re investment news august 2017

AUGUST 2017

T H I S M O N T H A T M A R E I

Common Issues.that real estate investors face

when buying property at the Meeting. Real

World Real Estate Investment Transactions:

From Standard Closings to Advanced

Strategies. find out how to put them together.

R E A L E S T A T E N E W S

Service Animals, Seller Finance Call to Action,

Interior Inspections & Terrorism

M A R E I . O R G

C O N T R A C T T O C L O S EA CHECK LIST

REN EW S L E T T E R O F M I D - AM E R I C A A S S O C I A T I O N

O F R E A L E S T A T E I N V E S T O R S

N E W S INVESTMENT

PROTECT YOUR TENANTS AT

BEDBUGTRAPS.COMMAREI Members receive 10% off through October 1st, then our

discount goes to 5%. Log into MAREImember.com for details.

You will find a list of other groups complete with links to details that

meet through out the Kansas City Metro area listed at

MAREI.org/Calendar/Other-Groups

AUGUST MTG

FROM OTHER GROUPS >

THE CALENDARMARE I . ORG / CA L ENDAR

See full day workshop

page 5

COMMON CLOSING ISSUES

WORKSHOP REAL WORLD TRANSACTIONSMAREI Founder & 17 Year Veteran Real Estate Investor Kim Tucker is spending

the day and opening up her transaction book to share the top items she has

learned with it comes to buying houses from motivated sellers, from banks

and from deceased people. Come find out how the deas were put together

and the tools you need in your tool box to invest in real estate in Kansas City

now.

Experts joining Kim include Mary Kellog from Alpha Title and Attorney Julie

Anderson to touch on Legal Issues. Lunch is included & seating limited to 60

people. Super Early pricing $39 for MAREI Members till the 8th, then price

goes to $59 till the 16th. Regular Price if space is left is $79. At Johnson County

Community College

We are all out there buying houses, but it's not always as simple as finding the deal, writing the contract and then showing up a closing. When you send that contract off to the title company, there are a lot of issues behind the scenes that get resolved. At the August MAREI meeting we will be taking a look at common issues that come up at closing that if you know about in advance can make your closings go smoothly. (New to closings, see our webinar at MAREI.org/Closings)

Join us as we welcome Mary Kellogg from Alpha Title and Christine Ellis from Accurate Title for this interview style presentation. Meeting is Tuesday August 8th. Networking and Vendor Hall is from 6 to 7:00 and presenation is at 7pm.

Monthly meetings are held at the Holiday Inn at 8787 Reeder Road, Overland Park, KS. MAREI Members & First Time Guests who Pre-Register at MAREI.org attend free - all others py $25 at the door or $15 online.

SHARK TANKSEPTEMBER MTG

MAREI has quite the line up of sharks who have either the know how to put

together your deal or the funding or both. We are inviting in several of our sharks to

sit in our tank to evaluate your deals. If you have a real estate investment deal or

business that you need help to put together, please call 913-815-0111 or email

[email protected] to get your deal approved to be presented on Tuesday

September 12th at the MAREI Meeting.

03RE INVESTMENT NEWS

Mailing Address:

6709 W 119th #332

Overland Park, KS 66209

Phone: 913-815-0111

Web: MAREI.org

Web: MAREIMember.com

Email: [email protected]

Views and advertising expressed in the

RE Investment News are not necessarily

endorsed by Mid-America Association of

Real Estate Investors. The information

contained within should not be

construed as a recommendation for any

course of action regarding financial,

legal, or accounting maters by Mid-

America Association of REal Estate

Investors.

Email to inquire about advertising

oportunties or membership.

Many Thanks

MAREI would like to thank

all the attendees and

sponsors at MAREI's 3rd

Annual All Star Networking

Event.. Because of your

generosity and suppor we

were able to provide a little

over 8,000 meals to

Harvesters and with the

corporate match we

recieved, that brought us to

just over 16,000 meals.

04 RE INVESTMENT NEWS WWW.MAREI.ORG

INDEPENDENCE HOUSING AUTHORITY & RENTAL READY

real estate news

The Independece Housing Authority issued a letter in July to all participating landlords informing them that to use their Housing Quality Standard with the city the county or for any other purpose than for Housing Authority purposes. That to use the HQS Inspection otherwise would be a violation of the tenants 4th Amendment Rights.

The Seller Finance Coalition and National REIA are working hard to change parts of the Dodd Frank law to make it easier for real estate investors to ofer seller financing and contract for deed options to owner ocupant buyers.

They have introduced HR 1360 and they need yourhelp. They need everyone in the real estate industry, across the country, to reach out to your Legislatorsand ask them to support HR 1360.

National REIA has set up an online form to allow you to send this letter with just a few mouse clicks. Go to www.MAREI.org/Action

SELLER FINANCE

The City of Indpendence, recently started their Rental Ready program that requires periodic inspection of rental properties as a condition of lawfullly renting rental properties. They had made the statement that landlords could use a Section 8 Inspection from the housing authority in place of paying for an additional inspection.

JOIN MISSOURI POA

On July 24th the Missouri Property Owner Association became an official not for profit in the state of Missouri. Their mission is to bring together all real estate investors, property owners, landlords, property managers and others to protect our industry from undue and illegal legislation at the state level.

Their next step is to build their membership through local associations like MAREI, individual members and business members. Membership dues will go to pay for lobby efforts and attorney fees. We need to the entire state of Missouri to take part, not only with membership dues but with donations of your time.

Please visit MissouriPOA.org to learn more and be sure to follow on Facebook and Meetup.


Assistance animals that work, provide assistance, or provide emotional support to the benefit of a person with disabilities must allowed, without extra fees or rent. However you as the landlord can verify the need by requesting a doctors order or prescritpion. You can also expect the animal to be well contained when not "working" and be on a leash or harness when in public. And you can require the resident to pick up after the animal in the yard and in the home and to keep the home or rental unit clean.

We have a lengthy article on the MAREI Blog at www.MAREI.org/Articles

Rental Residents and Landlords in Columbia Missouri have been living with mandatory rental ispections since 1978. Inspections with out tenant consent, with out a warrant and often requiring the inspector to turn over anything they might learn in that inspection to law enforcement.

Over the past 5 years, the fees associated with these inspections have gone up between 70% and 370% depending on the fee.

After seeing numerous law suits challening similar ordinances across the country, most finding that the mandatory interior rental inspections are unconsitutional and a violation of the 4th Amendent, Landlords and Proeprty Owers are consider a class action suit against their city.

If they go to court, all property owners and rental tenants in the state need to support the case as this could set precedent in other cities in Missouri and across the Country.

SERVICE ANIMALS IN OUR RENTAL PROPERTIES

TERRORISM AWARENESS

National REIA recently released a white paper discussing the need for landlords to be vigilent and to report things out of the ordinary to the authorities and let them decide if your tenant is dangerous.

Examples include lots of people coming and going at odd hours, tenants work hard to avoid contact, keeping the rent paid with no obious means of suport, checks or credit card payments of rents and fees from odd sources. people that never seem to move in, but continue to pay rent and more.

Please visit MAREI.org/Articles to read more.

COLUMBIA MISSOURI TENANTS & LANDLORDS COULD CHALLENCE CITY

As a real estate investor buyer or seller there are some extra things you may or may not think about. Let's take a look at some of the issues that have came up in my own transactions over the past 17 years or so.

Investor Friendly Title Company

The very first transaction I was ever a part of, we were sitting at the closing table talking to the closer and going over the fees on the Settlement Statement. One fee caught my eye and the closer explained that because we were buying without the benefit of a real estate agent in the transaction, we were being charged an extra $250. Title companies or closing agents that work with you as a real estate investor on a regular basis are not going to charge you extra because you don’t have a real estate agent.

At one closing we were going to “Assign the Contract” to a new buyer. We found that while our investorfriendly title company that we closed with all the time had no problem with assignments, that the Title Company on that transaction didn’t know what an Assignment was so we were told that they were illegal by the person we were working with. At the same time, I had just closed an assignment transaction at a different office with the same company the week before.

Before you every go to contract, it helps to interview title companies to find ones that know what real estate investors do and know how to close their transactions.

Entity Documents

This will be dictated by what entity you might be buying your property in, it could be your own name. It could be a corporation or an LLC and it could be a Self Directed IRA or Solo 401k .


by Kim Tucker

Before you start making offers makesure you have your entity set up, haveall the documentation needed toprove your entity is legal and knowhow to fill out the contracts and signon behalf of the entity.

If you are buying in an LLC forexample you need to sign in a certainway to make sure you don’t invalidatethe asset protection of the LLC andyou need to have the properdocumentation needed to close. Thismight just be your Articles ofIncorporation and in other cases youmight need to have a certificate ofgood standing, which cost me close to$300 in the state of Utah to registeras a foreign entity and to get acertificate. And most title companieswill want you to have a corporateresolution stating that you can, infact, sign for the LLC.

Line Up Funding

This one pretty much goes with outsaying. You need to know how youare going to pay for the propertybefore you write the offer or havesome idea of who might buy it fromyou if you are going to wholesale theproperty.

Here in our office, we have beendoing this for many years. So whilewe don’t have a pre-approval, wehave a list of about 10 people that wecan take a deal to who will fund us. This ranges from family, to friends, toprivate money and hard moneylenders at the MAREI meetings.

When we were new, we were pre-approved for a construction loan atthe local bank and you might alsoreach out to the local hard moneylenders.

When you have a house you arewholesaling, some of you might assign

the contract and need no money to doa deal. Just be sure you have a fewvery active, cash buyers lined up. Youmay also want to have some shortterm funding lined up so you can closeon the deal and then resell it in a fewdays or weeks and make a bit moremoney out of the deal.

Finding & Negotiating the Deal

Over the years we have bought inmany different types of situations.

Sometimes we used our Real EstateLicense and went after listedproperties or bank owned properties. We have bought on the courthousesteps and we market and buy directlyfrom sellers. We talk about manydifferent ways of finding deals,negotiating them and getting themupder contract.

Write and Execute the Contract

This is fairly simple and straightforward. Make sure you have thebuyer and seller names correct. Thisis especially important when you arebuying from a bank seller. When youwrite a contract with a bank seller,usually they will not let you changethe buyers name if you mess it up ordecide to switch from your personalname to your company or your selfdirected IRA.

Contract Summary

Back in the time of paper we had adocument that listed out all the detailsof the transaction, all the parties andall the contact information.

If I am buying the home in a legalentity, I assemble all the paperworkthat my title company will need, notethat if you use the same company overand over, they will keep this on file foryou.

I use this summary and package oflegal documentation to give to thetitle company and any lenders andRealtors as they will need all theinformation.

In the electronic world, I would stillfill this out the summary formbecause your seller may not beelectronically savvy and they willneed a lot of the informationcontained. You may find that someTitle Companies and Realtors willhave an online website to summarizeall the details and upload all thedocumentation, so be sure to ask.

Send it all To the Title Company

We will usually email the contractand the summary to the title companyand mail or hand deliver an earnestmoney check. Your Title Companymay have an easy way toelectronically send money to themthat is free through or may want awire. Do keep in mind that if theclosing is in less than two weeks thatthey will not be able to accept apersonal or business check, in thiscase the earnest money would needto be wired or in the form of certifiedfunds.

Be sure to ask for a receipt toconfirm that they did in fact receivethe summary and the contract viaemail and the earnest money in whatever form you sent it.

If you are working with a lender, senda copy of the summary and entirecontract to them as well as they willusually want to see it.

Some things to think about as yousend this to the title company . . . youmight want to call and talk tothem about it, just in case their mightbe an issue you can’t live with andneed to get out of the contract during

07RE INVESTMENT NEWS • PAGE

06 RE INVESTMENT NEWS WWW.MAREI.ORG08

inspection period.

1. Rehabbing to Sell? 2. Notice of Intent to Sell? 3. Seller Deed Restrictions? 4. Self Directed IRA Buyer? 5. Wholesaling?

The Waiting Game

After the contract is sent to the titlecompany, it becomes a waiting periodfor the title company to get title back. Let them know if you think theremight be problems that needaddressed on the title so theyresearch it now, this week, ratherthan 3 days before closing. If youanticipate closing early or plan onwholesaling it, they need to knowthat in advance.

During this waiting period, you willtypically perform your inspections onthe house and renegotiate thecontract or negotiate repairs. Then ifyou are getting a loan that requiresan appraisal, that would be done next

and then the lender would review allthe paperwork, possibly want toreview the inspection and ask you afew more questions in order to get thefinal clear to close.

If you are a wholesaler, during thewaiting period and possibly duringyour inspection period youwould want to seek out and secureyour end buyer. Write and executeyour “Assignment” Contract andcollect the assignment fee or writeand execute a sale contract andcollect their earnest money depositand send a summary of this contract,the contract and earnest money toyour title company. If you are unableto secure a buyer, your inspectionperiod is the time to back out of thecontract.

If you are not wholesaling, the lastprojects for you would be to secureinsurance on the property, scheduleutilities to be turned on, and to startlining up contractors if the home willbe renovated.

During this period be sure to stay incontact with your lender or your endbuyer to make sure everything is ontrack. And you want to see the title toreview it as soon as possible as oftentheir are minor issues that you wouldneed to coordinate with the sellerand the title company to resolve: Finding the divorced or estrangedspouse and getting them to sign off,finding other heirs or proving thereare no other heirs, getting theprobate court or bankruptcy court toapprove, getting loan payoffs, andother things that get a lot morecomplicated very quickly.

Just Before Closing

Usually the week before closing youwant to review the preliminary titleone more time and check with thetitle company to be sure allproblems are resolved, if they are not,you may want to negotiate anextension on the closing with yourseller and / or your end buyer.

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Next check with your lender or endbuyer and make sure they are readyto close, if not, go back and negotiateextensions.

If everyone is ready to proceed, makesure everyone is set up to sign closingdocuments. Sometimes that mightmean they have an appointment atthe title company and other times itmight mean that the title company isgoing tosend them documents andthey need to go sign where ever theylive in front of a local notary. In atleast three transactions, our titlecompany had to email documents tothe seller, who had to get themprinted and take them to a USconsulate to be signed an notarizedas they were not in the continentalUS.

You want to make sure your lenderhas all their documentation set upand has their money ready to go andknows how to wire it to the titlecompany. Not a hard proposition ifyou are using a traditional lender. But if you are working with a privateindividual, you may need assist them

If you are wholesaling, you want todouble check your end buyer is readyto close and fund.

If you are buying yourself you need tomakes sure you are schedule to close. If you are paying cash, you may beable to the money and close via fax oremail as nothing you are signing needsto be notarized as the buyer. And ifyou are paying cash or have a downpayment to send in, schedule yourwire a couple of days in advance soyou have time to get all the doublechecks against fraud completed.

Closing

Ask for a copy of the SettlementStatement the day before closing andreview. Errors can be fixed at closing,but catching them a day or two inadvance makes things much easier.

At closing, you may get keys if you arebuying it. Before you go takepossession of the home and BEOREYOU DO ANY WORK ON IT, doublecheck with the title company to make

sure all parties have signed, all loansare funded and the closing isrecorded. We have heard stories ofbuyers who went to closing and gotkeys, went to the house and startedwork, only to find out that the sellernever closed. So always doublecheck.

And if you are wholesaling, you wouldthen go pick up your profit from theassignment or resale or you mighthave it mailed or wired.

Problems do come up at closingthrough out the entire process. Weare going to be talking about the mostcommon problems that come up atclosing at the August 8th MAREIMeeting. We have invited in theteams from Accurate and Alpha Titlesto share what they are seeing in realestate investor transactions.

I am also teaching a workshop on realwordl transactions on August 19th towalk you through some commontransaction scenarios.


Call Mark for Your Next Mark Yanda

MarkYanda.Houzz.com

(913) 980-4260 PROJECT!


Question: I’ve made offers on over 250 properties, and

most of my offers find the circular file. I’m very focused

on the distressed market – offering a price calculated as

such: List Price: $100,000 After 30% ARV deduction:

$70,000 Repair Escrow $5,000 Profit $5,000 So – I’m

offering $60,000 for a $100,000 list price. Am I doing

something wrong? Is my ARV allowance too high? Are

certain markets say, Leavenworth Rd – KCK, permitting

for margin than others? I’d love some advice!

So the magic formula is

MAO = (70% *ARV) – Repairs

MAO = Maximum Allowable Offer

ARV = After Repair Value

Repairs = Costs to repair to ARV Value

In your scenario, I would need to know more.

While we know the list price is $100,000, the list price is

totally irrelevant to figuring your offer other than the fact

that if your offer is way below the list price, the seller is

less likely to talk to you.

Repair Costs in your scenario is $5,000 and in 17 years I

have never seen a house that only needed $5,000, but I

guess it is possible.

Profit listed was $5,000. NEVER do any rehab with an

expected profit of $5,000. Usually, you don’t use the

MAO formula and then subtract profit unless you are

wholesaling the house.

Scenario with more details:

Subject house that is listed for $100,000, the average

house in the subdivision is selling for about $140,000.

There are a few totally renovated homes that are similar

in size and shape that have sold for $155,000. You

determine the house needs the following updates and

repairs to bring it to the $150,000 value: roof ($8,000),

painted inside ($3,000), painted outside ($3,500),

carpet replaced ($3,000), hardwoods refinished in the

kitchen, living and dining ($2,000), install granite in the

kitchen ($4,000), new appliances ($2,000), new light

fixtures ($1,000) and new faucets ($1,000). It should

take you about 6 weeks to get the renovations

complete, 4 weeks to market and get it under contract

and 5 weeks to get it closed. Total of almost 4 months

holding time. And you will need to pay a Realtor 6% to

sell it.

Plus axes are $1800 per year or $150 a month.

Insurance is $150 a month and Utilities are 150 a

month.

List Price: $100,000 / ARV: $155,000

Repair Costs: $27,500 in hard numbers plus $2,500 for

what iffs, brings repairs to $30,000

Holding Time: 4 months Costs: $450 a month


Maximum Allowable Offer for Full Rehab

MAO = (ARV x 70%) – Repairs

MAO = ($155,000 x 70%) – $30,000

MAO = $108,500 – $30,000

MAO = $78,500

And if you are wholesaling it, the MAO would then say

you need to buy it for about $73,000

Maximum Allowable offer for Average Resale

Next look at the repairs needed. Is the house really nasty

and does it really need all those repairs? Or is it totally

livable as it sits, just needs cleaned. Maybe you could

replace the roof, paint the outside and call it good for an

average resale.

If it’s livable, with a good cleaning, a new roof and

exteior paint, then you need to go back to comps and

see that the average house is selling for $140,000. Run

your repairs again taking into account only the roof, the

exterior paint, and cleaning and the fact that that would

take you 2 weeks to make repairs instead of 6. That

gives us new numbers

After Repair Value: $140,000

Repair Costs: $12,000

MAO = ($140,000 x 70%) – $12,000

MAO = $86,000

Subtract wholesale profit if $5,000, and offer $80,000.

What a Realtor would list it for:

Speaking as a Realtor, If it was livable and just needing

a roof and a exterior paint job, I would suggest to

the home owners clean it from top to bottom and then

list it for about $95,000. Then market the heck out of it,

sell it for about $92,000. I would split about a 6 percent

real estate commission with the buyers agent of $5,700

and if I had an extensive real estate investor buyers list,

maybe sell it to one of my landlord buyers pocket the

whole $5,700.

If you talk to a lot of investor across the metro, you will

find that many have pused the MAO up to between 75%

and 80 % of Maximum Allowable offer. I don’t suggest

that as you could end up with no profit.

Why are none of my offers getting accepted?

This is the same problem we are facing at the KCInvest

office, offers are not getting accepted. Yet I get email

after email from wholesalers with deals what gives?

Not Many Deals To Begin With

The number one reason why OUR offers in my office are

not getting accepted, is that we are dealing in nicer

areas. Take a look at the average house the area

wholesalers are shipping out and they are mainly in the

under $50,000 range, in my office we are looking for

$80,000 and up.The Wholesalers can get the deals

because there are more low end houses for sale and less

retail buyers in those markets. The average home buyer

under $50,000 is going to be a real estate investor and

not an owner occupant buyer. Plus there is less

competition to buy the lower end houses, more

motivated sellers, more deals. But less profit.

Owner Occupant Buyers

The next reason our offers are not getting accepted is

that we are competing with owner occupant buyers who

are going to pay more than an investor. Wwe are looking

for the really bad house in a really nice neighborhood or

a seller who has a really HUGE motivating factor to sell

their home. The really bad house needs more repair that

the average owner occupant buyer can do. Or they

have some huge problem that the owner occupant can't

solve.

Newbies Offering Too Much

The third reason why our offers are not getting accepted

is that there are a lot of new investors who are willing to

put the property under contract for too much money

and then try to wholesale it. The seller gets excited and

then gets mad when the wholesaler who can’t sell it

does not buy. This makes the investor look bad to those

sellers and they will not look at another investor offer

and end up listing it with a Realtor who is going to net a

higher sale price for their seller, usually.

If you are new, PLEASE learn your numbers and don’t

offer too much just to get it under contract only to back

out. Doing so t makes the rest of us look bad. If the

numbers don’t work, let the seller marinate a bit, their

price will eventually come down and it will come down

way faster if we all are offering about the same amount.

If you go in and offer 20% more and can’t close the deal,

you just wasted 2 to 3 months of your sellers time and

you give investors a bad connotation.


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MARKET UPDTATE June 2017

4,264homes sold

3.2% Decrease from 2016

49average days on

market14.0 % Decrease from 2016

98.3% of asking price0.6% Increase over 2016

$12k$12,408 average

sale price

increase from

same time

last year (5.4%)

4,104pending sales11.7% Increase over 2016

7,446houses for sale 22.2% decrease

2.3 month supply

average: $241,567

median: $210,00

There has been a general slowdown in sales across the country, and this cannot be blamed

on negative economic news. Unemployment remains low and wage growth, though nothing

to overly celebrate, has held steady or increased for several years in a row. There is strong

demand for home buying, emphasized by higher prices and multiple offers on homes for sale

in many submarkets. As has been the case for month after month – and now year after

year – low inventory is the primary culprit for any sales malaise rather than lack of offers.

With job creation increasing and mortgage rates remaining low, the pull toward

homeownership is expected to continue. Yet housing starts have been drifting lower, and

some are beginning to worry that a more serious housing shortage could be in the cards if

new construction and building permit applications continue to come in lower in year-over-year

comparisons while demand remains high. Homebuilder confidence suggests otherwise, so

predictions of a gloomy future should be curbed for the time being.

For further detail see http://www.kcrar.com/statistics

New & Existing Combined

Data from

http://www.kcrar.com/statistics

A fiancial independencenumber tells you whenyou’re free

from the need to work. It’s basically a math equation, as

you’ll see later in this article. But discovering your

personal fiancial independence number is about much

more than money or math. It’s about your life and what

matters to you. And it’s about whether money supports

your ideal life or simply suppresses your potential.

While I don’t believe money is the most important thing in

life, I do agree with Zig Ziglar that money is reasonably

close to oxygen on the “gotta have it” scale in today’s

economic-centered world. A fiancial independence

number is useful because it tells you exactly how much

money you really need.

In the rest of this article, I’ll show you how to calculate your

fiancial independence number. Plus, I’ll also even share my

own number.

Money and the Ideal Life

You certainly need money to survive. But you also need

money for opportunities to live a life that is more fulfiling,

flxible, and fun. Money buys you food to nourish your

body, but it also buys you the time and flexibility to feed

your soul and to share your best self with the world.

Becoming your best self. Sharing your gifts with the world

Thse are the loft ideals that I aspire to. Perhaps you have

your own lofty ideals.

BY CHAD CARSON

Whatever your personal ideals are, I bet they’re bigger

than money. But as I realized soon aftr I graduated from

college, simply trading my time for dollars wouldn’t lead to

my ideals.

It’s not that working a job or running a business were bad

things. Serving others with your time, energy, and skills can

be incredibly fulfiling. But even a great job can become a

drag when you know you must do it to earn money.

Instead of happiness and growth, a less than ideal job

situation traps you like a rat running on a wheel. While most

people call it making a living, you’re really on a long path

called “making a dying.”

Luckily, there is a diffrent fiancial path you can take.

Instead of trapping you, this path creates more freedom and

independence. Which brings us back to the fiancial

independence number.

The Financial Independence Number Defied Written as a

formula, your fiancial independence number looks like this:

Investment Income > Personal Money Needs

Investment income is the money you receive from investment

assets like real estate, stocks, and bonds. When your

investment income exceeds your personal money needs, you

no longer need to trade hours for dollars in order to survive

fiancially.


"What's Your Financial Independence Number?"

Coach Carson is a member of Metroline REIA in Charlotte North Carolina. Learn

more about him on his website at www.CoachCarson.com. Reprinted from the

Real Estate Journal a publication from National REIA.

When you reach your fiancial independence number, you

break the cycle of working for money. You draw a line in

the sand beyond which you will no longer fiancially need

a job.

Joe Dominguez and Vicki Robin in Your Money or Your

Life call this line in the sand the crossover point. Robert

Kiyosaki in Rich Dad, Poor Dad calls this leaving the rat

race.

In the language of real life, this fiancial independence

number means you could survive at a certain level only

using the production of your investments. For example,

your net income from rental properties would cover your

personal overhead. Or with more traditional investments

like stocks and bonds, the 4% rule for safe withdrawal may

allow you to live of of 4% of your total holdings each year

for a long period of time.

But before you begin hustling to accumulate wealth and

income, let’s look at how to actually calculate your own

fiancial independence number.

How Much Does the Ideal Life Cost?

Th formula for fiancial independence may be simple. But

actually squeezing all of your fiancial hopes, dreams, and

insecurities into a math formula is challenging. If you’re

like me, it’s a process you’ll continually tweak and update

throughout your life.

But the fiancial independence number does not have to

be perfect to be useful. Like any other goal, you can benefi

from moving towards a goal even if the goal is just a

reasonable guess.

So, how do make an educated guess for your fiancial

independence number? How do you fiure out the cost of

your ideal life?

I like to begin with the present by calculating your current

expenses. You can do this a couple of diffrent ways::

1) Estimate your expenses using personal fiancial

spreadsheets.

2) Use softare apps to automatically track your expenses.

You simply enter your credit card and bank account info,

and the softare automatically tracks and categorizes your

spending. Some of the most popular apps for this are

mint.com (free) or YouNeedaBudget.com (paid).

Once you have an estimate of what you currently spend

over a 1 year period, you can make a guess for the future.

Many people fid that their personal expenses will actually

go down aftr retirement. If you pay off your home mortgage

before retirement, that obviously reduces one major

expense. And you may be surprised how much you can save

in taxes when you live of of investment income. My

blogging colleague Jeremy at gocurrycracker.com has

legally not paid income taxes for 4 years aftr retiring early.

For more information to help you estimate your future

expenses after retirement, I like the article How

Much Will It Cost You to Live in Retirement by Darrow

Kirkpatrick of caniretireyet.com. Darrow retired early himself,

and he writes about the nitty-gritty fiancial

details of retirement.

My own number may or may not be relevant to you, but I’ll

share it just to give you another perspective. I have a bottom

line number of $36,000 per year, which is what I

know our family could live of of based upon current

expenses. And I also have a comfortable number of $60,000

per year which would give us plenty of cushion.

But the most important number is yours. And that’s

something you can now fiure out for yourself.

Life After Financial Independence

Reaching your fiancial independence number does not

mean that you can’t still work and make more money. It

does not mean you will stop growing fiancially for the rest of

your life. It does not mean you are perfectly safe and secure

forever.

Achieving the goal simply means that the pressure is off

Your assets could support you instead of your job. Ths is an

incredible place to be. An entire universe of life

possibilities opens up.

Th same job that you once hated could be transformed when

you know that you’re there by choice. Creativity and energy

that had been dormant for years will suddenly

reemerge.

New opportunities, new businesses, new questions, and

new exciting paths will open themselves to you. And even

more amazing, these benefis don’t just emerge once you’ve

crossed the fiish line.

As I explained in my article Retirement Reimagined: Th

Peaks and the Plateaus, the freedom of fiancial

independence can be experienced in many stages along the

way. So, whatever an ideal life means for you, I

highly recommend you fiure out your own fiancial

independence number. It will provide a clear, focused goal

that will help you win with money.


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