11, 2019 10:20 am

KlangFool wrote:
Mon Nov 11, 2019 10:08 am
JacobTeach wrote:
Mon Nov 11, 2019 10:03 am
KlangFool wrote:
Mon Nov 11, 2019 9:01 am
snackdog wrote:
Mon Nov 11, 2019 8:43 am
If he is willing to sell the real estate (and pay any tax due), then yes he could probably survive 50-60 years on ~$40k/yr.

Otherwise, it's not clear what he is netting on the real estate (after PITI and actual+planned expenses). If he needs $41K+$15K prop tax = $56K at 3% SWR, he should have nearly $2 million invested to last 60 years.
+1,000.

Your friend is FI if he sells off the real estate. Until then, he is at risk to be wiped out in a recession.

KlangFool
This is me talking now. Why do you recommend selling the real estate? I figured it was less risky than equity and provided nice cash flow?
JacobTeach,

1.25 million with 20K of cash flow -> Bad cash flow.

It could turn into a negative cash flow easily in a recession when your friend cannot rent out the place. Then, it is negative 60K per year.

<<I figured it was less risky than equity and provided nice cash flow?>>

Really? In a recession, everything can go to hell at the same time.

A) Unemployed.

B) Stock drops 50%.

C) House drops 50% and cannot rent out.

KlangFool
$7k a month is $84k a year
Less $20k income tax
Less $15k property tax
Less $5-10k maintenance

=$39-44k cash flow?

I’m not following you, if stocks drop 50% and property drops 50%, isn’t the impact on the portfolio the same whether it was all stock or only half stock? In a recession and the worst case scenario with no rental income, he would have to sell stock to live whether he had real estate or not?

Edit: I think the max negative cash flow would be the property tax and any cleaning fees.

MathIsMyWayr
Posts: 1244
Joined: Mon Mar 27, 2017 10:47 pm
Location: CA

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by MathIsMyWayr » Mon Nov 11, 2019 10:48 am

JacobTeach wrote:
Mon Nov 11, 2019 1:12 am
He is 34 years old, ...

He is currently working at a job he hates making $55k pretax per year...

I think he can comfortably quit his job. He thinks he needs to “slave away” for longer.
Why doesn't he get some education and find a desirable job which he does not hate and he does not feel "slaving away?" Before he complains about his job, he has to prepare himself for a good job. One has to pay his due to get a quality job.

User avatar
Watty
Posts: 18096
Joined: Wed Oct 10, 2007 3:55 pm

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by Watty » Mon Nov 11, 2019 11:47 am

JacobTeach wrote:
Mon Nov 11, 2019 1:12 am
4) What are the common forgotten expenses in early retirement? This is mostly just to see how accurate the $41k annual expense is.
One big thing to watch out for with very early retirement is that once he stops working then he will have a lot more time to spend money so his expenses may go up a lot if he starts doing a lot of travel or developes expensive pastimes.

He also needs to be careful since his expense numbers are just for one person. If you add a nice spouse and maybe some kids or step-kids in the calculations the numbers will be a lot harder to make work. If you add in a bad spouse then it could be a trainwreck. Him getting into a good relationship would be great but he needs to factor that into his numbers.

It is not so much an expense but one other thing to watch out for is that I have seen several people get bored in retirement and develop problems with alcohol or drugs(both legal or not) so he really needs to be careful with that. With him having made his money with bitcoin it would also be good to be real cautious about gambling in casinos, lotteries, or in risky stock bets.
JacobTeach wrote:
Mon Nov 11, 2019 1:12 am
I think he can comfortably quit his job. He thinks he needs to “slave away” for longer.
With his assets there is no reason to stay in a job that pays $55K a year that he hates so taking some time off would be reasonable but he should consider eventually finding some job or part time business that he likes to both bring in some income, fill up some of his time, and give him some focus. Having even $1,000 a month in income would really help his numbers. I have heard of people with jobs like; high school sports referee, yoga instructor, selling art at street fairs, paid church organist, tour guide, wedding photographer, etc that they enjoy that would be hard to make a full time living at but could be fun and help him have some income.

Before he leaves that job though one thing to do would be to make sure that any of his real estate loans are in order since doing any refinancing would be easier while he is still employed.
JacobTeach wrote:
Mon Nov 11, 2019 1:12 am
$1.25M in real estate generating $7k in monthly rent before taxes and expenses ($84k annually)
Owning real estate is not for everyone but a lot of people have done very well with owning real estate as long as they look at it as a serious business and are investing for the income, not hoped for appreciation.

It is not something that I would suggest but when this comes up people often mention the web site Biggerpockets as being a real good place to learn more and to get help with evaluating real estate investments.

https://www.biggerpockets.com/

A big thing to remember is that with having $1.25 million invested it real estate he is running a good size business that he needs to treat like a business with things like budgets and long term business plans. Even if he does things like hiring people to do the maintenance it will still be a lot of work.

Depending on how he set up his real estate business that might also allow him to make deductible retirement account contributions or write off health insurances as a business expense but that would take lots of research.
JacobTeach wrote:
Mon Nov 11, 2019 1:12 am
5) Any other advice for him?
You did not say what his educational background was but if I was in his situation I would consider going to (or back to) college at least part time to help him get new skills and plan for the next phase of life.

This would help give him have some structure in his life and at 34 there would still be a reasonable number of students that are close to his age since they are grad students or did something else after high school and are just now going to college. Even socializing with some of the other students who are in their mid 20s would still be possible. A lot of people find their future spouses at college so if he is looking to get into a relationship being in college might increase his odd of finding someone.

In college he could learn something that would lead to a fun(even if low paying) next career like one of the arts or he could learn more about running a real estate business.

supersecretname
Posts: 107
Joined: Tue Sep 01, 2015 2:33 pm

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by supersecretname » Mon Nov 11, 2019 1:23 pm

In short, yes, he is FI, and can do whatever he wants.

Bogleheads sometimes have a hard time with reality. 2.5+ million is plenty enough for him to retire early and do whatever he wants. Depending on the specific RE numbers, selling that might be an option.

Even a conservative 3.5% WR provides 87k.

Step #1 should be to quit his job yesterday.

tesuzuki2002
Posts: 876
Joined: Fri Dec 11, 2015 12:40 pm

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by tesuzuki2002 » Mon Nov 11, 2019 2:20 pm

JacobTeach wrote:
Mon Nov 11, 2019 1:12 am
My friend made an extremely good investment in bitcoin and mostly cashed out with great timing. These are his current assets:

$1.25M in equity index funds (70/30 domestic/international splits)
$1.25M in real estate generating $7k in monthly rent before taxes and expenses ($84k annually)
~$0.1M in gold
~$0.1M left in cryptocurrency
He has a car, misc electronics, and art, but let’s not count those.

He is 34 years old, single, and his current annual expenses are $36k per year excluding taxes (generated by his property) and health insurance (which his employer provides). I estimate that his property tax might be $15k per year and his tax on his rental income might be $20k, with other property related expenses (insurance and maintenance) being maybe $5-10k a year.

He is currently working at a job he hates making $55k pretax per year. I think he is already financially independent and can quit and pursue something he’s more interested in since his annual rental income already covers his expenses. Then he gets added financial security from his equity index fund, gold, and crypto exposure.

Another way I’ve tried to look at this is that if he sold all his non Boglehead assets, he would have a ~$2.5M portfolio. If we then run this through FIRECalc with a $41k annual expense ($36k spend + $5k per year for health insurance), he also makes it through 50 years 100% of the time.

I think he can comfortably quit his job. He thinks he needs to “slave away” for longer.

My questions for you bogleheads:

1) Do you consider him financially independent? If not, how much more does he need to accumulate?

2) Let’s say he really does convert all his assets to index funds, what asset allocation would you recommend? I’m thinking 70/30 or 60/40.

3) Overall, what do you think of his current asset mix, assuming he doesn’t mind being a part time landlord?

4) What are the common forgotten expenses in early retirement? This is mostly just to see how accurate the $41k annual expense is.

5) Any other advice for him?

He made some lucky investments... but he clearly does not understand basic math... at his expenses and asset level.. He is not going to run out of money.

KlangFool
Posts: 14672
Joined: Sat Oct 11, 2008 12:35 pm

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by KlangFool » Mon Nov 11, 2019 3:13 pm

JacobTeach wrote:
Mon Nov 11, 2019 10:20 am
KlangFool wrote:
Mon Nov 11, 2019 10:08 am
JacobTeach wrote:
Mon Nov 11, 2019 10:03 am
KlangFool wrote:
Mon Nov 11, 2019 9:01 am
snackdog wrote:
Mon Nov 11, 2019 8:43 am
If he is willing to sell the real estate (and pay any tax due), then yes he could probably survive 50-60 years on ~$40k/yr.

Otherwise, it's not clear what he is netting on the real estate (after PITI and actual+planned expenses). If he needs $41K+$15K prop tax = $56K at 3% SWR, he should have nearly $2 million invested to last 60 years.
+1,000.

Your friend is FI if he sells off the real estate. Until then, he is at risk to be wiped out in a recession.

KlangFool
This is me talking now. Why do you recommend selling the real estate? I figured it was less risky than equity and provided nice cash flow?
JacobTeach,

1.25 million with 20K of cash flow -> Bad cash flow.

It could turn into a negative cash flow easily in a recession when your friend cannot rent out the place. Then, it is negative 60K per year.

<<I figured it was less risky than equity and provided nice cash flow?>>

Really? In a recession, everything can go to hell at the same time.

A) Unemployed.

B) Stock drops 50%.

C) House drops 50% and cannot rent out.

KlangFool
$7k a month is $84k a year
Less $20k income tax
Less $15k property tax
Less $5-10k maintenance

=$39-44k cash flow?

I’m not following you, if stocks drop 50% and property drops 50%, isn’t the impact on the portfolio the same whether it was all stock or only half stock? In a recession and the worst case scenario with no rental income, he would have to sell stock to live whether he had real estate or not?

Edit: I think the max negative cash flow would be the property tax and any cleaning fees.
Why do you assume that there is no mortgage for the 1.2 million real estates?

KlangFool

JBTX
Posts: 5752
Joined: Wed Jul 26, 2017 12:46 pm

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by JBTX » Mon Nov 11, 2019 3:35 pm

Is he financially independent? For now, yes.

Can he quit his job now he hates? Yes. However if it were me I'd like to at least have a plan as to what is next

If nothing ever changes can he milk this for life? Theoretically yes.

Should he retire permanently? No, a lot can happen over 50 plus years.

I don't know the person but I'm also skeptical that he can stay away from bitcoin or other speculative investments.

The return on the real estate seems terrible. 6% before expenses and taxes. But perhaps that is what you get in an inflated market. If has appreciated a lot I'd be tempted to sell.

J295
Posts: 2245
Joined: Sun Jan 01, 2012 11:40 pm

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by J295 » Mon Nov 11, 2019 6:38 pm

Personally, we have chosen not to own real estate other than our residence.

However, many friends and family members have successfully owned a wide variety of real estate interests (running the full spectrum from those that own rental homes, to one that owns multiple shopping centers and surgical centers). Most of them have had that as part of their portfolio along with other investment interests, including publicly traded securities.

OP indicates there is no debt on the real estate. He/she presents that as a fact.

Whether owning that unencumbered real estate is “riskier” than only stocks or some combination of other asset classes is not possible to determine absent additional facts regarding the real estate, tenants, etc.

illumination
Posts: 344
Joined: Tue Apr 02, 2019 6:13 pm

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by illumination » Mon Nov 11, 2019 7:09 pm

Seems like a good middle ground might be finding a job he doesn't hate even if it pays less?

I definitely think someone can retire on that amount of money, but 34 is really young (how will he fill his days?) and if he ever jumps back into the workforce after a few decades, he'll have issues. Then again, his salary is not such that it seems he has some incredible career and could never make that money again.

But not having a job doesn't make you happy either. And one big screwup like putting a lot of capital in a single bad investment could ruin his plans.

I wouldn't be pushing anyone at age 34 to retire.

DesertDiva
Posts: 697
Joined: Thu Mar 01, 2018 12:49 pm
Location: In the desert

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by DesertDiva » Mon Nov 11, 2019 7:47 pm

I have a hard time believing that OP’s friend doesn’t have significant mortgages/liens on his real estate holdings, while only making $55k at his W-2 job at age 34. Did he inherit the real estate? The “he’s so private” friend may be withholding important details.

KyleAAA
Posts: 7752
Joined: Wed Jul 01, 2009 5:35 pm
Contact:

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by KyleAAA » Mon Nov 11, 2019 8:24 pm

Realistically yeah, your friend can probably retire noe and be fine. There's a non-zero chance they will end up broke, but it isn't a very large chance. Maybe they want to ramp up their spending a bit or have a large cushion? Continuing to work a job they don't like for a few years is certainly reasonable even if it's not what I would do.

drawpoker
Posts: 2809
Joined: Mon May 19, 2014 6:33 pm
Location: Delmarva

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by drawpoker » Mon Nov 11, 2019 8:55 pm

DesertDiva wrote:
Mon Nov 11, 2019 7:47 pm
I have a hard time believing that OP’s friend doesn’t have significant mortgages/liens on his real estate holdings, while only making $55k at his W-2 job at age 34. Did he inherit the real estate? The “he’s so private” friend may be withholding important details.
^this

Dottie57
Posts: 7541
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by Dottie57 » Mon Nov 11, 2019 9:02 pm

By the way, bitcoin is speculation, not an investment.

OP: Is the real estate mortgaged or not? Makes a big difference.

User avatar
HomerJ
Posts: 13581
Joined: Fri Jun 06, 2008 12:50 pm

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by HomerJ » Mon Nov 11, 2019 9:25 pm

RickBoglehead wrote:
Mon Nov 11, 2019 8:27 am
Howie wrote:
Mon Nov 11, 2019 8:20 am
What are the specifics behind $5K health care annually? My FIRE timing could be accelerated if this were the guaranteed max exposure of this expense.
Made up number IMO. Anyone going on the AHA site can see that you're not going to get health insurance for $5,000 a year. And, whatever you find it for, you probably need to forecast a 5 - 10% increase per year.

We've crested 60, and are holding off retirement for 1.8 years to get quality medical insurance (from the state) at an affordable rate. Just as an example, this rate pre-Medicare is over $9,000 a year TODAY. That's for 1 person. We need it for two people, so that's just over $17,000 a year for 2019.
If your income is low, then you don't have to pay very much for health insurance.

And it's not that hard that make your income look low.

If you've got $120,000 in the bank or in CDs, you can spend that money and it's not "income". Pull $40,000 from your 401k, spend $60,000 from the bank, and you get health care as someone making $40,000, not $100,000 that year.
The J stands for Jay

boomer_techie
Posts: 246
Joined: Fri Jan 18, 2019 6:47 am

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by boomer_techie » Tue Nov 12, 2019 6:15 am

JacobTeach wrote:
Mon Nov 11, 2019 1:12 am
$1.25M in real estate generating $7k in monthly rent before taxes and expenses ($84k annually)
Did your friend

buy a four bedroom Silicon Valley house, is living in one bedroom, and is renting out the other three; or

buy a pair of Midwest four-plexes, is living in one unit, and is renting the others for $1K a month?

Valuethinker
Posts: 39238
Joined: Fri May 11, 2007 11:07 am

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by Valuethinker » Tue Nov 12, 2019 7:21 am

Watty wrote:
Mon Nov 11, 2019 11:47 am


It is not so much an expense but one other thing to watch out for is that I have seen several people get bored in retirement and develop problems with alcohol or drugs(both legal or not) so he really needs to be careful with that. With him having made his money with bitcoin it would also be good to be real cautious about gambling in casinos, lotteries, or in risky stock bets.
I have seen someone make millions gambling - and then go and lose the lot in about 9 months on various "speculations" online, some of which turned out to be totally fraudulent (you hear the words Foreign Exchange Trading, Binary Options, commodity broking - I'd run a mile). Now scrambling to pay the rent (having sold the USD 100k car, etc).

Also people get involved in dodgy real estate deals. That's another common sinkhole.

And I could name you at least one Canadian retirement town where you can see the guys, in their last 50s, early 60s. Retired stockbrokers and professionals. Waiting for the liquor store or the pub to open to get their next beer. Those flush and sunburned faces.

Retirement often comes as a shock. Most professionals, their life is tied up in their work. That's where they have spent most their waking hours the last 30 years and the rest on family-related activities (but their kids have now left home, have their own lives). It's where all their contacts & friends are. Their whole identity. Unless they have church or other social activities, the hours just stretch endlessly, emptily.

michaeljc70
Posts: 6062
Joined: Thu Oct 15, 2015 3:53 pm

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by michaeljc70 » Tue Nov 12, 2019 8:56 am

We need to know the expenses on the rental. Is it paid off? It certainly sounds like he can stop working if he wants to but without knowing the net on the rental and what he pays in taxes it is hard to be sure. If he were to sell the rental and invest in a Boglehead portfolio it is clear he has enough to quit working if he has his current expenses. If he lives in the rental and sells it then he has no where to live.

Topic Author
JacobTeach
Posts: 48
Joined: Thu Jul 18, 2019 1:19 am

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by JacobTeach » Tue Nov 12, 2019 10:35 pm

KlangFool wrote:
Mon Nov 11, 2019 3:13 pm
JacobTeach wrote:
Mon Nov 11, 2019 10:20 am
KlangFool wrote:
Mon Nov 11, 2019 10:08 am
JacobTeach wrote:
Mon Nov 11, 2019 10:03 am
KlangFool wrote:
Mon Nov 11, 2019 9:01 am


+1,000.

Your friend is FI if he sells off the real estate. Until then, he is at risk to be wiped out in a recession.

KlangFool
This is me talking now. Why do you recommend selling the real estate? I figured it was less risky than equity and provided nice cash flow?
JacobTeach,

1.25 million with 20K of cash flow -> Bad cash flow.

It could turn into a negative cash flow easily in a recession when your friend cannot rent out the place. Then, it is negative 60K per year.

<<I figured it was less risky than equity and provided nice cash flow?>>

Really? In a recession, everything can go to hell at the same time.

A) Unemployed.

B) Stock drops 50%.

C) House drops 50% and cannot rent out.

KlangFool
$7k a month is $84k a year
Less $20k income tax
Less $15k property tax
Less $5-10k maintenance

=$39-44k cash flow?

I’m not following you, if stocks drop 50% and property drops 50%, isn’t the impact on the portfolio the same whether it was all stock or only half stock? In a recession and the worst case scenario with no rental income, he would have to sell stock to live whether he had real estate or not?

Edit: I think the max negative cash flow would be the property tax and any cleaning fees.
Why do you assume that there is no mortgage for the 1.2 million real estates?

KlangFool
He has no debt.

Thanks everyone for the replies since I last posted. Wondering if we can get the community opinion on questions 2 and 3?

2) Let’s say he really does convert all his assets to index funds, what asset allocation would you recommend? I’m thinking 70/30 or 60/40.

3) Overall, what do you think of his current asset mix, assuming he doesn’t mind being a part time landlord?

Topic Author
JacobTeach
Posts: 48
Joined: Thu Jul 18, 2019 1:19 am

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by JacobTeach » Tue Nov 12, 2019 10:39 pm

Watty wrote:
Mon Nov 11, 2019 11:47 am
JacobTeach wrote:
Mon Nov 11, 2019 1:12 am
4) What are the common forgotten expenses in early retirement? This is mostly just to see how accurate the $41k annual expense is.
One big thing to watch out for with very early retirement is that once he stops working then he will have a lot more time to spend money so his expenses may go up a lot if he starts doing a lot of travel or developes expensive pastimes.

He also needs to be careful since his expense numbers are just for one person. If you add a nice spouse and maybe some kids or step-kids in the calculations the numbers will be a lot harder to make work. If you add in a bad spouse then it could be a trainwreck. Him getting into a good relationship would be great but he needs to factor that into his numbers.

It is not so much an expense but one other thing to watch out for is that I have seen several people get bored in retirement and develop problems with alcohol or drugs(both legal or not) so he really needs to be careful with that. With him having made his money with bitcoin it would also be good to be real cautious about gambling in casinos, lotteries, or in risky stock bets.
JacobTeach wrote:
Mon Nov 11, 2019 1:12 am
I think he can comfortably quit his job. He thinks he needs to “slave away” for longer.
With his assets there is no reason to stay in a job that pays $55K a year that he hates so taking some time off would be reasonable but he should consider eventually finding some job or part time business that he likes to both bring in some income, fill up some of his time, and give him some focus. Having even $1,000 a month in income would really help his numbers. I have heard of people with jobs like; high school sports referee, yoga instructor, selling art at street fairs, paid church organist, tour guide, wedding photographer, etc that they enjoy that would be hard to make a full time living at but could be fun and help him have some income.

Before he leaves that job though one thing to do would be to make sure that any of his real estate loans are in order since doing any refinancing would be easier while he is still employed.
JacobTeach wrote:
Mon Nov 11, 2019 1:12 am
$1.25M in real estate generating $7k in monthly rent before taxes and expenses ($84k annually)
Owning real estate is not for everyone but a lot of people have done very well with owning real estate as long as they look at it as a serious business and are investing for the income, not hoped for appreciation.

It is not something that I would suggest but when this comes up people often mention the web site Biggerpockets as being a real good place to learn more and to get help with evaluating real estate investments.

https://www.biggerpockets.com/

A big thing to remember is that with having $1.25 million invested it real estate he is running a good size business that he needs to treat like a business with things like budgets and long term business plans. Even if he does things like hiring people to do the maintenance it will still be a lot of work.

Depending on how he set up his real estate business that might also allow him to make deductible retirement account contributions or write off health insurances as a business expense but that would take lots of research.
JacobTeach wrote:
Mon Nov 11, 2019 1:12 am
5) Any other advice for him?
You did not say what his educational background was but if I was in his situation I would consider going to (or back to) college at least part time to help him get new skills and plan for the next phase of life.

This would help give him have some structure in his life and at 34 there would still be a reasonable number of students that are close to his age since they are grad students or did something else after high school and are just now going to college. Even socializing with some of the other students who are in their mid 20s would still be possible. A lot of people find their future spouses at college so if he is looking to get into a relationship being in college might increase his odd of finding someone.

In college he could learn something that would lead to a fun(even if low paying) next career like one of the arts or he could learn more about running a real estate business.
I’ve been thankful for the replies in general, but I wanted to thank you in particular for such a helpful post. :sharebeer

KlangFool
Posts: 14672
Joined: Sat Oct 11, 2008 12:35 pm

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by KlangFool » Tue Nov 12, 2019 10:40 pm

JacobTeach wrote:
Tue Nov 12, 2019 10:35 pm

He has no debt.

Thanks everyone for the replies since I last posted. Wondering if we can get the community opinion on questions 2 and 3?

2) Let’s say he really does convert all his assets to index funds, what asset allocation would you recommend? I’m thinking 70/30 or 60/40.

3) Overall, what do you think of his current asset mix, assuming he doesn’t mind being a part time landlord?
JacobTeach,

2) Whatever AA that lets him have at least 20 years of expense in fixed income.

3) You would not put 50% of your net worth into one stock. So, why would that person feel safe putting 50% of his net worth into one house? That is too many eggs in one basket.

KlangFool

halfnine
Posts: 1004
Joined: Tue Dec 21, 2010 1:48 pm

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by halfnine » Wed Nov 13, 2019 7:03 am

JacobTeach wrote:
Mon Nov 11, 2019 1:12 am
$1.25M in equity index funds (70/30 domestic/international splits)
$1.25M in real estate generating $7k in monthly rent before taxes and expenses ($84k annually)
~$0.1M in gold
~$0.1M left in cryptocurrency
I am not a big fan of concentration risk. As such I would limit each major asset class to a maximum of 40%. So if was me I would be FI and shift asset allocation to:

$1.0M in equity
$1.0M in real estate (including primary home)
$0.5M in fixed income
$0.1M in gold
$0.1M in cryptocurrency

If my income from rental properties put me above the threshold for cheaper health insurance I would lower my rental property allocation accordingly to remain under that cliff.

bltn
Posts: 604
Joined: Mon Feb 20, 2017 9:32 pm

Re: I think my friend is already financially independent (through a fantastic bitcoin investment), can you confirm?

Post by bltn » Wed Nov 13, 2019 4:28 pm

KlangFool wrote:
Mon Nov 11, 2019 9:12 am
OP,

My friend in my home country is being eaten by her real estate. She could have retired long ago if she sold off all her real estate holding. She did not need the money from the real estate investment. But, in this case, by being greedy, the real estate holding is destroying her financially.

KlangFool
I agree with this insight. I have personal experience with leveraged investments, mostly but not exclusively real estate, that resulted in painful negative cash flows during slowdowns. One of them in my early investment years, age 39, about ate me up.
Fortunately I learned about indexing soon after that escape.
While real estate can be secure in certain situations, in some cases there is a significant amount if risk, depending on the stability of the tenants. Indexing the markets after a contingency fund is established merely requires perseverance to be successful.
I do agree with investor changing jobs and continuing to accumulate assets in index funds. Aim for a retirement with a higher level of spending. He seems to be on his way.

Post Reply