For our real estate March was a busy month as we finally got some of the major outstanding maintenance works out of the way. Unfortunatly we were not able to complete everything we wanted to do. However, we both have two weeks off during the second half of April and a battle plan ready to get a lot of work done on our own home and the rentals! But let’s talk number first, here is our Real Estate Report – March 2017.

Rental Income

It was yet another good month with no vacancies and all rents paid on time. We really cannot complain as we have great tenants all around! This is where careful (and in our case also exensive) selection starts to pay off!

March 2017 Real Estate Income

March 2017 Real Estate Income

Rental Expenses

As you can see below our expenses were really high for the month. The primary reason is the installation of a mechanical ventilation installation system in one of the rental units. We already got the bill this month too, which also includes the purchase of the two mechanical ventilation units. We therefor expect another €400 bill for the installation of the second unit in labour costs and small materials. This bill should come in May.

We were a bit disappointed about the costs as they were a bit higher then expected (expected to be about €100-200 lower).  Mr CF did help out to keep the costs in reign, but this will “only” save about 300-400 euro’s overall. Still, a good savings none-the-less and some valueable lessons learned in DYI skills.

Other expenses for the month are:

  • Property taxes;
  • Interest costs (mortgage and loan); and,
  • Property management costs.
March 2017 Real Estate Expenses

March 2017 Real Estate Expenses

Real Estate Report – Overview and Forecast

We made a total of €1.070 in net rental income for the month of March (before taxes). The net cash-flow will come in around €650, signifianctly lower than last month. However cash-flow is expected to rebound in April (no major bills expected). Our total YTD rental income for 2017 is €5.415 (before taxes).

March 2017 Real Estate Financial Overview

March 2017 Real Estate Financial Overview

The (cash-flow) forecast for May is not very pretty because more property taxes, sewage and garbage removal bills are scheduled for payment. We will likley also see the bill for the moisture barrier installation (also scheduled for installatoin late April) and the second mechanical ventilation unit.

Still need to start work on the renovation of the outside walls for two other properties, but time is limited. This will really be a big bill that will wipe out two months of income easy. Aiming to get this work done around summer time to spread the effects on our cash-flow. In addition, the windows will also need to be painted at that time.

How did you do this month? Did you have any maintenance done on your own house? Or did you DIY lately?

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We thought we were smart and tried a (for us) new Real Estate Financing: Fail! What happened? We had applied for a personal loan of €75k to supplement our cash and find a property in the €85-110k range. But we got turned down, and not for the reason we thought! Keep on reading for the details 🙂

Real Estate Financing

Real Estate Financing

Real Estate Financing

In the Netherlands there are many several ways to finance real estate, but the options available to you depends primarily on the size of your wallet (or your income). Or in different words, how much cash you have available.

Quick overview of your main financing options (see also this post for details):

  • Cash;
  • Investment Mortgage;
  • Personal Mortgage;
  • Crowd Funding; and,
  • Personal Loans.


Buying a house in cash is only available for a select few. Don’t know about you, but we don’t have about €100K in cash laying around. Cash can be king in real estate, but using other financing means to purchase the property can give you much better return on investment. This is also why we prefer mortgages and loans for real estate investing: leverage!

Cash is king

Cash is king

Investment Mortgage

The investment mortgage market is rather difficult as you need specialized assessments (about €1000-1500 depending on the property) and you mandatorily have to hire an advisor (1% or property mortgage or flat fee of around €1500-2500) to prepare the application to submission to the lender.
Another drawback is that you can only get up to 70% of the assessed market value in rented state. This is commonly much less than market value. In short, you probably need a minimum of 30-50% of the market value in cash to purchase the property via this financing method.

The next drawback is that the minimum value of the investment mortgage is often €75k. Based on the above notes, it will be hard to finance properties below about €125-150k. This is unfortunate as this section of the market can be very profitable. The interest rates are reasonable at between 3.45% and 4.75% depending on Loan-to-value ratio and fixed interest period (for 1-10 years).

Personal Mortgage

The next method is using the house (or a portion thereof) for yourself and finance the whole property as if you will be using it for just yourself (you will have to declare this at closure of the mortgage). According to the terms of your mortgage, you would have to notify the bank if you want to rent out a portion. The answer you will get back is most likely NO (except under special circumstances, like your previous house does not sell).

The reason is that the banks don’t want the risk of having tenants that they cannot evict in this case that you cannot pay the mortgage and they have to foreclose on the home. You have to understand that tenants are extremely well protected in this country.

You can choose not to disclose to the bank that you are renting out units in your house, which commonly goes perfect as long as you pay the mortgage. But you will be violation of the terms of the mortgage. We officially cannot recommend you do this, but it is very often done as this is by far the cheapest way to finance a rental property. Interest rates are hovering around the 1.5-2.75%, depending of Loan-to-value ratio and fixed interest period (for 1-10 years).


You could in theory finance the entire property this way, we have seen this a couple of times already. But the interest and fees are quite high. It’s not uncommon to end up paying 6-7% overall.

Another drawback is the relatively short (usually less than 10 years) repayment period. So your cash-flow quickly become negative due to the high monthly loan payments.

Crowdfunding of Real Estate

Crowdfunding of Real Estate

Personal Loan: FAIL!

Having reviewed the above, we figured that a personal loan would be an option. We have good incomes, so we decide to apply for the highest possible personal loan at, which is €75k. No affiliate links to the company, but they have the best interest rates at time of writing this post. We decided to go for a 120 month repayment period. Monthly payments of €775, at an interest rate of 4.2%.

We filled in the application and waited for a call back. They were pretty quick actually and called within 1 business day. So far, so good. When we got chatting, one of the first question you get is where you will be using the money for. Being honest, we said for the purchase of a property. That was no issue.
But then the lady on the phone started asking if this was our only property. So again we answered honestly and said that we owned 5, including our own house. She returned by saying that she had to talk to a manager.


A few minutes later she returned with an unfortunate answer. They could not provide us with the loan as we had more than 4 properties. Apparently, if you own more than 4 properties you are seen as a business (even though we own the properties privately). We got told to look for a business loan and that the application was not going to be processed further.

A little miffed we asked if there was any other way to still obtain a loan, but that was pretty much a done deal (and we don’t have to try this again any time soon). Unless you want to commit fraud and change the application to a home renovation (which would be sort of true). But that’s not our style, so we have to revert back to the above options if we want to finance another property….darn.

We did ask if our income would support the personal loan, at least the answer to this question was yes. This was a bittersweet conclusion of the conversation.

We are still considering another personal loan company to see if their regulations are less strict. Do you have any other suggestions? Ones we have not thought about? We have considered a personal loan with the seller, but there are few sellers interested in such a setup unfortunately.

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The month is almost over, so it’s time to for what I like doing most: calculating how much money we earned this month. Passive income that is of course! Without further ado, here is the Real Estate Report – February 2017.

Rental Income

It was another good month with no vacancies and all rents paid on time. Love it!

February 2017 - Real Estate Income

February 2017 – Real Estate Income

Rental Expenses

Expenses were a bit lower than anticipated as the maintenance and mechanical ventilation installation works were not able to be completed this month. Primary reason for that is that the economy is doing rather well in the Netherlands. In short, more people are spending money and contractors are busy. This was no different for our own contractor. However, we have (finally) been able to schedule the work for March 1. Mr CF will be helping out to keep the costs in reign.

Other expenses for the month are:

  • Interest costs (mortgage and loan)
  • Insurance costs
  • Property management costs
February 2017 - Real Estate Expenses

February 2017 – Real Estate Expenses

Real Estate Report – Overview

We made a total of €2.275 in net rental income for the month of February (granted, before taxes!). Our net-cashflow is a bit lower due to the mortgage payment (about €410 lower to be exact).

February 2017 - Real Estate Overview

February 2017 – Real Estate Overview

As noted above, we will be doing the mechanical ventilation installation in early March. But still need to find a date to install the moisture barrier within the outside wall. Perhaps in combination with the installation of a drainage system to keep groundwater levels down. It will depend on how much time our contractor will have for us within his busy schedule. But once the mechanical ventilation is installed, the moisture issues should already be reduced significantly.

We also still need to start work on the renovation of the outside walls for two of our properties. Have not had time to start the requests for quotation yet.

Do you have real estate? If so, how was your month? If not, are you tempted after seeing this report?

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I’ve run out of evening to make a longer, more elaborate post regarding the Real Estate Report, so will keep this short and simple for today. Any questions, please do leave a comment 🙂

Rental Income

Rental income is boring this month, no vacancies and every rent wat paid on time, yeah!

Rental Expenses

Expenses were a bit higher then anticipated. Primarily due to high costs on the boiler systems of two units. One had a leaking valve, which set us back about €77. Both units needed to be fitted with Carbon Monoxide switches, as both were deemed at risk by the original manufacturer. The cost: €35 for the two sensors. The total cost for the two boilers: €315 (normally that should be €156).

Other expenses for the month are:

  • Interest costs (mortgage and loan)
  • Insurance costs
  • Property mangement costs

Real Estate Report – Overview

Still, a pretty good month none the less. We still made well over €2.000 in net rental income (granted, before taxes!):

There will be some significant costs made next month as two units will be fitted with continuous ventilation. Furthermore the moisture issue will hopefully be tackled too with a lead slap and expoy barrier being placed within the wall. Costs will probably whipe out rental income for the month of Februari and/or March. Depends on when the work is executed and the bill arrives.

But at least we won’t kill our tenants with mold and we will also keep the building in better shape by keeping moisture levels down.


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HAPPY NEW YEAR! Team CF wishes you and your family great prosperity and health through frugal living and good investing.

Now, on to business. In this case the business or Real Estate. We will first look at the month of December 2016 to see what happened with our properties, next we will take a short look at the forecast for 2017 and expected developments regarding income and expenses.

December 2016 – Real Estate Report

December was fortunately unexciting (mostly). All properties were rented out and all rents were received on time, distribution is as follows:

Expenses this month were higher due to the interest payment on a personal family loan (as of 2017 this will be paid monthly). Other expenses such as mortgage costs and property management fees were normal. We had some negative expenses (i.e. a refund) on the insurance side. This was the result of a new assessment on the value of one of our properties. No maintenance costs for this month, but we had the heating systems serviced for two units. Bills are expected for January and will come in higher than planned due to placement of carbon monoxide sensors (€35 each) and issues with fine-tuning during boiler maintenance…..small setback.

At the end of the day, December and 2016 as a whole looked like this:

For 2016 we had about €9400 income, €6400 expenses and a net profit of €3000. Not bad for a year in which we really got going on the real estate side.

2017 Forecast

For 2017 the forecast is as follows:

  • €35.000 rental income (don’t expect empty units this year, buy you never know!)
  • €19.000 expenses (includes €9000 for large scale external maintenance for two units)
  • €16.000 net income = about 7% net yield (before taxes)

The large maintenance for the two units was expected and we have been saving up for it as well. These two units are old (1910-ish) and the outside paint work will be removed and replaced with stucco. This way the units will have lower maintenance going forward (no more masonry or paint work required in the next 10-20 year, depending on the quality of work). Windows frames will also be repainted. After this final large reno work, these two units are in tip-top conditions and should need very little work over the next decades.

We also found that the moisture issues (migrating through the outside wall), as discovered in one of the new units last year, is worse then expected. We are getting a contractor in next week to have a look. We have made some reservations for this one too. But this is the large unknown for 2017.

Stay tuned!

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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).


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


All costs incurred in November are shown here:


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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We (Mr. and Mrs. CF) just finished our discussions and thoughts on how to calculate our Savings Rate going forward (and correct some older results). The outcome of how we calculate our Savings Rate is added in this new page on our blog, it may explain a few things you are wondering about, and perhaps could help you too with determining your Savings Rates.

The reason we had some discussions is because of our latest Real Estate venture. We have successfully rented out the two units and commercial workshop in our new property to some lovely people. All associated funds are coming in and are going out of our checking account. Because it’s one property, expenses for mortgage, maintenance and operating costs are shared between our personal use and our Real Estate venture. These can sometimes be hard to split, but we decided to give it a go anyways.

What does this have to do with our Savings Rate? Well, because we were not sure how everything was going to work out we added everything into our Savings Rate calculations (incomes and expenses). Now that we have completed our review of the assessed values of the properties (i.e. the “WOZ waarde” and the “Marktwaarde Taxaties”), we now have decided how to split the expenses like mortgage interest, insurance and maintenance. This is very important as it will affect how we will submit our taxes for 2016.

We have now completely pulled out and split the investment income and expenses related to real estate from our personal Saving Rate calculations. The corrected version, with changes starting from July 2016, is shown in the new overview below. If you are curious about the changes, you can also look at the one originally prepared for the Saving Rate October 2016 post. However, it pretty much boils down to the fact that we actually have had a slightly higher YTD Savings Rate than initially thought. Now that is always very good news! This actually also makes sense, as we moved to a smaller house as of July and anticipated our housing cost to go down. The data is now somewhat distorted because of the moving costs, refund of the rental deposit (see low rate in July and peak in August) and initial maintenance/decorating costs, but we might be able to achieve a 60% Savings Rate next year because of downsizing our home (fingers crossed).


Going forward, we will use the (in our opinion) correct personal Savings Rate. But as a bonus we will also start reporting our monthly Real Estate income and expenses (for those of you whom are interested in this investment opportunity). More details to follow in December.

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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 utilizing 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).

RE 04As 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!

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The title question can actually also be combined with “should I pay of my house faster?”, which is a very popular topic that is debated endlessly on many personal finance blogs. Being in the process of buying a house, we did some calculations to find out what amount of down payment (and/or accelerated mortgage payments) would provide us with the best Return On Investment (ROI) for our available cash.

As per usual, we need to identify a few boundary conditions and assumptions to be able to assess the various scenarios, which are as follows:

  • Assumed property value €200.000;
  • Fixed term annuity mortgage (albeit this assessment also applies to linear mortgages and variable mortgages, as the principle is the same);
  • Mortgage based on 5 year fixed rate, 30 year amortization period with the ING Bank;
  • ROI assumed at 3%, 4% and 5% for funds invested (in whatever assets that rock your boat);
  • The missed investment income or “Opportunity Costs” is defined as the lost ROI on the equity being locked in your property; and,
  • Appreciation of the property is not taken into consideration, as you would need to sell your house to materialize the profit.


Before we continue, a quick explanation on why we selected the ING Bank with regards to the mortgage provider for this assessment. The ING is the only banks that has 12 classes defined for its mortgage interest rates (most banks only have up to 3 classes). This means that your mortgage rate changes depending on what percentage (ratio) of your home value is mortgaged.

For example, if your current mortgage value is €150.000, and the value of the property is €200.000, your mortgage ratio is 75%, However, if you have just bought your house, with a down payment of say €10.000, your mortgage would be €190.000 and the mortgage ratio is 95%. As you can see in the table below, depending on what term your mortgage is defined, you are looking at about 0.35% difference in mortgage interest rate. That is considerable on a mortgage percentage around the 2% mark!

ING Interest Rates

The point here is that you benefit from paying off your mortgage faster (or putting a down payment on the property at purchase) by paying less interest as well as getting lower monthly payments. That is a double win!

Team CF Top Tip (with a hat tip to one of our readers), if you have been living in the same house for a few years, doing a new price evaluation may help you lower your interest costs/monthly payment as, due to the price increase the newly calculated mortgage ratio may drop you into a lower interest rate class.

The Assessment

As noted earlier, a smaller mortgage means lower monthly payments and less paid interest. But on the other hand you are also losing the opportunity to invest your money into assets that generate you (cash-flow) income or create capital gains (i.e. the “Opportunity Costs”). As you can imagine, there must be a sweet spot in the amount of equity in your home, but as you would expect, it depends on the interest rate paid and the assumed ROI.

In the figure below we have tried to show, for three assumed ROI’s, at what Mortgage Ratio your will find the tipping point between benefitting from paying off your mortgage faster or better invest into assets (stock, bonds, ETF’s, rental property, etc.).

Interest vs Opportunity Cost

So how should you interpret this graph?

The orange, green and red lines indicate the theoretical ROI (being 3%, 4% and 5% respectively) on the funds that are “locked” into your home (i.e. the “Opportunity Costs”). For example, if you have a Mortgage ratio of 90%, 10% of the property (in this case €20.000), could have been generating income. At 5% ROI this would have been €1.000 a year.

The blue line is showing the reduction in the amount of interest  (expenses) you are paying, on a yearly basis for this scenario and the ING interest rates shown above. As you can see this is not a linear line, which is caused due to the reduced interest rates you get for owing an increasingly larger portion of your house.

At the tipping points (as shown at ~44%, ~78% and ~90% for the 3%, 4% and 5% Opportunity Costs options respectively) the return you make on your investments become larger than the reduced (or saved) interest costs. Beyond these points, you are better off investing the funds than using them to pay off your mortgage faster. Another benefit is that you maintain the mortgage interest tax deduction (aka “Hypotheekrenteaftrek”) as large as possible for as long as possible.

What Does This Mean In Reality of You?

This completely depends on your situation, firstly you would need to know (or at least assume) an ROI that is applicable to your assets. Next, check your mortgage interest rates and classes to see how additional down payments affect your monthly payments (or reduction in interest).

The next step is just doing the math, depending on the results you can start to evaluate your options. For some of you it might be worth paying down the house, for others it may mean that you should start to divert as much cash as you can towards investments/assets.

RE 09

What Does This Mean In Reality of Us?

Considering our current portfolio is generating about 4% per year (after taxes/inflation), and we still can decide what to do with our available cash, it seems most logical to put the available cash into the mortgage (which currently sits at 102%). Simply because the reduction in interest expenses at this stage is far larger than the potential income from the funds when invested (we would need a ROI of about 27% on the available cash to compensate the increased interest expenses…). Theoretically, when we get to about 85-75% of our mortgage, we should really start diverting every available € towards investments rather than putting it into our house.

In reality however, we would continuously reducing our mortgage amount by our monthly payments. Based on our preferences and the shown interest rate drops per mortgage ratio class, we will aim to initially reduce our mortgage ratio to 95%. After that, as it takes time and considerable amounts of cash to drop to the next (lower) mortgage ratio class. So it is likely better to invest in the means time, try to make some dividends and capital gains, and cash at a point where we would be able to drop a large cash amount into the mortgage to force the amount into the next interest rate class (which is generating the largest impact on cash flow and interest expenses).

Another point of consideration here is that the property we are buying is a four-plex, of which we will use the largest unit for us and the other 3 units will be rented out. This means that every € that we put into the mortgage is factually an investment, as it reduces the mortgage cost and thus increases the cash flow and profit on the property.

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As noted in our previous article on our latest real estate project, we were looking into property financing. The turned into a rather interesting investigation and a steep learning curve. We will try to provide you with a summary of what we have learned so far, and what you should be aware of in case you will attempt something similar.

In the Netherlands are basically three main types of financing real estate investments, or a combination thereof, being:

  • A mortgage (residential and/or investment);
  • Cash; and
  • Crowd Funding.

RE 08

Nope, still not the actual property


This is where it started to get interesting, here is why. In most mortgage contracts on residential properties you are not permitted to sub-let without written authorization by the mortgage lender (hint, they are not keen on providing this approval either). This is irrespective of how much of the property is yours, or how easy you may be able to afford the cost of the mortgage on your income (and/or rental income). The same applies for “temporary” renting out a room (think AirBnB, etc.) or your entire house/Condo/etc. You are technically not permitted to rent out your home on AirBnB to make additional income.

In practise, many lenders will permit you renting out your home, but only when you are on holiday or business trips (i.e. generally short periods of time). Long term income via AirBnB will never be permitted under normal mortgage conditions. Considering you do need a place to live (ideally with low costs), you really don’t want mortgage penalties or battles with a mortgage lender.

The way to get around this problem is by trying to get an investment mortgage (i.e. “beleggingspanden hypotheek”). The downside is that since the financial crisis of 2008-2009, virtually all Dutch banks have decided to scrap these mortgages and it is extremely difficult to find banks that still do. For the smaller Real estate investors (i.e. us), there really is only one bank in the Netherlands that will even consider your application. This is the NIBC (see, sorry in Dutch only.

There are however a few conditions and limitations:

  • You need to have a specialized evaluation done (cost about €1.000), without the guarantee that they will approve your application;
  • Your property needs to be located in, or at least very close to, major cities (they have a list on their website);
  • You are limited to a maximum mortgage of 70% of the taxation value, so you need a lot of cash to get started; and,
  • The minimum mortgage they provide is €75.000 (i.e. assuming this is 70% of the market value, your property has to be worth at least €107.150).

Their interest rates are around 3.9-4.6%, so not too bad. But considerably more than residential mortgage rates which start as low as 1.5-1.6% for a one year mortgage (@ 60% of the market value) and about 2.3-2.5% for a 5 year fixed mortgage (@ 100% of the market value).

As you can imagine, these rules and limited options make it very difficult for most people to get going with a real estate investment. You are therefore probably not surprised that most people take the risk of renting out (a portion of) their property with longterm tenants. Which generally seems to work out, as long as you pay your mortgage every month without missing a payment and you have good insurance coverage (the insurrance company does need to know you are renting out your property, otherwise you may not be eligible for payments in case of a claim!).

CashRE 07

Cash is King! Especially in real estate investments, if you have enough you can use it for leverage (i.e. you use the cash to pay 30% and finance the remainder with a investment mortgage). Problem with cash is that it takes time to gather and when it sits idle, it does not do much (you actually loose purchasing power due to inflation/taxes). But you need a lot of it to get started. So you may want to consider investing money first into Index Funds or individual stocks and cashing out once you have sufficient to invest into real estate (when real estate is part of your FI strategy, obviously).

Crowd Funding

This is the newbie in the financing options, but one that has a lot of potential for both investors and lenders. As noted above, a lot of cash is required to start into the real estate game (if you follow all the rules, anyways). For this reason many people actually invest cash into crowd funding sites that offer Real estate projects. For example, on (Dutch only), we have seen and invested into several projects related to real estate investments. These generally provide interest rates of 5.5-8.0%. We have seen many projects in the range from €30,000 for renovations to €500.000 for refinancing and new purchases over the course of just a few months. Most of these project attracted their funding within a few days, and sometimes within one day!

The good thing about this development, is that if you require funds for a real estate purchase, refinancing or renovations, you have an alternative to the (generally hesitant) banks for funding. You generally will, however, pay higher interest rates and also associated fees (which can easily add 1.5-2.5% to your proposed interest rate).

From a cash flow perspective, these loans are quite high. This is generally because of the relatively short repayment periods (generally between 60 and 96 months) and the aforementioned higher interest rates and fees. None the less, they can be a interesting way to get (a portion of) your financing.

Other Options

Beside the main three options, you can always try to secure a private loan (but you will need to know some very wealthy people/family). Alternatively, you can consider making  arrangements with the current owners that they transfer the property to you, and you pay them back over an X amount of years the amount of the sales price + agreed interest (i.e. they become your bank). However, these options (and others) may only come by once in a lifetime.

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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.

Criteria for the search were as follows:RE 04

  • 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.

RE 02

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 RE 01arrange 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!

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