Rinch's case study


#1

Hi Everyone,

Over the last couple of months I’ve started to get the finances in order, read a whole load about FI, become a father and I’m now wondering what to do next. Here’s a case study on where I am so far. i’d be really interested on anyone’s perspective. I’m not some kind of massively highly paid finance worker. I’m 34 and I work for an NGO.

I’ve made some dubious financial decisions over the last few years and I’m weighing up what to try and unpick and what to stick with.

Let’s start with some numbers for my family:
Current net worth about 520,000 CHF
277k is equity in property (2 properties) (Property value 488k, debt 211k)
31k is in VWRL on corner trader
49k is in cash. Part of this is an emergency fund.
176k in pension funds, pillar 2s and UK pension funds
15k per month family income. Soon to drop dramatically due to reduced working to look after baby.
Saving probably 6k per month

Up until about 6 months ago the only thing I thought was worth investing in was property. I’m from the UK and betting on house values rising is sort of a national sport. I thought buying shares meant either knowing the future or gambling so stayed clear.

Then I started reading all these wonderful blogs and realised that index funds and buying and holding were far less hassle and have far less hidden costs than property. At that point I realised that any new savings should probably go into a decent index fund.

The second revelation was that I should really stop pouring money down the drain. Money I save now buys freedom later so no more spending on things I don’t value.

Now lets talk about property. I have one property that I consider to be a fairly decent investment. I paid GBP 143k for it in 2011 it’s now worth about 200k and it brings in about GBP 8400 per year. The service charge is about GBP800 per year. At the moment I route all the excess into the mortgage. In the UK you can overpay by as much as you like each month. My plan is to just leave this property to pay for itself. By my calculations I’ll own it outright by 2026. Today there’s about 50k left on the mortgage (@3%). I know that I could probably get a better return if I paid off the minimum and did something else with the money but I do like the idea of paying off debt before interest rates rise. Besides, there are probably more pressing changes to make. The UK has no tax on your first 10k so no taxes to pay on the income but I do have to file a return every year.

The second and slightly more embarrassing property is my alpine apartment in a french mountain town. Bought for EUR200k, renovated and now rented on airbnb. It has brought in EUR 7k and I used it on weekends whenever it wasn’t rented. I still have a 146k mortgage (@2.2%) on this place and the mortgage is around 10k per year. That leaves me to pick up around 3k on the mortgage plus the rest of the charges. I flip between thinking that buying this place was the best thing I ever did and a terrible financial mistake. I live in a small rented apartment and spending most weekends in the mountains is something I really value. I’m also really happy to spend most of my holidays in the same place so I figure I’m saving something there. Unfortunately the french tax system is quite merciless. I’ll go into it in a future post but the total income and property taxes are about 1.5k.

While I’m not quite ready to dismantle the property empire I have at least decided that that’s probably quite enough of my money tied up in it for now. Going forwards all new saving will be in index funds.

I’ve followed the great conversion to IB and will probably switch from Corner Trader at some point when my stache is a bit bigger. I’m planning on one transaction every three months so the cost of CT isn’t huge for me.

I’ve run some simulations about whether to save via 3a and have opened a post finance one so I can put funds in the Postfinance 75 fund. I’m still not convinced that the potential for increasing management costs and loss of access to the funds until I’m in my 50s are worth it but I’m now leaning towards filling up the maximum allowance from here on in.

My goal is not necessarily to retire but to reach the point where I can take any job regardless of how well it’s paid. Many smaller NGOs that work on interesting things don’t pay well so it would be great to be at a point where I could could pick and choose and work a bit less.


Investing in Real Estate abroad
#2

Hello Rinch,

520k CHF is already a significant number, so let me tell you that even if you can tweak your investments, you have already well advanced in your journey to FIRE :slight_smile:

Regarding your properties :

  • The first one has a quite decent return for Real estate : if I understand well, this makes a (8400-800)/143000 = 5.3 % tax free return per year from the rent (not taking mortgage into account), plus a 40% capital gain returns… quite good for real estate! I would not expect swiss real estate to go up 40% anymore for instance…
  • As you say, the second one is more tricky from an investment point of view. I am not denying that having a house in the french alp is a pleasure, but yeah as a French myself I can confirm that french taxes are a b*tch…
    Your brut return from rent is 3.5%, which will be heavily amputated by the taxes. First, “Taxe fonciere”, and “Taxe d’habitation” (two property taxes). Then, income taxes. In addition, the new French President (Macron), has talked about a new tax reform and he thinks about taxing revenues from capital (real estate and stock market) at a flat 30% rate… As you say, it is merciless!

#3

As we move in to 2018 I thought I’d add a few notes on what has changed. Tracking my income and outgoings seems to have the effect of making me very reluctant to spend any money on more or less anything. In the past spending 100CHF on a whim was something that I wouldn’t think about too much but it seems ridiculous after you’ve been agonising over where all your money is going.

This is generally positive but I don’t want to get to the stage where I’m turning down offers to do fun stuff and sitting at home all the time. Need to keep this under review. No point having a boring life without any good adventures.

This process has led to a purge of any subscriptions that I wasn’t getting value from including netflix and others. I’ve even gone so far as to cancel my home internet (was 60CHF per month) and replace with a 4G router and sim (10CHF a month with salt). I’ve tested the speed and it seems to be good enough to watch streaming video so hopefully this will save lots of money.

I think there is still quite a way to go on optimising spending. Will take one thing at a time on this.


#4

hi rinch,

I have a question. which contract or prepay offer from salt are you using? I can’t find anything fof chf 10/month


#5

I’m not sure if this link still works but Salt had an offer for 70% off the normal price for unlimited 4g. 10 CHF down from 35. The only downside is you have to already have a salt contract and you have to sign up for 24 months.

https://www.salt.ch/en/multisurf/

But still, 240 CHF for unlimited internet for two years is a pretty good deal if it replaces a wired connection. It also means I can completely get rid of my phone line and won’t have to be called up by insurance salespeople ever again.


#6

Looks like the offer is still active now…thinking of ditching my Swisscom for this and get a 4G router. Any feedback on well that’s working for anyone?

https://www.salt.ch/en/multisurf/


#7

ive got the Salt Abo for 29 plus the 2nd sim card and the router for 10. It works well enough. During the day it reaches download speed of 2-3 MBps, in the evening it drops to even 500 kBps. So around 20:00, zatoo might get a bit choppy.


#8

Thanks for the feedback!


#9

It works fine for me in central Geneva. Streaming video in the evenings is generally pretty smooth, occaisionally the quality drops at busy times a little.

Definitely not going back to cables.


#10

I haven’t had fix line tel at home since 2012.
Currently I have an unlimited mobile phone Salt Abo for calls, internet for CHF39/M (probably same deal as Bojack, price varies acc to your timing of contract signing).
1-3Mbps on 4G in central Basel.
I tether for laptop use etc. cos no separate second SIM.
Girlfriend moans a bit at times cos there’s no (unlimited) internet at home when I’m not around, but she’s quite mustachian herself😊 so it’s not much of an issue.