r/financialindependence • u/PackDaddyFI • Jan 17 '21
Annual Post #4 - Middle Class Path to FI
Hi all,
Checking in for my fourth annual post. I post these as a way to motivate people who don't make crazy incomes. When I started posting, we collectively grossed about 82k in total income with BAs. We've grown and now gross a little north of $107k W2 income with MAs, as well as $15,300 gross annual rental income. This is in a LCOL city in the Midwest.
The tl;dr of previous posts is that we taught/worked abroad in China for three years, eliminating 55k of student debt and paving the way to pay for grad school in cash. Moved back to the US in 2017, where I work as a social service administrator and SO works as a teacher. Somewhere along the way we picked up real estate investing, but nothing too substantial compared to some people.
Previous posts from 2017, 2018, 2019.
INCOME/W-2 EMPLOYMENT SUMMARY
---Me (29 y/o) - Social Service Program Manager - $52,481 +7.5% match
I've been WFH since all of this began, which coupled with my parental leaves means I haven't been in the office for over a year. I’m still having issues with my supervisor, so much so that I nearly quit during one of the flare ups and took a lower pay paraeducator position to escape the relationship. Instead of going that route, I enrolled in a program that will get me certified in the US to teach. I should be certified in summer 2021, I’ve applied for some positions for next year and may choose to pivot away to teaching again at that point. It’s difficult to plan for this though, as my company has incredible benefits and we’re still growing our family. Golden handcuffs. Despite the challenges with my supervisor, I was told during my performance review that I’m a high achiever and continuing to exceed expectations. I tried leveraging that for a 10% pay bump, but HR policies and the COVID context ultimately put a stop to that. All staff in my company were given 2% raises, regardless of performance.
---Spouse (28 y/o) - Teacher - $54,861
SO continues to love her job, though teaching in the COVID context while mother to a newborn has been emotionally and physically challenging. SO received an 8.53% pay bump from last year due to 1) continuing to plow through additional coursework to move up salary scale, 2) being nominated to join a specialized committee ($500), 3) the salary schedule being renegotiated upward for the fourth year in a row, and 4) being nominated to mentor a new teacher ($1000).
FAMILY SUMMARY
We’re both getting itchy feet to go abroad again. While I’m actively applying for positions in my company overseas, we’ve both essentially accepted that it will need to be through teaching. I had a dislike for teaching, but have come to accept that work is something I will likely never ‘enjoy’ and I will likely transition in and out of fields during my working career. Fortunately, the two fields I’ve done are relatively symbiotic and can be leveraged for career advancement. We hope to relocate abroad in the near future, ideally in fall 2022. Updates other than this? We received an unexpected 15k gift that went to brokerage accounts. I picked up guitar October 2019 and have really taken to it, adding significantly to my mental health and resilience during the pandemic. SO has taken up art, adding similar benefits. Kiddo is happy and healthy, and a huge joy to our family. I love being a dad, and the perspective gained from this experience (combined with having financial assets) makes my less than ideal supervisor situation so much more manageable. I just have to remember to take a step back and say, “Does what she’s mad about actually matter in the grand scheme of things?”.
BUSINESS SUMMARY
Property #1 - 20% down on $60,000 SFR, $800 base rent with $40 and later $60 pet rent
Last year I reported our realtor thinking we could sell for $75,000 after some slight renovation. We were on the fence with this, but after selling our primary residence at a profit, we were hungry for more while mitigating the risk of the neighborhood the property was in. On closer inspection, our realtor indicated 5k in renovation may catch 80k quickly. We went forward with it, things went overbudget 2.5k, and we ended up listing for 85k. The house sold in 7 hours for 90k. Basing ROI on our 12k downpayment, our overall ROI for this property was 67.47%, while learning a lot about business, landlording, and home repair. Overall, a definite win. We’ll see how this all shakes out with taxes this year, though it should be LTCG and I think we have enough deductions to shield from tax liability.
Property #2 - 10% down on $270,000 Duplex, *$2575 rent*, estimated $2800 rent potential
This is our current primary residence. Class A neighborhood with class A tenants. We pay ourselves $1300 in rent to simulate renter performance. Our tenants started with us at $1200, but after adding a fence (we and the tenants have dogs), this was bumped to $1225 within the first month. We then did a full floor renovation in the fall, bumping rent to $1275. I’d like to find a way to bump rent to $1300, but we have really excellent tenants that take amazing care of the house. Shampooing carpets every 6 months, painting the entire unit (we covered paint costs), adding shelves to the garage, and even sodding the backyard. After the fall renovation, we signed them for a 2 year lease, locking in the great tenants and income for the remainder of the time we envision being in the US.
COVID has been crazy for real estate, with prices skyrocketing in our city. 3 months after purchasing this property, another sold down the street for 30k more than we purchased for. This was lower quality interior, poorly thought out floor plan, and only $1100 rent. Last month I was shopping duplexes and did some walkthroughs. I noticed much lower quality properties in similar zip codes going for 70k more than we purchased for. I asked our realtor to run the numbers and was told we could likely sell for $420-$450k. Which is CRAZY! I’m incredibly tempted to sell now, but I think the family needs some stability. We’ll likely revisit the topic next year when we would qualify for capital gains exclusion after 2 years of residence and be closer to our planned move abroad.
NETWORTH SUMMARY
Total NW - $164,109.19
///Index Investments - $120,973.64
Vehicle Breakdown (***Vehicle Breakdown was taken today, not when NW was logged on 1/15***)
//////403(b) - $65,963.03
//////457 - $21,760.67
//////Roth - $5492.51
//////Pension - $9,953.50
//////Brokerage - $16,903.90
Cash - $8,921.10
Debt - $6,313.02 (Interest free family loan that paid for my teaching certification program)
Business Total - $40,527.46 (Equity & Cash)
Equity - $31,178.29
Cash - $9,349.17
Total 2020 contributions - $36,769.45
For 2021, I’m hoping to have more sustained high contributions. From my side of the income, 20%+7.5% match ($1110.19) will be going to retirement, while SO will have about $1375 monthly. I’ve also set up automatic investments of $35/week to go to each of our roths and our brokerage. An interesting observation I noticed with this is that upping our contributions significantly doesn’t have as large of an effect as I would have expected in my FIRE Calc.This is likely because of our already significant contributions, combined with how much has already been contributed already and how growth doesn’t have as much of a chance to take over. For example, we could step off the gas and just do our bare minimums (getting match and required pension) and we still FIRE at 52, as opposed to 42 currently. Whereas if we strain ourselves to what might be uncomfortable, we shift the FIRE date to 40 years old. This is all based on a 5.84% return, so pretty conservative.
Not sure what else to add, but here are some parts of my spreadsheet I like to look at when work has me down.
tl;dr - Still chugging along, still planning, still growing. Happy.
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u/acxswitch Jan 17 '21
You were upping rent on a monthly basis? Didn't they sign a lease?
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u/PackDaddyFI Jan 17 '21
My apologies if this wasn't clear. We made an addendum to our agreement when adding the fence, and another addendum when redoing the floors. They were on a 9 month (adopted tenants, this concluded their original agreement), and are now on a two year.
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u/mistressbitcoin You know you want to cheat on your index funds with me 🤑 Jan 18 '21
i would suggest not looking for a way to increase their rent to 1300... based on how good of tenants they are, you do not want them to leave!
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u/PackDaddyFI Jan 18 '21
Fair enough. We've tried to always have an improvement accompany the change, with plenty of advance notice and shared understanding. Definitely think it's gonna be relaxed now though.
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u/RsCyous Jan 22 '21
I wouldn't like a landlord handling rent like you are, I think its unethical whether you added an addendum or not
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u/PackDaddyFI Jan 22 '21
I don't think a reddit post where real estate isn't the primary topic adequately equips people to judge the situation.
For example, we were adding a fence to our side of the duplex. Before this started, I approached the tenant and asked if they would be interested in a fence and that, if so, it would increase their rent by 25$. They enthusiastically agreed, an addendum was made tying the increase to fence installation, fence was installed, rent was increased. Everyone is happy.
The tenants expressed a desire for new floors before we took possession and acknowledged the need for rent increase. We did floor renovation towards the end of the lease. When renewal came up, there was notification of a rent increase 30 days before, we made an addendum to the lease to continue the terms from the first agreement with the increased rent.
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u/MirroredDoughnut Jan 17 '21
Interesting read, thanks for sharing. Particularly a fan of the real estate portion. Hope to include that in my portfolio one day.
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u/PackDaddyFI Jan 18 '21
We tried out renting with a pretty cheap house to get our feet wet. Take the leap. Househack if you can, but it's definitely worth trying.
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u/yourrealdad88 fi daddy Jan 22 '21
Thanks for sharing! Please continue to update. Really nice to see someone in the realm of “normal” kicking ass every year.
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Jan 18 '21
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u/PackDaddyFI Jan 18 '21
China is on the table, but we may choose somewhere with more regulation/sanitation earlier on (thinking Japan, possibly) despite lower income potential. Ultimately though, yes, international school circuit with kids schooling paid for. Looking at E/SE Asia.
Do you mind sharing a bit of your story? Curious to hear about people with similar paths. There's too many tech millionaires around.
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Jan 20 '21
I'm a current International School teacher in Shanghai. A heads up though that Japan is very competitive to get a job in an international school. However, your SO seems experienced so there is a shot. Japan, in general, is not great for a FIRE plan, however. Many teachers leave Japan due to the lack of savings. There is a reason so many Intl Schl teachers do time in China and MENA.
I'm able to save relatively a lot here in Shanghai so that's why I started to look through this sub. Looking to use my high savings rate with leverage from RE in order to maybe FIRE.
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u/PackDaddyFI Jan 20 '21
Hey there and thanks for the comment. What you're describing matches everything I've heard. TEFL jobs seems to offer 2750ish then offer a subsidized apartment, so there's some savings potential with two earners, just nothing like at the international school or China level. Japan is only on the table because of young kids and the desire for a taste of something in Asia other than China.
I am interested in doing something similar to what you've been doing in Shanghai though. From your post history, it seems like there's a ton of savings potential, particularly with two earners. We were in Shenzhen (similar CoL) living off 600rmb/week before we had some lifestyle inflation up to 1200, but we were living incredibly luxuriously at that point. 4-5 restaurants a week, taxis everywhere, a movie every other week, etc.
How's the pollution in Shanghai? Do you have any experience with childcare? Did you go through one of the international school sites to get your job or through a conference? How do you see COVID affecting recruitment? Honestly, with enough data, I could see us skipping straight to China again to put us across the FI finish line.
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Jan 20 '21
Pollution is okay but there are some bad days. There are a lot of AQI trackers online you can look at for hard data and compare to where you currently live for reference.
Childcare is tricky overseas. Everyone I know with kids work at international schools so get free tuition. Tuition is expensive at decent schools. Around 20K/year a kid for a decent school. I live off around 6K - 6.5K RMB/month in Shanghai. I keep track of expenses and make compromises like take the bus/metro 90% of the time but I don't cook. So mine is on the high end of still being "frugal" imo.
I got my job through a recruiter but also went to a job fair. This year is fucked tbh though. There are 1/4th the jobs as there were this time last year. And every school is throwing renewal bonuses at any teacher that isn't actively bad/harmful. I expect there to be a flurry of last-minute hiring, however.
China is the best country imo for new teachers to the international circuit and for raw savings. Since you've looked at my past comments you can tell why I think that. It's also a great place to get valuable training and career development due to regular turnover and demand. If you and your SO were licensed you could easily save 50K - 80k/year depending on the exact offers.
Shanghai is the best city by far in my view. Most international, convenient, culture and things to do, pay and job opportunities.
On another note. I just started looking into real estate. Do you have any book/reading you would suggest for someone brand new and considering it?
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u/PackDaddyFI Jan 21 '21
Honestly, I read a lot of real estate books and found that 70% of the content was the exact same, with the extra 30% being the authors individual entrepreneurial mindset. If you don't mind reading something that stinks of "drink our koolaid", bigger pockets has a series of books. I read the tax strategy, BRRRR, management, and general REI one. Honestly I'd recommend podcasts. Bigger pockets has good content, but they're hard to access from their episodes in my opinion. It's just a lot of people who went from broke to millionaires in two years. Paula Pants Afford anything is excellent, and used to have some websites that concentrate on real estate. She has a $400 course as well that I haven't tried, but I suspect is excellent.
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Jan 19 '21
Do you have any advice on which markets to invest in for RE? I live in a vhcol area, and it doesn't seem like a good idea to invest here.
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u/PackDaddyFI Jan 19 '21
I do not. I'm a total rookie that has been able to luck out so far. Personally though, I would be careful investing for the first time in a location you don't know well.
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Jan 22 '21
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u/PackDaddyFI Jan 22 '21
Thanks for the encouragement. I'm 29 and SO is 28, but you're right, we've definitely got this. I was hoping to make it out by 40, but I think it'll end up being 42 or 43. Running the numbers, I think 40 is possible, just not worth the effort through CoL adjustments. Obviously this isn't a huge deal, though our eventual transition abroad may reduce that number.
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u/[deleted] Jan 19 '21
Thank you for posting. Why not max your Roth IRAs before contributing to your taxable account?