Real Estate Report – November 2016

As promised in the post on our Real Estate investments, we will be posting monthly “Real Estate Reports” going forward which will be showing all the good, the bad and the ugly. Considering this is the first post, we will have to provide you guys and gals with a bit of an explanation on the numbers.

To understand the numbers, you got to keep the following in mind:

  • We purchased our last three rental units in one purchase back in July, it took a bit of time to get things organized and we also had friends stay in the units for a bit in August.
  • The commercial workshop was already rented out in July, pretty much as soon as we moved in.
  • Next, we successfully found tenants whom moved in both in early and mid-September in the two vacant. We paid a fair amount of commission for this service by the property management firm we hired, but in return can add these investments in Box 3 for tax purposes (for us is a far more financially efficient setup than self-management, which has to be reported in Box 1).
  • We had very little expenses to date, other than some minor paint work, clean-up work and an initial assessment to be able to determine the appropriate monthly rental fees. More expenses will come in December and early next year once the boilers are serviced and mechanical ventilation is installed in both units. Some repairs are required for the roof of the workshop and painting is required at a few spots, all to be carried out next year too.
  • During the time the units were empty, we had to pay for the hook-ups for water, gas and electricity.
  • Insurance fees are normally paid every quarter, but due to some updates and re-assessment of the property values, we had several extra expenses and also some refunds from the insurance company.
  • We also liquidated our real estate business, which we held for a while when we were living abroad. This allowed for some tax advantages, but considering we are now living in the Netherlands again, this benefit disappeared and it made financial sense to move the properties to us privately and in Box 3 for tax purposes (instead of Box 2). You therefore see a jump in income from October to November, this is solely due to the two extra units providing income directly to us, rather then to the business.

As of November we thus have the maximum rental income possible for the 5 units.

This first plot provides and overview of the expenses, rental incomes (gross) and net rental income since July of this year. The negative net incomes in July and August are a result of the costs for the mortgage, utilities, insurance and rental price assessments, while not having any rental income at that time. Please do note that we book the rental income/expenses for the month they apply, just to keep the numbers stable (payment/transfer dates often shift around month end).

2016-11-re-overview

A more detailed breakdown of the rental income (gross) in November is provided here:

 2016-11-re-income

All costs incurred in November are shown here:

 2016-11-re-expenses

Note that all these incomes and expenses do not include any reservations for future large maintenance such as kitchen replacements, bathroom remodels, etc. These will ultimately show up as very large expenses and could easily wipe out rental income for several months.

Do you have rental units, if so, how did they do this month?

 

 

 

 

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22 comments

    1. Hey Tristan,
      The stocks right now are doing a bit better overall, but we have not seen a correction in a while, so this is as expected. If you want to get a sense of the value, check the post on real estate, overview and yield from a about a month ago. There is a nice overview of the value in our real estate, including (expected) ROI.

  1. Interesting post. I didn’t realise that using paid tenant placement services can be used to determine whether the investment property is taxed in Box 1 or Box 3. Thanks for sharing and enlightening.

    To get ours ready we did a little bit of own maintenance, light renovation and cleaning. Also had to pay the utility service connection and consumption costs until tenants were placed. It wasn’t a signficant amount though.

    Both belong to a VvE, so insurance is included in the service fee, as is building and common area maintenance. Long term maintenance gets mapped out in the Meer Jaar Onderhouds Plan.

    Placing tenants was very fast and easy.

    We have a CV ketel service coming up in one property this month, but don’t expect any major costs since the unit is only a few years old. And in the other property it’s stadsverwarming, so no routine service costs, but a thermostat regulator valve failure that no-one seems to know how to fix!

    On the whole, thanks to quite high rents, moderately low ongoing costs, and very low interest rates, performance is very good this month.

    So our journey and current status seems to be largely similar to yours. Perhaps with the main different being the property types, and number there of. I might do something similar to this one day ie. report and present the results. Maybe in a blog!

    1. Hey Cameron,
      Seems that you have your ducks in a row. Well done!
      How solid is the VvE of the building in which your unit is located? Heard a couple of horror stories from various folks on having to shelf over massive amounts of money to pay for extra repairs or bills that came in higher than expected for the building. For now this is also the main reason we don’t have any units that fall under a VvE, rather make and execute our own maintenance plan.
      As for the taxes, if you ever get audited by the Belastingdienst, and you have entered your properties as wealth in Box 3, but cannot provide proof for management services, you could be on the hook for a massive tax bill (and potentially an additional fine as well). Self-management of units needs to be declared in Box 1 to avoid potential issues. But can be more expensive depending on your other incomes.
      Cheers mate!

      1. Thanks, yeah, going okay so far.

        With the Netherlands having so many very old buildings, I can imagine that the VvE horror stories you heard are common enough. To avoid this we selected newer buildings and did due diligence on the VvEs to ensure they were well managed and funded.

        The building complexes are small, only 5 and 6 properties, and there is solid active management and close direct involvement by most owners. Each property is built around 2002/03 so longer term maintenance is expected to still be a good way off. And as mentioned both have proper MJOPs, with service fees that are projected to cover the expenses as they’re anticipated to arise. Even the very big ones, like the rooves, and an eventual elevator replacement in one case.

        I’m not an authority but I understand that to address the issue you mention new rules for VvEs have been introduced which mandate that service fees are derived from a proper MJOP, or a minimum contribution that is calculated as a percentage of the total (WOZ?) value of the complex. One way or another maintenance has to be funded.

        Cheers!

    1. Hey SVMV, it should generally be pretty stable for at least the next year from an income perspective. But there are a few items that will see a massive fluctuation in the coming years: stucco required on two units (within 1-2 years, ~6000), replacement of boiler systems for two others (anticipated within the next 5 years, ~3000), installation of mechanical ventilation (~2000), roof repairs workshop (within 1 year, cost unknown). These are not necessarily all maintenance items, as some were considered with as part of the investment cost.

  2. Nice to see how things have turned out. We don’t own any rental properties, don’t know very much of it either. But very interested to see how others are pulling it off 🙂

    1. Hi Consuminderen, unfortunatly it’s not. Because it’s all box 3 investments. So we cannot deduct there expenses. On the flip side, taxation is considerably lower this way.

  3. Very nice Team CF. I have no real estate other than our primary home and I really enjoy being an armchair real estate investor and looking through other folks’ numbers. Thanks for sharing.

  4. Interesting to see how this works out. I am not familiar with the ins and outs of rental income. I am only invested in index funds. So thanks for sharing.

    1. Hello Mr. Tako,
      we have not done the detailed calculations yet, but a quick back of the envelope calculation shows an average tax burden of about €200/month (conservative approach). It is however not seen as income for tax purposes, rather as wealth tax (you pay about 1.2% tax of the declared net wealth, approximately). In the case of real estate, it is based on a asset value (i.e. property value * multiplier minus all debts).

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