Case study, any thoughts appreciated

[Alfa1234]

My situation

Me: 35
Wife: 28

Living in Belgium.

No children yet though we do want 1 or 2 (my wife) over maybe 3 years or so.

 
Income (all monthly):

My net monthly salary: €2400
Wife monthly salary: €1450

I actually make about 10k/month but keep the rest in my business as working capital, 4k from that 10k is invested into P2P lending monthly.

Rental income:

€1790 from 1 property in Belgium
€700 average from a vacation house (seasonal)

Total spendable income €6340/month.  Total income kept in business on top of that €7600/month.

Expenses (monthly)

Family expenses including everything like food, utilities, fuel, internet, hobby, vacations etc:
€3000/month
I can split this up some more if you want, we do not spend excessively but also do not live very frugally either.  We have little interest in changing our current lifestyle.
Mortgage: €780/month, 23 years left at 3.4% fixed interest.

Total spending family including mortgage for our own home: 3780€/month

Rental property expenses:

€1230 mortgage, 12.5 years left at 1.39% variable interest.
Utilities, insurance etc rental house 1: €450
Small repairs and replacements rental house 1: €65/month average

€400 mortgage vacation home, 8.5 years left at 7% fixed interest.
€460 utilities, repairs etc for vacation home.

Total spend including mortages for investment rental properties: €2605/month

Income/Expenses split up differently:
Family salary income: 3850, family expenses 3780.  My salary can be increased at will.
Rental House 1: 1790/month income, expenses for this rental house: €1745
Vacation house (rental): €700, expenses for this rental house: €860

Basically we are break even with our income/expenses monthly.

Assets:

House we live in:
€200 000
Rental house:
€350 000
Vacation house (rental):
€105 000

€170 000 in capital in my business, can be liquidated into cash in 2-3 weeks.
€30 000 in P2P investing
€10500 in pension retirement fund at a big bank

Total assets: €865 500

Liabilities:

Mortgage 1 (house we live in): €150 000 at 3.4% fixed interest with about 23 years left.
Mortage 2 (rental house): €168 000 at 1.39 variable interest with 12.5 years left
Mortgage 3 (vacation house): €29000 at 7% fixed interest with 8.5 years left.

Total liabilities: €347 000

Net worth:

518 500€


Thoughts on current investments:

I have about 20k in P2P investing on Mintos, Viainvest, Estateguru, Grupeer etc netting roughly 11% which after taxes (30% witholding tax here)  comes to 7.7%.  I like this a lot as I try and only invest in loans with a max 75% collateral value and from companies with a good rating and buyback guarantee so the risk of the loans defaulting AND the buyback guarantee not being honoured is low.  I have 10k in Envestio as well at 21% interest.  This last one is high risk IMO.

Have not started out with index funds yet but heave researched Vanguard and Ishares funds that reοnvest dividend to avoid the witholding tax in Belgium.  Don't really like it (and I know this is wrong) as I kinda want to stop working in roughly 5 years and am afraid the next recession is around the corner which could mean a sharp drop in those indexes (2008 is still kinda fresh in my mind).  I am aware of the fact that if I start putting money into an index fund now and keep doing so for years the average buying price will even out and I would be buying an index fund for the long term (S&P index fund), but I guess I'm too afraid and not emotionally "there" to see a 10% drop in value over a month so I like the P2P investing better.

The small retirement fund is a low yield fund from a big Belgian bank, but 30% of whatever you put in is tax deductable so I keep adding the max amount every year (980/year).

Rental income 1 I really like, it’s building wealth as the mortgage and costs are being paid for by the rental income and on top of that gets another 2-3% in appreciation value every year historically.  It’s located right outside a fairly big Belgian city and I don’t really see a downside.  Problems are in the 9 years I’ve had it, I only average about 11 months/year rent due to vacancy and non-paying tenants.  Last 2 years this problem is non-existent though.

The vacation home is located in Italy, right now it’s costing me some money every month but still has a decent ROI because wealth is being generated by paying off the mortgage and it does appreciate in value as well.  I paid for it in cash 4 years ago but 1.5 years ago took a mortgage because it’s located in a vacation park on land that was leased from a bank by the park, but that land has now been bought from that bank by the park.  They asked all house owners to either continue paying the lease to the park as before (450/month indefinitely) or buy the land from the park for 32k. I obviously chose the latter.   Not sure if this is a great investment as all in all the ROI is fairly low, but it’s also not very easy to sell as it’s located in Italy (far away) and I should mention I am reluctant to sell it because my parents enjoy it a lot rent free for 2-3 weeks/year.

Plans:

I want to keep our current lifestyle and slightly increase my salary when children come along.  For the coming 5 years I want to keep putting about €4000/month into P2P investing and maybe start with index funds.  After those 5 years I’d like to retire and have more spare time for hobbies, children, travel etc.  After I stop my business I can liquidate whatever capital is in there at the time and invest it immediately.  I should have about 340k (compound interest) from the current investing (4k/month) and savings I do with the P2P and another 380k or so capital to liquidate from the business at that time.  Then 3.5 years after that the mortage on the vacation house will finish and another 4 years after that the first rental house mortgage will finish to increase our net income even more.  Taxes have been accounted for in the plans and we have thought about relocating to a country where witholding taxes are lower than the current 30%.

What would you do/should I do differently?  General thoughts, tips or advice?  Anything wrong with my calculations?

Thank you!!

[ysette9]

I am not the right person to comment as I am in another country and not familiar with real estate or peer-to-peer lending. However, since you asked, I would carefully run the numbers on you real estate investments and dump anything that is under performing. Yes, you are building wealth,  it the question is not whether it is increasing in value or not but whether the long-term return on investment is worth it considering the opportunity costs of the investments that you are passing up.

Do you have an investment policy statement? https://www.bogleheads.org/wiki/Investment_policy_statement
Personally mine tells me to be broadly diversified (global stock market, global bond market) in low-fee investors funds and to not invest in anything I don’t understand, anything exotic, or any “flavor-of-the-month” investment. Peer-to-Peter lending feels faddish to me so I steer clear,  it that is just my personal take.

“Time in the market, not market timing”. Chances are that if you wait for the market to feel cheap to you, you will be missing out on a lot of gains. Educate yourself more on investing and then draw up a plan of what your goals are and how you plan to get there. Then stick to that plan whether the market is up or down. Knowing why you invested in something and being able to point back at a Jack Bogle book or Vanguard white papers or JL Collins’ stock series or whatever to remind yourself to stay the course when times are rough will be worth a lot in the end.

[Freedomin5]

A few things that jump out at me:

Regarding your rentals, check out the Bigger Pockets website. It's mainly American-focused, but some of the general principles may be useful. https://www.biggerpockets.com/

I think you are under-estimating the expenses related to your rental properties. You need to factor  in a certain percentage rental income for vacancies, capital expenditures, and repairs/maintenance. When you factor those things in, I don't think you're actually breaking even on your rental properties.

In addition, if you want your rentals to generate income for you after you FIRE, you're obviously going to need to pay off the mortgages before you FIRE. At this point, I'd focus on the 7% mortgage rate on the vacation home -- that's A LOT of interest.

Let's just say you are able to pay off the mortgages on both rental properties and that it nets you 1000/month. In that case, your other investments need to generate 2780/month. At a 4% safe withdrawal rate, that means you need to have 834,000 in investments, not including your house, since you're probably not going to be generating investment income from your house. You currently only have about 210,500 (170,000 capital in business + 30,000 P2P investing + 10500 pension), and you did not say whether or not you can actually touch your pension money before a certain age.

So a few questions:

1. Are your expenses expected to stay the same after you FIRE, even after you have kids and start taking more vacations, etc.?
2. If your expenses are expected to stay the same:
   a) If you are keeping your rentals, will you be able to pay off both mortgages before you FIRE?
   b) Will you be able to make up the 623,500 difference (834K - 210.5K)?


So the question is whether you will be able to make up the 623,500 difference in five years? And pay off both mortgages on your rental properties.

Or, if you reduce expenses, then you need a smaller nest egg.

[MrThatsDifferent]

You’re doing amazing! Congrats! I’m not smart enough to give you any real advice, you’re doing better than I am. All that stands out is the investment in Italy. You don’t seem like you want it and the only reason you’re keeping it is for your parents to stay there 2-3 weeks a year without paying. That seems like an awful reason to keep something like that. Run the numbers like everyone else is telling you, but, if it were me, I’d get rid of that property and just gift your parents 2-3 weeks of Airbnb wherever they want as their combined Xmas/bday whatever present.

[Hirondelle]

Waving from the northern border here!

I agree with some other posters that it might be good to reevaluate your properties. You talk about risk in the stock market, but the "wealth" in the properties you talk about can also be wiped away in a crash like the one in 2008. Same for the P2P lending. Now the economy is doing well, but if it takes a hit the companies that perform well now might not be able to pay back the P2P loans anymore. I'm not against this type of investment, but do realize that it's generally HIGHER risk than ETF funds as you're not dependent on a single player. So company values may drop, but your value will never go to 0 as chances are pretty much 0 that all stocks in a tracker go bankrupt.

I'd actually be very curious to see your expenses more in detail! When you mentioned 3000/month I expected housing to be included but then realized it's not. I bet you can live a very similar lifestyle while reducing expenses by a few 100 (depending on how it's distributed now).

[Alfa1234]

Thank you all for the replies and kind words, especially @Freedomin5  made me think.

1 question for you: why would I want to pay off the mortage with the 1.39% intrest early?  That interest is not even covering inflation and any money going towards paying it off would be much better spent investing, as that will have a much higher ROI than paying off that capital.  I figured the same for the 7% mortgage as 7% interest is roughly the long term ROI of investments...so I'm not losing anything by not spending money paying it off early. Right now, I'm actually getting slightly more than 7% so paying it off would be a mistake.  Am I wrong here?

Did some more correct calculations on the actual cost of those places, with biggerpockets in mind (spent several hours digging through it all).  I am coming to 741 as monthly expense instead of 515 right now for the first rental house.
Calculations:
https://gyazo.com/3db42c2096d0fc5039edcc02af9ef355

The capital expenses are conservative, it's a 100% double walled brick house with concrete foundations.  The prices are from our own house where we already did some renovations on, and it's roughly the same size.  I should mention a bunch of this stuff has already been replaced these past few years and the costs were actually a bit lower. 

House 2 in Italy, I was pretty correct in my initial calculations and come to 490/month expenses there.  I already budgeted quite a high amount because we replace something almost every year so I had a pretty good idea of the actual costs.:
https://gyazo.com/626ead3d30fcb8eb96075887cdd7f280

The plan was to retire and for the first few years (probably) having to dig a little bit into the capital as my total money invested would be about 720 000 in 5 years giving me 2400 to work with every month (4%).  Then after 4.5 years I'd get an extra 220 (after recalculating) from the vacation house and 3.5 years after that another 1050 making it a total of 3680 monthly.  Having to dig into the capital, conservatively, should leave me about 590 000 in capital netting 1965€ every month + 1270 from the rental places once those mortages are paid off.  This would not be sufficient for the 10 years we'd still be paying off our home mortgage.  Thank you for making me rethink it.

I don't expect our expenses to go up as they have been calculated with a large margin.  Right now we do spend less so I'm taking children and extra vacations into account.  I also on average made 15200 this year every month so far, so my 10k "income" was also a conservative estimate to reach the numbers above.  Spending will also drop a bit inflation adjusted as our monthly mortage will remain the same but will off course drop by roughly 2.5% inflation adjusted every year.  I should also be able to refinance our mortage to something with about 2 to 2.2% fixed interest, dropping it roughly another 100€ monthly.

My business also allows me, just in case, to work only 1 day per week or whatever amount of time I want to spend on it.  Income is directly related to the number of hours put into it and can be scaled up or down instantly without any problems.  I see 2 options: see what my actual income is like (if it remains 15k+/month there is no problem) the coming years and be able to save more so I can keep the date, or postpone the FIRE date by a year.


@MrThatsDifferent , you also made me think
The house in Italy, say it appreciates in value to keep up with inflation (that should be conservative) nets 2740 after paying off the mortgage every year.  For a total value of 105000, this is not a good ROI.  However: 3 weeks vacation for my parents in the same vacation park in the period they go, will cost about 2000/year so in case I sell the house and get 105000 for it, invest that money and get 7% ROI (which is 4.5% inflation adjusted)  I will be at 2725/year.  This is the same amount with less volatility so there is no upside to selling it.  Correct or what am I missing there?

@ysette9  I realise what you say is true, but I'm not "there" yet emotionally to deal with the volatility and really like the P2P investing.  I should diversify some more and will probably start with funds when I do see a drop in the markets.  The current bull market has been going for 9 years+, a drop will come.  I know I may miss out on gains but for now the P2P investing has the same long term gains as the market so there is no "missing out" factor for me.

[Alfa1234]

Waving from the northern border here!

I agree with some other posters that it might be good to reevaluate your properties. You talk about risk in the stock market, but the "wealth" in the properties you talk about can also be wiped away in a crash like the one in 2008. Same for the P2P lending. Now the economy is doing well, but if it takes a hit the companies that perform well now might not be able to pay back the P2P loans anymore. I'm not against this type of investment, but do realize that it's generally HIGHER risk than ETF funds as you're not dependent on a single player. So company values may drop, but your value will never go to 0 as chances are pretty much 0 that all stocks in a tracker go bankrupt.

I'd actually be very curious to see your expenses more in detail! When you mentioned 3000/month I expected housing to be included but then realized it's not. I bet you can live a very similar lifestyle while reducing expenses by a few 100 (depending on how it's distributed now).

Hello there Dutch neighbour!  Thank you for your reply. :)

Here are the expenses in more detail:
https://gyazo.com/1b60038a9a11717675bf8449123fe86e  Not sure where we can/want to cut it more besides groceries.  I agree this is high but it's partly because my wife follows a special diet and we like our current lifestyle (FIRE would be great but we want to enjoy life now too). 

I agree a crash may drop the value of the properties, but the rental value should remain the same if not increase in that case (less buying power, fewer people able to buy a house -> more renters).  The Belgian real estate market is pretty stable and has never experienced a severe drop, not even in 2008/2009.

Re the P2P investing: I agree there is a risk that some of the loans may eventually default or the companies may not be able to fulfull their buyback promises in case there's a new 2008 crisis.  This is why I invest in loans with good collateral value and only in companies with a good credit rating to minimise the risk.  There may be some defaults but it should be kept to a minimum that way. (the person not paying + the company not being able to honour the buyback + the collateral losing that much value all combined = low risk IMHO).

[Freedomin5]

I never said to pay off your mortgage on your main home.

I said if you expect your rental properties to contribute monthly income you’re going to need to pay off the mortgages in your RENTAL properties. Otherwise those properties net you $0 monthly cash flow and you cannot depend on them to contribute income after FIRE since any income generated by your rental properties will go toward servicing debt and expenditures related to the rental properties.

Which is fine if you want to not pay off your Rental property mortgages. But that means you need to increase your nest egg from other investments to generate sufficient monthly cash flow to support your living expenses.

[Alfa1234]

I never said to pay off your mortgage on your main home.

I said if you expect your rental properties to contribute monthly income you’re going to need to pay off the mortgages in your RENTAL properties. Otherwise those properties net you $0 monthly cash flow and you cannot depend on them to contribute income after FIRE since any income generated by your rental properties will go toward servicing debt and expenditures related to the rental properties.

Which is fine if you want to not pay off your Rental property mortgages. But that means you need to increase your nest egg from other investments to generate sufficient monthly cash flow to support your living expenses.

I misunderstood your first post.  You are right, I came to that conclusion (see above).

Re paying off mortages early (the 7% one).  Something I don't understand.  I would be paying 7713€ in total interest on this mortgage in those 10 years.  If I were to pay it off immediately I would have spent exactly 30600 (that was the initial amount).  Investing that 30600 and compounding it at 7% would have netted me about 61500 after those 10 years.  That's a 23187€ difference.  Why pay off debs with "high" interest quickly and not invest that money?

[Maschinist]

German citizen here. I lived several years in the US before moving back to Europe.

First: Congrats! You are doing well in general. Especially regarding your flexible self employed income side.

Regarding P2P Lending:
You are vastly underestimating the long term risk of these loans.
And with that I dont mean one loan that could default. Im mean the companies where you are "investing" through.

This are East European junk bond rated loans for people that often are not getting any money from their east european banks.
So in a real recession you will likely have something like 15-20% of those loans defaulting in a short time frame.

But thats not the real problem.
The 500 pound gorilla in the room are the East European corporations that are connecting you with the lenders.
They all have kind of limited liabillity structure. When some of them default in the next recession, most of your invested money (principal) is likely gone.
The loans may still exist but most of the lenders will not honor them.
The "compensation guarantee" that some of those entities offer for single loans, work only as long as the limited liability entity itself is existing.
So this guarantee has no real value! When you really need it, it will probably fail.

Cannot happen?
Just happened in China, where the whole P2P market collapsed:
https://www.reuters.com/article/us-china-lenders-p2p-insight/beijing-struggles-to-defuse-anger-over-chinas-p2p-lending-crisis-idUSKBN1KX077
https://www.bloomberg.com/news/articles/2018-10-02/peer-to-peer-lending-crash-in-china-leads-to-suicide-and-protest

Broad passive stock market ETF΄s on the other side are the safest thing there is over longer time frames.
Your principal fluctuates over the short run but is not at risk of being lost.

On top of that the real taxation of stock market ETF and single shares is much better than with P2P loans.
If you are an passive stock market investor, only the dividends are taxed which are less than 40% of the total real long term performance of the stock market .
On top of that, inflation is also not taxed with passive held stocks/ETF because like real estate, over the long term this is automatically covered with adittionally rising asset prices.

With your P2P investment your tax situation is horrible. Adittionaly to the 30% on your whole gross yield, your invested principal is loosing value due to inflation. Even if you would get 7% long term gross yield after Belgian tax with P2P which I hihghly doubt because of the points discussed above, you have to substract an adittional 2% from that for inflation of your invested principal.


I would highly recommend that you diversify into passive stock market ETF. Vanguard is also active in Europe now with their Ireland based ETFs.

The Emerging Market or Asia Pacific ex Japan region has a very attractive valuation at the moment (~3,5% dividend + ~4,5% growths from stock buybacks & growth plus covered inflation). Over the long term this is beating any P2P investment after tax & inflation with ease and on top its zero risk compared to very high risk.

All the best and enjoy your day!

[Alfa1234]

Thank you for your reply, it made me re-research the P2P investing and double check it all.

I disagree with your assessment.   If you check what companies you invest in and double check the loan conditions, I believe the risk is lower than you may think.  These are companies with 10+ years of experience, a profitable track record and hundreds of millions in capital and equity.  You have a direct link to the lender and there are procedures in place in case of a bankruptcy of the platform. I only invest in loans that have guarantees from those type of companies and in loans that have a high collateral value (like real estate and sometimes cars).  I am not investing in some obscure Kazachstan company that gives out short term personal loans at 50% interest.  I believe the capital, if wel diversified in a lot of different loans for smaller amounts, is no more (and actually less) at risk than it is when the market would drop 20 or 30%.

If you check the S&P 500 index and invested in a peak like the year 2000, 13 years later your return would still have been almost 0.  This is the longest bull market in history, I do not really want to get into the market right now...I'd rather get a slightly lower, fairly stable return right now for a while and get into the market when it's on sale than risk buying at what could be a peak.

[ysette9]

My personal risk tolerance is low which means that I am much more comfortable being well diversified than relying on a small handful of companies. Thus we always sell our vested stock options right away and move that money into a broad market index fund. In your position I would be quite nervous having a good portion of my portfolio concentrated in such a small number of companies. I see lack of diversification as an uncompensated risk.

But ultimately it is your money and your decision and only you who needs to feel comfortable.

[Freedomin5]

I never said to pay off your mortgage on your main home.

I said if you expect your rental properties to contribute monthly income you’re going to need to pay off the mortgages in your RENTAL properties. Otherwise those properties net you $0 monthly cash flow and you cannot depend on them to contribute income after FIRE since any income generated by your rental properties will go toward servicing debt and expenditures related to the rental properties.

Which is fine if you want to not pay off your Rental property mortgages. But that means you need to increase your nest egg from other investments to generate sufficient monthly cash flow to support your living expenses.

I misunderstood your first post.  You are right, I came to that conclusion (see above).

Re paying off mortages early (the 7% one).  Something I don't understand.  I would be paying 7713€ in total interest on this mortgage in those 10 years.  If I were to pay it off immediately I would have spent exactly 30600 (that was the initial amount).  Investing that 30600 and compounding it at 7% would have netted me about 61500 after those 10 years.  That's a 23187€ difference.  Why pay off debs with "high" interest quickly and not invest that money?

The thinking is that saving mortgage interest is like a guaranteed 7% return on your "investment". It's a guaranteed 7% savings for you. Investing in the market has a modicum of risk with it, even if the long-term average return is 7%. The question is, would you rather get 7% guaranteed or 7% with a risk? That's why the general rule of thumb is to pay off any debts with an interest rate of greater than 5%.

But do the math for your particular case. If you earn more by paying the 7% interest on your loans and then investing the difference, then go for it.

[ysette9]

We also have to remember that it matters what you would be investing your money in if you aren’t paying extra on the mortgage. Investing in a broad, passive stock market index fund is one thing. If the question is peer-to-peer lending or other exotic stuff versus paying off a mortgage, then mortgage payoff suddenly looks more attractive due to how risky the alternative is.

[Alfa1234]

I just rechecked that loan because the math didn't add up to me.  Apparently, it's at 5% fixed interest instead of 7%.  You were right it would have been better to pay that off early if it was 7% because a guaranteed return is better than a slightly higher, but more risky return, I completely agree with that.  With it being at 5% I'm not so sure though.

Will think about it some more.

Also went bankshopping last week to see if we can get a better deal on the mortgage from our own house.  Will know more this week but if I can get that rate down to 2 or 2.2% instead of the 3.4% I would be a happy camper as well.

[Hirondelle]

Waving from the northern border here!

I agree with some other posters that it might be good to reevaluate your properties. You talk about risk in the stock market, but the "wealth" in the properties you talk about can also be wiped away in a crash like the one in 2008. Same for the P2P lending. Now the economy is doing well, but if it takes a hit the companies that perform well now might not be able to pay back the P2P loans anymore. I'm not against this type of investment, but do realize that it's generally HIGHER risk than ETF funds as you're not dependent on a single player. So company values may drop, but your value will never go to 0 as chances are pretty much 0 that all stocks in a tracker go bankrupt.

I'd actually be very curious to see your expenses more in detail! When you mentioned 3000/month I expected housing to be included but then realized it's not. I bet you can live a very similar lifestyle while reducing expenses by a few 100 (depending on how it's distributed now).

Hello there Dutch neighbour!  Thank you for your reply. :)

Here are the expenses in more detail:
https://gyazo.com/1b60038a9a11717675bf8449123fe86e  Not sure where we can/want to cut it more besides groceries.  I agree this is high but it's partly because my wife follows a special diet and we like our current lifestyle (FIRE would be great but we want to enjoy life now too). 

I agree a crash may drop the value of the properties, but the rental value should remain the same if not increase in that case (less buying power, fewer people able to buy a house -> more renters).  The Belgian real estate market is pretty stable and has never experienced a severe drop, not even in 2008/2009.

Re the P2P investing: I agree there is a risk that some of the loans may eventually default or the companies may not be able to fulfull their buyback promises in case there's a new 2008 crisis.  This is why I invest in loans with good collateral value and only in companies with a good credit rating to minimise the risk.  There may be some defaults but it should be kept to a minimum that way. (the person not paying + the company not being able to honour the buyback + the collateral losing that much value all combined = low risk IMHO).

A bit late but I just realized I'd checked your expenses but not replied yet. Some items seem a bit on the higher side (vacations, eating out) and it's hard to say how reasonable they are depending on how much below that budgeted amount you really spend.

Some things that did stand out to me and can (IMO) easily be cut:
- Groceries/dog food/alcohol; this seems really high to me. I get that Belgian beers are delicious but I can't imagine all your budget going that direction ;). I don't know dog food prices but to me it seems this budget could be lowered by €50-100 easily without too much pain.
- Clothing; how do 2 adults need €125/month on clothing? If you buy high quality pieces they should last long so you won't need frequent replacements. If you need frequent replacements you aren't buying high quality ;). Try thrift shopping as well. It's great fun and especially for jeans or fancy clothes you rarely need you can find excellent pieces. Not sure what Belgian city you are but Brussels had LOTS of options for thrift shopping, can't speak for the others.
- Internet + TV sounds high but I don't know the Belgian market. You also have Spotify and Netflix in addition to this; do you really need all of them? (more a 'life control'/'reducing budget leaks' question than a serious life-changing budget item).

[Alfa1234]

Waving from the northern border here!

I agree with some other posters that it might be good to reevaluate your properties. You talk about risk in the stock market, but the "wealth" in the properties you talk about can also be wiped away in a crash like the one in 2008. Same for the P2P lending. Now the economy is doing well, but if it takes a hit the companies that perform well now might not be able to pay back the P2P loans anymore. I'm not against this type of investment, but do realize that it's generally HIGHER risk than ETF funds as you're not dependent on a single player. So company values may drop, but your value will never go to 0 as chances are pretty much 0 that all stocks in a tracker go bankrupt.

I'd actually be very curious to see your expenses more in detail! When you mentioned 3000/month I expected housing to be included but then realized it's not. I bet you can live a very similar lifestyle while reducing expenses by a few 100 (depending on how it's distributed now).

Hello there Dutch neighbour!  Thank you for your reply. :)

Here are the expenses in more detail:
https://gyazo.com/1b60038a9a11717675bf8449123fe86e  Not sure where we can/want to cut it more besides groceries.  I agree this is high but it's partly because my wife follows a special diet and we like our current lifestyle (FIRE would be great but we want to enjoy life now too). 

I agree a crash may drop the value of the properties, but the rental value should remain the same if not increase in that case (less buying power, fewer people able to buy a house -> more renters).  The Belgian real estate market is pretty stable and has never experienced a severe drop, not even in 2008/2009.

Re the P2P investing: I agree there is a risk that some of the loans may eventually default or the companies may not be able to fulfull their buyback promises in case there's a new 2008 crisis.  This is why I invest in loans with good collateral value and only in companies with a good credit rating to minimise the risk.  There may be some defaults but it should be kept to a minimum that way. (the person not paying + the company not being able to honour the buyback + the collateral losing that much value all combined = low risk IMHO).

A bit late but I just realized I'd checked your expenses but not replied yet. Some items seem a bit on the higher side (vacations, eating out) and it's hard to say how reasonable they are depending on how much below that budgeted amount you really spend.

Some things that did stand out to me and can (IMO) easily be cut:
- Groceries/dog food/alcohol; this seems really high to me. I get that Belgian beers are delicious but I can't imagine all your budget going that direction ;). I don't know dog food prices but to me it seems this budget could be lowered by €50-100 easily without too much pain.
- Clothing; how do 2 adults need €125/month on clothing? If you buy high quality pieces they should last long so you won't need frequent replacements. If you need frequent replacements you aren't buying high quality ;). Try thrift shopping as well. It's great fun and especially for jeans or fancy clothes you rarely need you can find excellent pieces. Not sure what Belgian city you are but Brussels had LOTS of options for thrift shopping, can't speak for the others.
- Internet + TV sounds high but I don't know the Belgian market. You also have Spotify and Netflix in addition to this; do you really need all of them? (more a 'life control'/'reducing budget leaks' question than a serious life-changing budget item).

Thank you for your reply.

You are right about the groceries, but a big part of this is the fact that my wife has been on a special diet for a while which causes more expenses. If she goes off it (not sure if or when that will be...) the grocery bill will instantly drop by 100 to 150. Dog food is about 20€/month and the alcohol all combined about 50€ average (that includes wine and beer for entertainment when friends come over).  Re the internet and TV, those are the prices for unlimited internet and the standard TV Channels including the Belgian football channels. 

We have no intention of cancelling any of those subscriptions as we do use them all the time. 

Vacations this year were exactly (I budgetted them in detail) €4870 so they actually "only" came to 405€/month this year.  Last year that was 372€/month but I do prefer to keep the 500 budgeted.  Eating out + entertainment and bars so far this year was actually 134€/month total...but I also just like to keep it at 250 because I don't want to "mind" splurging every now and then.  Clothing adds up fast, few dresses for the wife, clothes for me, sports clothing, ski clothing/replacement gear, sports shoes, winter clothes, some hiking shoes, sailing gear etc etc...I was also surprised at the total cost but it is what it is.  If I have to be honest, I don't think we will ever shop in a thrift shop.  We are nowhere near the Brussels area and to be honest I feel pretty good about our current lifestyle so I don't want to cut much in ways of spending.

Being honest here, it may not be like a true mustachian but I would be lying to myself if I thought those expenses would go down much, we make enough money to support our current lifestyle and keep a good savings rate so the "need to change" isn't really there.

[Freedomin5]

Being honest here, it may not be like a true mustachian but I would be lying to myself if I thought those expenses would go down much, we make enough money to support our current lifestyle and keep a good savings rate so the "need to change" isn't really there.

That is fine, and it's your money and your prerogative in terms of how you spend your money. But you asked if you could retire in 5 years, and given your current level of expenses and current savings rate, I think the answer is that we are not so sure if you will have saved enough in five years...which is why people are asking about your current expenditures to see if anything can be reduced.

If you haven't done so already, you may also want to run your figures and various scenarios through the early retirement calculators such as cFIREsim: http://cfiresim.com/ or engaging-data's FIRE calculator: https://engaging-data.com/fire-calculator

[Alfa1234]

Fair enough, thank you.  It will depend on the actual income I guess.  I may have to add a year or 2 to the actual date, which I wouldn't mind "that" much. So far I'm still very motivated and love my work, which helps by increasing the income.

Will keep the thread updated.

[Alfa1234]

Need some help here again (sorry).

I got the following offers for refinancing from banks for our current home mortage (best offers).

Total new loan would be 158k now because of notary costs etc.

Eiter refinance it for 25j from now on, with 2.05% fixed rate interest and pay 698€ monthly.  Total repayment would be 209400€.

Or refinance it with a variable interest starting at 1.35% right now, this interest can in case of rising global interest no more than double.  Fixed payment of 750/month with a variable duration that would be about 20 years depending on what the rates do (best bank projection says 20.1 years), but a maximum of 22.5 years worst case scenario if the interest rate does double soon.  Worst case we repay 202500€.  Best projection case we repay 180750€ total.

What to do what to do?  I am inclined to go with the fixed 25j/698/month plan and pay more interest in the end because of the 85/month savings which will grow to 69k in 25 years if compounded at 7% yearly...that is a sure thing. If I compound the savings of the other plan (33/month) for 25 years and then add 5 years of 750/month savings to that, it compounds to 81k total.  That is the best projection case for the 2nd scenario.  It could also be worse in case of rising interest.

Am I looking at this the wrong way?  Thoughts, remarks, views?

[Alfa1234]

Little update:

We refinanced our current loan at a rate of 1.34% fixed for the next 5 years (total 25 year mortgage).  The rate can be adjusted after that but no more than double.  This brings our mortgage payment down to 620€/month (saving about 160 per month!).  The worst case scenario in case interest rates double in 5 years and stay that high, will have us pay back 703/month from then on.  Still big savings compared to what we had.

Also knibbled 15/month off our various insurances and we bought a "bread baking machine" in January which has actually saved us quite a bit as we enjoy making our own bread every other day which in itself saves roughly 20€/month but it also saves in trips to the bakery/supermarket resulting in a lower grocery bill as there's less impulse buying.

Savings in the P2P now at 55k, but have also started buying into this S&P Ishares fund which tracks the S&P500 low volatility index.
https://ishares.com/nl/particuliere-belegger/nl/producten/285789/ishares-edge-s-p-500-minimum-volatility-ucits-etf-fund#/

[ysette9]

Great!

[EdenHazard]

What type of business do you have? Are you a (IT) freelancer or a vrij beroep?

[Alfa1234]

What type of business do you have? Are you a (IT) freelancer or a vrij beroep?

I would rather not make that information public but it's a rather unconventional occupation that is probably done by fewer than 100 people world wide.

[Alfa1234]

2-Year update:

Assets:

House we live in:
€205 000
Rental house:
€400 000 (appraised a month ago)
Vacation house (rental):
€90 000 (dropped due to my desire to sell)

€115000 in capital in my business, can be liquidated into cash in 2-3 weeks.
€230 000 invested in various ETF's and P2P lending.
€25000 cash/emergency fund
€13800 in pension retirement fund at a big bank

Total assets: €1 133 800

Liabilities:

Mortgage 1 (house we live in): €150 000 at 1.34% variable interest 5/5/5 with about 23.5 years left. Rate can double but not go higher than that. (remortgaged at a lower rate)
Mortage 2 (rental house): €143 000 at 1.39 variable interest with 10.5 years left
Mortgage 3 (vacation house): €19500 at 5% fixed interest with 6.5 years left. (changed interest)

Total liabilities: €312500

Net worth:

821 300€

We had our first child 6 months ago!  A beautiful girl.  Things are going well.  Covid initially decreased my income by about 90% but it's back up to roughly pre-covid levels now. My wife is also back at work. I'm investing about 8k in ETF's every month at the moment.  The Italian vacation house has been for sale with a sign for over a year now, but interest is low and I can't seem to be able to find anyone local willing to help (no real estate agency doing vacation homes apparently?).  The rental home will be going vacant in a month and we are planning a large renovation.  That should increase the monthly rental income to about 24000/year and increase the house value to 500 000€.  The renovation cost will be 82000€.  We have applied for a renovation loan at 2.65% but will pay the renovation cash if we need to. 

Costs have increased slightly due to childcare (187€/month and obvious increases in groceries) but we also get government "child benefits" which equal the child care costs and due to covid, other expenses like eating out and vacations have dropped to almost 0.

The plan is to keep going and investing...hopefully hitting 1 250 000€ in a few years, excluding our current home value.

[Alfa1234]

Little update.

The rental property has been completely renovated and is now appraised at 550k.  It's rented for a total of 2250/month (550+550+550+600 as it's comprised of 4 studios) and the entire loan including renovation has been refinanced and is now a 20-year mortage totaling 245k at 1.35% interest (very happy with that).  That makes the monthly payments 1165€ so there's now a very healthy cashflow from that property.

Assets:

House we live in:
€205 000
Rental house:
€550 000
Vacation house (rental):
€85 000 (dropped again due to my desire to sell)

€128000 in capital in my business, can be liquidated into cash in 2-3 weeks.
€305 000 invested in various ETF's and P2P lending+ crypto.
€15000 cash/emergency fund
€16200 in pension retirement fund at a big bank

Total assets: €1 304 200

Liabilities:

Mortgage 1 (house we live in): €148 000 at 1.34% variable interest 5/5/5 with about 23 years left. Rate can double but not go higher than that. (remortgaged at a lower rate)
Mortage 2 (rental house): €245 000 at 1.35 variable interest with 20 years left
Mortgage 3 (vacation house): €17500 at 5% fixed interest with 6 years left.

Total liabilities: €410 500

Net worth:

893 700€

[Alfa1234]

A new update:

Finally managed to sell the vacation house in Italy!  The price was bad (75k) but I'm just glad to get rid of it as rental income had been basically 0 the last year and a half due to covid and costs continued to climb.

Invested into a new local rental property for a total of 280k + 12.5% taxes and costs.  Total price 325k including costs.  We are borrowing 223k and putting in 102k ourselves.  It was appraised for 295k and has 4 appartments which are currently rented out for a total of 2198€/month.  It's a building from the 70s and I plan to do some renovations if and when each tenant leaves.  It's structurally sound and only requires smaller things like a new bathroom and kitchen for each appartment.  Total renovation budget would be roughly 20-25k/appartment but the rent should increase 200€/appartment after that (giving a total of 3k/month in rent after it's renovated).  Real estate prices have been climbing here at a rate of 5%/year so it seemed like a great deal.

The loan is 82k in bullet form and the rest over 25 year at a rate of 2.75%.  We are paying 847€/month so the property gives a very nice cashflow of 1351€/month and is also paying off the capital on the mortgage off course.

Assets:

House we live in:
€205 000 (not appraised since last year so it should have climbed about 5% by now)
Rental house 1:
€550 000 (not appraised since last year so it should have climbed about 5% by now)
Rental house 2:
295 000

€80 000 in capital in my business, can be liquidated into cash in 2-3 weeks.
€335 000 invested in various ETF's and P2P lending+ crypto.
€15000 cash/emergency fund
€17400 in pension retirement fund at a big bank

Total assets: €1 497 400

Liabilities:

Mortgage 1 (house we live in): €146 000 at 1.34% variable interest 5/5/5 with about 23 years left. Rate can double but not go higher than that. (remortgaged at a lower rate)
Mortage 2 (rental house): €242 000 at 1.35 variable interest with 20 years left
Mortgage 3 (2nd rental house): €223 000 at 2.75 variable interest (82k in bullet form) with 25 years to go.

Total liabilities: €611 000

Net worth:

886 400€

The net worth dropped slightly but that due to the taxed paid to acquire the 2nd rental property.  Business still going well.