neemap journal on the path to FI. Here are my numbers.

[neemap]

Hi guys, I just finished reading Early Retirement Extreme and I also read some of madfientist and I've decided that FI is definitely for me. Little did I know that I kinda was already doing some of it anyway and I've always been a frugal person living well below my means. Hopefully, I'm not overdoing my first post and providing too many numbers to crunch but I wanted to be as complete as possible.

Anyway, here are my numbers and my goals.

Age:35

Annual Salary: 138k/year (Bonus ranges from 0-20% Assume 7.5% on average). No state income tax.

Profession: Software Engineer

401k: $216,360.00 (Employer matches 50% so I contribute the max).

HSA: $5,584 (I contribute the IRS limit per year starting about 2 years ago).

Cash: $4,000 (roughly)

Debt: I owe my dad $25k for property (see below).

Current Expenditures Total: $2,150/month. I doubt I can lower this much further.

Family: Not married, no kids

Home: Renting

Passive Income Stream: See below

Medical: Yes, I have a medical condition, see below.

Goal: Retire at 45 at the latest. 42 would be ideal.



Property #1 (Commercial):
Loan Remaining: $586,286
Loan type: 10/yr @ 4.91% amortized over 20 years. $4,153.75 per payment (P = $1,743.87, I = $2,409.63 currently)
Cash Flow: $1,468 positive (after mortgage, condo fee, property tax, insurance).
Ownership: 75%



Property #2 (Commercial):
Loan Remaining: $603,314
Loan type: 10/yr @ 4.65% amortized over 25 years. $3,622.83 per payment (P = $1,284.57, I = $2,337.28 currently)
Cash Flow: $2,350 positive (after mortgage, condo fee, property tax, insurance).
Ownership: 40%



Property #3 (Commercial):
Loan Remaining: $688,256
Loan type: 7/yr @ 4.8% amortized over 20 years. $4,503.87 per payment (P = $1,743.87, I = $2,760 currently)
Cash Flow: $1,694.30 positive (after mortgage, condo fee, property tax, insurance).
Ownership: 75%


Medical issue: I suffer from chronic pain from spinal issues. I'm still functional but this does limit me physically in some ways (and limits me mentally). My pain also interferes with my work and every aspect of my life. Happiness for me is no longer possible. Nothing further to say here because I don't want to depress myself describing my life. I'm not taking any meds and doctors have not been able to help me so there will be no further medical costs (that I'm aware of). Otherwise, I'm healthy and of a healthy weight (could lose 10 lbs though).


So my ticket to FI is mostly in the property I bought recently. It is hard to give you all the numbers in a post so I shared an excel spreadsheet I made here: https://ombx.io/foQYtqFX (You can download the spreadsheet, bottom right corner).

Essentially, all properties are cash flow positive (after mortgage, tax, condo fee, insurance). If I use 85-90% of the extra cash made and add $750 of my own money per month ($250 for my dad since he is 25% owner), I calculated I can have the entire loan paid off in about 8-10 years for all properties. Note, this implies things go perfectly! No gaps in rent, rent increase of about 2.5% year, condo/property taxes increasing by 2% per year and there is no major repair needed. Obviously, this is probably not going to happen since one of the properties needed $20k for a new ceiling because too much noise was being generated by one of the tenants.

If rent increases as planned, taxes/condo fees increase as planned and the ownership remains the same, I predict my monthly cash flow from the rentals will be $12.5 - 15k once the entire loan is paid off. This is when I plan to retire.

BONUS POINTS: My dad manages all the properties for me! I live on the other side of the country from my properties so essentially it takes no work on my end outside of my money. He is retired and lives near the properties so it is all good. Managing it is pretty easy actually. Our leases are for multiple years and since it is commercial there is no kitchen/sink/shower to fix or garden/garage to worry about.

Things I plan to do:
1.) Continue to work (I may take a year off somewhere) for at least 6 years
2.) Pay down the mortgage on my properties ($750 for the ones I'm 75% owner, $400 for the one I'm 40% owner)
3.) Save my money either for a house OR dump it in an index fund
4.) Pay my dad off (12-18 month time frame here)
5.) I *could* use the money I save up for a house or index fund and increase ownership of the properties. My dad has offered me a chance to buy his part of the ownership of the properties anytime I want. I may do this in liu of step #3.

Question:
1.) Am I missing something? I know 10k+/month seems like a lot according to ERE but I want to have a very comfortable margin of error. I was thinking that I could refinance the loan to some 30 year loan in about 6 years and just retire then even with some mortgage left over.
2.) What other variables am I missing? Wife? Kids? I don't know how to plan for that.
3.) I can't expect my dad to manage this forever. After a few years I'll probably need to start managing it myself.

[halfmoon]

Welcome, neemap! I'm sorry to hear about your medical condition; that sounds pretty lousy. My thoughts on your financial picture:

1. It's always inspiring to see someone who made a bundle of money and actually saved/invested it!

2. Where are the properties? Are they all in the same general area? Same type of tenants? That's a lot of exposure if so.

3. If your agressive paydown plan doesn't pan out for whatever reason (medical expenses, job loss, significant repair bills), you'll need to refinance each of these loans 10 years from the purchase date. There could be quite an interest rate shock at that point. You might also have a harder time with the refinance (or pay a higher rate) because you won't be employed, though you will have more equity at that point. I'm actually surprised you got a 10-year fixed rate on a commercial property loan; I typically see a maximum of 5 years.

4. Related to the above: do you have any reason to think you could refinance the debt in 6 years to a 30-year mortgage as you mention in your Question section? If this is truly an option, great. If not, I would take it off the mental table.

5. I think you need to make some assumptions regarding repairs or special condo assessments and plug them into your projections. Same goes for vacancies. Did the seller provide you with financials that might show typical vacancies over the years? Did the inspections turn up any potential issues?
It's good that you have these factors in the back of your mind, but they're probably not helping with the planning process unless you get them into a spreadsheet.

6. I'm a little confused about the $25k owed to your dad. Under "Things I plan to do", #4 is pay off your dad. I'm assuming that would be different from buying out his ownership percentage, or do you have another joint owner?

Again: I'm impressed with your aggressive investing. Having said that, I would be uncomfortable with the lack of diversification.

[neemap]

Answering your questions below:

2.) Two of them are next to each other. The other one is about 20-30 minutes away.

3.) Property #3 is actually a 7 year loan, I'll update the info. The rest are in fact 10 year loans. If I'm in a situation where there is significant debt left on the properties in 10 years than I'll still have to work I suppose. Or get a job, secure the refinance, then quit my job 6 months later Yeah I suppose there could be a shock in 10 years (7 for the other one), but my plan is to aggressively pay them down.

4.) Couldn't I just get a loan from another bank and refinance that way? In about 7-9 years? Like, get a loan from BoA or something and just refinance?

5.) I have no data on vacancies. The properties seem to be in good shape as far as repairs goes. Tenant vacancies worry me the most out of this whole plan.

6.) Yes that is different. I owe him about $25k just to make my ownership 75%. Once that is done I can start buying more ownership, or do something else

Diversification is something else I'm worried about. Outside of these properties, all I have is my 401k. I'll probably build another nest egg in 5-7 years since I'll be working so from here on out I'll do the US Stock market index fund from Vanguard I guess (I'll need 2 years before I can start).

[halfmoon]

4.) You might be confusing commercial loans with residential ones. In my experience, commercial loans generally run for a maximum of 5 years even though the amortization runs for a longer term. This reduces the monthly payment because it's based on an amortization schedule of 20 or more years. In a rising interest rate environment, you'll keep renewing this loan for some time.

[neemap]

I see. Well the loans I have above are definitely for 10 years (I checked the loan contract), except the 3rd property. That is for 7 years. Hopefully in 7 years I'll have enough paid off to where I don't care what the new interest rate is.

[wolf]

Welcome neemap! I am also 35 and I aim for FIRE when I am 42. Hopefully we can share some stories along the ERE-journey. Have you alread thought about doing the "21 day makeover"?

[Riggerjack]

Sorry to hear about your back. Have you looked into kratom? I don't have much faith in herbs and such, but my wife swears by it, and there are lots of folks using it for long term pain management. It seems to work for some folks, it's cheap, and available without prescription, until the DEA and FDA have their way...

As to the financials, I don't know anything about commercial real estate, but I have 2 residential units. I posted a thread on fed policy and the projected effects on mortgage rates and RE prices. As with everything else fed related, it devolved into debt and money policy debating. But I am looking to divest my RE soon. I'm not recommending you do the same, just suggesting you look at it in your long term plans.

Welcome.

[taemoo]

I predict my monthly cash flow from the rentals will be $12.5 - 15k once the entire loan is paid off. This is when I plan to retire.

Your cash flow is going to be amazing once you reach your goals, it's pretty amazing now.

Pain is no fun, hope you get to a place where it can be managed. I witnessed my wife go through chronic pain where score of 7 was a good day, popping dilaudid like they were vitamins while on a fentany lpatch. Puts your life in perspective. Wish you well.

[2Birds1Stone]

If your expenses are only $2k/month I don't see why you would voluntarily work until you had $12.5-15k of cashflow. I guess you will slowly come around after spending more time here

[neemap]

If your expenses are only $2k/month I don't see why you would voluntarily work until you had $12.5-15k of cashflow. I guess you will slowly come around after spending more time here

Well, lots of different reasons.

1.) I want to live off more than just $2.1k/month. Probably 4-5k is what I want.
2.) I want to have my own home or rent my own home.
3.) Risk. If my places are vacant then I'll need to pay off the mortgage out of my own cash. I don't have enough liquid cash right now to do that.
4.) Paying down the mortgages fast. I need to do this so when I have to refinance I won't have a high interest loan with a large amount left on it since interest rates will be going up (probably) in the future. I also need cash from my job to help pay down the loan faster as well as the cash flow from the properties.
5.) If I stop working now, I'll need to pay for my own medical insurance and dental. That would increase my monthly cost.
6.) I want to buy more equity in the properties I have, meaning I need money to buy it out from my dad.
7.) I also owe my Dad $27k.

Given all the reasons above, I'll probably be working for at least another 5 years.

[thrifty++]

Hi and welcome.
Looks like you are doing extremely well.

What happened to your back?

[neemap]

What happened to your back?

A long story, don't really want to go into it. Suffice to say I suffer from chronic pain. Not on any meds though. That shit will kill you.