Ready to FIRE @ 55 with Real Estate Portfolio?

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Lienlord
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Ready to FIRE @ 55 with Real Estate Portfolio?

Post by Lienlord » Sat Mar 09, 2019 9:19 pm

I realize this is a site devoted mostly to stock & bond investments, but I also know this is a site full of savvy investors with a lot of experience, so this is my first post seeking your wisdom & advice.

I'm looking to retire in 12 months from my W2 job. My wife teaches privately ($3k per month) and content to keep working for now as she is able to set her own schedule and her studio is in a building we own next to our home.

The majority of our assets are in various real estate investments. We started out in SFH rental properties, and owned up to 20 at once. These were purchased with cash over time, so their was no debt on them. They cashflow nicely, but as the number of properties grew I couldn't manage them and continue my stressful W2 job (I'm the Administrator for a school district). So over time I've been selling these properties off to other investors who want to landlord them, and I'm carrying the notes @ 8% for 15 years. These total approx $1.2M and produce a monthly cashflow of $10K/month.

We still own 2 rental houses (but planning to sell and carry note soon) and a commercial office building. These are worth $800K and produce a monthly cashflow of $5K. The office building is the only property with a mortgage, and the remaining balance on it is $170K.

We also are limited partners in several commercial real estate ventures, which include shopping centers, apartments, office buildings, etc. Our shares in these ventures are valued at approx $1.3M and produce a monthly cashflow of $10K per month.

I will have a couple of small pensions available after age 62 (maybe $1,500/mo total), and SS for my wife and I somewhere between 65-70, depending on the need. Only other asset are HSA accounts totaling about $45k.

To test our ability to do without my paycheck, I've had it sent to a savings account for the past year so I don't see it, but it's accumulating there as a security cushion. We currently only live on approx $5K of the monthly dividends, and have always rolled the rest into new Real Estate ventures. My estimated budget for retirement is approx $6K per month, the increase due to increased travel expense.

My Question...(sorry for the length of this post!), does this seem like a sustaining form of investment that we could confidently depend on for a lifetime of retirement? I realize some of the current notes will be paid off in 15 years, but my post-retirement plans will be to continue investing these cashflows in other notes and properties that will cashflow into the future. A lot of people speak of a (perhaps) coming real estate recession/crash. I don't doubt it, but am not that concerned about the impact of it on my portfolio. In fact, I see it as potential opportunity to find deals.

Thank you for any input you might be willing to give, and I'm happy to answer any followup questions!
Last edited by Lienlord on Sat Mar 09, 2019 11:45 pm, edited 2 times in total.

Wricha
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by Wricha » Sat Mar 09, 2019 10:20 pm

You don’t list any other assets other than your real estate is that correct? You have a small pension at 62 how much? Wife’s salary ? For how long?
Would like to know the answers to these questions to ascertain if you have any backup to your real estate.

On the surface you are more than fine given you will have cash flow of $25k/month till your 70. After 70 you will lose $10k/month (debt will be paid off) leaving you with cash flow of $15k/month plus you will have Social Security, a small pension at 62 and any drawdown on any tax deferred accounts all this with living expense of $6k/month. You could save, very conservatively, (age 55-70) well over $2M.

Only you know how likely the people you lent money to will pay you. And you are in the best position to determine how likely you can continue to rent your existing properties. I also have commercial real estate as major part of my cash flow in retirement so far it’s doing what it supposed to do.

Please correct any assumptions I have made. If they are correct you need to live it up a little more! Good luck.
Last edited by Wricha on Sat Mar 09, 2019 10:49 pm, edited 1 time in total.

chessknt
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by chessknt » Sat Mar 09, 2019 10:30 pm

I would also add that expenses need to account for Healthcare (could add over 1k monthly) if you are currently getting it through your job.

Also it might be helpful to have a plan for when you become unable or unwilling to manage your ongoing rentals since it seems like that accounts for the majority of your current income.

But at 25 k near passive income monthly with expenses at 6k you are more than fine. You make more than 95% of people who are still working. You might want to limit some of your real estate exposure though since if there is a meltdown literally all of your income could dry up at once but unlike stocks you still have maintenance and taxes to pay on the properties.

delamer
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by delamer » Sat Mar 09, 2019 11:01 pm

Look back to the Great Recession and think about what could have happened to the value of your real estate and the income it throws off. Maybe you already know?

Not that it was a good time for stocks either, but diversification — into bonds too — would have helped. Bogleheads are big on diversification.

Also, do you foresee a time when you can’t manage or make good decisions about your real estate? A passive, index-based portfolio is easier to handle.

pkjr
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by pkjr » Sat Mar 09, 2019 11:41 pm

From the income prospective you are good. What I would think about is asset protection from lawsuits. That’s what we are doing this year. Moving some assets int landtrusts/ LLCs and doing umbrella insurance

Topic Author
Lienlord
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by Lienlord » Sat Mar 09, 2019 11:53 pm

chessknt wrote:
Sat Mar 09, 2019 10:30 pm
I would also add that expenses need to account for Healthcare (could add over 1k monthly) if you are currently getting it through your job.
Thank you, and I agree Healthcare will be a concern for at least 10 years until 65.
Looking into taking COBRA in the short run, and considering a Health Sharing Plan as long as our health is good enough to qualify. Hoping not to be forced into ACA as the high cost of premiums look to only continue to rise!

Topic Author
Lienlord
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by Lienlord » Sun Mar 10, 2019 12:02 am

delamer wrote:
Sat Mar 09, 2019 11:01 pm
Look back to the Great Recession and think about what could have happened to the value of your real estate and the income it throws off. Maybe you already know?

Not that it was a good time for stocks either, but diversification — into bonds too — would have helped. Bogleheads are big on diversification.

Also, do you foresee a time when you can’t manage or make good decisions about your real estate? A passive, index-based portfolio is easier to handle.
Thank you. I agree, and guess my lack of diversification outside of real estate makes me uneasy. Most of the income are payments on notes backed by the assets. I guess there is a chance of default which would require foreclosure on them, and in a recession could mean they'd be worth less. But these properties are small houses that provide affordable rentals, which should always be in demand.

My goal is to have all properties eventually sold off and only hold the notes to avoid any management. My current role in the LP's & syndicates is completely passive so that is nice.
Last edited by Lienlord on Sun Mar 10, 2019 12:11 am, edited 1 time in total.

Topic Author
Lienlord
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by Lienlord » Sun Mar 10, 2019 12:06 am

pkjr wrote:
Sat Mar 09, 2019 11:41 pm
From the income prospective you are good. What I would think about is asset protection from lawsuits. That’s what we are doing this year. Moving some assets int landtrusts/ LLCs and doing umbrella insurance
Thank you for this. We carry an umbrella liability policy for a measure of protection. Also, all properties are owned in various LLCs, which roll up to a master LLC.
We also have a living trust that owns all of our businesses and the master LLC.

CurlyDave
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by CurlyDave » Sun Mar 10, 2019 12:31 am

I would tend to view the notes as being closer to high-risk, high interest bonds than as real estate.

DW and I hold significant real estate in retirement. If I ignore the mortgages, our real estate/equities ratio is about 50/50. We also have substantial pensions and SS. I capitalize these (an unpopular view on this board) and that gives us 33/33/33 for stocks/ real estate/ capitalized income streams. I think this is a very nice position to have.

You are young and I would take the income from the notes you carry and start buying equities. If you find new, good real estate deals consider 30 year fixed-rate mortgages. I think there are one of the best ways to deal with inflation the non-billionaire can find. Rents increase with inflation, but mortgage payments do not.

You have to decide on an Asset Allocation you are comfortable with, but I think our 33/33/33 is pretty close to the sweet spot. A lot of people here may not hold real estate and will talk about an AA of 60/40 or 50/50. I think adding real estate gives more diversification.

Depending on your pensions and SS, you may want to add some bonds to the mix, but I consider inflation to be a certainty, not just a risk and I see bonds as usually falling behind.

curmudgeon
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by curmudgeon » Sun Mar 10, 2019 12:38 am

I think the key factor you need to consider is your overall risk picture. The techniques and investments that helped you grow your net worth are not necessarily the ones that are the best when you are retired and don't have other income; you want to reduce risk as well as management effort. Lots of people retire based on real estate rather than the more typical stocks and bonds, but I would lean towards having more diversification to be able to weather localized downturns.

The risk in my mind comes from having so much concentration in type and location of your investments. These points would be my concern:

1) Location - Not knowing specifics, I would be concerned if there is a major employer or industry which might close of have a major downturn. Detroit is a classic example, but coal/steel/auto parts cities would be other cases. If there were a significant shift, then the economic viability of the small SFR rentals might take a hit as well.

2) Concentration of type of risk - We've seen banks and credit unions fail when they have too much concentration in specific types of investment. A downturn can put pressure on both commercial properties and loans, especially when highly leveraged. I saw a couple of local banks fail for this even in prosperous areas of California. Similarly, there is a credit union in New York which failed because they had too great a concentration in loans for taxi medallions when uber/lyft came along. If multiple of your notes started going into arrears at the same time (I presume they are 2nds) because of poorer rental occupancy/returns, it could be quite challenging to pick up the pieces and prevent large losses.

I'd say to dial back the risk (and accept a lower return) as you approach retirement.

chessknt
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by chessknt » Sun Mar 10, 2019 7:26 am

Lienlord wrote:
Sat Mar 09, 2019 11:53 pm
chessknt wrote:
Sat Mar 09, 2019 10:30 pm
I would also add that expenses need to account for Healthcare (could add over 1k monthly) if you are currently getting it through your job.
Thank you, and I agree Healthcare will be a concern for at least 10 years until 65.
Looking into taking COBRA in the short run, and considering a Health Sharing Plan as long as our health is good enough to qualify. Hoping not to be forced into ACA as the high cost of premiums look to only continue to rise!
Health sharing plan is not the same as health insurance. Google the difference between the two and decide if you want to assume the significant increase in financial risk. You get (or don't get rather) what you pay for. Just like life and disability insurance, the point of health insurance is not to get the cheapest product but the one that actually financially protects you in the event the unlikely occurs. The aca plans do this, hsps do not.

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Johnsson
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by Johnsson » Sun Mar 10, 2019 8:32 am

I agree with diversification. Curledave's suggestion of thirds is a good place to start (with bond funds sharing the capitalized stream space).

I think you also need to look at your and your spouses and children's long-term desire to continue managing the RE portfolio. It seems great now. As you age the hassle of handling a default will look worse than it does now.

Fortunately you are young and have years to transition in the direction you want to go...

Note: We are close to your age and are working to sell our RE investments which have provided good returns. I know mortgages are easier to manage than properties but a default on a house the tenants/owners have trashed would be no fun to consider while you're heading off to a 3 week cruise. Just sayin'.

livesoft
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by livesoft » Sun Mar 10, 2019 8:44 am

I read the OP which was a good way for them to put their "thoughts to paper" and get it clear in their mind what is going on in their financial life.

My reaction was that everybody has their personal biases, so that people who like real estate will continue to like real estate and that people who like mutual funds will continue to like mutual funds.

My other reaction was "What are you going to do with all that money?" It sure seems that if the budget is going to be $6K a month that you must be rolling in the dough now with $3K from spouse, $5K from your W2, $10K from real estate cash flow, and who knows what else now.

Another question: You didn't really state your ages did you? If you are 30 years old that would be a lot different than being 60 years old right now.
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Wanderingwheelz
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by Wanderingwheelz » Sun Mar 10, 2019 10:27 am

When it comes to FIRE, one huge benefit to using an extremely tax efficient stock fund like Vanguard Total Stock Market is it allows you to only peel off the monthly income you actually need. Receiving income that you do not need to meet your monthly expenses only serves to drive up your tax burden. Why is this important? For FIRE it can have a negative impact on your ability to receive a health care subsidy under Obamacare, which in my state can be nearly $7,000/yr if you’re married and keep your income below $66,000- which is right around the monthly income tonsay you’ll need in retirement.

The world of early retirement has changed and to my way of thinking how you receive your income can have quite a negative effect on how much you pay for your health insurance.

My wife and I are putting all of your taxable growth funds into Vanguard Total Stock Market, knowing if I retire at 52 we will surely receive a subsidy since our mortgage is paid off and we can comfortably live off of $66,000/yr., since we live in a low expenses part of the country and we don’t take luxurious vacations.

Topic Author
Lienlord
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by Lienlord » Sun Mar 10, 2019 5:43 pm

CurlyDave wrote:
Sun Mar 10, 2019 12:31 am
I would tend to view the notes as being closer to high-risk, high interest bonds than as real estate.

You are young and I would take the income from the notes you carry and start buying equities. If you find new, good real estate deals consider 30 year fixed-rate mortgages. I think there are one of the best ways to deal with inflation the non-billionaire can find. Rents increase with inflation, but mortgage payments do not.
Thank you for this response! I hadn't really considered the 1st position mortgages I hold on the properties were more like bonds than real estate, only being used as collateral on the note.
I like the idea of investing the note income into equities to help diversify my portfolio rather than adding only Real Estate. I already have an account with VG, and previously invested in S&P 500 Index fund before cashing out to start buying houses 4 years ago. I read an article in Kiplinger about the best 6 VG Index funds for 2019 and recommended allocations:

1. S&P 500 Index Admiral (VFIAX) 35%
2. Mid-Cap Index Admiral (VIMAX) 10%
3. Small-Cap Index Admiral (VSMAX) 10%
4. Developed Markets Stock Index Admiral (VTMGX) 17%
5. Emerging Markets Stock Index Admiral (VEMAX) 8%
6. Short-Term Corporate Bond Index Admiral (VSCSX) 20%

Does this seem like a good mix, or would it be better to just put it all into Total Stock Market Index Fund (VTSAX)? I could commit to investing about $10K per month.

LL

Topic Author
Lienlord
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by Lienlord » Sun Mar 10, 2019 5:51 pm

Johnsson wrote:
Sun Mar 10, 2019 8:32 am
I agree with diversification. Curledave's suggestion of thirds is a good place to start (with bond funds sharing the capitalized stream space).

I think you also need to look at your and your spouses and children's long-term desire to continue managing the RE portfolio. It seems great now. As you age the hassle of handling a default will look worse than it does now.

Fortunately you are young and have years to transition in the direction you want to go...

Note: We are close to your age and are working to sell our RE investments which have provided good returns. I know mortgages are easier to manage than properties but a default on a house the tenants/owners have trashed would be no fun to consider while you're heading off to a 3 week cruise. Just sayin'.
Thanks for the response, and sounds like we're in similar situations. I agree that my spouse & children probably won't be interested in managing the portfolio, so my goal is to make it as passive as possible. As the mortgages pay off, those properties will go away within the next 15 years. The LP's & Syndicates are pretty passive as well, with dividends direct deposited.

Based on your's and others suggestions, I will explore directing the real estate cashflows into equities to diversify & balance the portfolio.

Funny thing...the last 2 cruises we were on was while a remodel project was happening on a property. My wife still laughs about me standing at the port in Jamaica yelling at a contractor on my cellphone about a mistake! Haha
LL
Last edited by Lienlord on Sun Mar 10, 2019 6:12 pm, edited 1 time in total.

Topic Author
Lienlord
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by Lienlord » Sun Mar 10, 2019 6:06 pm

Wanderingwheelz wrote:
Sun Mar 10, 2019 10:27 am
When it comes to FIRE, one huge benefit to using an extremely tax efficient stock fund like Vanguard Total Stock Market is it allows you to only peel off the monthly income you actually need. Receiving income that you do not need to meet your monthly expenses only serves to drive up your tax burden. Why is this important? For FIRE it can have a negative impact on your ability to receive a health care subsidy under Obamacare, which in my state can be nearly $7,000/yr if you’re married and keep your income below $66,000- which is right around the monthly income tonsay you’ll need in retirement.

The world of early retirement has changed and to my way of thinking how you receive your income can have quite a negative effect on how much you pay for your health insurance.

My wife and I are putting all of your taxable growth funds into Vanguard Total Stock Market, knowing if I retire at 52 we will surely receive a subsidy since our mortgage is paid off and we can comfortably live off of $66,000/yr., since we live in a low expenses part of the country and we don’t take luxurious vacations.
Thanks for your response! It sounds like my focus should be on growth not income with future investments. Knowing we could live below the subsidy level help. It never occurred to me that excess cashflows that aren't needed would actually create a problem (1st world problem, but still.)!
LL

Topic Author
Lienlord
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by Lienlord » Sun Mar 10, 2019 6:48 pm

livesoft wrote:
Sun Mar 10, 2019 8:44 am
I read the OP which was a good way for them to put their "thoughts to paper" and get it clear in their mind what is going on in their financial life.

My reaction was that everybody has their personal biases, so that people who like real estate will continue to like real estate and that people who like mutual funds will continue to like mutual funds.

My other reaction was "What are you going to do with all that money?" It sure seems that if the budget is going to be $6K a month that you must be rolling in the dough now with $3K from spouse, $5K from your W2, $10K from real estate cash flow, and who knows what else now.

Another question: You didn't really state your ages did you? If you are 30 years old that would be a lot different than being 60 years old right now.
Thanks for the response. I will be 55 in about 8 months, and planning to give my 90 day retirement notice at my W2 job then.
Since we began real estate investing, we've committed to only use the proceeds for either real estate expenses or to purchase more.

mikeyzito22
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by mikeyzito22 » Sun Mar 10, 2019 6:57 pm

Lienlord wrote:
Sun Mar 10, 2019 5:43 pm
CurlyDave wrote:
Sun Mar 10, 2019 12:31 am
I would tend to view the notes as being closer to high-risk, high interest bonds than as real estate.

You are young and I would take the income from the notes you carry and start buying equities. If you find new, good real estate deals consider 30 year fixed-rate mortgages. I think there are one of the best ways to deal with inflation the non-billionaire can find. Rents increase with inflation, but mortgage payments do not.
Thank you for this response! I hadn't really considered the 1st position mortgages I hold on the properties were more like bonds than real estate, only being used as collateral on the note.
I like the idea of investing the note income into equities to help diversify my portfolio rather than adding only Real Estate. I already have an account with VG, and previously invested in S&P 500 Index fund before cashing out to start buying houses 4 years ago. I read an article in Kiplinger about the best 6 VG Index funds for 2019 and recommended allocations:

1. S&P 500 Index Admiral (VFIAX) 35%
2. Mid-Cap Index Admiral (VIMAX) 10%
3. Small-Cap Index Admiral (VSMAX) 10%
4. Developed Markets Stock Index Admiral (VTMGX) 17%
5. Emerging Markets Stock Index Admiral (VEMAX) 8%
6. Short-Term Corporate Bond Index Admiral (VSCSX) 20%

Does this seem like a good mix, or would it be better to just put it all into Total Stock Market Index Fund (VTSAX)? I could commit to investing about $10K per month.

LL
1. VTSAX (the majority)
2. VTIAX
3. VBTLAX

Your percentages may vary, but there is no reason to split them up into different cap weights. That'll just have you rebalancing and tweaking too often.

Topic Author
Lienlord
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by Lienlord » Sun Mar 10, 2019 7:28 pm

mikeyzito22 wrote:
Sun Mar 10, 2019 6:57 pm
1. VTSAX (the majority)
2. VTIAX
3. VBTLAX

Your percentages may vary, but there is no reason to split them up into different cap weights. That'll just have you rebalancing and tweaking too often.


Thanks for the advice. So split maybe 50/25/25?

CurlyDave
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by CurlyDave » Sun Mar 10, 2019 11:57 pm

I don't think you can go too far wrong with Total Stock Market.

For some reason, I started out with ETFs and have never really bought funds. I don't see a huge difference between VTSAX and SPY. Personally I have held QQQ over the past decade rather than SPY and that has served me well.

I can't really give much advice on tax strategies, we have always had enough income that our marginal rate was high. So, I have concentrated on maximizing return rather than minimizing taxes. Come April, we are going to have to write a check to uncle that will support 1.5 bureaucrats for an entire year. Essentially the more you make, the more you will be taxed. I don't understand giving up significant income in order to save 1/3 or even 1/2 of that in taxes. Seems like a losing proposition to me...

Topic Author
Lienlord
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by Lienlord » Mon Mar 11, 2019 8:27 am

Lienlord wrote:
Sun Mar 10, 2019 5:43 pm

I read an article in Kiplinger about the best 6 VG Index funds for 2019 and recommended allocations:

1. S&P 500 Index Admiral (VFIAX) 35%
2. Mid-Cap Index Admiral (VIMAX) 10%
3. Small-Cap Index Admiral (VSMAX) 10%
4. Developed Markets Stock Index Admiral (VTMGX) 17%
5. Emerging Markets Stock Index Admiral (VEMAX) 8%
6. Short-Term Corporate Bond Index Admiral (VSCSX) 20%
Oh, another quick question please. This article referenced the ETF version of each of these funds as well. I'm sure this is asked a lot, but could someone explain the difference in buying the fund or the ETF? Are there specific situations where one is better than the other?

Thanks!
LL

livesoft
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by livesoft » Mon Mar 11, 2019 8:38 am

Welcome again to the forum. The ETF vs Mutual fund question is addressed:
https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds

I would not take anything in Kiplingers as something to blindly follow. Do more research. And stop reading Kiplingers.
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renue74
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by renue74 » Mon Mar 11, 2019 9:07 am

Though I don't have as much real estate exposure as you...I do have 9 single family rentals and 1 full time airbnb...with about $1M of paid off real estate that throws off $8,500/month in EBITA income. We have $1.2M in our funds portfolio. My wife is a teacher and we rely on her for our family healthcare.

The other part of your scenario is at 55...what are you planning to do with your time? If you have an extra $20k/month...it's very easy to start looking at other properties to buy. I know...it's addicting to find a good deal in a good neighborhood throwing off 12% to 20% COC ROI.

-So you should probably make sure to talk with your wife about your overall plan.
-As a W2 employee, it's easier to get bank loans. I have a very small business and the in the past have been turned down for loans because of our D2I ratio. So...make sure you don't need or want to borrow any $ before you "retire."
-On your seller financed notes, be weary of the notes being paid off and plan for what you'll do with the $. I would assume that most 15 year notes for landlords wouldn't hit full maturity.

mrrentman
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by mrrentman » Mon Mar 11, 2019 9:17 am

I didn't notice you saying how long you've had this real estate, thus did you live through 2008 or not.
I had a much larger real estate portfolio than you in 2008 and you may not realize how bad it gets.
Vacancies multiple like rabbits and you can't get a tenant at any price. Real estate values drop. You can't get loans.
The people paying you notes could all stop paying at once and if you foreclose and take the properties back, you then have their problems of expense with no income.
I bled hundreds of thousands of dollars until things turned around.
The point - diversify and get all your eggs out of the real estate business.
Also, whatever insurance you have, get more. The amount of real estate lawsuits seem to be multiplying at an alarming rate.

22twain
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by 22twain » Mon Mar 11, 2019 9:30 am

chessknt wrote:
Sat Mar 09, 2019 10:30 pm
at 25 k near passive income monthly with expenses at 6k you are more than fine. You make more than 95% of people who are still working.
Lienlord wrote:
Sat Mar 09, 2019 11:53 pm
Hoping not to be forced into ACA as the high cost of premiums look to only continue to rise!
With that level of income and other expenses, I see no need to "cheap out" on health insurance.
My investing princiPLEs do not include absolutely preserving princiPAL.

Topic Author
Lienlord
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Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by Lienlord » Mon Mar 11, 2019 1:40 pm

renue74 wrote:
Mon Mar 11, 2019 9:07 am
Though I don't have as much real estate exposure as you...I do have 9 single family rentals and 1 full time airbnb...with about $1M of paid off real estate that throws off $8,500/month in EBITA income. We have $1.2M in our funds portfolio. My wife is a teacher and we rely on her for our family healthcare.

The other part of your scenario is at 55...what are you planning to do with your time? If you have an extra $20k/month...it's very easy to start looking at other properties to buy. I know...it's addicting to find a good deal in a good neighborhood throwing off 12% to 20% COC ROI.

-So you should probably make sure to talk with your wife about your overall plan.
-As a W2 employee, it's easier to get bank loans. I have a very small business and the in the past have been turned down for loans because of our D2I ratio. So...make sure you don't need or want to borrow any $ before you "retire."
-On your seller financed notes, be weary of the notes being paid off and plan for what you'll do with the $. I would assume that most 15 year notes for landlords wouldn't hit full maturity.
I appreciate your response. My wife is also a teacher, but self employed, so we're currently getting our healthcare from my W2 job.

At 55, I still want to work in some capacity; and our real estate investing seems the natural fit. You're right about the temptation to buy deals that turn a high profit! I've worked hard to network with other investors, and have mentored several in the process. Now when I find a deal on a property, my first thought is who I could pass this onto to take it the rest of the way (as a rental or flip) and make a profit on the transaction. Another thing I've been doing is Hard Money Lending to investors to purchase/rehab/flip projects. These are short term (mostly 12 months or less) with a lien on the property, and in relatively small amounts. I enjoy this niche of REI because it allows me to be involved in projects on a short term basis, give my advice (when asked!) about their project, and make a nice little return with a quick turnaround so as not to tie up the funds for very long.

Bank loans for future deals is an area that I do have some concerns for once I leave my W2 job. I've got a good relationship with a local community banker that is carrying the mortgage on our office building, so I would hope that our credit rating and track record would help to secure additional funding if needed. We also have a HELOC on our home, and that has been a good way to access funds to get a quick cash deal (we pay it off quickly from cashflow over a few months)! I'm actually looking for a perfect buy & hold deal that I can get a big mortgage on in the next 12 months while I can more easily qualify.

As far as notes paying off early, I've actually had one early payoff and have had two clients contact me recently requesting payoff. So I think my plan (after getting advice from this board!) is to direct those funds into equities to help diversify & balance my portfolio. Same goes for my LP's and Syndicate deals.
LL

mikeyzito22
Posts: 243
Joined: Sat Dec 02, 2017 5:42 pm

Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by mikeyzito22 » Wed Mar 13, 2019 9:12 pm

Lienlord wrote:
Sun Mar 10, 2019 7:28 pm
mikeyzito22 wrote:
Sun Mar 10, 2019 6:57 pm
1. VTSAX (the majority)
2. VTIAX
3. VBTLAX

Your percentages may vary, but there is no reason to split them up into different cap weights. That'll just have you rebalancing and tweaking too often.


Thanks for the advice. So split maybe 50/25/25?
It doesn't seem too far off. I suppose since you have enough cash flow and are essentially not planning on touching it, this split looks okay. Maybe a bit more bonds to start and see how it feels. Maybe 55/15/30? Now we are nitpicking but a diversified three fund (add to it or keep it ready) and see how your cashflow works with it. I believe the financial decisions of the houses, retirement, etc. may be more important right now than exact asset location. Get in there with what you can handle and hold. You can work on tweaking it exactly later. I hope that makes sense.

renue74
Posts: 1775
Joined: Tue Apr 07, 2015 7:24 pm

Re: Ready to FIRE @ 55 with Real Estate Portfolio?

Post by renue74 » Thu Mar 14, 2019 8:04 am

Lienlord wrote:
Mon Mar 11, 2019 1:40 pm
renue74 wrote:
Mon Mar 11, 2019 9:07 am
Though I don't have as much real estate exposure as you...I do have 9 single family rentals and 1 full time airbnb...with about $1M of paid off real estate that throws off $8,500/month in EBITA income. We have $1.2M in our funds portfolio. My wife is a teacher and we rely on her for our family healthcare.

The other part of your scenario is at 55...what are you planning to do with your time? If you have an extra $20k/month...it's very easy to start looking at other properties to buy. I know...it's addicting to find a good deal in a good neighborhood throwing off 12% to 20% COC ROI.

-So you should probably make sure to talk with your wife about your overall plan.
-As a W2 employee, it's easier to get bank loans. I have a very small business and the in the past have been turned down for loans because of our D2I ratio. So...make sure you don't need or want to borrow any $ before you "retire."
-On your seller financed notes, be weary of the notes being paid off and plan for what you'll do with the $. I would assume that most 15 year notes for landlords wouldn't hit full maturity.
Bank loans for future deals is an area that I do have some concerns for once I leave my W2 job. I've got a good relationship with a local community banker that is carrying the mortgage on our office building, so I would hope that our credit rating and track record would help to secure additional funding if needed. We also have a HELOC on our home, and that has been a good way to access funds to get a quick cash deal (we pay it off quickly from cashflow over a few months)! I'm actually looking for a perfect buy & hold deal that I can get a big mortgage on in the next 12 months while I can more easily qualify.
I'm pretty sure if that you can count 75% of rental property income as income for DTI ratio. But, I'm not sure about financing notes. That would definitely be a question to ask your banker.

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