Rinch's case study

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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.

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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!
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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.

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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

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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.

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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/

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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.

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Thanks for the feedback!

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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.

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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.

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Hi Rinch

Not sure you still check out this thread, but your situation is really similar to mine and just wandered how it was going, and what you have done investing wise for the last 18 months

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Things have definitely changed a lot since I posted before. Time for an update. I started off with the best of intentions to not to anything flashy and just plough savings into index funds. Then life got in the way. We had two kids and decided we needed more space to put them in. We decided to sell our mountain apartment and instead buy a family home in French alps but within a commutable distance to Switzerland. After some consideration we decided to buy a bit of land and build it ourselves (well, pay other people to build it for us). That’s all done now so we no longer rent an apartment but pay a mortgage on the house. We are now frontaliers. I’m not sure if I should be kicked off the forum for that.

This all meant that I had to sell my taxable index funds plus whatever else I saved for the last couple of years to fund the build and now I live in a place I’d be happy to live forever. My net worth has gone up a fair bit but since a lot of it is in my house I don’t think it’s helped the FIRE calculations all that much. Here are some updated numbers:

Current net worth about 780,000 CHF
437k is equity in property (2 properties) (Property value 835k, debt 398k)
66k is in cash. Part of this is an emergency fund.
272k in pension funds, pillar 2s, Viac 3as and UK pension funds

I’ve continued to let out my flat in the UK and that is still ticking away. I’ve made no over payments since 2017 though. I’m happy to leave that as it is.

In terms of investing I have still been filling up a 3a for my wife and I each year but that has been the extent of it. I plan to open a PEA (french investment tax wrapper) this year and start filling it up now I’m not spending all my spare cash on building.

I see myself as somewhere not too far from coasting at the moment. I work part time so my income is reduced. I may increase work back up again to accelerate FI when the kids are older or I might stay at this level until I decide to phase it out even more. I live in a really nice place so I don’t feel the need to travel much which used to be a significant part of my spending. I’m not hell bent on getting to FIRE any time soon. I figure as long as I keep being sensible I should get to something like FIRE at some point.

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Hi Rinch
Thanks for the update. Sounds like you made some good decisions and are happy which is the main thing!
Very similar to me, spookily so in fact!!
… 2 kids, flat purchased (in Switzerland) , have pillar 3s with VIAC, etc. Some index funds.
Also have a UK place as well that we rent out.
Have you ever needed to remortgage your UK place? I am thinking about it but being an expat makes it difficult to find an option.
Thanks for the update.
If you are also an Arsenal fan then we were separated at birth!

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Lot’s of similarities but I can confirm I’m not an arsenal fan, although I have to admit to admiring their game under vintage Wenger.

We we’re between buying a swiss flat and moving to France and ended up going the other way. How was the swiss buying process?

I bought the flat in the UK about a decade ago with a two year fixed rate BTL mortgage thinking I would get another one when it expired. After we moved our here it expired and reverted to the standard variable rate. I think initially it was about 3% but now is up to about 3.5%. I’ve never been able to find anything close to that as an expat so have just left it since then. My plan is that if interest rates go up beyond about 4-5% it’d probably be worth paying it off faster or remortgaging.

I’d consider selling it but the personal allowance makes it a really good deal. Even if the return isn’t stellar, the fact that it’s effectively tax free makes it a tough one to pass up.

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Swiss buying process was fairly straight forward but needed to understand the differences with the uk market (different tranches, 50 year term etc)

Im looking to remortgage the UK place. I agree with you that the personal allowance is great. But I can see this being taken away soon (and I actually cant argue against that really)

If I manage to find a UK mortgage broker that can help me, I will let you know!

Up the gunners!..and FC Lugano

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Thanks for the information - it makes for good reading.

I have a question I wonder if anyone would know. I recently contacted HSBC with regards to a mortgage as a non-uk-resident. They said they would have no issue lending me the money. They asked me if it was going to be a personal property or a buy to let with the latter obviously having a higher interest rate.

My question is if I said it was my property and that I wasn’t going to let it out but then went through an Airbnb company, would anyone know? Is there a way that HSBC would know?

Many thanks in advance

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Interesting that HSBC do expat mortgages. What rate were they offering? I’m tempted to get another buy to let at some point. I looked at Skipton International and concluded that the the interest rate would be around 4% which seemed a bit high to me.

The thing about buy to lets that make it such a good deal is that the UK tax free allowance (of around 12,500 GBP) means that if you only have one, then you will probably be under the threshold to pay any tax on the income.

As for getting a mortgage for a personal property and then renting it out, I have no idea whether things are joined up enough that you’d get caught. There would be a fairly obvious paper trail from airbnb (or whoever) and from HMRC when you declare tax on the income. Apparently, the penalty for letting out with a residential mortgage can be that you have to repay the entire loan immediately and you can get a black mark on your credit score that makes it difficult to take out other credit. (see Why you can’t let your home on a residential mortgage - swift)

Personally, it sounds a bit stressful to fraudulently operate a rental just to save a bit on interest payment but obviously people who rent their house out a bit when they’re away don’t go changing their mortgages so I expect it’s tolerated up to a point.

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You are totally right.

It was more out of curiosity than anything. I spoke to to HBSC regarding expat mortgages and they had a fairly good Buy to Let deal with an interest of 2.69 % with 25 % deposit needed.

Worth going for I think

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Might the occasional Airbnb be viewed differently vs. Buy to Let(?) People do rent out rooms in their own house via Airbnb.

If you tell them you are resident in Switzerland and you are buying a property in the UK for personal use to have a “foot on the ladder” for when you return, ask if there are any restrictions on when you have to return to the UK etc.

I would certainly avoid lying during your application or you may get blacklisted.

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Quick periodic check in here. Headline is that I’m plodding slowly on but retirement isn’t looking much closer. I am, however, in a good position to survive, most financial issues and I have a good time of it so can’t complain.

Thankfully not too much has changed in the last year or two. Managed to avoid the temptation to buy and sell any houses and have just been plugging away into the French PEAs (tax advantaged investment accounts). Bit of a milestone as I’ve just crossed the CHF 1 million mark. I thought it would happen ages ago but investments have been up and down for the last couple of years.

Current breakdown is as follows (all for the household, not just me) :

  • CHF 278k - Primary residence equity (value 560k, mortage 287k) (probably fairly inaccurate)
  • CHF 223k - one rental property in the UK (value 257k, mortgage 33k) (equally inaccurate)
  • CHF 231k - Pillar 2 (effectively bonds)
  • CHF149k - Pillar 3 and UK pension funds (equities)
  • CHF109k - Post tax equities
  • CHF 45k - Cash
    TOTAL: 1037k

I’ve been working at 80% for a few years at this point and have no plans to go back to full time work or reduce the level of work further. I think I’m somewhere around the point where there is enough in the pot that I could coast if I needed so I could take a significant reduction in income if I wanted.

At the moment this just means that I don’t need to be too worried about getting fired (the bad kind, not the good kind).

I don’t really know what my FIRE number is. When I started I think I would have assumed that a million CHF would be close to it. Now I’m not so sure probably more like 2 million??. My annual spending is very variable. Home improvements or exciting holidays make a big difference. I don’t think I’d like to commit to a CHF 50k lifestyle that would be necessary to FIRE. While I’m working and saving I don’t feel like I have to worry about it and that feels quite nice.

Current strategy is to save 50k per year in equity investment accounts, while employer pensions keep going up and property debt goes down and review in a few years.

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