Irish Financial Independence & Personal Finance Podcast

September 2022 Portfolio Update

Tuesday 4th October 2022

Building Cashflow from My Portfolio

I sat down in September to crunch the numbers on my investment properties. One of the frustrations in Ireland is that 50% tax rates mean that rental properties with mortgages typically provide no positive cash flow. While this is frustrating when building your portfolio, I made the realisation that when 20% tax rates are applied, positive cashflow is possible from mortgaged investment properties, though it would likely require me to manage the properties myself.

For example, when I crunched the numbers on our two rental properties, I realised that when applying the 20% tax rate rather than the 50% tax rate, and assuming I manage the property myself, rather than a property manager, I was able to generate the following monthly cashflow:

Estimated Monthly Cash Flow from Rental Properties
Asset Average Monthly Cash Flow
Property One €250
Property Two €350

This was a fantastic realisation for me. To date, I had been planning to have to pay down the full mortgage on the property until it provided cashflow, but it turns out that this doesn’t have to be the case. There is a clear path for me now to continue to build a property portfolio, with the aim of building positive cashflow from any deals I look to purchase.

Unlocking My Pension

I do somewhat regret having so much money in my pension. The truth is, I never saw myself realistically being able to retire before 50, but that dream seems to be becoming closer every month. One of the issues with a pension is that it is limited to a 4% withdrawal rate per year, which makes investing in a pension less favourable than property (as it is possible to generate higher returns from rental property).

As it is, in order for me to “unlock” my pension before I turn 50, I will need to build a bridging portfolio alongside it outside of my pension. For example, having ⅔ of equity portfolio in my pension and ⅓ outside of a pension. The idea would be to withdraw 12% per year from the equity portfolio outside the pension, until I turn 50, where I can access my full pension and withdraw 4% from there. By this stage, the bridging portfolio will likely have been fully used and I can rely fully on my pension from that point.

Current Monthly Cashflow

Based on this idea of a monthly cashflow, my current cashflow can be broken down as follows:

Estimated Monthly Portfolio Cash Flow
Asset Average Monthly Cash Flow
Property One €250
Property Two €350
An Dulra Investment €12
Equities* (4%) €432
Total €1,044

* I will need to build a bridging equity portfolio if I want to retire before age 50.

Closing on Second Investment Property

We finally closed on the property we went ‘sale agreed’ on back in April. The process was slow to say the least, but it was a great feeling getting the key. The property will require some minor renovations before renting it out.

‘Sale Agreed’ on Third Investment Property

We recently went ‘sale agreed’ on another property (our second property purchase this year). The property had been on the market back in March, and I noticed it came back on the market in late August. The buyer had pulled out of the purchase and the vendor was keen to sell. I offered the same purchase price that the previous buyer had made, and the offer was accepted less than two hours later.

Building a Property Business

One thing that has become clear to me in September, is that I am in the process of building a property business. I said last month that I am really enjoying the process of buying property and being a landlord. This has been an amazing realisation for me, as years ago I felt quite the opposite about working with tenants.

In truth, being a good landlord is rewarding and having happy tenants is a nice thing. I try to be as proactive as possible and want to be a good landlord.

As it is, I see rental income as my fast track to FI. The recent property that we went ‘sale agreed’ on is a huge 3 story, 5 bedroom home. We will look to modernise the property and look to rent it out on a per room basis, rather than simply renting the whole house. The rooms will be fitted with new double beds and TV’s in every room, making it a nice living space.

This investment will be anything but passive, but the return will make the whole deal worth it. I expect to invest somewhere between €70k - €80k in the property all in (this includes the required deposit, stamp duty, legal costs, repairs and furniture & fittings), but I expect that the property will generate cashflow after expenses and the mortgage payment of around €1k per month.

This will effectively double the current cashflow that our portfolio can generate from one house purchase and move me a lot closer to generating enough income from my portfolio to retire.

My hope is that this is the first of several property projects that will hopefully provide a massive shortcut to FI. I will admit that this approach is anything but passive, however, if I can produce enough cashflow, it will allow me to effectively cover our expenses fully from property income, and mean that my work as a software developer truly becomes optional.

As a final note: I typically report my portfolio based on equity, and to date I haven’t really focused on the income side that my portfolio generates. I will look to provide updates on my portfolio cashflow as significant changes happen.

Am I Just Becoming a Property Manager?

I can see what you might be thinking. Am I really just looking to say I am “retired”, but secretly I am just becoming a property manager. It is easy to see how this might be the case, however, the reality is something quite different.

I am still a believer in growing equity within our portfolio. As I see it, income generation allows one to stop working, but equity is what makes one feel they can truly retire. My plan is for the cashflow from my portfolio to allow me to make work optional and move to semi retirement. While living off the cashflow, the equity in my portfolio will continue to grow, as the mortgages are paid down on the properties and the value of the properties increase over time. At some point, the equity in the portfolio will be great enough for me to feel like I can truly retire - especially as the mortgages are paid off on the properties. At some point I could either sell the properties, or put a property manager in place, or simply rent the properties out as more conventional rental properties.

I have always struggled to grasp the concept of how income and equity can work hand in hand up until recently. They are simply different parts of the same piece of string - and ideally one needs to focus on both when building a portfolio, not just one. To date, I have focused too much on equity, but I now realise that working on the income side is equally important.

As it is, I will continue to report on my portfolio update in equity, as that tends to be the exciting number to report, but I will look to report on income as significant changes happen.

Solar Panels - Monthly Return

I thought I would give a monthly update on our solar panels. We consumed 321 KWh of electricity during the month, buying 121 KWh's. Our solar panels covered 62% of our electricity usage, saving us €52 (based on 26c per kWh). Our annual return after depreciation was 3.58%.

Here is a breakdown of our solar panel usage since they were installed in July:

Solar Panel Return - Year to Date
Month Percentage Covered by Solar Electricity Saving (after depreciation) Annual Return
August 83% €29.42 3.64%
September 62% €28.90 3.58%
Monthly Average 72.5% €29.16 3.61%

You will see from the numbers, our panels actually generated nearly the same amount of electricity in September as August - we just consumed more power - likely due to the kids being back to school and us being at home more during the day.

September 2022 Portfolio Report

Stocks took another big tumble in September. They have since recovered a little in early October, but it makes for hard reading. I made some new purchases for our second investment property, mainly buying furniture for preparing the property for renting. These costs were capitalised and will be depreciated over 8 years.

My primary goal is to try to build a portfolio of €500k by March 2024 (a month before I turn 40). Assuming I continue to contribute €10k a month and assuming a 5% annual return from this point, I am currently on track to hit this goal by March 2024, right on schedule.

Portfolio Summary (as at 30th September 2022)
Opening Balance €297,198.72
New Contributions €10,000.00
Portfolio Growth €-8,773.33
Closing Balance €298,425.39

Monthly Portfolio Growth Report

Monthly Portfolio Growth Report
Capital Gain + Dividend Income from Equities €-9,487.58
Real Estate Income & Capital Gain €714.25
Total Growth €-8,773.33

Portfolio Breakdown

The table below shows the breakdown of my portfolio into the various asset classes:

Portfolio Asset Breakdown (as at 30th September 2022)
Equities €122,114.68 40.92%
Real Estate €152,601.30 51.14%
Cash €23,709.41 7.94%
Total €298,425.39 100.00%

Equities Breakdown

I currently have three different brokers that I use for buying Equities. At the moment, 100% of my equities are within a pension, though this might change in the future. The breakdown for equities is as follows:

Broker Name Total Invested
Irish Life €50,217.94
Davy Select €36,132.39
Aviva €35,764.35
Total €122,114.68

Real Estate Breakdown

My real estate investments can be broken down as follows:

Investment Total Invested
Property 1 €92,801.41
Property 2 €56,055.89
An Dúlra €3,744.00
Total €152,601.30

Year to Date & Lifetime Portfolio Returns

I thought it might be nice to show my portfolio growth on a year to date basis, as well as the portfolio returns since I started in 2018.

2022 Year to Date Growth Report
Opening Balance €221,789.02
New Contributions €90,000.00
Real Estate Capital Gains + Rental Income €7,462.47
Equities Capital Gains + Dividends -€20,826.10
Closing Balance €298,425.39
Portfolio Return -€13,363.63
Annualised % Return -4.29%
2018-2022 Growth Report
Opening Balance €0
Contributions (Money Added) €226,445.78
Equity Release* €41,220.21
Real Estate Capital Gains + Rental Income €30,093.52
Equities Capital Gains + Dividends €4,530.61
Other** -€3,864.73
Closing Balance €298,425.39
Portfolio Return €30,759.40

* 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.

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