Update and your opinions...

[mrpaseo]

Alright here is the update... As many of you know, the house was paid off in January of this year, I am Active Duty Army and will be retiring with just over 20 year as of next July. My bills are only household bills and a HALOC payment of about 110 a month (No cc debt, no vehicle payments, no other loans). Our daughter is 15. My wife has a job in Management and just started her 401k contributions.

I have not made any decisions as to what I plan on doing in retirement (I will be 39 years old), I know I will still work in some capacity but do not need to at this point (That's a whole nother discussion).

Okay, so I ran my budget and I think we are going to buy another house. My thought process is to have rental income to supplement my retirement since I did not sock away enough money. As mentioned before, in this economy, we chose to pay off debt rather than dump money into an uncertain market (I really just didn't have time to properly research... or better said, I did not take the time).

So, I'm going into retirement and will be building a new home... flame away
Ray

[Shewillbemine]

Are you asking a question, looking for advice or want a pulpit?

Congratulations for retiring at such an early age and serving our country. Now go find something better to do than surfing the web; retirement is for fun.

[DeansLane]

Are you asking for a question I didn't understand what are you saying instead of you giving the info about your personal issues but Congrats for the Retirement go and Enjoy.

[GREENBACK]

Originally Posted by mrpaseo

in this economy, we chose to pay off debt rather than dump money into an uncertain market (I really just didn't have time to properly research... or better said, I did not take the time).

mrpaseo, paying off your debts is great and I congratulate you but don't be shortsighted on today's economic news. If everything or most things are paid for I'd invest for the future.

[disneysteve]

Originally Posted by mrpaseo

retiring with just over 20 year as of next July

I have not made any decisions as to what I plan on doing in retirement (I will be 39 years old), I know I will still work in some capacity but do not need to at this point

I think we are going to buy another house. My thought process is to have rental income to supplement my retirement since I did not sock away enough money.

I think your plan needs some serious work.

1. You are changing jobs in July but have no clue what you are changing to. You need to stop using the term "retire" since that is not accurate. You are 39 and don't have sufficient savings so you aren't retiring. You are just making a career change. You need to devote some major time in the next few months to plan that next job.

2. You state that you don't need to work but also state that you don't have enough saved. How can both of those statements be true?

3. Would you be buying the rental property with cash? If so, it might possibly be okay though I doubt it. If you need to take a mortgage, I would definitely vote against it. Rather than burying yourself in debt to "supplement my retirement", go out and get a job. You're only 39 years old. You can't sit around on your rear all day for the next 30+ years.

[bjl584]

If you haven't saved enough money, then I would suggest that you keep working. Buying into rental prperties to supplement income will give rise to much more complexities than simply continuing to work.

[MonkeyMama]

I see a lot of advice from lenders and real estate brokers, to invest in real estate. Consider the source of any information you are getting. If you have to borrow to get the real estate, it's hard to make money off of it. You may get a relatively steady income from a property, but rentals also come with significant expenses. You need a plan for when/if you don't have renters.

If you have a passion for real estate, is one thing. But, I also just see a lot of stupid real estate *get rich quick* type schemes among friends and clients. IT's not making any of these people rich quick (they had no assets to begin with - now they are just deeper in debt). So, tread carefully. If you think you don't have to do any research in real estate versus stock market investing, well, you may be in for some surprises.

[Hector]

how are you going to pay for this rental property?

[mrpaseo]

Thank you all for your honest posts.

Allow me to start with Disneysteve's response. Awesome post, thank you. From this point on, I am changing careers, not retiring the Army. I like that and it is more fitting to my situation. I am thankful that the Army have an aggressive program to assist Soldiers in transition to the civilian sector. I have my first three day workshop set up in January. Before I exit the Army I should have a job lined up or at least have my feelers into the market to set me up. I have a few ideas in mind as to what I would like to do so we'll see where that ends up.

Working out my financial plan, so long as I have the house I am living in now rented out, we will be able to maintain our level of living, even without me working (That's what I meant about not having to work). The chances of it being rented out is pretty good being within four miles of a major Army post (Fort Campbell, KY). Backed up with an emergency fund of course.

My wife and I purchased our first home in 1999, we are still living in this home today. We have easily out grown this house (1300 sqft, this house is paid in full). We will have another house built next year, we will move into the larger house (2700 sqft) and rent out the smaller house. My new mortgage will be covered by my retirement check easily. I have done a little research and will be able to receive between 1000-1200 per month for this house. I figure 400 back into the house (Maintenance and taxes/insurance) and $600 in my pocket.

The "supplement my retirement" comment that I made, I am thinking more of the future, when I am actually retired, rather than now, like you said, when I am changing careers. The goal is to pay off/down this new home, then when I actually retire, to rent out the new house and possibly move back into the smaller house or another smaller house... that we purchase.

Shewillbemine Any comments are fine, they help us think out the situation to ensure we don't make foolish mistakes. And as DD stated, this is more of a career change rather than retirement.

DeansLane Thank you, even thought I am not retiring, I do plan on enjoying life a little more.

GREENBACK I most definitely will find the time to do some research. I never lost faith in the economy, just know it takes time and research to do the right steps.

bjl584 I 100% agree and would not jump into rental property if it didn't include the fact that we want a larger home and we have this one paid off. That said, I am not seeking out another house to get a mortgage on to rent out, we will be moving into a larger home, a plan that we have thought about for many years. This is not a haphazard decision, we know it's not the best decision, we know it would be better to stay in this house, save a bunch of money and adapt. This is where my other post came in about "balance". Just a planned decision that my wife and I are making, yes of course some of the decision is emotions and wants rather than needs.

MonkeyMama I believe I answered your comment with my comments above

Hector As you can see above, the rental property is the house I live in now, it is paid in full. The new house that we purchase will be paid for mainly with my retirement check. Our other income will be my wife's income, the rental property and the new job that I get (Though as stated, we can do this without me getting a job, but I plan on paying down the new house like I did this house and paying it off sooner... and doing some more investments of course).

Thank you all, keep the questions/concerns coming.
Ray

[MonkeyMama]

I think a paid off rental is another story. At least if it all goes bad, you can simply sell it. & I think clarifying that it will supplement your income "down the road" versus "today" makes a lot more sense. When reading it the other way smelled too much like, "get rich quick." Unfortunately, I see that practically every day where I live. I have been encouraged by many friends to buy a rental with $0 down, for one.

Anyway, I would still be sure to be prepared for the large expenses that often come with owning two properties, and the possibility of rental vacancies. If these *givens* won't sink you, then I think it is a fine plan.

[mrpaseo]

Originally Posted by MonkeyMama

I think a paid off rental is another story. At least if it all goes bad, you can simply sell it. & I think clarifying that it will supplement your income "down the road" versus "today" makes a lot more sense. When reading it the other way smelled too much like, "get rich quick." Unfortunately, I see that practically every day where I live. I have been encouraged by many friends to buy a rental with $0 down, for one.

Anyway, I would still be sure to be prepared for the large expenses that often come with owning two properties, and the possibility of rental vacancies. If these *givens* won't sink you, then I think it is a fine plan.

Thank you, more info: We should have about $10,000 EF for the two houses. The new house will be built in 2012 so I don't expect a lot of "Emergencies" in that house. The rental just had the roof replaced with 30yr shingles. We will redo the floors, walls and ceilings before we rent too, the only large expense I foresee is a new HVAC of which we will probably replace before we move out. Oh, the water heater was replaced last year too.

[disneysteve]

That's a very different story than what was implied in the original post. So you aren't buying a home to rent out. You are buying a home to live in and renting out the home you now own. I do have one question, though. You say the house is paid for in full but your OP says there is a HELOC, so it isn't really paid in full. Or am I misreading that?

[mrpaseo]

Originally Posted by disneysteve

That's a very different story than what was implied in the original post. So you aren't buying a home to rent out. You are buying a home to live in and renting out the home you now own. I do have one question, though. You say the house is paid for in full but your OP says there is a HELOC, so it isn't really paid in full. Or am I misreading that?

Nope, you have that exactly right, there is a HELOC on this home. I guess when I said paid off I was talking about the original mortgage. That said, I will have enough to either pay off the HELOC or put a nice down payment on the new house. I am looking at splitting the difference and bringing the HELOC down considerably (Monthly payment would be under $60 dollars).

Thanks,
Ray

[disneysteve]

Originally Posted by mrpaseo

Nope, you have that exactly right, there is a HELOC on this home. I guess when I said paid off I was talking about the original mortgage. That said, I will have enough to either pay off the HELOC or put a nice down payment on the new house. I am looking at splitting the difference and bringing the HELOC down considerably (Monthly payment would be under $60 dollars).

Will you be putting down at least 20% on the new home? And what percentage of income will the payment be on the new mortgage?

[Shewillbemine]

Much confusion, there was, in the original post.

My colleague "retired" last week after she was laid off; now she's looking for a new job. I hope you didn't jump the gun in the Army the way you just did for this thread.

[snafu]

Have you had any experience as a landlord? I suggest taking a course as it has potential to be fraught with problems. I hope you have the skill sets to carry out most of the repair/replacement yourself.

Retirement can be downright boring. Start planning activities to keep you busy. Do you have hobbies that can be used to earn income?

[mrpaseo]

Originally Posted by disneysteve

Will you be putting down at least 20% on the new home? And what percentage of income will the payment be on the new mortgage?

I will be putting down 5% on a VA loan. The fee will be 1.5%. Payments will be approx 1,450 with Taxes/Insurance.

Income (Take home) will be:

$2,000 from wife (Also receives a quarters cash bonus but we do not count this in any of our calculations)
$1,750 from my Army Retirement
$700 from rental (After 300 deduction for home repairs/taxes/insurance)
$??? From my new job

Income: $4,450 month
Looks like approximately 32% which will go below 30% when I get a job.

I recently was per-approved for the amount needed for the loan under 4% but I will not close on the loan within 90 days so that will laps. My wife and my FICO is in the 800s so there will be no issues securing the loan, I just hope to be able to get it below 4% when the time comes.

Ray

[mrpaseo]

Originally Posted by Shewillbemine

Much confusion, there was, in the original post.

My colleague "retired" last week after she was laid off; now she's looking for a new job. I hope you didn't jump the gun in the Army the way you just did for this thread.

Not sure what you mean by that but I don't think I am rushing to failure if that's what you mean. My original post made sense to me and a few follow up questions brought everyone on the same sheet of paper.

Like I said originally, yes I do not have a new job secured, but I am able to retire without working and will still be able to maintain our living. As it stands right now, we earn about $3,000 more than we spend in a month. The half pay cut will cause us to lose only a few hundred dollars off our monthly bills. The key to my situation is I have options.

Ray

[mrpaseo]

Originally Posted by snafu

Have you had any experience as a landlord? I suggest taking a course as it has potential to be fraught with problems. I hope you have the skill sets to carry out most of the repair/replacement yourself.

Retirement can be downright boring. Start planning activities to keep you busy. Do you have hobbies that can be used to earn income?

I have none, well besides maintaining my own house and yes, I have some handy man experience. That said, I am not against taking a course (Didn't know there was such a thing, I'll look into it). We do have rental agencies that will maintain your house at a cost (Usually 10% of the rent). They will seek occupants and handle any maintenance issues that arise, but I am not leaving the area so I should be able to take care of this myself. More research is needed before it happens but I have about a year before I will be ready to rent.

I am looking now for stuff to occupy my time after I leave the Army, but I do not want to commit before I know where I will be working. I start the job search in January.

Thanks,
Ray

[disneysteve]

Originally Posted by mrpaseo

I will be putting down 5% on a VA loan.
Payments will be approx 1,450 with Taxes/Insurance.

Income: $4,450 month
Looks like approximately 32% which will go below 30% when I get a job.

I would vote no to this deal. 5% is an inadequate down payment and 32% is too high a portion of your income to go to your home. Keep saving until you have the 20% down payment and get a job so that your income is higher and you can keep the payment below 28% and preferably lower than that.