Financial Statement – April

Savings rate = 48%

Total net worth increase = + 6,440 EUR

Our savings rate was not amazing this month because we had some expenses still related to the loan for our primary residence (which we do not yet live in but plan to do in the next 6/12 months).

Cash 18,100 +1,500
Net Cash flow Real Estate Business 4,000 +500
Pensions 101,930 +1,720
Security deposit for current house 2,000 +0
Rental Property #1 115,000 +0
Rental Property #2 120,000 +0
Primary Residence 380,000 +0
Debt (Primary Residence) -314,580 +2,720
Total networth 426,450 +6,440

Our cash did not increase significantly due to the fact that we have prioritized paying down our debt. In the following months we will have monthly amortized debt of over 3k every month (this only includes capital, i.e., no interests and no insurance are considered), so on average we will pay almost 4k every month which is quite aggressive. It is great though because we have an obligation to save. Since it is a huge monthly commitment, we really need to make sure we save even on the small things, which we did this month and we will have to continue doing over the next months.

I prefer to aggressively pay down debt in a short period of time for 2 reasons:

  1. I dont like debt. I know it does not sound very rational and might sound weird from someone who studied finance. But, more broadly, I dont like money commitments, especially the ones I know I am losing money, which is generally the case of a mortgage. There are so many costs that the banks charge you (more info on this post), I just feel I want to get rid of this mortgage as fast as I can.
  2. The faster you pay the loan, the less interests you pay. Even with a high interest rate, if you pay your loan fast enough, at the end of 3/4 years, you end up paying very little on interest rates because you are amortizing the capital very fast.

Some people feel more confident knowing that they have to pay a very little amount per month but what makes me feel comfortable is having little or no debt. So, I prefer to struggle in the short-term and have high monthly payments because I know I currently have a high salary which allows me to do it than just delaying this for the future. This is my way of buying my future freedom.

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Financial Statement – March

Savings rate = very difficult to calculate this month but for sure higher than average.

Total net worth increase = + 73,150 EUR  – Mostly due to the fact that we were able to buy our (future) primary residence and, with my husband’s yearly bonus delivered this month + some cash we had available + some financial donation from both our parents, we were able to pay for more than 20% of it in cash. Therefore, our debt is only 317k, whereas the value of the property is 380k. I am, again, being conservative here, as all our apartments have costed us more than the value I consider in my net worth calculation.

In the next months, we will focus on aggressively paying down this debt. We will pay more than 3k of capital every month. We prefer this approach because we currently have high salaries and we want to take advantage of those (who knows until when we have high salaries..). Meanwhile, we will investigate the possibility of using our Pensions money to pay for mortgage, as our pensions currently yield very little and it is very inefficient to leave our money there (unless we legally have to).

Cash 16,600 +5,750
Net Cash flow Real Estate Business 3,500 +200
Pensions 100,210 +1,750
Security deposit for current house 2,000 +0
Rental Property #1 115,000 +0
Rental Property #2 120,000 +0
Primary Residence 380,000 +380,000
Debt (Primary Residence) -317,300 -314,550
Total networth 420,010 +73,150

In my last post I have talked about the possibility of selling Rental Property #2, but at the end we have decided not to sell it and take on more debt instead. We feel less free because we have debt, but on the other hand, we are building passive income with both Rental Properties. Selling one of them would mean less passive income in the future.

According to my previous FI number, I would be now 47% FI. However, I was reviewing my numbers and I decided to increase my family FI number, in particular due to the childcare expenses that we will have in the next following years. According to my new number, which is now just slightly over EUR 1 million, I am now 39% FI.

The hidden costs of a mortgage loan

I have recently been searching for apartments, not for the purpose of investing, but as a primary residence. I know, my house should not be seen as an asset and it is definitely not the smartest financial move I can do, however I do feel that I would be more emotionally comfortable if I buy my own apartment. Ultimately, you have to feel good about where you spend your money!

We currently own 2 small apartments which we rent short-term, we bought them relatively cheap and now we are checking the possibility of selling one of them, making a profit, and using that cash for our primary residence. As our primary residence would be a 3-bedroom apartment and in the capital city, we would still need extra cash to pay for it, which we currently do not have. And this is why we have decided to contact banks to understand how much would we pay for your mortgage. I am completely shocked and I have decided to share my concerns with you so that you can also be aware of all the costs you will face when asking for a mortgage.

First of all, there are taxes and costs related to the purchase of the house you have to take into account. If an apartment is advertised at 300k, do not forget you have to pay 300k + taxes + other costs. Depending on the country, normally you need to add at least 4% on the advertised price.

In terms of costs that you have to pay to the bank, there are a lot of small costs and the fact that banks do not generally merge all of those has a purpose, i.e., so that you do not clearly see how much exactly you have to pay. Be aware of:

  • Costs you have to pay at the beginning of the mortgage: depending on the country, those can include taxes on the mortgage (in Portugal you pay 0.8% on the value of the mortgage) + numerous small costs for formalising the deal, such as payment for evaluating the home and others. Those can easily increase the price of your home by 1% or 2%, which is relatively significant.
  • Interest rate: currently interest rates are very low which might be an incentive for people to buy real estate. Indeed, we were offered a 1% rate, which is quite low. However, even with a 1% interest rate, if we are considering a 300k loan, we would pay 65k of interest over the period of 40 years, i.e., an average of 135 Euros per month. In addition, in many countries, they do not offer you a fixed rate, but instead a spread on the Euribor. As the Euribor is currently around 0%, banks assume this will be the rate for the next 40 years when they provide you with the mortgage payment simulation. This is very misleading! Be aware that most likely interest rates will increase and, therefore, we would have to pay more than 65k.
  • Insurance: Because banks need to be protected in case you do not pay your mortgage, they generally request that you have both a home and life insurance. Normally they also have an insurance company in the group and they strongly recommend that you use their products. In our case, the costs of the insurances over a period of 40 years was almost 100k, i.e., almost 200 Euros monthly.

Even though this is all very country specific, I believe in general the rules are relatively similar in Europe. Of course the exact costs and %s will depend on the country, banks and your specific individual situation.

Summarising and just to give you an example with numbers, if you are buying a home of 300k, you will have to pay to the seller 312k. You will then have to pay the bank as initial costs around 3k, which makes the total initial cost of the property = 315k. If you are granted a 40 years’ loan, even with a low interest rate, you will pay 165k in total for both interest rates and other costs (mostly insurance). Total price of the apartment = 480k, 60% higher than the advertised costs of 300k.

Crazy, right?

Financial Statement – November

November: another great month!

Savings rate = 57%

Total net worth increase = + 8,445 EUR

This is great to compensate the crazy month of December. Even though I try to be frugal, I always end up buying a few things for some family members that would take it wrong if no gifts are exchanged + I go back to my home country and I met with so many people I haven’t seen for ages, which means I end up spending way more than normal on lunches/brunches and dinners.

Cash 8,350 +2,400
Net Cash flow Real Estate Business 2,500 +1,300
Pensions 89,890 +1,560
Security deposit for current house 2,500 0
Rental Property #1 115,000 0
Rental Property #2 120,000 0
Debt (Bank) -15,890 +3,185
Total networth 322,350 +8,445

I am now 36% FI 🙂

Financial Statement – October

October was a very exciting month! We were able to grow our net worth by 9.285 Eur, which is the maximum we have been able to do so far. There were a couple of reasons for this success:

  • Our savings rate was 57%, which is probably the highest value so far. I calculate our savings rate based on our salaries and I do not consider the cash-flow yield by our real estate business. No big or unexpected expenses this month!
  • I have adjusted the value of our rental properties and increased the overall value by 2000 Eur. Still, the values I consider are at least 20% below market value, but I want to be on the safe side here in case of a market crash. To compensate for this, I have decreased by 1000 Eur the money we expect to receive when we leave our current flat. Due to our baby, the flat is not as in good shape as it should, I am assuming we need to spend some money arranging the walls and the floor before we leave (2500 Eur is my current estimation).
  • Our real estate cash-flow has yield us 1.200 Eur net, which is amazing especially taking into account that we have hardly any work and it is not high season anymore.

 

Cash 5,950
Net Cash flow Real Estate Business 1,200
Pensions 88,330
Security deposit for current house 2,500
Rental Property #1 115,000
Rental Property #2 120,000
Debt (Bank) -19,075
Total networth 313,905

I am 35% FI (still 65% to go!). Seems like a lot but I think the hardest work is done, which is to get enough cash that allows you to start investing and creating passive income. In our case, passive income is generated through real estate but you can of course decide on what products suit you the best.

Currently, I am having another dilemma: invest the money we are saving or save it and buy a property for us to live in the future?

To FIRE or not to FIRE?

I have been recently been thinking a lot about my options in terms of reaching or not reaching FI. My FIRE number, for me and my family, is around 900k and our net worth is currently a bit over 300k, which is great, but I am still veeeeeery far away. My options are the following:

  • Stay for 6 more years in Germany and reach my number (I am Portuguese and currently living in Germany where salaries are much better compared to Portugal) with the caveat that around 30% of my networth would be in my pension, i.e., I could only have access to it at 55 (whaaaat? I am only 32!);
  • Stay for 1 more year in Germany, reach barely half FI and go back to my home country where prices are lower and with a passive income that would cover 30/40% of my expenses + some cash.

This is probably a typical dilemma that many people in this community face: wait for FI or risk and try a career that does not yield that much money but you feel passionate about? In my case I have also strong personal reasons for wanting to go back to Portugal, I am waiting for baby #2 and I would really like to raise them near my family and near our friends which are having babies at the moment as well. I could also use some help from family members 🙂 But on the other hand, I feel like I am bailing on my own plan if I go back and that we did the effort of saving and investing for nothing, i.e., we would still would need to work.

I recently listened to this podcast from Journey to Launch and I am in a very similar situation as her: in a corporate job with a great salary, waiting for a baby, and it got me thinking whether I should just take this opportunity where I will be out of the workforce anyway (due to my maternity leave) to not go back to this job. I am definitively a Type-A personality and I know I will not be able to stop working, I need projects, I like business interactions and I am passionate about so many topics. None of them would allow me to get a similar salary to the one I have now (not even 1/3) but I feel like I could give it a try. Worst case scenario: I am young and I could go back to working in Banking in my home country. Not ideal as salaries are not very high and hours are long..

Problem: my partner believes we should stay for a couple of more years and that my 900k estimation is too optimistic, especially taking into account that we will soon have 2 kids. He is also very risk adverse and does like the instability of an entrepreneurial lifestyle.

What are your views? “Suffer” until you reach FI or reach half FI and risk a new job/occupation that fulfills your heart but would still have to yield some cash?

Financial Statement – September

It’s been a while I don’t update my financial statements (last time was in May!) and many things happened during this period:

  • I stopped investing in Peer to Peer: it yields me less cash flow than my rental properties and I believe that once the economy turns around many of these debtors will not be able to repay the loans. It will probably not happen now but I think it will at some point.
  • I have established a proper company to manage my 2 rental properties that are currently rented for tourists. It is more efficient in terms of taxes.
Cash 3,600
Peer to Peer 0
Pensions 86,780
Security deposit for current house 3,500
Rental Property #1 100,000
Rental Property #2 133,000
Debt (Bank) -22,260
Total networth 304,620

My net worth has actually increased very little from May to September, less than 24k. This is due to the fact that we bought a second house and had to pay extra taxes, which we do not count as equity, and also the fact that we bought furniture for the new apartment and I do not account for that either in my net worth calculation. I have also decreased by 500 Euros the amount of security deposit for the current house. In general, I prefer to be on the conservative side.

From now on, as no costs related to the business/rental properties are expected, apart from the recurrent ones, we should be able to keep up with the 50% savings rate on our salaries and hopefully increase our net worth by around 8k every month. We now have income from our salaries + passive income from 2 rental properties. Our 2 rental properties should yield between 400 and 1800 net per month, depending on the season, which is very exciting.

Now that we are having extra cash and real estate prices are completely crazy, where shall we invest? I am thinking index funds dividend related. What is your view?