Retirement Advice

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Almost every day, there seems to be a new article out regarding retirement. Today, for example, I found one about how to save a million dollars for retirement. The articles all seem to have basically the same advice: start early, save as much as possible, and don’t be too conservative with your investing. They almost all preach delaying retirement by continuing to work at your job and delaying social security. While this is all solid advice, I’m becoming more convinced that it is all propaganda. And, most Americans don’t follow this advice anyway!

On the flip side, a quick search for articles on investing in real estate for retirement brought up some fairly old articles. Each one seemed to highlight the negatives more than the positives. While I agree that it is much easier to put money in a mutual fund, the people that write the retirement articles really have nothing to gain from writing about real estate investing; in order to invest in the stock market, some company will get paid. If you own real estate, you don’t need anyone else.

I understand that real estate investing is not for everyone. When we talk about it, most people say they don’t want to deal with a broken toilet in the middle of the night. I’ll admit that we have dealt with a couple of broken toilets, but, really, how often does this happen? Eliminating an entire asset class and potential revenue stream because of the possibility of a broken toilet is perplexing.

While I know I’m not an expert, Mr. PFL and I truly believe in, and remind ourselves, about the real key to retirement: diversification. Most of the time, diversification is only used to describe money used to buy stocks/bonds/CDs/etc. in retirement accounts. Others try to “think outside of the box,” but still fall short (health insurance is NOT an income stream for retirement). Diversification, for me, is trying to have income from all kinds of sources that the IRS could tax. For example: wages, business income, royalties, and rental income. The goal, I believe, should be to limit “wages” as an income stream in retirement.

House Offer

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We had the showing on our house yesterday. My friend (agent) called last night to relay the oral offer of $500,000. While it is comforting to know that we have appropriately valued our house, this isn’t an offer we are ready to accept, especially because they want to move by the end of March. If they had offered $600,000, it would have been worth a conversation.

House Showing Sunday

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As of now, someone is coming to look at our house on Sunday morning to see if they want to buy it. I mentioned about a week ago that we’ve been telling more people about our plan to move to Hawaii. One of our friends is getting started as a real estate agent and approached me this week about doing this showing. The inventory in our neighborhood is very low and it is where the potential buyers would like to live. Worst case scenario: We have a clean house on Sunday. Best case scenario: They make an offer we can’t refuse. Sometimes the universe works in mysterious ways.

Hawaii Budget

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Talking about a budget for Hawaii is really talking about two budgets. There is the initial “start-up” budget and then there is the “monthly” budget. Our realistic goal for the “start-up” budget is $200,000. For this amount, we should be able to buy vacant land, build some sort of home (possibly a tiny house, kit house, bamboo house, or yurt), install all off-grid utilities (water catchment, waste system, electric and gas), and plant a garden/orchard/farm. I’m hoping to keep the land purchase around $100,000 which leaves half of the budget for the structure/infrastructure. If we really needed to, we could come up with this much cash without selling any of our real estate, but it would require cleaning out everything except retirement accounts which doesn’t seem like the best idea. We are attempting to increase the HELOC on our current house, which could then finance most of these plans. If we sell our house, then it would be paid off (theoretically, at least).

Which takes us to our monthly budget. After crunching some numbers, assuming we are ready to head to Hawaii about a year from now, and assuming we sell our current home, and after making all of our minimum debt payments (for example: property taxes on our rental properties, mortgage on the Condo, my student loans) we should have somewhere in the range of $30,000 to $40,000 in income per year (before taxes) to live on from our rental income. Once the Condo is paid-off (in about seven or so years), this should increase by about another $8,000 to $10,000 a year or so. While Hawaii is expensive, living off-grid will eliminate most utility bills; property taxes are very low (around $1,000 for the year); and we are hoping to grow a lot of our own food. We will need to buy health insurance, but, thankfully, neither of us has any chronic medical problems or take daily medication. We will also likely have additional income from other sources (part-time jobs, my travel agency, coffee farming). Also, this budget assumes that we do NOT touch any of our current assets (our net worth is over $1 million). I believe that at least $2,500/month goes a long way when total monthly expenses should be less than $1,000/month (health and car insurance, utilities, property taxes, groceries). That leaves more than $1,500/month for discretionary spending or almost $20,000/year. That is more than plenty for us. That’s a lot of money.

I Really Fixed a Furnace

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Back in December, I thought I had fixed a furnace. Turns out, I didn’t and we now have a new furnace at the Condo.

I noticed that the heat at one of the vacant units at BD (the 6-unit) wasn’t working last week. We ordered a new part online and it arrived yesterday. Once I got the old part off, I realized immediately why it stopped working:

Notice those tail feathers? Yep, that’s a dead bird. The fan couldn’t rotate. I put the new part in and the furnace turned right on. I’m feeling very confident about this one.

I also had time to get the dirty unit into mostly clean shape in time for a showing today. The prospective tenant seemed interested and took an application. I’ve also lined up another showing for this evening. I’m hopeful both of the vacant units will be rented by the end of the month.

Properties Update

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The Condo: The tenants seem satisfied with the new furnace. They texted today about the water heater still giving them trouble. Well, it turns out there are TWO thermostats on the water heater, so I turned the second one up (I’d turned the first one up a couple months ago). Oops. Hope that fixes the issue.

BD - the 6-unit: Mr. PFL and I have a potential tenant for one of the units. I’m still working on getting the other unit clean. At least the bathtub drains and the fridge looks new inside. Unfortunately, the furnace for the dirty unit isn’t working (I think the draft inducer motor is out on this one, too), so we need to get that fixed. I guess it is a good thing we don’t have a tenant in there now. BTW - If you make an appointment for a showing, it is polite to call, text, or email if you aren’t going to make it. I only list on craigslist, so everyone at least has an email address. I’d estimate no-calls, no-shows are running at just under 50% of my showings. I really appreciate when people do let me know if they can’t make it.

Hawaii: I had a phone conference with a real estate agent last week. She sent some links for potential properties and a contact for the credit union to discuss financing. I’ve been researching LLC formation and other ancillary issues today. Last night, the cable box was acting funny when I finally sat down to watch TV, so I jumped onto YouTube. I spent over an hour watching videos that started with a search for coffee farming in Hawaii and this simple video. Mr. PFL and I have been a lot more open discussing our plans to move to Hawaii with our friends and family; the overwhelming reaction has been disbelief. People can’t wrap their heads around the concept that we might actually be able to move and not work full-time jobs. I can’t blame them - it is still hard for me to accept most of the time. On a side note: last week was one of my top five most unpleasant weeks of work ever. I am ready to leave lawyering far behind.

Net Worth Comparison

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Over the weekend, USA Today featured an article about Net Worth with comparisons by age. It is interesting to get a ballpark look at where we stand. I just found a calculator that provides a net worth percentile, but is based off of data from 2010. Financial data, absent the stock market, doesn’t seem to be updated very often. In any event, the calculator says that our current net worth is in the 97.2 percentile. I used this other calculator, too, for comparison’s sake, and while we are way ahead for our age group, the median net worth for our income was almost an exact match to our current net worth. This income percentile calculator is also interesting, but doesn’t use total household income, only individual incomes. While I know we’ve done so many things right by continually saving and making good investments, I think I might have underestimated the impact our incomes have on our net worth.