Financial Statement – March

March was a pretty good month. I am very proud to say that we were able to increase our net worth by 6.5k mostly due to the fact that we did not spend much + some extra cash that I got from my previous employer.

Cash 50,700
Peer to Peer 857
Pensions 74,980
Security deposit for current house 4,000
Rental Property #1 100,000
Rental Property #2 133,000
Debt (Rental Property #2) -94,000
Total networth 269,537

Savings rate = 52%

I am still waiting for property #2 to be completely built in order to officially buy it. The property is not officially mine yet, I have just paid part of it in advance while it was still in construction. There is always some sort of risk in these businesses, I have to admit I am nervous and I will be until the day I get to sign the contract!

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Financial Statement – February

February was a very bad month in terms of savings because my husband took unpaid parental leave and we have decided to go on holidays before he started a new job. However, personally it was very rewarding 🙂

Still, our net worth has increase by 2.5k when compared to January due to the increase in my pension amount and plus a bit of cash we managed to save. We have a lot of cash not invested because we will soon need it to pay Property #2 (and we will still need to ask for a loan because we will not have enough available). We will officially buy it once it is built, which should be in the following 2 months, hopefully! I am so looking forward to start cashing in!

Cash 45,700
Peer to Peer 854
Pensions 73,480
Security deposit for current house 4,000
Rental Property #1 100,000
Rental Property #2 133,000
Debt (Rental Property #2) -94,000
Total networth 263,034

Savings rate = 21%. My husband took parental leave the whole month so we were living on one income. Next month hopefully this value will skyrocket to at least 50%!

Rental property #1

As I have told you before, at the end of 2016, I have invested 100k in my first real estate property in the beautiful city center of Porto, Portugal. I bought it before it was built, so we were finally able to start cashing-in in the beginning of September 2017. We have decided to hire a property manager specialized in short-term rentals and until now it has been going great. Check out my property in Airbnb!

Here is a quick summary of the current situation, with actual values until January 2018 and estimated values for the future months:

net profit

I will have around 6400 Euros net per year which represents a yield of 5.9% on my initial investment (my initial investment includes not only the cost of the apartment, but also taxes, furniture, etc. anything I had to pay before the apartment was ready). It sounds like a pretty good investment to me! However, I can still improve it, as I do not have the most efficient situation in terms of taxes and I can maybe still negotiate the cost of the property manager.

This experience has been very exciting! At first, we were concerned and a bit annoyed because there were some delays in furnishing the apartment, so could not start cashing-in in August 2017 which is a pretty good month for tourism. But, once everything was settled, there is not much you have to do, apart from seeing the money coming in into our account every month! With so much free time, we have decided to do a quick analysis on the strengths and risks/weaknesses of our investment.

 

Strengths:

  • New apartment in the city center (my opinion is that the city center hardly ever devaluates, in particular in Portugal where prices are still low and the reconstruction of the city centers in big cities started very recently)
  • Perfect for tourism but also can be rented long-term (we were contacted by an agency with an offer for our furnished apartment which would yield us 5500 Euros net per year)
  • Tourism is growing at very high rates in Portugal and this growth is expected to continue in the future

 

Risks/weaknesses:

  • Legal changes in short-term rental laws in Portugal (tourism has been the main driver of growth so I think this risk is small but it should be considered)
  • Small apartment with no parking space

 

We have weighted the pros and cons and we have decided that it is a really good investment and a niche that we would like to focus on: small apartments in premium areas in cities we are familiar with. This is why,  a few days ago, we have decided to buy property #2, a very similar apartment to property #1, for the same purposes: short-term rental. We were a bit unlucky this time (or lucky in the first time) as the prices are quickly increasing, therefore the price of this property is 35k higher than the first one (auch!). But, whereas in the rental property #1 we had to wait 1 year until we started cashing in because the apartment was not built when we bought it, rental property #2 is almost built and we hope to start cashing-in before July. All the same, instead of a 5.9% annual return, we are expecting around 4.5%.

Our following steps are to check with a tax adviser if we can/should create a commercial company for our real estate investments so we can deduct the costs of the investment for tax purposes. Currently, we are paying a significant amount of taxes because we cannot deduct the costs that we have on the investment. At the same time, with 2 apartments, we hope to be able to negotiate the cost of the property manager.

I am so excited about this project! Not only it is profitable but also I am learning so much about real state, Portuguese laws and about taxation. I fell I am an expert by now, so feel free to ask me any questions related to these topics!

Financial Statement – January

I have just realized that my last post was written on September 2017, almost 5 months ago!!! Lack of time I could say? But let’s face it, we never really have lack of time, just time management issues or different priorities. I have been a bit busy with managing working full-time + having a baby + my first real estate investment. And, although I feel having a blog is useful as it makes me fell accountable for how I manage my money, I couldn’t find the time/motivation to sit in front of a computer. I missed it though!

Since it is of no use crying over spilt milk, I will just go on and update you on what happened in my life in the past 5 months (many exciting real estate news!) but first I want to update you on my financial net worth at the end of January 2018.

Cash 44,900
Peer to Peer 700
Pensions 71,920
Security deposit for current house 4,000
Rental Property #1 100,000
Rental Property #2 133,000
Debt (Rental Property #2) -94,000
Total net worth 260,520

This is, of course, mine and my husband’s. Our combined savings rate this month was 37% (mostly due to husband’s salary lower than usual as he took parental leave since mid-January).

Check out the next post to see how I am managing my first real estate property and how I am currently on my way to buy the second one!

Your house is not an asset

It is crucial to end up with this non-sense idea that your house (primary residence) is an asset, probably the only one you will ever own and therefore all your savings shall go into that one asset. Work, ask for a mortgage, pay your house and then retire.

 

 

If a house is taking money out of your pocket (insurance, taxes, miscellaneous, etc.) then it is not an asset. Not only you are actually spending money but also you have to consider the opportunity costs of having our money invested into that house, which you wrongly perceive as an investment, whereas you could have invested the same amount of money in another house or investment that could actually yield at least 5%. In a hypothetical example of a 100k house with an average of 2000 per year on expenses, you are actually spending, per year, 7000 = 2000 + 5 000 (5% of 100k). You have to consider the money you actually spend plus the opportunity cost of not using the 100k in another more profitable investment. Here I have assumed that the other profitable investment would yield an average annual return of 5%, which is very conservative if we consider real estate investment.

In addition, there are also two (hidden) costs which I consider very relevant when you buy the house you live in:

1 – You loose flexibility. Either you assume it or not, it is more difficult to move into another city or country if you know you bought the house you are “supposed” to be living in, not only because you are emotionally attached to it and you probably end up more expensive things for your house, in particular furniture, but also because it is really not that simple to rent a house, get a property manager, etc. from one day to another.

2 – You end up of not making the most rational decisions when you invest in a house with the purpose of living in it. You take into account variables that are important to you and not to the market, like being near your family. Or you are willing to accept living in a area which is not as recognized by the market, like the fact that it is near a highway or a factory, because you prefer to pay a bit less. However, those decisions can make this house a very difficult one to sell or rent to a third party and therefore would not yield any cash flow, in case you decide to rent/sell. In sum, it is a very bad investment.

According to Frank Gallinelli there are 2 rules of real estate investing that we should follow: do not hold any sentimental attachment to any of the properties you invest in and if you think it will be difficult to sell/rent, then it is not worth buying.

 

Another sentence I loved in his book What Every Real Estate Investor Needs to Know About Cash Flow… And 36 Other Key Financial Measures which highly reflects my approach on real estate investing is the following:

You are not buying a properly, you are exchanging a fixed price for an income stream.