As I go through this journey of quitting my job, my desires to bring you as much useful information as I can to help you do the same. I also try to learn as much as I can from as many people as I can. Today I talked with my accountant of 10 years to get his wisdom and knowledge about my plan to quit my job.
I am going to share with you the wisdom and insights that I received that may help me be even more strategic in my plan to quit my job.
There are two people I love to pay in this world. My property manager and my accountant. They make my life so much easier.
My accountant is fantastic.
He’s been in the business for many many years and has even worked for the IRS knows how the IRS works.
I spent over an hour with him running through my plan of quitting my job with passive income to get his wisdom and expertise.
The very first thing that he said to me was, “Yes, You should absolutely quit your job!” This somewhat through me off a little bit because I was not expecting it. I thought that maybe he would have been a bit more cautious or more pessimistic about leaving a career.
From his perspective, he did the same thing many years ago when he quit his job to start his own private practice doing accounting and taxes. He said that many people were telling him he was crazy because he was newly married and had a baby coming. They kept telling him it would be crazy to quit a paying job to start your own business. Now he’s had his business for 30+ years now as doing very well.
There were two directions that the conversation took:
- The planning and timing for when I actually do quit my job.
- The future after I quit my job, how to get there from where I am now, and how to proceed after I quit.
Planning and Timing to Quit My Job
In 2016, I made a plan to quit my job on July 31, 2016. I made up my mind to quit my job for many reasons that still apply today.
- I want to get paid for the value that I bring not the hours that I put in.
- I will eventually make more money working for myself than somebody else.
- I do not want to work for anybody else.
- I do not want to be dependent on anyone for my family’s future.
- I want to spend more time with my family.
- I want to spend more time serving in my church and the community.
As I get closer to the drop-dead date of July 31, 2016, I find myself seeing many known and unknown things coming in the future.
Here are the known issues:
Without a W-2 from a job (wages) it is much harder to attain mortgage financing on the properties that you own.
Banks lend on your ability to repay the loan. If you have a set income coming in from your job, thanks look at that as a qualified set of income that they believe you will use to pay off the loan.
If you’re not currently working for a company, you don’t have that set income coming in and the bank has to look for your ability to repay the loan in other places. What you need to be able to prove is that your rental properties have enough income coming in to pay off all your monthly debts as well as any future mortgages that you are going to get.
This can be a two edged sword. Mortgage companies will rely on your tax returns because those are legal documents you’ve submitted to the government that should be as accurate as possible to see how much income you actually bring in. The two edges of the sword are that you use your tax return to prove your income, but to try to reduce your taxes you write off all the expenses that you get from your properties which bring your tax burden lower.
What happens is because you bring your tax burden lower the bank sees you as having less income then you may possibly have. Obviously need to be honest on your taxes and pay to Caesar what is Caesar’s and report everything honestly. You do not necessarily need to expense everything that you have the ability to because the government really only cares about their tax money they are bringing in from you. If you show less expenses, then you have more profit that you report on your tax returns but then you may pay more in taxes because you show more profit.
Interest Rates Are on the Rise
Cash is always King and especially when interest rates are high. The Federal Reserve is now, and will for a long future, raising interest rates which will affect the housing market.
As interest rates go up, prices of homes will come down. Those with lots of cash will be able to buy great properties at huge discount. Without the extra income from the job, that is that much less money that I would have to spend on more properties.
Because rates have been so low for so long, they must eventually rise. No economy can fat and happy forever on free money. Check out my post for more information on the subject of Central Banks, Federal Reserve and Interest Rates.
The Economy Has Some Trouble Ahead
There are many signs that show that 2016 and 2017 are going to be extremely rough times for the American economy and quite possibly the economy of every nation of the world. The central banks of the world have been printing money continuously for years and have devalued their currency dramatically.
America is the largest debtor nation (meaning we owe the most money out of every other nation in the world) and we simply cannot sustain this amount of borrowing on credit. The country is already $17TRILLION in debt and it is only rising!
A much smarter man than I explains how 2016 will not be good for our economy.
Listen to Jim Rogers show how dire the economy is going to be.
I recently talked about another book called The Demographic Cliff where a well known economist, Harvey Dent, explains how the economy between 2017 and 2019 is going to have its worst downturns for many years.
When the economy goes down, people lose their jobs. When people lose their jobs they can’t pay their rent. When they cannot pay their rent the get evicted. When people are evicted rents need to be lowered in order to find tenants who would be able to afford them.
This can be a big downward cycle that takes a lot of your cash flow out of your pocket. If you used to make $5000 a month in rental income, consider at least 10% to 20% taken out because of the bad economy. Now you may only be making $4000 a month in income not to mention all the turnover because people are being evicted.
When you turn over a property to another tenant through evictions, there are many costs you need to watch out for.
- Eviction costs
- Court fees
- Lawyer fees
- Carrying costs
- Mortgage payment
- Cleaning costs
- Loss of rents
A silver lining is that with the bad economy brings lower prices for all the investments. So if you have cash and have the wisdom to buy, you can take up lots of amazing deals on properties that you would never have gotten before. Having more income from a job will allow you to buy many more properties faster.
2016 is a presidential election year which brings a very uncertain climate economically. Depending on who becomes president, the markets could go up or down in any way.
With a socialist like Bernie Sanders, the economy will do a tailspin and those that work for the government will be the only ones that will make any money while everyone else loses their job.
Here is a funny cartoon that explains socialism.
The reason why is that socialists believe the government is to take care of all your needs by taking money from those who they decide have too much money.
If a constitutional conservative like Ted Cruz wins, the free markets will be opened up and the economy will begin to grow. When governments get involved in the economy and the free market, they have a propensity towards doing the wrong thing which makes economy worse.
It’s hard to tell what type of economy you would get from a populist like Donald Trump who is a great businessman but seems to say whatever is needed in order to get what he desires.
No matter who is president, things won’t be the same as it is today.
My Accountant recommended two things about the plan to quit my job.
- YES! Absolutely quit my job
- Wait until after the elections
- Wait to see how the economy is going to respond
- Quit in the first quarter of 2017 if everything is fine with the economy
I have not changed my mind yet on the date to quit my job because I really want to keep the date!
But I have some new information to take into account. Besides, putting off the date for 6 months wouldn’t be the end of the world. Unless it is because the worlds economy is destroyed… 😉
In my next post in this series of my accountants wisdom, we will look at his recommendations of how to quit your job and be successful for the future and plan for your taxes properly.
Leave me a comment below! I’d love to hear your thoughts.
Disclaimer: It must be said that this advice that I received from my accountant should not be used as legal or tax advice for you. I am not an accountant or a lawyer and this information is not to be used as that. I post this to help you think through your plan as you get closer to quitting your job with passive income. So don’t take this as legal or tax advice for yourself but get your own legal and tax advice for your particular situation.