Real Estate Investments – History, Yields, Risks and Strategies

Team CF is continuously discussing investment strategies, preferences and making compromises in all the final investments. Mr. CF prefers stocks combined with some crowdfunding, Mrs. CF favours real estate. It should then also be unsurprising that we have a very diverse portfolio, and we own real estate as part of it. But how did we get started? What did we do to get where we are today? And what is the return on our real estate? This is what today’s post is all about: Real Estate Investments – History, Yields, Risks and Strategies.

Real Estate Investments – History, Yields, Risks and Strategies

We got started in 2014 with our first properties after Mrs CF walked by an duplex and got excited. She pulled out the good old excel spreadsheet and started to make various calculations. We got quotes from contractors for renovations and found that the property could make an, for us reasonable, return on investment. Next the bidding and negotiation began. To our surprise we actually agreed upon the sales price that ended up at about 75% of the asking price (yes, the properly needed a lot of renovations!). Next, we renovated the place extensively (with the use of a local contractor) and about 4 months after purchase, we had both units rented to solid tenants (one through a property management firm, one to family whom had helped with the financing and renovations).

Real Estate Investments – History, Yields, Risks and Strategies
Real Estate Investments – History, Yields, Risks and Strategies – Real Estate

The financing of the properties was done utilising the value in our existing home at the time, supplemented with family loans (yes, with proper contracts in place and interest rates according to market conditions).

Our Initial Financing

How did we got all this money? Well, before we found the path to FIRE, we were not sure what to do with our money (we had bad experiences with investing and were not properly informed about index funds or dividend stocks), so we aggressively paid off our own house. This came in very handy once we realized that we were better off investing than paying down the house. We had a HELOC (Home Equity Line Of Credit) at that time, which allowed every euro (dollar, actually) to be pulled out against the governing variable market interest rate. In short, we were able to purchase the house in cash and used remaining cash and loans for the renovations.

Fast forward to 2016, with the investment strategy to become FI firmly in mind, we searched for a property that could be split in multiple units or already consisted of multiple properties (e.g. duplex, triplex or more) to live in ourselves but also rent out the other unit or units (we had sold our previous home and were renting at this time).

We ended up finding a former B&B that suited our criteria. This property provides us with a sizable upper unit (~125m2) for ourselves and two smaller units (~40-45m2) that could be rented out. It also has a large workshop (~65m2) which could be rented out commercially (with an option to transform into an additional living unit after renovations/modifications). We financed this property with a regular mortgage, which we would be able to pay for on one salary (albeit that would have been a bit of a struggle).

What to Expect Financially?

To make a long story short, we currently own 5 rentable units, and one unit for our own use, in just about two years’ time. Two units are almost paid for (just a personal loan remaining), three are financed using a regular mortgage. An overview of their value, rental income, yield (gross and net), etc. is provided below.

Real Estate Investments – History, Yields, Risks and Strategies - Finances
Real Estate Investments – History, Yields, Risks and Strategies – Finances

To explain the various columns in a bit more detail, let’s review each one:

  • Property Market Value – the value of the property if it would be sold on the current market, for units 3-5 it is the value of what we paid for it in mid-2016;
  • Mortgage/Loan – value of the mortgage or (private) loan on the property/unit;
  • Asset Value – the Market Value minus Mortgage/loan value;
  • Gross Rental Income – Income based on 12 months’ income per year at the gross rental price (i.e. before management fees/expenses);
  • Yearly expenses – all reoccurring expenses such as property management fees, insurance, property tax, sewage/waste disposal fees, etc.;
  • Yield (Gross) – Gross Rental Income minus Yearly Expenses (value and percentage based on Asset Value);
  • Reservations and Maintenance – All units are well maintained (or newly renovated) and reservations for the coming years are primarily for paint works, replacements for fridges, dish washers, heating units, etc. The reservations also include a risk allowances for unexpected expenses (damage), temporary vacancies (i.e. no tenants) and other unforeseen scenarios (e.g. water damage). We use percentages of between 2-3% of the Property value for combined maintenance and reservations; and,
  • Yield (Net) – Yield (Gross) minus Reservations and Maintenance (Absolute Value and the percentage based on Asset Value).

As you can see the net yields are pretty healthy, even if the reservations/maintenance is under estimated we should likely still get yields in the order of 5-6% before taxes. The Gross yields are actually really good, which is what is helping us a lot. The main reason for that is that the reservations will likely not be required until a couple of years from now. This allows this cash-flow to be reinvested in other assets, thereby allowing the financial snowball to keep going faster and grow (read: “compounding interest”). However, we do need to increase our financial buffer to accomodate unexpected costs associated with issues in our Real Estate.

Where to Start?

Some recommendations/ideas to consider when you want to invest into Real Estate:

  • Start small, smaller units generally have higher yields than larger/more expensive properties and are easier to finance;
  • Look for areas that have good rental markets (e.g. in or near larger cities, or smaller towns that provide a good social environment where younger folks want to stay) and do your homework;
  • Make sure you are cash-flow positive as soon as possible after you purchase the property;
  • Using mortgages or loans as leverage allows you to need fewer of your own assets, thereby increasing the yield on your invested assets (but this does coincide with higher risks!);
  • Look for properties that are, or can be, split into multiply units. For these properties, you generally pay less per unit and thereby increase your yield on your investments; and,
  • Put effort (or funds) into tenant selection. This is one of the best risk management tools you have in Real Estate investing (plus added benefits of Box 3 Taxes). Also treat your selected tenant well and with respect, in return they tend to also take care of your property for you (this is also our personal experience).

Happy House Hunting!


  1. Hey,
    Just found your blog. Nice! We live in Belgium and here the renting situation is completely different then in the Netherlands. Better I think 😉
    We currently own 6 units, so we live in one and we rent the five others. We started end 2013 with it all, so our situation is a bit similar at that point.
    One of our units gives continuous bad tenants, so we might change that one. Another unit continues to have bad luck, both wih tenants moving out after only a few years, and with things getting broken all the time. Not sure yet what we will do with that one.
    In my opinion real estate is THE way to FI. You need a big mountain of cash to finance hard times though 😉 I think we only need one more good renting unit to be FI.
    And 7 units is the max I want to go. If you have more, it gets more and more difficult to handle all problems related to rental property.
    After all, its not supposed to be a fulltime job! I want to be FI instead! 😉

    1. Hi Nona,
      Well done you! Seems we are in very similar situations, but it also seems we have had more luck with tenants and things not breaking down all the time. However, this (things breaking down or a bad tenant) will happen at one point for sure.
      We have been debating the option to expand by with one or two more units, which will most likely make us FI too. But for now we first need to supplement our financial buffer to be able to make such a move (and find the right property).
      We actually don’t mind doing some maintenance/repair work on the properties if we were to be FI, it’s kind of fun to do and saves a lot of expenses too. But we would agree that it should not be a full time job.
      Thanks for commenting and good luck to you.

  2. Nice set up you have! For now, we decided to be rental free. We might get back in the market at one point. I am rather looking for a equity investment in rentals. There are some.

  3. Thanks or sharing. It’s a technicality but I calculate some of the metrics differently. Yield (gross) is gross rental income / market value. It looks like your portfolio averages 5.65%, which is almost identical to the gross yields I’m getting (also invested in the Randstad). I’d calculate annualised return on equity (gross) as gross rental income / equity (your Asset Value). You might separate return on equity from return on investment, to determine the difference between the return on the amount you invested, versus equity, which can also comprise capital gains, for example.

    1. Hello Cameron, appreciate the detailed response, glad to read we are getting about similar returns (whichever way you calculate).
      We actually tend to focus on the cash-flow portion of the investments (which is most critical for us during FI) and don’t really care much what our return does based on equity. Capital gains are nice, but they don’t come into play until you sell, which we are not planning to do for a very long time.
      Curious to know, what do you have as real estate investment?
      Have a great weekend.

      1. We’ve got a couple of higher-end apartments in central locations of cities in Zuid Holland. They’re likely to exhibit capital appreciation over time, and already have in this buoyant market. And that will probably drag the WOZ value higher, positively impacting our equity stake, but increasing our wealth-tax base. So long as rents appreciate in line with the capital gains, it’ll net out positively. In one case the rent increases have outstripped price growth, and in the other the price has appreciated faster.

        BTW, I think it’s brilliant how in another post you’ve mapped out the tax-impact of various FIRE scenarios here in NL. I’ve done some back-of-the-napkin stuff myself and more or less concluded that when invested in rental properties in particular it’s possible to keep a quite low tax liability.

      2. Good for you, seems that you have made a wise investment into the two properties. Hope they continue to provide income and ultimatly capital gains.
        Thank you for the flattering comment. Glad to see that people appreciate the information.
        Rental properties in the Netherlands do have the ability to provide quite a low tax liability compared to other forms of investments, this was a nice bonus as it was not the original reason to commence with real estate investments (that really was positive cashflow for us).
        Thanks for the visit!

  4. Ah, the diversification of the Cheese empire is finally shining through. Thanks for breaking down your experience here and showing how you expanded your cash flow. Lanny and I have talked about real estate one day, so I am always open to reading as many stories and hearing as many experiences as possible so I can get the full understanding of the good and the bad of real estate investing. I think an interesting post down the road would be to discuss how you screen tenants to make sure you are getting a quality tenant versus one that will cause you headaches and potentially ruin your cash flow.

    Thanks again for the post!


    1. Hey Bert,
      we do like our diversification 😉
      As for tenant selection, we have this done by the professionals (no, not ourselves 😉 ). The reason is simple, they do this for a living and have more tools at their disposal and we NEED to do this for tax purposes. If we were to do this ourselves, we get taxed in a different tax group which would not be pretty. The good thing is that the extra expenses for a property manager is compensated with lower taxes.
      Cheers mate!

  5. What an inspiring post. Amazing what kind of an small empire you have already built in just two years. Well done!! I owned one property once and unfortunately sold it with a loss when my family and I moved to give the kids a garden instead of a balcony. The move also reduced the daily commute. However, since then I am reluctant of buying a house again. We rent the place we live in currently. Are you worried about declining house values at all particularly given the state of the Dutch housing market?

    1. Thank you DIB. It’s gone pretty quickly, that’s for sure.
      We are not really worried about house values, primarily because we are more focused on cash-flow. We are therefore more worried about empty properties and/or lower rents for next tenants. But for now (read next 10 months minimum) we are in a good position cash-flow wise. We also don’t plan on selling the properties in the coming years (decades actually), so also therefore don’t care about the house prices.

  6. That’s cool that both of you are on board. Mr.W is very shy with renovation and home maintenance. The only thing he’s excited to do is cutting grass. LOL 🙂 I take that as I’m used to make my own decisions, but at the same time, if Mr.W was a little bit more handy we could have safe a lot more money. It’s all good and balance.
    “Make sure you are cash-flow positive as soon as possible after you purchase the property” This is key right here. That was what I did, I know initially, I’d have to fix a lot of things, but regardless of those details, I’d make sure I’m positive cashflow, and I was patience enough to do it over a period of time.

    Leverage is king when you’re young. LOL 🙂 if you have 10 of these, over a 10 years period, I guess, you’d become a millionaire, it doesn’t take 40 years like people advertised.


    1. We are definitely TEAM CF 😉

      We would love the ability to get more properties, but pricing and financing are the most difficult topics in the Netherlands at the moment. We would needs lot’s of cash to continue, which we don’t have…..

  7. I rented out my home while living in it and I too made some nice returns renting out the property. Home prices haven’t fallen to levels that I feel comfortable buying around me otherwise I would definitely consider it again. Thanks for sharing!!!

    1. Hey MSM, glad to see that you have had positive experiences with real estate too. Just keep your eyes and ears open, you never know what might pop up.
      Good luck

  8. Thanks for the inspirational post. To diverge, I might start being a landlord one day. I am reluctant till now due to the potential hassle one could have with a not so nice tenant.

    1. This was also one of our major concerns. Having a good property management firm makes a big difference. Based on our assessments of two of these firms, their failure rate is generally less than one percent. That is pretty good, and certainly good enough for us.
      Plus, you need them anyways if you want to make your investments fit with the box 3 tax requirements.
      Definitely keep considering the opportunity, it may just cross your path to FI.

  9. It certainly does, maintenance and reservations are not to be underestimated when investing in real estate. But as you can see, the yield is still pretty good despite the (future) expenses.

    1. We cannot use the expenses for taxes, the units are all in Box 3. We will be taxed based on their value in rented state. Which in our case is about 65-85% of the WOZ value of the property. We can however subtract the mortgages and loan from that value, which brings our total wealth down for tax purposes. Overall tax burden will therefore be pretty reasonable for our real estate investments.

      You have a B&B’s right? So that’s all Box 1, in which case you can actually use the expenses to lower your taxable income.

  10. Fascinating post. Thanks for the clear explanation. I’m now really considering investing in real estate in the future. Yet, first getting a degree is now more important. 😉

  11. Very informative post, thank you for sharing. I’m also planning to enter into the rental market next year, therefore such articles from first hand experience are really helpful.

    1. Your very welcome. The intent of the post was also to give a bit of real world background on this topic. It’s actually quite hard to find details like this on the internet, we found.

    1. It’s good to keep your eyes open, you never know what kind of opportunity comes around. We looked for about 5 years before finally pulling the trigger on our first property.

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