Anonymous and her husband have received a large commission and want to understand how to better plan for their future by optimizing for these inconsistent windfalls.
Brian has hit coast F.I.R.E and would like guidance on how to prioritize between tax advantaged accounts and retirement accounts.
Anonymous and his wife have been focused on getting short term rentals in a single location – is his portfolio too focused on this singular strategy??
Daniel and his wife want to go on an extended vacation and leave their jobs next year…and still have money in case there’s a problem at their rental properties. Would a HELOC help them?
Former financial planner Joe Saul-Sehy and I tackle these four questions in today’s episode.
P.S. Got a question? Leave it here.
Here are the details:
Anonymous asks (at 02:15 minutes): My husband and I earn great money from our base salaries, but he’s in a sales role. We budget around our base salaries alone without any of his commission – sales tends to be feast or famine in his world so we don’t always know if or when extra money will come in.
Last year, my husband received a windfall of $750,000 post tax, for one of his deals. He has received windfalls in the past as well though never quite this size.
We are diligent savers: we have fully funded 401ks, emergency funds, post-tax money invested. We have been right on track to retire a few years early and live a comfortable lifestyle. Additionally, we own a condo, our primary residence.
We are based in a large and expensive metro area and are thinking about moving into a bigger home from our condo with our young child and possible future children. In the suburbs, we’re looking at houses around $1.5 million and taxes are high. We can’t really afford to live there on our monthly based income alone given all of our other commitments.
My husband also doesn’t support putting down more than 20 percent – he believes that the extra money is better served in the market.
We’ve worked with an advisor and run the numbers, and we can still meet all of our future financial goals if we put up to $300,000 down and that’s without even selling our current home.
We didn’t run the numbers beyond the $300,000 amount, but there’s a high likelihood we’d be able to put more down without sacrifice.
I would love to better understand how our money can afford us flexibility and work to our advantage in buying a home we love in a town we love, instead of reverting to relying on our minimum base salaries alone.
I also want to learn more about how we can intelligently and realistically make something work and better understand our budget, which is something I might be able to answer myself if I have a solid framework.
Brian asks (at 25:53 minutes): I’ve always been taught that tax advantaged accounts are mathematically optimal, even if you have to withdraw before age 59.5.
But…is it possible to have too much in your retirement accounts?
I’m concerned that I won’t feel comfortable withdrawing early from retirement accounts and that I’ll end up working longer than I need to.
I’m also concerned that the lack of flexibility might prevent me from making major moves, like if I ever got the itch to buy property or travel elaborately.
I’ve reached Coast F.I.R.E., and our family is starting to transition away from full-time work. Now that our income is falling we can’t afford to max out our retirement accounts and still invest in our taxable accounts.
How should I prioritize them? Is it okay to give up the tax advantages for flexibility, or are the tax advantages simply too good to pass up?
Anonymous asks (at 38:59 minutes): My wife and I are in our early forties. We’re both federal employees, each making around $115,000 in salary per year.
Our retirement savings amount to about $630,000 when you combine our Thrift Savings Plans, traditional IRAs, and Roth IRA investments. We are maxing out each of these every year and don’t have any debt other than mortgage debt.
In early 2021, we purchased a short term rental property in a mature tourist market centered around Hocking Hill State Park, which is an hour southeast of Columbus, and is one of the top tourist attractions in Ohio with millions of visitors each year.
We have since purchased a second cabin in the area and are in the process of purchasing a third.
Between buying at a discount, our down payments and price appreciation in the area we will have approximately $850,000 in equity with properties currently valued a bit over 2 million.
My main question is whether this is too much concentration for our portfolio being in one market. We have systems and good relationships with contractors, including our cleaners, making self-management doable.
Our plan at the moment is to use the cash flow to pay off our primary residence in two years.
From there, we might debt snowball some or all of the cabins, which would allow the cabins to cover all of our living expenses.
Or we could use the cash flow to purchase long term rentals in Columbus, invest in syndications, or something else.
But before we get there, I’m wondering if we are simply too concentrated, leaning too hard into a single strategy – short term rentals -and into a single market. Warren Buffet advocates for concentration in stock investing when there’s professionalism and confidence.
Why not with real estate?
Daniel asks (at 50:26 minutes): My wife and I are planning a five-month vacation next year, followed by reduction in income by leaving our corporate jobs and working on more meaningful things.
We currently have about $43,000 in cash, a million in pre-tax accounts, $140,000 in brokerage accounts, $57,000 in Roths, $43,000 in HSA’s and a laughable crypto amount not even worth mentioning.
Our credit rating hovers around 820 to 825.
We became accidental landlords when we moved out of our primary residences.
Being child-free renters ourselves, we have no primary residence and rent out our two condos. One condo has an outstanding mortgage of $100,000 on a $180,000 loan. The other condo has an outstanding mortgage of $250,000 on a $371,000 loan.
Our question is about HELOC’s on these investment properties.
$20,000 of our cash reserved is earmarked for these residences in case anything happens, but would a HELOC be a better option if the feces hits the rotary blade machine?
How do you even go about getting a HELOC? Is it even possible to obtain a HELOC on investment properties? Would it be a better idea to take $10,000 of the $20,000 cash reserve and put it in an I-Bond or something similar if and when we open a HELOC?
Our main worry would be not having enough cash to cover big expenses on our rentals when we are not working next year.
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