Anonymous
Post 03/30/2014 19:52     Subject: If we moved somewhere cheaper, could we live off principle?
We talk about this all the time. We aim to be able to stop working in 10 yrs (or work part time or whatever). we've done a lot of math and have figured out that to maintain our current lifestyle we need to have just over $3M. We have $2M now and figure we can do it in 10 yrs. DH is 43 and I'm 36 with 2 small kids. Good luck.
Anonymous
Post 03/30/2014 18:50     Subject: If we moved somewhere cheaper, could we live off principle?
I agree - most of our $ is in our house, which is not income-generating.

Thanks and good luck too!

Anonymous wrote:
Anonymous wrote:We are a family of 3. Own a condo in DC worth $500 - $600K that is totally paid off. Gross annual rental income is $36k-$38k. We have a house in MD that we could sell for at least $1 mil, and have a $200k mortgage on it. We have combine student loans of $65K at a very low interest rate (less than 3%). Only about $100K in savings, and a combined total of $100k in 401ks. DH is starting business but isn;t earning income yet. I make about $80K a year with ok benefits at a nonprofit. DS is in preschool and can go to great public schools in MD. Sometimes I think we should cash out of our house, maybe keep condo for rental income, and live someplace cheaper where we both could work parttime (or in my fantasy not at all). DH is in early fifties, and I'm early 40s, so we hopefully have some years of living ahead of us. We'd like to be able to pay for kids college, etc.

I'm looking for inspiration of how to make this a go. Would it be possible to stop working, pay for affordable care act medical coverage and just piss around without bankrupting ourselves? Where could we move on the East Coast to live more cheaply?


Assuming your house is not an ideal rental property I think your first step is sell the MD house and use the money to buy rental property in DC proper or a close-in suburb close to metro that provides a better cap rate (google it) than your current MD home.

Second step is to apply a reasonable amount of leverage to both the condo and the house - given your ages and goals, maybe 50% mortgage on each... run the numbers and see what you think.

Third, use the cash you freed up with the mortgaging to buy the house in the less expensive area, something with good schools and public services but not too pricey. Lots of places like this on the East Coast, but more of them in the flyover states as others have suggested.

This third step is the big one because I suspect you will still need to earn some wage income one way or another until your husband's business takes off. You may want to stay in the DC area until his business takes off, so you can keep your job. But you can take care of the real estate moves in the meantime - no better time than now given where prices and interest rates are at and where they will be in the near future.

The reason I recommend more rental real estate instead of stocks/bonds is that you generally get a higher return, both a higher cash return and a higher long term total return (to compensate you for less liquidity, concentrated risk, more leverage, more active effort, etc).

You are thinking along the right track. We are trying to accomplish something similar. I know we can do it, and I know you can too.

And don't spend too much time on DCUM. People on DCUM are nice enough but they tend to have an over supply of money and an under supply of courage when it comes to stuff like this. DCUMers seem to have the stereotypical financial profile of medical doctors: high income, low financial sophistication, low financial risk tolerance, lots of conspicuous consumption. You can read more about that in The Millionaire Next Door. You're better off on websites dedicated to frugal risk-takers with modest incomes who are looking to (semi-)retire early.

Good luck and have fun!



Anonymous
Post 03/29/2014 16:07     Subject: If we moved somewhere cheaper, could we live off principle?
Anonymous wrote:We are a family of 3. Own a condo in DC worth $500 - $600K that is totally paid off. Gross annual rental income is $36k-$38k. We have a house in MD that we could sell for at least $1 mil, and have a $200k mortgage on it. We have combine student loans of $65K at a very low interest rate (less than 3%). Only about $100K in savings, and a combined total of $100k in 401ks. DH is starting business but isn;t earning income yet. I make about $80K a year with ok benefits at a nonprofit. DS is in preschool and can go to great public schools in MD. Sometimes I think we should cash out of our house, maybe keep condo for rental income, and live someplace cheaper where we both could work parttime (or in my fantasy not at all). DH is in early fifties, and I'm early 40s, so we hopefully have some years of living ahead of us. We'd like to be able to pay for kids college, etc.

I'm looking for inspiration of how to make this a go. Would it be possible to stop working, pay for affordable care act medical coverage and just piss around without bankrupting ourselves? Where could we move on the East Coast to live more cheaply?


Assuming your house is not an ideal rental property I think your first step is sell the MD house and use the money to buy rental property in DC proper or a close-in suburb close to metro that provides a better cap rate (google it) than your current MD home.

Second step is to apply a reasonable amount of leverage to both the condo and the house - given your ages and goals, maybe 50% mortgage on each... run the numbers and see what you think.

Third, use the cash you freed up with the mortgaging to buy the house in the less expensive area, something with good schools and public services but not too pricey. Lots of places like this on the East Coast, but more of them in the flyover states as others have suggested.

This third step is the big one because I suspect you will still need to earn some wage income one way or another until your husband's business takes off. You may want to stay in the DC area until his business takes off, so you can keep your job. But you can take care of the real estate moves in the meantime - no better time than now given where prices and interest rates are at and where they will be in the near future.

The reason I recommend more rental real estate instead of stocks/bonds is that you generally get a higher return, both a higher cash return and a higher long term total return (to compensate you for less liquidity, concentrated risk, more leverage, more active effort, etc).

You are thinking along the right track. We are trying to accomplish something similar. I know we can do it, and I know you can too.

And don't spend too much time on DCUM. People on DCUM are nice enough but they tend to have an over supply of money and an under supply of courage when it comes to stuff like this. DCUMers seem to have the stereotypical financial profile of medical doctors: high income, low financial sophistication, low financial risk tolerance, lots of conspicuous consumption. You can read more about that in The Millionaire Next Door. You're better off on websites dedicated to frugal risk-takers with modest incomes who are looking to (semi-)retire early.

Good luck and have fun!



Anonymous
Post 03/29/2014 13:55     Subject: If we moved somewhere cheaper, could we live off principle?
Anonymous wrote:Easily. Read http://mrmoneymustache.com


+1. This is not the kind of question to ask on DCUM. Many people here can't conceive of living on less than $100K a year, or retiring with less than $5M in the bank. People in the MMM forums are making it work with much less.

OP, FWIW I've done a similar downshift - I am 45, a solo parent with about a $1.6M net worth plus enough in DC's 529 to pay for 4 years of in-state tuition, room and board, and fees. When I was laid off a year ago, I decided not to look for another full-time job. I was exhausted and burnt out from the grind and the pressure, and I felt like I hardly ever saw DC or the rest of my family and friends. Instead I started consulting, and now I work 2-3 days a week to cover expenses (including health care) and fun stuff, while still managing to save and invest a little. Like you, I have a paid-off rental that generates a nice cash flow, and I also have some passive income from a side business. I haven't had to touch either the principle or the interest on my investments, they can continue to grow and I am able to add to them. I couldn't be happier about making this change, I feel as though I have an actual life now.

The key is keeping expenses manageable. I couldn't do this with a large mortgage, student or car loans, or major child care expenses.
Anonymous
Post 03/29/2014 11:07     Subject: If we moved somewhere cheaper, could we live off principle?
Anonymous wrote:You can do it if you can live on $66,000 a year. $36K rental income and 3% of the million in savings would be $30K. Seems doable.


You could move to a university town in the midwest, say Iowa City or Ames, Iowa. Great little places to live-- you can buy a small ranch for $135K in a great school district, even less outside of town (but the schools might be more rural and not as good). Cost of living is so much less and the stress of just getting around is way less too. Plan to send the kids to a state university.

If one of you could find work, either full-time or part-time you could draw on interest from your nest egg. If you needed to, you could both go back to work full-time. Salaries are lower though, so be aware of that.

Downside might be midwestern winters... so the RTP area in NC might be a good option as well.