Friday, May 30, 2014

May 2014 Update

2014 is a year of big changes for us.

As you saw from my wife's previous entry, we bought a house.  This was not part of our original plan.  For at least the past 5 years now (if not longer) we had talked about how nice it would be to have a house that more closely aligned with the long-term lifestyle we envisioned for ourselves.  However it was always a "someday" sort of conversation, something to do after we had reached financial independence (or at least made some significant progress down the road towards it).  But early in 2013 we saw a good opportunity and made an offer on a house (which was eventually rejected), which got us looking more closely for other opportunities.

The house we bought was the fourth one we had a serious interest in (and the third on which we made an offer).  I feel this one is most aligned with our vision of the "perfect home" we had in mind.  It is off the beaten path (in a tiny town in the middle of a sparsely populated area of New Hampshire), which means there is a lot of nature and not a lot of interference from human activity.  It is extremely quiet here -- the most common sounds are made by birds and other animals, and by the weather (wind and rain).  We have a lot of land -- nearly 100 acres, most of it forested -- tucked in among many other large parcels (many of them in conservation), which means our view in nearly any direction consists primarily of green landscapes.  And we have plenty of views, including one from our back deck, and others from some high points nearby that are within easy walking distance from our front door.

We are taking steps to benefit from our newfound richness in land.  We'll set up a garden, we'll harvest fallen timber to use for heating, and we'll add solar panels to drive down the cost of our energy consumption for years to come.  We'll also use it for recreation (hiking and snowshoeing), reflection, and renewal.

For the first time in three years, we have a mortgage again.  We'll be working to rid ourselves of it as soon as possible, but not quite with the aggressiveness that we did during 2008-2011 when we destroyed our prior mortgage.  This is because our new house is our "forever home", the place we plan to remain until old age, until our bodies or our minds no longer allow us to live here any longer.  Because we can take a much longer-term view of our housing, we can recognize the trade-off that comes with delaying pre-payment on the mortgage in exchange for payment on other improvements which will benefit us in the long run (solar panels being a prime example).  However, we are still adding extra principal to each mortgage payment as it comes due.

We still own our older house, which remains mortgage-free.  We're renting it out, using our equity to produce an income.  We are currently netting between 500 and 600 free cash flow each month from the rental house, which is not enough to make us rich, but enough to help us throw additional money at our new mortgage.  So far it has been a good experience, likely because we are renting to someone we know and trust.  If and when we grow tired of renting it, or when our tenant decides to move on, we'll probably sell that house, and use the proceeds to pay off our current home.  By doing that we'd eliminate about 2/3 of our current mortgage debt in one fell swoop.  So although our mortgage balance is higher than I'd like, it does not seem like an insurmountable obstacle.  We'll be rid of it in the next 5-10 years, at which point we should be well-positioned financially to take a step away from permanent employment.

We sold many of our stocks from our taxable account to use for the down payment on the new house.  Overall we had a net modest capital gain which was nice to see but nothing to brag about.   We still have a few stocks left in the portfolio which we collectively agreed were our best long-term investments at this time.  They will still bring in some dividends, maybe $1000 per year at current rates.  I am not opposed to selling them in the future if needed, to pay off the mortgage or make further improvements to the house (such as a high-efficiency electric heating system to complement our solar electricity generation capabilities).  Once the mortgage is gone we'll start adding to these taxable investments again.

Our long-term goals remain the same, but the order in which we expect to achieve them has shifted.  Obviously we bought our new house before achieving financial independence.  We've likely pushed our Appalachian Trail through-hike to a later date.  We still want to achieve financial independence, but it will likely be in a different form than I once envisioned.  Instead of having a huge collection of income-producing securities in a taxable account (capable of paying for all of our spending needs), we will benefit from reduced expenses that come from being in our "dream home" -- lower grocery bills, lower or near-nonexistent utility bills, lower vacation/travel expenses.  I also expect we will tap our retirement assets early, by using a strategy such as the Roth Conversion Ladder (described on PF sites including MadFientist and JLCollinsNH).  Our financial independence will probably be made possible by moderate contributions from a number of sources -- some income from taxable assets, some income in the form of reduced expenses (supplemented by our own labor), the future absence of significant expenses such as a mortgage, perhaps some rental income, and some income from retirement accounts which has been cleverly liberated (penalty-free of course).  By living a modest, enjoyable lifestyle, it is not hard for me to see us making the transition to a sustainable employment-free phase of our lives in the not-too-distant future.

23 comments:

  1. Wow... this place sounds truly amazing! I can see why you consider it your "forever" home. Very nice description.

    I didn't know you guys were wanting to do the AT. This has been a dream of mine as well. I spent a few days in Hot Springs, NC in Jan. and hiked a little while there. Hot Springs is a wonderful little trail town and I highly recommend planning a stay there if you find yourself passing through.

    Best wishes in your new home.

    The Stoic

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    1. Thanks. We've managed to encounter the AT in a number of different spots during our hiking through NH and VT. We're still a few years away, but we'll keep Hot Springs on our list of stops.

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  2. Thanks so much for the additional details of your new chapter in FI.
    I agree with Stoic, sounds absolutely amazing! I am a rural-minded person having lived everywhere from Silicon Valley to 1600 acres of foothills and cattle. I think we were all created to enjoy our natural surroundings. Sadly, many never see more than concrete sidewalks, steel skyscrapers, and asphalt streets for the majority of their lives. You guys are now better aligned with your innate yearnings. Good going!

    You're plan sounds doable and sustainable. We're looking at our next chapter in FI as well. In a word: "Simplification". But I'll wait to share the details.

    Good job and thumbs up to the Executioner and his Spicy Princess!

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    1. Thanks! Green spaces definitely make us feel complete. We still have some learning to do as far as knowing how to best utilize and manage the land while minimizing our impact on it. Fortunately we have the rest of our lives to do that!

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  3. Sounds beautiful. Time to start posting some photos on your blog I think!

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    1. I've been thinking about this for quite some time. I'd like to do this as long as it doesn't infringe too much on my own desire for privacy and anonymity.

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  4. It's great to hear about your new house. We just bought our 'forever' apartment and now have to think about the step we take towards FI. We can't decide if we want to buy a rental or invest, or do both!

    Look forward to reading more about life in your new home, it sounds wonderful.

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    1. Sounds like you're downsizing to achieve FI sooner, whereas we may have pushed out FI a bit to get the house we really wanted. In the end, if the space makes you happy, that's what matters, right?

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  5. Interesting times! Mostly hardwood or softwood forests? Assuming septic and well systems? Do you have to concern yourselves with any large predators in your area? Am thinking in terms of crop and pet safely.

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    1. NH is a good mix of hardwood and evergreens, but the hardwood on our property has been logged more recently (looks like one cut maybe 15 years ago, and others farther back than that). We do have a few larger, older hardwoods (oaks, maples, and beech) but they are the exception rather than the rule. Most of the really big old tress on our property are pines and spruce.

      Yes, we are well and septic out here.

      There are black bears in NH, but they don't concern me. They are pretty skittish and keep themselves hidden for the most part (unless an irresistible bird feeder presents itself). Aside from that, there aren't many large predators around here. There are coyotes, and birds of prey, but I don't expect them to mess with the gardens, and our pets stay with us when they are outside. The animals we actually fear most when it comes to the dogs are porcupines and skunks.

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  6. Uncanny - we seem to be shadowing each other! :) I paid off my mortgage in 2012. Just took out an even bigger mortgage than the one I paid off! I am also moving to my "more or less" forever home - a beautiful house in the Wiltshire countryside here in the UK. Definitely upsizing. Will be moving in a few weeks and can't wait. My only regret is I should have done this a few years ago! Interestingly I've not yet decided on whether to pay this mortgage off quickly or not. My last mortgage was a 23 year mortgage I paid off in 6 years. This is a 13 year mortgage. I've not decided whether or not we will downsize when we get old. I've got a wood shed half full of logs, but I'm going to need to find a good supplier before Winter sets in! Exciting times and congrats on your purchase! Cheers, Tony

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    1. It's nice once you settle in a place where you "know" you'll be living for a long stretch of years. It allows you to think a little differently, make investments for the future, and decide whether paying off the mortgage quickly makes more or less sense than making other changes that will benefit you down the road. Enjoy your new castle!

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  7. You're lucky to have found your forever home. Other people would have taken a long time to find that one special home they would want to grow old in. It's good that you have a second house that you're renting as well. That way, you'll have a steady cash flow for paying off your mortgage or keeping it as savings. I feel like you're both financially smart, so I guess paying the mortgage off won't be a problem. Have fun with your new home. :)

    Charlena Leonard @ Weidner Law

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  8. Real estate can be a great investment. Of course a mortgage sucks, but renting is no better.

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    1. I doubt we'll ever get to the point where real estate represents a large portion of our income, but it's a nice bit of diversification for now.

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  9. Stumbled on to your blog through a link at another site...have you calculated the return on your investment rental property; I think it might add to the discussion. I do not invest in the stock market...my money is 100% in cash and residential rental real estate. I also have a federal pension that is twice my monthly expenses.

    As to waiting to hike the AP, my advice is do not wait too long! That s an undertaking that requires a tremendous amount of good health. The thing is, health of that quality is not guaranteed...life happens, aging happens if you're lucky.

    I dreamed of doing the PCT and then I developed plantar fasciitis...I have not been able to get it right, maybe will never be able to do long hikes again...don't wait...your luck, health-wise, can run out one minute to the next!

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    1. I did compare the return of the rental property against the expected dividend yields of the stocks we are currently holding. But there are so many wild cards with the rental house that a few unexpected expenses could really affect the return. I am looking at it as some diversification in our investments at the moment.

      We definitely don't want to put off long-distance hiking too long. Time keeps marching by and we can't wait forever.

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    2. You might consider calculating your return at the end of every year when you have hard numbers to do so. Income and expenses including mortgage pay-down and appreciation are all variables but you do want figures to compare investments.

      I also do a five-year calculation that gives me an even better number to work with.

      I once realized an annual return of 200% on one property! The five-year average was not that good, however...although still hard to bring down 200%!

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    3. I'll definitely run some numbers every year, but I am not going to sweat things if our returns on the rental property don't match up with our returns on equity investments. I consider those different asset classes so I don't think it's meaningful to run an apples to apples comparison. As I'm sure you've seen, there have been plenty of years in the past few decades when real estate investments made equity investments look awful, and vice versa. It's good to have multiple income sources so that you don't fall victim to the "eggs in one basket" disastrous outcome.

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  10. I havent found a place to ask this but i think this is a good spot. Have you ever thought of using a finical advisor or planner or letting someone else handle your investments. I would love to hear your thoughts on this like pros and cons and maybe advice for a new investor like myself im working with less then 10k in the stock market but i feel like if i had 100k id be more nervous of makin a bad trade. Thank you so much in advance for any advice also this might make a cool post for the blog itself :)

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    1. I'm probably not the best person to be asking for financial advice, because I don't do a whole lot with my investments. Our retirement accounts are invested in mutual funds across a number of categories (in an attempt to diversify), with a preference on low-fee funds (mostly index funds), and I rebalance once a year or so. We still have a smattering of stocks in a taxable account, but that account (formerly our FI portfolio) is a shadow of its former self at present. We actually have access to a financial advisor through work at no cost. I should follow up on that...

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  11. Plans usually fall off, and they can bring quite the devious results. In your case, I feel like buying the house outside of your original plans will only bring a bigger adventure that will take you and your family in a direction towards happiness. Plus, with your old house being mortgage-free, you still have a clean and secure financial goal. Anyway, straying away from that topic, I'd love to see photos of your new house soon. Please do share with us. Thanks! All the best to you! :)

    Barry Sutton @ Iron Point Mortgage Group

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