Early retirement w/ 4 rentals, 5k per month and 1.5mil in stocks

[John Laney]

Hello, I was bitten by the early retirement bug 15 years ago and plan on being there over the next 2-3 years at 43 years old. However, while I have lots of investments (Stock and realestate) I am bumping up into a bit of a cash flow problem with regard to how I manage my realestate.

Current Situation and Initial Plan: Through my small business, investment and pension income my day to day living expenses are taken care of. I will have approx 5-6k per month which will set me up very comfortably with out touching the principle of my 1.5mil stock investments.

Now, what to do with the four houses I have? My four houses are currently scattered across the country and valued at 1.3mil with 725k of debt against them. Considering the cost of selling them and taxes I anticipate 600k profit. My initial plan is to take this 600k buy a ~600k house and Christmas tree farm in the Oregon countryside and spend my time investing in my family, friends church, and community.

While this is a very conservative plan, I'm not sure it is the best plan since I take a big tax hit selling rentals to buy a primary house and take a leverage hit by no longer having any of my money leveraged.

A better leveraged option is to sell the rentals, take 120k as a down payment for my primary 600k home and the rest as a down payment for a multi family using a 1031 exchange.

You can now see the rub. While it is best to be leveraged with a mortgage, the bigger my mortgage, the bigger cash flow problem I have. Even If I break even on the multi family, I run into a ~3k per month cash flow problem for my primary mortgage.

Is there a third option that I am missing? I'm hoping not to touch the 1.5mil stock fund in order to use that for investing in my community.

Thanks much, John

PS. if you live in oregon, track me down in a few years for your free Christmas tree!

[Scott Trench]

What a great problem to have! This is the kind of problem I hope every BiggerPockets person has after a decade or so of hard and smart work. Congratulations! 

I think that both of your solutions are good ones. But I wonder, why not keep on growing your wealth semi-passively? What if you kept the properties, releveraged by taking some cash out, and used that to pay for your primary residence? 

You could, depending on your cash flow, keep the properties, refinance to 15-year notes if you don't want to actively grow the portfolio, and be sitting on even more income in a few years, income which could fund large expenses like children's college educations, community involvement, etc. It sounds like you don't want to actively manage this portfolio at all anymore, but if you can keep your investments with a solid Property Manager, and pay them off through a diversified, leveraged additional income stream, there may come a day when you might be glad to have done so. 

Also, with as much wealth as you have and as much energy as you have (four rentals and a small business AND a pension at 43 !?) is it possible that you will have more energy for future business than you presently assume?

Also - this just hit me as I was finishing up this comment, but if you will be financially free solely from your other assets, and do not need the real estate in 2-3 years, why not just keep the real estate and retire now?