Austria - Castle

Here is the Real Estate Report – July 2017. Nothing much to report, still be slacking on the outstanding work, too busy with life and there is no urgent motivator either. Not good, but such is life. Still, a rather nice RE income this month for sure!

Rental Income

Our rental income for the month is now officially above the €3.000 barrier with the rental increase completed for one of the units. One more unit is due for a rental increase (should have been done per July 1), need to get this done ASAP. The other 3 units will remain the same for a while.

The monthly income overview is provided below:

Real Estate Update - July 2017 Income

Real Estate Update – July 2017 Income

Rental Expenses

The main costs for the month where water/sewage and garbage removal fees. Another significant expense was the quarterly payment of the various insurances. The interest expenses were the same, so were the costs for property management.

The expenses for the month are as follows:

Real Estate Update - July 2017 Expenses

Real Estate Update – July 2017 Expenses

Real Estate Report – Overview

We made a total of almost €1.896 in net rental income for the month of July (before taxes), a bit down from last month. The net cash-flow will come in at around €1.500. Our total YTD net rental income for 2017 is now about €13.298 (before taxes). That’s a lot of money!

Real Estate Update - July 2017 Overview

Real Estate Update – July 2017 Overview

Real Estate Report – Forecast

Stil no confirmation on the tenants moving out, they are awaiting their final approvals for loans/mortgages. But we still are anticipating them to move out. Too bad, nice couple and good tenants.

We had actually submitted an indicative offer on 5 rental properties, but the seller was not budging. Therefore no deal here, too much risk for the current asking price.

We have also requested more information on another property which currently has 12 units and shared kitchen/bathrooms. It appears interessting, but has (the usual) issues with permits and the potential for a large amount of outstanding maintenance. It does have the option to be upgraded to 16 units, which is good. Asking price per square meter is also reasonable. Still more work to be done here.

And, as noted here, we are also keeping an eye on potential German investments, but we have to sort our some taxes questions first.

Opportunities still exist, but it currently takes quite a bit of effort to find the one for us. Almost considering diverting the funds to other investments….

 

How is your RE life going? Any fun news to share?

I can hear you thinking, what happened after the really successful Cheesy Finance Exercise Challenge? Well, I continued to work out on a very regular basis and so does Mrs. CF. What did I do? Well, here is the June Workout Update!

June Workout Update

For June I did not workout every day, as I did during the exercise challenge in May. But I do try to workout about 3-5 times per week. It does not have to be long or intense, as long as I keep moving. My “favorite & frugal” workouts primarily include:

June Workout Update

June Workout Update – Cycling
Source: http://www.cyclingweekly.com/news/latest-news/nine-ways-cycling-changes-when-youre-over-40-208827

  • Cycling
  • Running
  • Inline skating (really enjoy doing this, great workout too) on my €7.5 inline skates/fall protection (got to love thrift stores)
  • Workout DVD’s (really like Insanity)

The June workout update summarizes to (activities from June 1-June 30):

  • 20 days of exercise;
  • 35 individual activities;
  • Total running distance 19.3 km;
  • Number of “Insanity Recovery” workouts: 3;
  • Total Skeeler/road inline skating distance 33.1 km;
  • Total cycling distance 526.8 km; and,
  • Calories burned 17.4562 (that is just under two whole kg’s of body fat burned).

Observations and Notes

  • Most of cycling km are coming from my commuting to work;
  • I need to up the running a bit if I ultimately want to do a triathlon next year;
  • At some point I also want to pick up swimming again;
  • Inline skating is hard, especially if you want to limit wear on the wheels. Keeping your technique good when tired is very difficult; and,
  • Cycling in the Netherlands can be quite pretty (see below)!

The Rides

if you want to get an impression of my cycling commute, here are a few snapshots (with a very crappy phone camera):

https://twitter.com/CheesyFinance/status/887191154697089024

https://twitter.com/CheesyFinance/status/875231864373555200

https://twitter.com/CheesyFinance/status/869802999388016640

The day-to-day gear (not for my cycling commute to work!)

https://twitter.com/CheesyFinance/status/873490587948855296

This is though:

And this is the typical meal for after a cycle ride 😉

https://twitter.com/CheesyFinance/status/873426178757058560

 

How are your workouts going?

Options Trading

I’m not very good at getting these options trading updates out on time. Probably because I don’t have a good system yet to update my trades automatically into a spreadsheet. Doing this work manually is a pain in the @$$. But with some perseverance one can come a long way, so here is the (belated) June 2017 Options Trading Update.

June 2017 Options Trading Update

The options trading income for June was a €142.50. Interestingly enough this was all derived from writing call options. Guess the market went down a bit in June (or at least the shares I chose to write options for).

June 2017 Options Trading Update

June 2017 Options Trading Update

Below an option trading overview for 2017 is provided with the monthly and total YTD incomes. So far the options trading generated a total of €449.25. This totally blows my mind, never expected this type of return from options trading within the first 3 months. How long can this winning streak continue (spoiler alert, not very long)?

Monthly Options Trading Income

Monthly Options Trading Income

Experiences

Based on the last 3 months I’ve learned the following:

  • I’ve noticed that I use options too much for “day trading”. This can be good sometimes, but I noticed that I prefer a more passive approach to options trading;
  • Need to learn to look more at a 1-3 month window;
  • Also need to be more picky in the option premiums I select;
  • I’ve only been trading options in about 5 stocks on the AEX, to make this options trading work for the longer term I would need to switch to a different broker and be able to trade US stocks as well (need a broader selection);
  • Options trading is fun, but can be challenging to make correct judgments on strike price and premiums (see notes above); and,
  • It takes more effort than I realized (rookie issue perhaps).

Options Trading Forecast

Ok, the forecast for July is not very good. Actually I’m going to be losing money this month (on paper any ways). Due to the violent swings in Ahold (downward…) I was “in-the-money” with a put option and had to roll the option to the end of the year to get back into the black. But because I report closed trades for each month, I’m going to incur some losses in July that will hopefully recover later in the year.

I’ve also had a similar issue with a call option for ABN, but this went to other way around. I don’t want to have the ABN shares for the long run (bought for the dividend and some speculation) so I want to close this position with a profit. However, I would like to do this with as much profit as possible. So I rolled the (still) in-the-money call to the end of the year and (hopefully) have the option being exercised for a higher strike price. In this way I will get the premium and a reasonable return on investment based on the purchase price of the shares and the dividend it generates for this year. If the option is exercised I should make a ROI of about 8% in about 7 months. Not bad, right? If not exercised I could still sell the shares or continue to collect premiums with writing call options, all depending on the share prices……. there are many “options” 😉

How did you do on the options trading front?

Investing at the neighbors - Learn German

When house prices rise so rapidly, various areas suddenly become (relatively) unattractive from an investment perspective. This also applies to our own local area and, realistically, most of the western portion of the Netherlands. Can you still invest in Real Estate, of course, but the ROI will be less favorable. What do you do? You start to look at investing at the neighbours: you start to look at Germany!

Investing at the Neighbours

We are still looking for the next Real Estate opportunity, but we noticed that we are much pickier this time around. Why? Because we want to make sure we get the best bang for our buck (well, Euro that is). This will likely be our last (big) purchase for quite some time, so we want to make it count. With the rapidly rising house prices in the Netherlands it is becoming much more difficult. There are still quite a few RE investments to be purchased, but the cap rates/ROI are “dropping like a brick”. Or we are just bad at finding the right deal, which could also be true.

Investing at the Neighbors - German Real Estate

Investing at the Neighbors – German Real Estate
Source: http://www.hydro.com/en/about-hydro/hydro-worldwide/germany/

A couple of weeks back we thought we have found our opportunity for 5 rental units, but this fell through on the price. We ended having a difference of €15.000 between our highest offer and the seller’s bottom price. Considering several unknown risks (condo board issues, tenant modifications to the units, backlog in maintenance, etc.) we decided to move on. We are willing to take some (calculated) risks, but this was too much.

In the following (continued) search for properties we browsed many RE investment and house sites. At some point I bumped into a section on investing in Germany. Considering we could not find anything to our liking in the Netherlands, Germany suddenly appeared interesting. You can find one of the many overviews of German properties here: https://www.beleggingspanden.nl/dynamic/panden/land/Duitsland.html (Dutch only).

However, we had many questions, as we are unfamiliar with this RE market. Time to start looking around for some answers.

The Basics

The German property market is, to a degree, very similar to the Netherlands. Property prices are on the rise, mortgage rates are low, rents are high and tenants are well protected. Some of these items are good, some not so much. However, for the investor there are some interesting differences.

In Germany there is a so-called “kaltmiete” and “Warmmiete”. With “miete” being “rent”, you probably can figure out that “kaltmiete” is the pure (“cold”) rent of the property and “Warmemiete” includes items such as certain utilities, condo fees, building management fees, etc. Now this is also where it gets interesting, as you as the landlord can apparently include quite a few things into the “warmmiete”, such as building insurance, property taxes, waste and sewage fees, building management, cost for common areas and snow removal costs (not only for a condo, but also for a house).

This is considerably different from the Netherlands where various of these items cannot be transferred to the tenant, they are indirectly (and only partially!) included in the rent. But this also means that the expense for you a landlord are higher, which weighs on your return on investment. In short, German RE yields appears to be similar on the surface, but when diving into it, the yields are actually a bit better due to a shift in expense to the tenants.

There are however 3 things you cannot include in the “warmmiete”:

  • Property management fees;
  • Maintenance cost, and,
  • Income taxes (go figure ;-).

When managing a property from afar, you will need a property management firm obviously. Rates appear to be very similar from what we are used to back home. One item is far more expensive in Germany, which are the closing costs. Depending on where you buy in Germany, the total closing costs range between about 10-15% of the purchase price. This is primarily caused by higher land transfer taxes and costs for the realtor.

Investing at the Neighbors - German Real Estate - Castle

Investing at the Neighbors – German Real Estate – Castle
Source: http://www.planetware.com/tourist-attractions/germany-d.htm

Taxes

Now,  rental income from various German properties does appear to be appealing, but then taxes have not been paid yet! We don’t know much about German taxes. It was therefore time to talk to some experts, so we reached out to Mr. and Mrs. W from http://whatlifecouldbe.eu/. They lived in Germany for the longest time and currently own 6 properties that they rent out. They have relocated to Romania and are technically FI on their Real Estate investments.

We had a great call for nearly 2 hours on Friday night about German RE and FIRE in general, which was great fun indeed. We also got some interesting tips to check out. However, there is lots more to discuss and we are still to setup another chat to continue the discussions. Thanks again Mr. W for your time, much appreciated!

In the Netherland you have to pay wealth tax on your RE investments. This is a rather favorable system in the sense that you can keep your tax bill limited (you can use your debts/mortgages and the assessed value of the property in rented state to limit your wealth and therefore taxes). But when investing in Germany, it appears you will have to pay source taxes. The system in Germany is different and income from RE investments is considered under income tax, for which the tax rates are much higher (starts at around 10% and goes up to 40% in steps).

Because our primary country for tax purposes is not Germany (but the Netherlands), there is also no tax exception on the first €8.500 p.p. In short, we would start to pay taxes on every (net) euro we would earn from RE investments. There is a tax treaty between Germany and the Netherlands, so we might still be able to limit/avoid double taxation. That being said, we have lots more homework to do here.

Other Items to Consider

There is definitely some work to be done on the taxes side of things, but there are also some other things to consider (good and bad):

  • The properties are not “around the corner”, you need to manage them from afar (added risk);
  • Our German is not that great right now, so the language barrier plays a part too (added risk);
  • Finding a good property management firm that you can trust is a must (difficult);
  • Local by-laws and their implications;
  • How do the tenant protection laws work in Germany (added risk);
  • Insurances, currently we don’t know if they are similar to the Netherlands, in terms of coverage and price;
  • You might need to make the occasional trip to Germany to check out the property (yeah, holiday opportunity too!);
  • You will need to make sure contractors are not screwing you over for renovations and/or repairs (ties in with note above on management firms);
  • The property purchase costs are relatively low per square meter, however, this also means that you will have to consider a higher maintenance budget per property (i.e. a higher rate than say 2.5-3.5% of the property value). For example, you can buy a large house for €250.000-€300.000 (with 8 rental units), which is in good condition. In the Netherlands you might make a maintenance reservation of say €6.500-7.500 per year. But with a large German property with 8 kitchens, 8 bathrooms and a large exterior surface, this reservation is likely too low. Especially since labor and materials cost are about the same in Germany as in the Netherlands. Again, some homework is in order to find out what is appropriate.

 

How about you? Have you been triggered to consider (RE) investments beyond your borders? What do you think about our ideas? What have we missed?

Mrs. CF and I watch a lot of documentaries. As a lazy person it’s a great way to learn new things and get exposed to different viewpoints on certain topics. We have been watching the documentary “Requiem for the American Dream“, which explains “how the system works”,  and it is not pretty! You should be able to find this documentary on Netflix (at least in the Netherlands you can). We can highly recommend watching it. We like it so much that it currently sits on top of our list of best ever documentaries.

Requiem for the American Dream

If you have not watched this documentary, do so without knowing or looking up who Noam Chomsky is. Try to have a completely unbiased view and focus on the content in relation to FIRE. It should open your eyes and explain many phenomena and observations you may have already made. We actually watched it 3 times in the last half year or so, to actually have it all fall into place (despite it being dummied down into a documentary, you can also read the book). It’s a rather complex theory told by an intellectual, so it takes time to process. Strangely enough we did not feel that it was boring at all, on the contrary, it was very enlightening.

Chomsky uses 10 principles to explain what is currently happening within our society and explains “how the system works”. Below is a short summary of these 10 principles. We have added in our thoughts on how this interacts with FIRE and the attitude required to become FI.

The italic texts is a copy from this post: http://www.alternet.org/news-amp-politics/noam-chomsky-wants-you-wake-american-dream. Personally think that Mr. David Swanson made a good summary here.

1. Reduce Democracy.

Chomsky finds this acted on by the very “founding fathers” of the United States, in the creation of the U.S. Senate, and in James Madison’s statement during debate over the U.S. Constitution that the new government would need to protect the wealthy from too much democracy. Chomsky finds the same theme in Aristotle but with Aristotle proposing to reduce inequality, while Madison proposed to reduce democracy. The burst of activism and democracy in the United States in the 1960s scared the protectors of wealth and privilege, and Chomsky admits that he did not anticipate the strength of the backlash through which we have been suffering since.

Most people will value democracy as it provides freedom, security and wealth to a bread section of the population (likely including me and you). But for a small and (very) wealthy portion of the population and for corporations, it generally hampers their ability to grow their wealth/profits. Democracy generally provides a distribution of wealth and a better quality of life, whereas a lack of democracy generally favors just a few. It is therefore no wonder that very wealthy individuals and corporations are systemically trying to reduce the democracy (even on a small/local scale).

As the FIRE crowd we are (happily/unknowingly?) surfing along with these changes. Simply by being invested in these corporations, and thereby indirectly also into these wealth individuals, by owning company shares and index funds.

2. Shape Ideology.

The Powell Memo from the corporate right, and the Trilateral Commission’s first ever report, called “The Crisis of Democracy,” are cited by Chomsky as roadmaps for the backlash. That report referred to an “excess of democracy,” the over engagement of young people with civic life, and the view that young people were just not receiving proper “indoctrination.” Well, there’s a problem that’s been fixed, huh?

If you have wealth, or a good market share as a company, you want to maintain this and increase it were possible (sounds familiar, right?). How much would you do to maintain your wealth? Apparently, both individuals and corporations will go far (to the point of being unethical) to maintain their wealth levels. Excess wealth is corrupting, but that should hardly be something new to you.

The trick here is to try to avoid the above noted “indoctrination”, which we as a FIRE crowd are relatively good at.

3. Redesign the Economy.

Since the 1970s the United States has been moved toward an ever larger role for financial institutions. By 2007 they “earned” 40% of corporate profits. Deregulation has produced wealth concentration and economic crashes, followed by anti-capitalist bailouts making for more wealth concentration. Offshore production has reduced workers’ pay. Alan Greenspan testified to Congress about the benefits of promoting “job insecurity” — something those Europeans in Michael Moore’s film don’t know about and might find it hard to appreciate.

To be clear, this is not a conspiracy theory rather a development generated by a desire to have more control over wealth and wealth generation. It’s a natural, albeit destructive, development in a system that revolves around money. Money makes money so ways to make (more) money will be exploited.

However, this leads to the (un)intended consequence that businesses take advantage of the average Joe/Jane. Without some government interference/control this will generally favor a few and negatively affect the majority. The next logical step for wealthy individuals and corporations is to also “control” the government. See also points 6 and 7.

4. Shift the Burden.

The American Dream in the 1950s and 60s was partly real. Both the rich and the poor got richer. Since then, we’ve seen the steady advance of what Chomsky calls the plutonomy and the precariat, that is the wealthy few who run the show and get all the new wealth, and the precarious proletariat. Back then, taxes were quite high on corporations, dividends, and wealth. Not anymore.

A reduction in corporate taxes and dividends is great news for share holders like you and me. We actually get better from it and will get to FI faster too! But realistically it is killing for a large portion of the population. Less taxes is less income for the government and thus less money for social programs like schooling, unemployment benefits, Medicare coverage, etc. See also the next point.

5. Attack Solidarity.

To go after Social Security and public education, Chomsky says, you have to drive the normal emotion of caring about others out of people’s heads. The U.S. of the 1950s was able to make college essentially free with the G.I. Bill and other public funding. Now a much wealthier United States is full of “serious” experts who claim that such a thing is impossible (and who must strictly avoid watching Michael Moore).

We are definitely becoming more individualistic in society, and I don’t believe that this is a good thing. I’ll leave out what the possible reasons might be, but the results are far from pretty. Whereas things like medical care and educations should be free to all in my mind (they are basic human rights). But also some social security for the less fortunate (which could also be you or me in a few years, life happens!).

There will be a bill to be paid for this by all of us (via taxes and/or direct payments). In a society revolving around money where people (and governments) are generally mismanaging their finances, this will became increasingly more difficult. Making sure you save up and have a financial buffer, like we do, (partially) shields you from some of these risks/developments.

6. Run the Regulators.

The 1970s saw enormous growth in lobbying. It is now routine for the interests being regulated to control the regulators, which makes things much easier on the regulated.

Lobbying is great for corporations and the agenda of few very wealthy individuals, and thus indirectly also for the majority of the FIRE crowd. But the interest of lobbying groups is definitely not for the common good! It’s also rarely based on facts or science, it’s based on (corporate) interests.

7. Engineer Elections. 

Thus we’ve seen the creation of corporate personhood, the equation of money with speech, and the lifting of all limits under Citizens United.

Look at the last few American elections, do I need to say more? This is not a democracy! This is a media spectacle without any real content orchestrated by two parties and their (wealthy/corporate) supporters and sponsors. How can the American people make an educated decision if they are only fed commercials and mud slinging? Life is not black or white, it’s grey. Compromise!

Considering compromising is not going to happen (as it is not in the interest of the supporters/sponsors), the democratic/governmental system is bound to fail (or at least being very inefficient).

8. Keep the Rabble in Line.

Here Chomsky focuses on attacks on organized labor, including the Taft Hartley Act, but one could imagine further expansions on the theme.

This is actually a very scary developments that labor rights are systematically removed. Good for cheap products and stuff, not so much for the majority of the people working in these industries. But, great way to control this section of the population and generate more profits for you and me.

9. Manufacture Consent.

Obsessive consumers are not born, they’re molded by advertising. The goal of directing people to superficial consumption as a means of keeping people in their place was explicit and has been reached. In a market economy, Chomsky says, informative advertisements would result in rational decisions. But actual advertisements provide no information and promote irrational choices. Here Chomsky is talking about, not just ads for automobiles and soap, but also election campaigns for candidates.

As the FIRE crowd we are painstakingly aware of this. We all know the tricks marketers pull to lure us to buy products (and sometimes even become debt slaves). Most of us have learned, to a certain degree, that you are actually happier with less stuff and frugal purchases. So we therefore buy less of it, which in return causes us to save more money that we invest to become (or maintain) FI. For some reason we collectively have been able to partially wrestle us from this grip of corporations. Feels good, right?

However, we still have much to learn, here is a great example: https://nutritionfacts.org/video/the-food-industry-wants-the-public-confused-about-nutrition/

10. Marginalize the Population.

This seems as much a result as a tactic, but it certainly has been achieved. What the public wants does not typically impact what the U.S. government does.

Think this is pretty clear, most people want good healthcare, schooling, well paid jobs, social benefits, etc.. But this is clearly not what most governments (and in particular that of the US) are actually doing for it’s citizens. However, governments are great at providing subsidies to large industries (think air traffic, transportation, agriculture, big oil, etc.) that in return benefit our shares, dividends and index funds once again.

Conclusion

You might think that the above is some random incoherent rambling, but if you watch the documentary things might sink into place. The inherent power by corporations and wealthy individuals is really influencing politics/governments (via fund raising and lobbying) and therefore general policy. This will in return make life more expensive and difficult for large potions of the population.

However, for people like you and my that are aspiring for FI, this is great news as our investments will do very well. But for society (and the environment) as a whole it is very detrimental and will certainly cause issues in the future. Despite being on the path to FIRE, we are still part of society and will be affected. This is important to keep in mind.

What I found most interesting is the fact that the FIRE community partially sees through the system and uses it to their own benefits. I’m just afraid that it might turn around at some point and bite us in the @$$.

 

What do you think? if you watched the documentary, what did you think about it? If you didn’t watch it (yet), do you recognize elements in this post in your situation or country? Curious to know your thoughts.

Barn on FIRE

Meneer (Mr.) from the blog of www.meneerenmevrouw.com dropped me an email this weekend. He had read our 5-year plan and commented on the fun fact that he and the Mrs. had been considering some of the same ideas. What ideas you might ask: buying an detached house with a large plot of land (i.e. usually an old farm) to grow your own produce while perhaps also doing some (Air)B&B on the side for some extra income. This got me thinking, what about a FIRE barn? A what?

The FIRE Barn

The FIRE Barn
Source: http://huispromotie.nl/een-boerderij-verkopen/

The FIRE Barn

We have obviously been looking at old barns already and have found a couple that might even be interesting too. However, most are a bit too expensive for us right now, especially when you consider the costs for renovations and preparations for the vegetable yard/permaculture setup. We could sell some of the Real Estate, but would rather not due to the nice cash-flow it is currently generating. However, there is another option, what about doing it with likeminded people from the FIRE community? Yes, a FIRE Barn 😉

The Idea

The idea is really simple actually, you share financial and human resources to purchase, renovate and setup a barn and associated yard/garden. You share the joys and work to assure you get the maximum yield on your time, efforts and money. You can obviously also implement a system where you become completely self-sustainable (i.e. no utility connections) too. Think septic systems, solar power, geothermal heating system, heat exchangers, etc.

Subject to the amount of people that are joining in, and the size/space of the property, you have various options (here are just a few):

  • Small FIRE barn: two or three families/couples. Each a section of the house or barn. Communal yard with shared efforts to maintain.
  • Large FIRE barn: 3-5 families/couples. Still each with their own private areas. Communal yard with shared efforts, with perhaps some private sections.
  • Extra large farm house/barn/barn extension: up to 10 families. Likely private quarters but communal kitchen(s) and/or living areas. This really starts to look like communal living.

In all scenarios you share the expenses of the farmhouse/barn equally among the parties (i.e. taxes, maintenance, utilities, insurance, etc.). Guess you can setup a system where you “buy” or “sell” your share of the expense depending on the amount of work you do around the place. Subject to yard size/regulators, you might have the option to create camp sites/chalets/converted barn for some (Air)B&B income to limit overal expenses.

Lot’s of option here to benefit from each others knowledge, skill sets and the property.

Bed and Breakfast?

I hate and love B&B’s. On the one side they are a good way of creating some extra income, but on the other side they are far from passive income generators. You really have to work hard at keeping the place clean, booked and running. Also, social contacts are very important for most humans (including me), and having a B&B definitely provides that interface. I’ve actually done this for 3 weeks in the USA as a favor in exchange for free accommodation and meals. It was great fun, but I’m not sure how long it would have been an interesting activity.

Guess part-time B&B-ing is not a bad idea. Just run the B&B for the summer months and close it down for the winter ones (so you yourself can travel to warmer places). That being said, I have to admit that an farm/barn is a great place for a B&B. You usually have a lot of space and it’s not that difficult to make some guest spaces available for additional income. You also tend to get the easier going/older people at these types of locations who like nature, limiting the amount of work (read: cleaning, maintenance).

The jury is not out on this one…. albeit it is a good opportunity to cover some of the farmhouse/barn expenses for sure.

Permaculture

What is permaculture, why do we (think we) like it and why is it perfect for farmhouse/barn living? Permaculture, by wiki’s definition, is ” a system of agricultural and social design principles centered around simulating or directly utilizing the patterns and features observed in natural ecosystems”. Huh, what? It is pretty much optimizing the natural world as much as possible and efficiently using all the resources it provides.

The Fire Barn - Permaculture

The Fire Barn – Permaculture
Source: https://permacultureprinciples.com/

Why is the interesting? The primary reason most people like this is because it actually is the most sustainable way to live (ethical living). But for me as a lazy person (and an engineer) it is also nature engineering to the highest degree. If you setup your permaculture garden well (and this does take time), you can have a 4 hour work week with a massive amount of garden produce (and potentially much more). It would almost be passive income, and we like that!

If you do it right, It might even make you self sustainable from a food perspective and provide additional savings in energy usage. Now that is cool. Why is a barn such a good place, usually it comes with a large plot of land. Albeit you don’t need much, a larger plot does give you more options and a bigger harvest/larger variety in resources. It also does require more time and efforts to implement, obviously.

This post is way too short to list the amazing things one can do with permaculture. Can highly recommend reading up on it, if you can deal with the high hippy content.

Travel

Many people in the FIRE community would like to travel, perhaps even long-term when FI. In a FIRE barn setup this should be very much possible. Because you already would have a relatively low cost of living with a FIRE barn setup, leaving for the longer term is not a big problem. More so, you have the option to (Air)B&B out your livingspace and have your farm friends help out with the management. The extra income would likely cover your expense requirements, leaving you with no or very little fixed costs at home while you travel. This would obviously only work if you have a good system in place and mutual understandings of how life on the farm/barn is managed. Lot of opportunities here!

Negatives

Ok, perhaps you now think I have gone completely mad (you’d be right). You might think I want to start a sect (close) or have become a hippy (heck, even I don’t know in what “box” I fit anymore)? Not to fret, it’s not that bad (yet).

The FIRE Barn - Crowded

The FIRE Barn – Crowded
Source: https://nl.pinterest.com/pin/140033869636673393/

Perhaps I might change my mind, but I don’t see this happening anytime soon, for one main reason: privacy. I like my “me” time, which is already hard to get these days with the little one. But in this case it is also the fact that you can’t really get away from your fellow farm friends. Despite the fact that you would have your own space, and you are free to go as you please, you would still have quite a few people around all the time.

Considering all the benefits this setup might provide, it might still be a good idea. I would just have to find a way to get my privacy/peace-and-quite time. Not impossible at all, but I need to really want it (i.e. being self sustainable with added benefits) before I would put the (mental) effort into it.

There is a second component that is critical and that is that all members are on the same page with their thinking/attitude. This might be the most difficult part as every human is unique and has different options and ideas during different stages of life. While you might get along now, you might not in the future. This could cause issues and strife, which always ends up costing money one way or the other. Personally, I like to do my own thing and also make decisions on my own (read: making compromises with Mrs CF only). But then again, this is also a risk that you can manage!

 

So dear readers, what do you think? Would this be something you would even consider? Or are you to attached to your privacy like me? What other pros and cons do you see?

Blog Traffic Update

I’ve been trying to understand website traffic as various blog traffic reports show different numbers. The following post was rather enlightening to be honest:

AWStats Vs Webalizer Vs Google Analytics Visitor Numbers

A short summary of this post:

  • Webalizer is way over estimating your traffic – it measures at your server and interprets log files
  • AWStats is slightly over estimating your traffic – it measures at your server and interprets log files
  • Google Analytics is slightly underestimating your traffic – it measures traffic via cookies

An the funny thing, all of them are wrong (albeit some more then others)! Nice…..

Blog Traffic Update

I don’t have Google analytics setup for this blog. I already think Google knows way too much of me and this blog, don’t need to give them even more information. Therefore I use the AWStats data to figure out if you guys like this blog (or not), and if so, which posts are the most appreciated. The amount of comments you guys leave give some indication, but I really cannot find a connection between comments and the type of post/content. If you can leave a comment on what you particularly like, and what not, that would be appreciated 😉

However, I made my life difficult and changed the site in early May to have a secure SSL (https://) connection. This screwed up all the pretty graphs in terms of blog traffic. Therefore the two graphs below:

  • Graph 1 show traffic via non-secured connections up to May 2017
  • Graph 2 shows traffic via a secured connection from May 2017

June 2017 was the first full month of having he secured connection up.

2017 Blog Traffic Update - Non-secured Traffics

2017 Blog Traffic Update – Non-secured Traffics

2017 Blog Traffic Update - Secured Traffic

2017 Blog Traffic Update – Secured Traffic

 

Based on the YTD summaries, see below for the blog traffic for non-secured and secured connections (up to July 10, 2017):

2017 Blog Traffic Update - Non-Secured Traffic Summary

2017 Blog Traffic Update – Non-Secured Traffic Summary

 

2017 Blog Traffic Update - Secured Traffic Summary

2017 Blog Traffic Update – Secured Traffic Summary

 

Considering summer is here, and people (rightfully so) spend more time outside, it looks like we will be hovering around the 35.000-40.000 page views per month. We probably will be having about 4.500-5.500 unique visitors per month. Based on the summaries above, we had about 250.000 or so page views in the first half of this year. Not half bad, but certainly not spectacular either! Various established bloggers pull this in per month.

However, I realize I’m already writing for a niche public (Dutch FIRE) in a niche community (Personal Finance). But my analytical way of thinking (and writing) is not for everyone (you may call it boring/factual). What you also won’t find here is tips of saving money or how to destroy debt, as these topics are in our nature and we find it “normal” to do this under all circumstances. But it’s those types of posts that attract most readers on various other blogs. The investment side is far more interesting to us!

Considering all of this, I’m pretty happy that I’m not just blogging for myself, but other people actually “enjoy” our posts and find them helpful. The personal feedback during the last FIRE meet up was than also priceless!

What You Liked

Based on combined numbers for secured and non-secured sites, the following posts were most popular in terms of page views:

Posts We Liked

The following posts we liked best, simply because of the new insights they gave or the clarity it brought in terms of “peace of mind”:

 

What about you, what did you like best personally and why? What topic would you like to see covered?

After a good month in terms of savings rate and dividend income, the June 2017 Cheesy Index was also bound to be positive. And it was 🙂

June 2017 Cheesy Index

We are still waiting for the final tax assessment of Mrs CF for 2015 (Mr CF already received his tax return). We will be getting some money back, but are not sure how much. However, we did get an initial deposit that was incorrect. In short, we still expect to have to pay back a portion of this money. The Cheesy Index is corrected every monthly for the entire amount that we received to date. We will keep doing this until such time we have a final assessment and can confirm the actual tax return.

What does have to do with the June 2017 Cheesy Index? Not much, but I noticed that the May 2017 Cheesy Index was wrong as I had not subtracted this amount. In short, the May 2017 Cheesy Index was a slight over estimate. In reality we had actually seen our first decline in the Cheesy Index in a long time. All caused by exchange rate fluctuations.

Now the good news, exchange rates helped out, so did certain investments, our regular income and as a “bonus” the 2016 tax return. We can therefore report another increase in the Cheesy Index to new heights! We are almost hitting the 63% mark and are very nicely on track to hit our 2017 target of 65%.

June 2017 Cheesy Index

June 2017 Cheesy Index

 

 

Did your net worth or “index” also grew in June?

We have another winner! June 2017 will go into the Cheesy Index history books as the highest income month to date! Let’s quickly have a look at the June 2017 Dividend Update.

Monthly Dividend Update

The following shares were added last month:

  • 200 AH shares, the dip after the Whole Foods news was an opportunity to average down.

We also have tons of DRIP shares including AAR.UN, CJR.B, DRG.UN, PLZ.UN, CIX, SJR.B and many more! Lot’s of payers in June.

Do also keep your eye on the Dividend Diplomats for an always amazing DGI income summary from various other bloggers.

June Dividends

Once we added up all the deposits received into the bank accounts (and corrected for exchange rates), the total comes to almost ~€885. That is a 26.9% increase from a year ago.

June 2017 Dividend Update - Dividend Income

June 2017 Dividend Update – Dividend Income

The graph below is showing the yearly dividend totals for 2015 and 2016, and a year-to-date dividend total for 2017. We are rapidly creeping up to the complete dividend income for 2016! Just about €1835 to go, which will take about 4 months or so.

The “Dutch” dividend income (AH, ABN, BOS, UNA and RDSA) are all after taxes (15%). The rest are held in RRSP’s and are not taxed (we will pay withholding tax when we withdraw from the account, but the dividends are not taxed themselves).

June 2017 Dividend Update - Yearly Dividend Overview

June 2017 Dividend Update – Yearly Dividend Overview

Dividend Stock Overview

Our dividend portfolio still contains 47 companies with a total of 11.793 shares and looks like this (up 2.574 shares from a year ago):

June 2017 Dividend Update - Dividend Overview

June 2017 Dividend Update – Dividend Overview

Dividend Sector Breakdown

When you breakdown the previously shown dividend stock overview by sector, it looks as follows:

June 2017 Dividend Update - Sector Allocation

June 2017 Dividend Update – Sector Allocation

 

How was your June? Did you also have a record month?

Savings Rate Update

Wow, the June 2017 Savings Rate is a complete turn around from a month ago. Low expenses and high income (we received a tax return, which is probably the last one we will ever get!) made this month a winner. We actually got the highest savings rate for the year, which was a bit unexpected but very welcome.

June Finances

For June 2017 we ended the month at a savings rate of 75.7%. This is insanely good and primarily the results of a perfect storm of high income and low expenses. 

A financial overview of the month:

  • We received our regular incomes and the tax return for 2016. The  anticipated expense claim got moved to July. We had no major business expense this month either;
  • The crowdfunding income was €196 in deposits (combined interest and principle);
  • Living and healthcare spending was very low this month with just over €700. No maintenance works, no taxes and no insurance payments, makes for a cheap month;
  • The transport costs were well above average with over €300. The main reason was the maintenance on Mr. CF’s road bike, which got a new chain and cassette. Fuel was also low for the month (one fuel up only) due to the amount of cycling done;
  • Grocery costs were just below normal this month with a total of about €290. Did well on frugal shopping I guess;
  • The kid category was again fairly stable, we only paid for day-care fees (net fees are about €953);
  • Travel and Leisure for this month was nil. We still had a lot of things going on (including the Meetup in Antwerp – costs are in the Other Category), but apparently this was not very expensive :-). We are however planning a weekend get away in July and another holiday in October if possible ; and,
  • The other category was just under €70, guess we had nothing important to spend money on.

June 2017 Savings Rate 

The savings rate for the month of June was thus 75.7%. Resulting in an overall savings rate for YTD 2017 of 61.1%.

Fun facts for the month, our Living and Healthcare expense for the month were a fifth compared to May. Primary is of course the absence of any maintenance items, taxes or insurance. Resulting in the daycare being the single largest expense for the month, at 40% of the total expenses. Just 3 months left before Miss CF goes to school, yay!

Here are the stats:

June 2017 Savings Rate - Overview

June 2017 Savings Rate – Overview

If you breakdown our expenses for the month, the distribution looks like this:

June 2017 Savings Rate - Expenses

June 2017 Savings Rate – Expenses

July won’t be nearly as good as June. The taxes return is one reason obviously, but we also received the bill for the roof repairs of the storm damage. The “damage” was actually €977 for one roof tile! Insane…..but accessibility was indeed an issue and the specific tile was very hard to reach.  The car is also due for a large maintenance service, costing around €550-ish and includes a airco clean (gosh it smells). But more on this next month.

 

How about you, how was your month? Did you get a tax refund too, did it help your savings rate?

Austria - Castle

It is the end of the month again, so it is time for the Real Estate Report – June 2017. It was a rather uneventful month (yay!), but we have to start focussing (and acting) on some of the longterm maintenance items remaining for the year. Tradesman/woman are hard to find during the summer in one of the best economic years in a long time. Fall will also becoming around quicker than you think. Time to step it up and finish the required works!

Rental Income

Sorry for the boring story here, but still the same tenants, same income and all on time again. We will shake it up in July when there is one rental income increase (the €250 for Unit 3 will go to €275). This will boost our rental income to well €3.000, which just looks really cool on paper.

The usual income overview is provided below:

Real Estate Update - June 2017 Income

Real Estate Update – June 2017 Income

Rental Expenses

As already noted in the introduction, no maintenance works have been performed (or paid), so expenses are minimal this month. It’s just the usual suspects and a small amount of water management/sewage fees. 

The expenses for the month include:

  • Interest costs (mortgage and loan);
  • Property Water management/Sewage fees/Taxes; and,
  • Property management costs.
Real Estate Update - June 2017 Expenses

Real Estate Update – June 2017 Expenses

Real Estate Report – Overview

We made a total of almost €2.303 in net rental income for the month of June (before taxes), our best month to date! The net cash-flow will come in at around €1.900. Our total YTD rental income for 2017 is about €11.401 (before taxes). We just crossed the 5 digit mark in net rental income, sweet!

Interesting note, if we look at our core expenses and the average net rental income for this year so far (~€1900 – assuming no taxes), we would be technically be FI! Unfortunately, from a cash-flow perspective we are not. Nor does this average net rental income correctly reflect reality. For that we need about a 10-20 year period within which we see a correct reflection of longer term maintenance items and turnover costs/vacancy effects. The shown net rental income should in fact be reduced with a long-term maintenance allowance. In short, we still would need more properties to become FI (or somehow drastically reduce our expenses, which could be done by moving outside the Netherlands).

Real Estate Update - June 2017 Overview

Real Estate Update – June 2017 Overview

Real Estate Report – Forecast

There is also some bad news, one of our tenants have let us know they are trying to buy a house and hope to move out in October. At that point they would have been living there exactly one year and are free to move on. This is rather unfortunate as they are a very nice couple and take good care of the place. So the search for new tenants by the property manager will be happening in September most likely.

We are still actively reviewing other properties and have actually submitted an indicative offer on 5 rental properties. The submitted price is very low as there are some risks associated with the rental units, which include an administration and year end statements that are still to be approved. The inside state of the properties is moderate, so we could see replacements of kitchens and bathrooms.

Another risk, albeit less of an issue for the coming decade is a somewhat stagnant rental price. Why is this a smaller risk? Because the potential return on investment is so high, that we could add another property to compensate for the stagnant rental income, inflation and associated increase in expenses. It’s a calculated risk. Will see what happens!

 

How about you? Any RE investment plans? A good (or bad) story to tell? Let us know, we’d love to hear from you!

Cars

When we would reach FIRE, we don’t need a car anymore to get to work (yay!). However, we will still want to move around as we don’t live close to many of our relatives and friends. We will primarily try to do this with our bicycles and public transport, but this is not always an option. The type of transportation will all depend on the distance, locations and costs. However, the freedom of a car can be quite nice. Plus, if you need to move (kid) stuff around, a car is rather useful. But what’s the cheapest way to get around with a car? Todays post will review the Car Ownership vs. Car Rental vs. Car Sharing vs. Private lease debate. At least for the Dutch…..

The Assumptions

As you would likely agree, there are too many options to review and the needs and distances for each of us will be (very) different. I’m going to try to provide ranges and rough indications of what would work best for each scenario. Granted, there might still be other options and situation that will affect the data presented. The idea is to use this info as a guideline to start your own assessments.

As most of you know. the Netherlands is a very expensive country from a car perspective. We will therefore only focus on two car classes:

The mini class is fine to get up to 4 people around in short trips under about 1-2 hours. It’s the simplest away to get from A to B. The compact class is great to get up to 4 people around in reasonable comfort and to move stuff around (love hatchbacks!).

Why not review anything bigger? Because you only need one of these on occasion and not every day when you are FIRE. If you need one, just rent one for the day/week. Rates are only €10-25 more per day for rentals/car-sharing, so won’t kill the budget.

The Mini

The following assumptions where used for the mini class:

Car Costs - Mini Car

Car Costs – A Mini Car
Source: http://www.automobiledimension.com/

  • 2.500, 5.000, 10.0000 and 20.000km driven per year;
  • Two scenarios where the average trip is either 50 or 100km;
  • For the scenario of 20.000km/year and 50km average, we used 300 days of use;
  • Fuel costs are €1.50/l;
  • Fuel consumption is 21km/l (~50 mpg);
  • Car purchase price is €8.000 (assumed about 3 years old);
  • Driver is 35 years old an had a clean 10 year driving record (for insurance purposes);
  • Opportunity costs based on 7% yield per year; and,
  • Private lease includes 12.000km pear year, extra km cost you €0.06/km.

The Compact

The following assumptions where used for the compact class:

Car Costs - Compact Car

Car Costs – A Compact Car
Source: http://www.automobiledimension.com/

  • 2.500, 5.000, 10.0000 and 20.000km driven per year;
  • Two scenarios where the average trip is either 50 or 100km;
  • For the scenario of 20.000km/year and 50km average, we used 300 days of use;
  • Fuel costs are €1.50/l;
  • Fuel consumption is 17km/l (~40 mpg);
  • Car purchase price is €15.000 (assumed about 3 years old);
  • Driver is 35 years old an had a clean 10 year driving record (for insurance purposes);
  • Opportunity costs based on 7% yield per year; and,
  • Private lease includes 12.000km pear year, extra km cost you €0.07/km

The Data Sources

For the assessments I used the following data sources and sites to get pricing information (for affiliate links!).

For car ownership

Wat kost een auto?

https://www.autotrader.nl/

For Private Lease

https://www.privelease.nl/

Private Lease van Justlease.nl

For Car Rental

https://www.cheapcars.nl/

https://www.sixt.nl/

hhttps://www.greenwheels.com/nl/

For Care Sharing

https://www.snappcar.nl/

https://mywheels.nl/

The Results

Ok, time for some pretty graphs. Based on the above scenarios, data and car types, the following graphs provide some guidance. Keep the following in mind:

  • For car ownership the opportunity costs are also included. In case of the mini class these costs are €560/year;
  • Car ownership includes all costs, including depreciation, maintenance, fuel, insurance and taxes;
  • Costs for car rental, car sharing and private lease are also all-inclusive rates;
  • If the average trip is 50km and distance is 5.000km/year, the assumption is that you do 100 trips per year. Similarly, if the average trip 100km and the distance is 2500km/year, the assumption is that you do 25 trips per year. The number of trips obviously significantly affect the costs in the rental and car sharing options, as you are charged by the day; and,
  • In all scenarios we assume you get the car for the whole day (24 hours).

Average trip of 50km

Cars Costs 50km average trip - Mini Class

Cars Costs 50km average trip – Mini Class

 

Cars Costs 50km average trip - Compact Class

Cars Costs 50km average trip – Compact Class

Average trip of 100km

Cars Costs 100km average trip - Mini Class

Cars Costs 100km average trip – Mini Class

 

Cars Costs 100km average trip - Compact Class

Cars Costs 100km average trip – Compact Class

The Conclusions

This assessment provided us some interesting insights, and some surprises too! We always believed that private lease was very expensive, but this is not as bad when you compare cars of about the same age (we used a 3 year old car for ownership vs. a new car for private lease). This is partially caused by the opportunity costs.

Another interesting (but not surprising) observation is that the number of days you actually use the car are of greater impact on the costs when renting or car sharing. If you can limit the number of times you need a car, you significantly reduce the overall costs for rental/car-sharing.

Some other general conclusions:

  • If you need a car only once-twice per week, you are better of with car-sharing or renting. Which option is better for you depends on availability of both rental cars and car-sharing programs in your area;
  • If you need a car about twice-three times per week, buy a small (older) one. This way the opportunity costs are lower and you still beat a private lease; and,
  • For us personally, we are cheaper off going for car-sharing or rental (we have both option in our area) when FIRE. We probably only need the car 25-35 times per year for one or two days each. Considering our current car costs us about €4.500-5.500/year (all-inclusive), we would save quite a bit of money on transportation costs.

Fun Fact for our American/Canadian readers. The road tax on a F350 Diesel (weight 2726kg; €3340/year) is more than operating a mini car for a whole year at 20.000km (all-inclusive!). That is why we drive small cars in this county 🙂

 

What about you, any new insights into car costs? Does this match with what you see with your own car? Have you used car-sharing yet? We are curious about your thoughts!

USA - NYC

Perhaps I’m wrong, but most bloggers are probably more organized than I am. I don’t hold a buffer of posts that I can use when I lack inspiration. This often leads to last minute writing (with associated typo’s and spelling errors, sorry!). So, without pre-planning this week, it will hereby turn into “Real Estate Investing Week” at Cheesy Finance. What’s up with the click-bait title, I can hear you ask? Well, it might actually become a reality in the (distant) future. How do we think we can get to €100.000 Rental Income? Let’s review!

€100.000 Rental Income - Pretty Picture

€100.000 Rental Income – Pretty Picture
Source: http://www.huffingtonpost.com/ryan-poelman/have-the-big-players-chan_b_6912888.html

Current Situation

As you might be aware, we currently have 5 rental properties and a house of our own. The market segment we prefer includes properties around the social housing norm (defined as a €710/month limit; rents below this limit are determined by a point system here in the Netherlands). The main reason is the relatively large market available, e.g. there are many people that could afford these properties. This makes it easier to rent out these properties and keep vacancy rates low. So far, this has worded out well. The downside is that the tenant turnover is a bit higher. It’s a trade-off we are willing to accept.

We also have one commercial unit, which holds a artisan workshop. This is not our preferred market, but this opportunity presented itself and we took advantage of it. In the future this unit will be rebuild into a residential unit, which will allow a higher monthly rent and a better return on investment.

The Near Future

It probably is not a surprise to you that we are actively looking to expand our Real Estate holdings. We are currently investigating financing options and properties to see if we can expand our rental income. One option we are actively reviewing is a portfolio of 5 units. The yield is pretty good, but there are some other risks associated with this opportunity. This includes limited increase/stagnant rental income and requirements for urgent maintenance/upgrades of bathrooms/kitchens. But if the purchase price is right, this might not be a major concern. Only time will tell if this will become the right investment for us.

€100.000 Rental Income – Real Estate Financing

€100.000 Rental Income

Now, how do we get from where we are now (~€36.000/year RE income) to €100.000 rental income? Well, it’s something like: “go big or go home” 😉

Firstly we have to do two things with the existing Real Estate: convert the commercial unit and split of our existing house. The idea is to upgrade the workshop to a residential unit, this will probably costs us as much as €75.000 (could be €100.000, subject to work required). We also want to split our current home into two rental units. The costs for this are estimated at €50.000 (new kitchen, heating system, bathroom and partitions + municipal fees and any required works). This would add two rental units to the portfolio and increase income for one. Not unimportantly, we also will need to move 🙂

Secondly, the purchase of the portfolio of 5 units needs to be successful. We have no guarantees at this stage but will keep you updated on developments. Depending on how things go, the direct out of pocket costs for this Real Estate portfolio are about €100.000-125.000. This would mean we have to sell our Dutch dividend shares, sell our ETF portfolio and use most of our cash reserve.

Property Value and Financing

Based on our estimate of the value of all properties combined, we would be in the 7-figure territory. That is a lot of money! See below for a summary of what we believe (and know) the properties should be worth (market value):

€100.000 Rental Income - Property Market Value

€100.000 Rental Income – Property Market Value

Looking at this, we are going to need a lot of financing! This will also cause us to be quite leveraged with this Real Estate investment. Partially this scares the crap out of me! But when looking at the numbers (positive cash flow) and our experience from the last few years, it certainly is possible. A (conservative) estimate of the total financing we need (via investment mortgages and perhaps even personal loans) is shown below:

€100.000 Rental Income - Financing per Property

€100.000 Rental Income – Financing per Property

Right now, our own investment would be about €390.500. This is assuming that everything happens “tomorrow”. This is not the case, as this will take us several years to realize. Realistically, about 4-5 years at a minimum! During that time, principle payments would have increased our “investment value” at bit.

Rental Income

Using the existing rental income, and the estimated rental income of the renovated/upgrades units, we estimate the following:

€100.000 Rental Income - Rental Income

€100.000 Rental Income – Rental Income

This should be a realistic estimate, but could vary slightly depending on market conditions. If the economy does well, this should be very much doable. If we get another crisis/recession (and we will), we might temporarily get a bit less.

Operating Expenses

As noted above, assuming all this happens “tomorrow”, the expenses would look like this (rough estimate):

€100.000 Rental Income - Rental Expenses

€100.000 Rental Income – Rental Expenses

The expenses includes interest costs, property management, building management, insurance, maintenance reservations and property taxes.

Obviously we won’t be able to make this happen “tomorrow” as we simply don’t have that much money nor the ability to get all financing at once. This is therefore a conservative approximation, as over the coming years we pay down principle and the effective interest expense will go down.

Personal Taxes

Because all these investments will be considered wealth, the investments will be taxed in “Box 3“. In this case the tax burden (assuming the investment is done “tomorrow”) will be €1.704. The calculation is as follows:

  • Total assets are €1.070.000 (estimated market value)
  • Total assets corrected for being in “rented state”: €909.500*
  • Combined debts are €679.500
  • Net Wealth for taxes: €230.000
  • First €50.000 of wealth is not taxed (for a couple like us)
  • Next €150.000 is effectively taxed at 0.86%
  • The final €30.000 is effectively taxed at 1.38%
  • Leading to a total tax burden of about €1.704
€100.000 Rental Income - Personal Taxes

€100.000 Rental Income – Personal Taxes

*: note that we currently don’t know what the property municipal assessments (WOZ) would look like for this portfolio. This assessment is critical as it determines the value you have to add for your personal taxes. In rented state you have to use between 45% and 85% of the assessed value of the property. This percentage depends on the “yearly rental income” over “WOZ value” ratio (see here, Dutch only). We assume 85% for our scenario. This translates into the fact that the “total assets in rented state” is likely an over estimate. This as we used the market value at 85% and not the WOZ value, which generally is (much) lower.

Interesting note, if all mortgages and loans are paid in full. The total tax burden on €909.500 would be €11.082 per year (for the 2017 tax year). This is an effective tax rate of 1.22%

Net Income

So what are we left with at the end of the day? Based on the above we have the following:

  • Income €100.320
  • Expenses €67.448
  • Net income before personal taxes €32.872
  • Personal taxes €1704
  • Net income after personal taxes €31.168

Now that is more then enough to become FI for us! It would even give us about €6K more in travel allowances per year, yay 🙂

Note that taxes in this case are only just 5.2% per year! This will obviously rapidly climb as the properties are being paid off and your wealth is increasing. For example, as noted above, the taxes are €11.082 if you have no mortgages/loans. In this case the expenses would drop about €17.000 (2.5% interest on €679.500). Your net income before personal taxes would increase from €32.872 to about €50.000. In this case the tax burden would become about 22%. In that case you are left with about €38.900, that is more than enough for FI in the Netherlands!

 

How about you, are you interested in real estate investing? What do you like about it? What are you afraid of?

Austria - Castle

Last weekend we had our 3rd BENL (Belgium – Netherlands) FIRE meet-up in Utrecht and it was a blast! We had a total of 28 people show up to talk about money and freedom for the day. Many people we had never seen before, you got to love internet finance dating for strangers! We are pumped to do this again later this year and plans are already being made for that meetup. As part of the meetup I also did a short presentation: Real Estate investing – a Dutch Case study.

A slightly shorter version of this presentation is provided below. It includes some additional comments based on the feedback during the meetup. Note that this presentation is to provide some basics for property research and selection. It therefore lacks details! If you are really interested in finding the right property for you, additional detailed assessments are required. Such include risk assessments, investigation into the state of the property, taxes, a maintenance plan and more.

Property Screening

The first step into Real Estate investing is high level property screening. For this we use several sites to find properties that match our search criteria. Typical sites in the Netherlands include www.Funda.nl and www.beleggingspanden.nl. If you leave outside the Netherlands, do your search for your applicable sites, which should be easy (i.e. realtor.com, mls.ca, etc.).

Real Estate Case Study - Screening

Real Estate Case Study – Screening

Property Selection

Before you can make your property selection, you need to know what you want! Do you want commercial or residential rental unit? If residential, do you want a house, townhouse, condo or even a house boat (for Airbnb rentals).

Real Estate Case Study - Property Selection 1

Real Estate Case Study – Property Selection 1

Once you know what type of property you want, the next will be to look for one. You will have to select on price, location and the general state of the building/property. The latter is important as it affects the sales price. If you are handy and have time, a fixer-upper could be a good one. But if you are not, you should look for something that is ready to move in, but well priced.

Real Estate Case Study - Property Selection 2

Real Estate Case Study – Property Selection 2

The Condo Case Study

For this Case Study I ended up selecting a condo unit in Rotterdam, the Netherlands. This property looked appealing, some maintenance to be done in the bathroom, but generally in pretty OK shape. Price was reasonable too, but not spectacular. A perfect case study!

Real Estate Case Study - The Condo

Real Estate Case Study – The Condo

The Expenses

The first thing to look at are the expenses. We start with looking at the purchase expenses. These include costs for purchase, transfer taxes, notary and financing. Additional expenses could include urgent renovations, which are not assumed here. Please note that we assumed that there is some negotiation space for the price too (i.e. the lower purchase price)!

Real Estate Case Study - Expense Calculations 1

Real Estate Case Study – Expense Calculations 1

The next thing to look at are the monthly expenses for running the property. These include property management, insurance, maintenance, building management (i.e. condo fees), taxes and sewage fees. Because this is a condo, we only include about 1% for the maintenance reservation (otherwise it usually ranges between 2.5 and 3.5%). This allowance is to be used for kitchen and bathroom replacement, and any other things like flooring, lights, etc.

Property Management fees are included due to their tax advantages in the Netherlands (which makes this investment an Box 3 investment, rather than Box 1 income!). We also like the risk management side of things, as these guys have more screening tools than we do.

We included monthly fees and the selection fee (one month rent + VAT @ 21%). The latter is spread over 2 years (i.e. we expect new tenants every 2 years), which is slightly above average in this market segment.

Real Estate Case Study - Expense Calculations 2

Real Estate Case Study – Expense Calculations 2

Financing

We assumed we needed financing, so added an investment mortgage of €70k with an interest of 3.85% (5 year term). You might be able to get something cheaper, but will depend on your personal circumstance and other assets you may have.

We quickly calculated the total yearly mortgage costs and the cost of interest only. If you add that to the above expenses, you get the numbers at the bottom of the slide below. For cash-flow the maintenance reservation is not taken into account. As you won’t pay this every year, but likely in lumps  every couple of years. You may decide to do this differently when you are looking at a house. In which case you have yearly heating unit maintenance, for example.

Real Estate Case Study - Expense Calculations 3

Real Estate Case Study – Expense Calculations 3

The Income

Now the fun part starts, the money coming into the bank account! We normally use 3 scenarios for screeing purposes, so get some feel for the spread and associated cash-flow scenarios. These scenarios are based on 12 month occupation (best case), 11 months (base case) and 9 months (worst case). Albeit it should be noted that it could be way worse! For example if a tenant does not pay and you cannot evict due to strict tenant protection laws.

Real Estate Case Study - Income Calculations 1

Real Estate Case Study – Income Calculations 1

Now the next step is to find out net income, so after the expenses shown in the previous paragraph. When you do, this is what  you get:

Real Estate Case Study - Income Calculations 2

Real Estate Case Study – Income Calculations 2

Not bad, even in a worst case scenario you are still cash-flow positive! Well, at least you are close to breaking even, because utility costs are not included in the expenses for the 3 months you do not have a tenant. As a landlord you are responsible for these costs at about €15-30/month (subject to usage and utility rates).

Yields

So what does this all mean in terms of yield on your investment? The shown yields are not really great to be honest, especially considering the risks you take as a landlord. You kind of what to have a cash-flow yield around 8-10% in this leverage scenario. In short, you either have to get the property for less. If you cannot, you have to walk and look for something else.

Real Estate Case Study - Cash Flow Yields

Real Estate Case Study – Cash Flow Yields

In the ultimate scenario, when all the mortgage is paid off, you get the following (2017 price level: no inflation correction):

Real Estate Case Study - Ultimate Yields

Real Estate Case Study – Ultimate Yields

Not great yields, but your cashflow is likely about €4.5-5.0K average per year. With about 7 of these, and wealth taxes included, you would be FI!

Disclaimer and considerations

Some important assumptions and considerations apply to this simplified calculation, and its results:

Real Estate Case Study - Other Considerations

Real Estate Case Study – Other Considerations

If you have any questions, do leave a comment!

 

Options Trading

Finally had some time to tally up the options trading income for May. I’m pleasantly surprised to be able to report we made some money again! Please find below the May 2017 Options Trading Update.

May 2017 Options Trading Update

Slowly getting a better feel for options trading and the risks and opportunities associated with it. Still not trading on a non-cash secured margin. Not my style! The options trading income for May was a very respectable €176.75.

May 2017 Options Trading Update

May 2017 Options Trading Update

See below for an option trading overview for 2017. We are already well over €300, that completely beats my expectations!

Monthly Options Trading Income

Monthly Options Trading Income

 

As you can see, we traded various options on Boskalis, the stock we bought as a mistake (were aiming for a quick win…wrong!). We were able to recover some of the losses and received the dividend as well last week. Still an overall loss on paper. But working hard to correct and potentially still make a bit of money on it……may be.

How did you do on the options front?