As noted in a previous post on Creative Living Options , if you are a bit savvy (which you are of course!) you can look into creative ways to lower your house expenses or even earn some money on the side.
We are currently renting and were waiting for an real estate opportunity to present itself. We were looking into a couple options for our next real estate purchase:
- Single unit for a low price (a fixer-upper would also be acceptable);
- Double unit or potential option for a double unit (e.g. an old farm house/duplex), we would keep one for personal use and rent one out for some extra income;
- Multiple units, again to keep one for ourselves and rent out the other units.
- Within about 30 min driving distance from Mr. CF’s work;
- Within about 15-20 min cycling of a major public transport hub (for Mrs. CF to get to work);
- Priced under €450.000 for double or more units with little renovations;
- Priced under €375.000 for double or more units with major renovations;
- Priced under €232.000 for single unit of even double unit, the reason for this price is the ability for the unit to be priced under the NHG mortgage insurance limit, which provides a lower interest rate on the mortgage (more on this below);
- The potential property would get “extra points” if it would also be situated close to our parents, so that grand parents can take care of Miss CF on occasion and our weekend commute to family would be limited.
The NHG stands for Nationale Hypotheek Garantie, which freely translates into the National Mortgage Guarantee. You pay for this insurance when you close the sale of the house, however, it generally allows for a massive discount on the mortgage interest rate (up to ~1.1%, subject to how much you pay down). It also covers the shortfall in case you are forced to sell your house below the purchase price. So it’s a pretty sweet safety net, and the additional closing costs are limited.
With the above criteria were are trying to achieve the following goals:
- Limit monthly cash-flow;
- Low maintenance/replacement cost;
- Gross return on investment of around 7-8% (in today’s monetary value);
- Net return of investment of 5% or more (in today’s monetary value); and
- Limit daily commuting times.
Not the actual property, go figure!
After actively searching for about 3 months (which is not very long!), and a couple of failed attempts, we seem to have been successful at our latest try! We found a property which already consists of 3 units and a garage/storage building with the potential to be converted into a fourth unit. It is situated on a large plot of land, ample parking and was for sale well below our limit of €450.000. We have already completed the property inspection, signing of the purchase agreement and are awaiting completion of financing. Possession date is schedule for mid July this year.
Why did we select this particular property?
There are several reasons why this particular property was interesting, these include:
- Well priced (e.g. relatively low price per square metre, both for living space and yard);
- Good cash-flow potential, in its current state the rental units would cover about 50-75% of the mortgage cost. Once the additional space would be developed, the cash-flow from the units would more then cover the mortgage payments;
- Once paid off, the gross return on investment is estimated at 9% (in “today’s money”, will be way more in 20-30 years time due to price increases); this is estimated to convert to about 6% after expenses and taxes (again measured in today’s money, so no inflation corrections);
- Bathrooms and kitchens are recently renovated or in good condition;
- Roof has been replaced and outfitted with solar panels (enough to pretty much cover our yearly usage); and,
- Overall the building appears to be in a good condition and is reasonably well maintained (as you would expect, some maintenance is still required, but the cost for this is within the normal range).
There must be a few downsides as well, we hear you ask. And you would be correct, there are a few points that are not ideal. These include:
- Not situated close to family, the travel times are around 45-55min, which is fairly long for Dutch understandings (we know, Canadians and Americans will think this is just around the corner);
- The building is relatively old (around 1900-1910), so there will be additional upkeep to the brick walls (there are many hairline cracks in the plaster, which is typical for such buildings with that age since they are founded on steel, not piles, and thus settle);
- The kitchen in the main unit was not replaced yet, everything works but it is old and will need replacement in the next 5 years or so; and,
- The layout of the unit we are planning to use is not ideal, it is spacious, but not very efficient (think long hallways and large staircase landings).
But these downsides are minor in comparison to the potential of the property.
The next steps
The next steps in the process is to arrange a taxation report and sort out our financing options, sort out down payments, notary works and close the final sale on the property. As noted the possession date is scheduled for mid July. So we have some time to sort out cancellation of our own current rental, plan for moving, arrange for some minor repairs and a couple of other minor arrangements. Fingers crossed that all goes well!