Reader Case Study: reaching FI with rental appartments and 2 kids in Germany.
I am not asking help on how to save money, reducing expenses or paying back crdit cards or mortgages.
We are on our way to financial independence and in a few years we'll have enough income form our rental appartments to cover all our expenses. We're doing fine. But we have a dilemma and we need your help.
So, even if you don't live in Germany, please read it.
US:
- Me, 31 years, IT consultant, webdesigner
- Her: 31 years, translator, docu writer. Doesn't like her job
KIDS:
- Kid 1 born in 2012
- Kid 2 born in 2014
Income:
My wife is employed, and is on parental leave until end of July 2015. After that She's going to work part time.
I am self employed:IT consulting, webdesign, have an own portal which generates some income.
Income HER: 1500€ Gross/Month
Income Him:
- 4500€ (before tax) from fixed customers/month
- 130€ (more or less) passive income from website maintenance
- 1000€ from websites/portals (Ads) /Month
Income Misc:
- Child Benefit for 2 Kids, total: 368€/Month
- (planned from 2015) caretaker for the house we live in: 270€/Month (net, not taxble, minijob)
Total Taxable Income per year HIM: 5630 x 12 = 67560€
Total Taxable Income per year HER: 1500 x 12 = 18000€
Total Not-Taxable income per year: (360+270) x 12 = 7560
ASSETS:
We own our own appartment. Allready paid off. No mortgage. Value: 300K€
We have 5 rental appartments which produce 36000€/year total rent (Kaltmiete). This is all used to pay their expenses, mortgage, interest, tax etc.
Object1:
Purchase date: 2010 Feb
Price: 129.000 €
Interest rate: 4,09% fixed until 2020 Feb
Loan: 137000€ (we covered the expenses/tax as well)
In Feb 2020 (after the fixed interest rate) we'll have 120K € mortgage left.
Repayment+Interest per Month: 575€
Not possible to pay it of sooner. (Keine Sondertilgung)
Object2:
Purchase date: 2012 Sept
Price: 103.100 €
Interest rate: 2,48% fixed until 2022 Sept
Loan: 87.000
In Sept 2022 Sept we'll have 37K € mortgage left
Repayment+Interest per Month: 550€
Possible to pay 10% of the original loan back each year on top of the standard repayment (Sondertilgung)
Object3:
Purchase date: 2012 Sept
Price: 112.000 €
Interest rate: 2,48% fixed until 2022 Sept
Loan: 95000€
Repayment+Interest per Month: 533€
In Sept 2022 Sept we'll have 49.5K € mortgage left
Possible to pay 10% of the original loan back each year on top of the standard repayment
Object4:
Purchase date: 2013 july
Price: 100.000 €
Interest rate: 2,23% fixed until 2023 July
Loan: 77000
Repayment+Interest per Month: 550€
In July 2023 Sept we'll have 22,8K € mortgage left
Possible to pay 10% of the original loan back each year on top of the standard repayment
Object 5
Purchase date: 2014 march
Price: 54.000 €
Interest rate: 2,79% fixed until 2024 March
Loan: 40.000€
Repayment+Interest per Month: 350€
In March 2024 we'll have 4.5 K € mortgage left
Possible to pay 10% of the original loan back each year on top of the standard repayment
CASH
- we have a blocked 67K in a bank account with 4,25% interrest rate ending in Juli 2016. We can take all money (80K) out at that point with the interest.
- cash 65K €
- Total cash: 80+65=145K €
EXPENSES
- Total expenses (without the costs with the appartments): 25K-30K/year
- we save as much as possible, we don't have a car, we don't commute and live a very frugal lifestyle and monitoring our expenses very closely.
- We can save 30.000€-40.000 per year (after ALL expenses, after we paid taxes, after i paid in the pension plan)
- most of the appartments generate a positive cashflow which is not calculated in the income. It is saved as a buffer for taxes and repair.
- Healthinsurance
-- Her: insured by the state insurance plan and the money is taken from her salary. The kids are insured for free as long as she's employed.
-- Him: private insurance: 130€/month (allready included in the expenses above)
PENSION
- SHE: pays standard state pension
- HIM: 150€ per month goes in a (by 75%) tax deductible private pension plan. (Rürup Rente). The money is invested in funds but they guarantee the money invested in it. They'll only pay out when I'm 60.
If we use the 10% extra repayment options, we can repay all our mortgages by Feb 2020 and be financially free.
Expected ER (Early Retirement) expenses: 20-25K €
Expected ER income (per year), Gross:
- Real Estate: 32K Gross (after expenses)
- Web Projects: 15K Gross
- Other things: 10K Gross
- Caretaking + Child allowance: 7.5K Net
Total net: 60K
I can't wrap my head around this: if we pay the mortgages back asap, we're going to be financially independent in 4-5 years. By that time our kids are going to go to shool and we have plenty of time to earn money (if and however we want to do that). We're not going to sit around doinf nothing. It's in my DNA and a hobby to make money out of everything (including finding things o the street and selling them on ebay)
On one hand, we'de like to be financially independent asap. On the other, we know that we could invest the cash better (somehow) instead of repaying the mortgage. It can't be very difficult to have an interest rate of more than 2.5%.
Specific Questions:
- should we pay the mortgages back asap or should we invest the money instead
- where should we invest the money?
- what should we do with our cash? Pay back the mortgage, or invest it?
- What would you do?