October 2024 Portfolio Update
Sunday 3rd November 2024
It turns out we are closer than we think!
Before breaking into this month’s update, I just want to give a quick reminder on what the RE in FIRE really means. In almost all cases, “retire” in FIRE doesn’t mean traditional retirement. What it means in almost all cases, is simply leaving the tradition 9-5, 40+ hours per week behind. We have defined our FI number as €750,000 - this amount would allow us to declare ourselves FI on paper, and would give us enough to live on if we sold a few investment properties and liquidated our assets. As it is, we don’t plan to do this, instead we will do what almost everyone else does when they hit FI - we will leave our 9-5, 40+ hour jobs behind and work on projects we enjoy on our own terms - still bringing in a little bit of income as a result!
As a result, we know we will still earn some income in retirement, even if it is only as little as €10,000 per year - this happens to make a massive difference to our long term FI plans! I will do this by working on an adhoc / freelance basis, maybe 10 hours per week, or whatever I see fit.
We made a pretty big realisation in October to do with our portfolio cashflow. We have been working towards building cashflow from our portfolio of €30,000 per year. This cashflow, plus the €10,000 I plan to work in retirement will give us enough to cover our annual expenses, without the need for us to sell our investment properties. Under this plan, our investment portfolio will continue to grow, as our core assets (our properties and stocks) don’t need to be sold - we live off the rental income while growing wealthier in the process!
We were originally under the impression that we needed to pay off two mortgages on our investment properties to produce the €30,000 per year portfolio cashflow that we need. However, when I sat down and crunched the numbers - even taking into account the additional company surcharge tax we pay by having 3 rental properties in the company, other tax considerations, all expenses and maintenance related costs, it turns out that by having one of our investment properties paid off, it brings us an income of a little over €27,000. The recent interest rate drops have helped our cashflow situation, and I was happily surprised to see that we don’t need to go to the trouble of paying off a second mortgage to generate most of the cashflow we need - we were far closer than we thought!
How about the additional €3,000 per year? I actually was inspired by the Millennial Revolution blog which speaks about the power of a cash cushion. To date, we haven’t grown any real form of emergency cash, instead deploying all our cash into paying down our mortgages (our interest rates were over 7% at their peak, this strategy made sense). But with us moving closer to FI, building a cash cushion makes sense. We can keep this cash in a savings account, maybe receiving 2 or 3% interest per year, and the ideal is, we draw down €3,000 per year from this cash, until we are 50 (9.5 years time), when we can then start withdrawing from our pension.
Effectively, this means that we need to build a cash cushion of €30,000 to bridge this gap! Between this, and our mortgage balance we need to pay off on the one mortgage we have been paying down (now around €20,000), we are only around €50,000 away from getting the cashflow we need for our plan to work!
On top of this, Mike from the Limerick FI Group was kind enough to recommend an app called Whack, which shows what properties prices sold for in Ireland. To date, I had been largely using sale prices to work out our property valuations, which didn’t actually allow me to see final selling prices. We have noticed a big increase in properties selling in Castleconnell, where our first investment property is selling for, so I will wait and check if this holds true over the next couple of months and will report any property validation increases on our December portfolio report (we revalue our properties every 6 months).
As it stands at the moment, there is a good chance that once we have the first mortgage paid off, and have built our cash cushion, there is every likelihood at this point I would say we no longer need to make contributions and will look to start withdrawing from the portfolio while the assets continue to grow in the meantime. Based on my projections, this could be as soon as May 2025, which is super exciting!
While we may not be fully at the €750,000 mark at this point, I suspect we will be pretty close, and certainly close enough to let the portfolio compound in the background while we live mainly off our rental income.
For those interested in how we calculated our rental cashflow, here is a very brief summary of our breakdown for the three properties combined that we are looking to draw cashflow from (we do own a fourth property that is cashflow neutral which is excluded). Just as a reminder, we own these three properties inside a company, so the tax treatment is different than if we owned them personally. In this case, we are looking to calculate the gross income that could be paid to me as wages through the company.
| Description | Monthly | Yearly |
| Rental Income | €4,810 | €57,720 |
| Less Deductible Expenses | ||
| Tenancy Board | €120 | |
| Insurance | €1,200 | |
| Estimated Annual Maintenance | €3,000 | |
| Deductible Interest | €15,400 | |
| Total Deductible Expenses | €19,720 | |
| Gross Profit (Rent less Deductible expenses) | €38,000 | |
| Net Company Tax Payable* | €4,750 | |
| Less Property Tax | €600 | |
| Total Cashflow before mortgages** | €48,050 | |
| Mortgage Payments | €1,660 | €19,920 |
| Net Cash After Mortgage Payments | €28,130 | |
| Company Investment Surcharge Tax*** | €339 | |
| Net cash after Surcharge Tax | €2,315.92 | €27,791 |
* This is calculated at 12.5%. This might seem confusing, but I am looking to calculate how much tax is paid by the company. The rental tax rate in a company is 25%, however any wages are an expense to the company and are taxed at 12.5%. This effectively means the net tax that the company pays on rental income is 12.5% (25% - 12.5%). I would then pay income tax at my own personal tax rate on this gross income.
** This one might also seem confusing - but this calculates the overall cashflow before paying off the mortgage. Effectively we subtract the rental income less all expenses except the Deductible Interest. We then also subtract the company tax to show our remaining cashflow. The reason it is done this way, is that we need to separate the cashflow from the rental profit - remember the cashflow is ultimately what we are looking for here!
*** This is an additional company tax that is paid for any money that isn’t distributed in a company. I plan to distribute all income from the company in retirement, however there is a portion that is needed to pay the capital of the mortgages. This portion will be subject to the investment surcharge tax, which is effectively an additional tax of 7.5%.
So there you have it. Even after accounting for some annual maintenance costs, and taking into account the various other taxes related to having rental property in a company, we are still able to generate around €27,000 a year from our rental properties.
October 2024 Portfolio Update
October was another solid month and another step closer to FI. Our rental properties were business as usual and our stock portfolio was up.
Our 7 year old son, who had been hoarding his birthday money since March, decided to invest his birthday money into our portfolio, and thus added an additional €80 in October. I record our children’s amount and return separately so they can track their own portfolios within our’s and see it grow over time. As I have said before, it is a great way for our investment portfolio to be a true family affair!
Another huge milestone in October, our total lifetime return on our portfolio crossed the €200,000 mark!
We are now within the last €100,000 of our FI number!
Here are the overall portfolio numbers:
| Portfolio Summary (as at 31st October 2024) | |
|---|---|
| Opening Balance | €641,446.25 |
| New Contributions | €5,080.00 |
| Portfolio Growth | €6,655.90 |
| Closing Balance | €653,182.15 |
Monthly Portfolio Growth Report
| Monthly Portfolio Growth Report | |
|---|---|
| Capital Gain + Dividend Income from Equities | €2,766.47 |
| Real Estate Income + Capital Gain | €3,873.00 |
| Interest on Cash Savings | €16.43 |
| Total Growth | €6,655.90 |
| % Return | 1.03% |
Portfolio Breakdown
The table below shows the breakdown of my portfolio into the various asset classes:
| Portfolio Asset Breakdown (as at 31st October 2024) | ||
|---|---|---|
| Equities (Stocks) | €183,584.80 | 28.11% |
| Real Estate | €468,606.15 | 71.74% |
| Cash | €991.20 | 0.15% |
| Total | €653,182.15 | 100.00% |
2024 Year to Date Returns
Here is a summary of my year to date returns for 2024.
| 2024 Year to Date Growth Report | |
|---|---|
| Opening Balance | €498,900.39 |
| New Contributions | €68,280.00 |
| Equities Capital Gains + Dividends | €30,023.92 |
| Real Estate Capital Gains + Rental Income | €55,865.85 |
| Interest on Cash Savings | €111.99 |
| Closing Balance | €653,182.15 |
| Portfolio Return | €86,001.76 |
| % Return | 15.16% |
Lifetime Portfolio Returns
Here are my returns since I started in 2018.
| 2018-2024 Growth Report | |
|---|---|
| Opening Balance | €0 |
| Contributions (Money Added) | €410,147.78 |
| Equity Release* | €41,220.21 |
| Real Estate Capital Gains + Rental Income | €147,005.98 |
| Equities Capital Gains + Dividends | €58,560.92 |
| Interest on Cash Savings | €111.99 |
| Other** | -€3,864.73 |
| Closing Balance | €653,182.15 |
| Lifetime Portfolio Return | €201,814.16 |
* In 2020, some of the new contributions came in the form of an equity release, as we turned our primary residence into a buy to let and purchased a new home to live.
** In 2018 & 2019 I made several bad investments in peer to peer lending, forex trading and unregulated investments, which resulted in losses overall.