FIRE Review

[the0ni0nking]

I've been thinking about retirement for a while, and over the weekend spent a fair bit of time on the train during which I took the opportunity to read through quite a number of the threads on here.

Checking my posting history, I've not posted for nearly 6 years during which time a fair amount has happened and as will become evident if you were to review a couple of the previous topics I started, I didn't follow through on my own thought processes at the time (and nor the largely supporting posts that suggested I had a well thought through plan.

But given I've been keeping a spreadsheet - albeit occasionally sporadically - monitoring "net equity", it's relatively easy to pull the details together:

"Balance Sheet":

Property (at cost) £480k. I would estimate realisable value around £1050k-£1100k of which c£350k would be main residence.
Pensions (3 separate ones, all company , no SIPP) £264k
Cash £86k (c£30k of this is held in Euros and will remain there). UK balances earning just under 4.9%. Euro balances earning 0.
Vested share options (in company I work for) c£30k
Unvested share options (next 2-3 years) c£15k
Other share investments (UK) c£25k
Mortgages (spread across 4 properties) £169k

Net Balance Sheet position - c£735k (using property at cost value)

"Annual P&L Key Figures": (Single, no dependents, age 43)

Salary £80k (was previously higher but lowered when I moved back to UK c3.5 years ago just before pandemic)
Rental Income (gross) c£28k
Mortgage Payments (including on main property) c£13k
Main Household bills c£7k (utilities, council tax, broadband etc)
Pension Contributions c£20k from me, c£9k from employer

Currently, any surplus funds are deployed temporarily into cash in the expectation that they will be used to pay off mortgages as and when they fall due. This is because the mortgages are all on fixed rates with the first (and worst) one due to come off that in Aug-24 would move from 2.45% to 8.24% on a balance of c£82k.

As you can work out, that is c50% of the mortgage debt while the others revert to the lenders SVR in late 2025 and late 2026. The current rates on these vary between 1.85% and 2.69%. My spreadsheet suggests together with the overpayments allowed in the interim that with no change in job/salary and rental income remaining static that they can be paid off at that time (or very close to).

Some of my own observations on this:
(i) when you compare property realisable value to rental income, the yield looks awful. There's probably scope to increase some of the rents but suspect c£40k is max. One of the property is not rented out permanently - it is basically a holiday let albeit doesn't meet criteria for a FHL - and this generates only c£6k on a market value close to £250k because while I own it personally it is also used by myself/ wider family for a chunk of the year each year.

(ii) Once the mortgages are paid off, I'll be 46 (or thereabouts) and a scary high % of my net worth will be in property. It's all UK property with the exception of the holiday let which is in continental Europe.

(iii) As will be evident from the difference between the purchase price and the current realisable value, I suspect there will be a chunk of CGT on any sale of any of the BTL. All are owned personally. I probably need to look into this further.

(iv) My train of thought is that at the point of retirement and no mortgage balance and having monitored my spending over the last few years, I would need c £2k/month post tax to live comfortably and that would be about when I'm 46 so need to start putting the investment house in order in advance of that. I'm not a massive traveller, not do I have or need a car or a desire to have one - if I want to visit something or someone I'll either take the train or jump on my pedal bike. Indeed, one of the things I'd like to do while still fit enough to do so is tick off each and all of the Eurovelo routes (https://en.eurovelo.com/) which would take a lot of time but would be great to do it with no time pressure while on annual leave or the like!

Appreciate that was a bit rambling but welcome any thoughts etc.

[Gerry557]

My first thoughts were just to talk about the EuroVelo

Mortgage rates are likely to be much higher so paying off or some sort of offsetting would help.

You don't seem to have any ISAs so I would consider utilising them a bit more.

Being an "evil landlord" Tax and CGT are going to be problems. I don't think there is much you can do about the CGT and it's being made worse. The tax on income might be less of a problem when you are not earning.

You could fill up the ISAs to change the holding mix from the high property holdings and this could provide an income that could pay the mortgage costs etc. There are limits on them and it's a use it or loose it. This will help with some flexibility as you can't just sell a bedroom.

You can't have enough bikes so you will probably need more money to spend.

[tacpot12]

I think you are pretty well set up to retire at 46.

You will have about £2k per month after tax just from your rental properties. Even if you don't put the rents up now, I expect the can be increased between now and when the mortgages are paid off. I wouldn't worry too much about the percentage of property you have in the UK market. You might consider that you are over exposed, but you have a enough properties to be reasonably confident on continuing to have £2k per month from them, and you have savings if you don't get that. I would only sell one or more properties when it suits you to do so.

You can take holidays in Europe for the next 10 years or so if you want use up the Euros.

When you leave your job you will lose any unvested shares, but so what. I would recommend selling the vested shares asap, and putting the money in to an Stocks and Shares ISA (you can also put £2,880 a year into a pension if this suits you to do so). Having the shares invested in just one company is too risky for my liking.

BTW I retired at 53 and have just one residental property that I let; I used to have two. I sold the other one because it was my old home and was along way away from where I live now, so visiting it to do maintenance and post-tenancy spruce-ups was getting to be a pain. I have £85k in Stocks and Shares ISA, £360k in a SIPP, and get about £1900 pcm after tax, so I don't think you will struggle.

[the0ni0nking]

I didn't explain this earlier but the Euro balance is effectively ring-fenced to facilitate a visa application in a European country when I come to retire.

While I could get the visa based on the passive income from property, my plan post retirement is to move to Spain on a non-lucrative visa (basically a retirement visa that doesn't allow work).

To do that, the current 37,500 Euros needs to become c60,000 Euros by the end of 2026.

Looking back at my records, the balance were as follows

Dec-20: 11,000 Euros
Dec-21: 22,000 Euros
Dec-22: 28,000 Euros
Oct-23: 37,500 Euros

The balance has grown from me undertaking transfers from UK income but also from the rental income received in Euros. The tax bill I have to pay on the rental income is all paid from a UK account so the only outgoings from the Euro account are the ongoing property running costs. Indeed, when I am there I spend purely on a UK credit card and have little need to withdraw cash. (I also have a Wise account which I could use if I wished)

So basically over the next 3 years that balance needs to grow by c7,000 Euros a year. Rental income in CY23 was just in excess of 8,000 Euros which was the highest amount since the pandemic but I think is reasonable and based on about 80 days of letting (so c100 Euros/night).

However, I've realised that all my share options will vest/are vested in Euros rather than GBP (They can be converted but that will come at a hefty bps fee (250bps) so I'm actually going to be Euro cash heavy compared to where the debt is (GBP mortgages).

This potentially also limits the point of an ISA in the UK for the short time I'm likely to have remaining in the UK as I understand it the tax sheltering benefit is not applicable in Spain where I would move (i.e. Spain don't treat the ISA as tax sheltered and income from it needs to be declared).

[TUK020]

Something worth exploring on CGT: Can you sell your main residence and move into one of your BTL properties?

ISAs: If you are planning to move to Spain, this is not worth trying to boost.

Other: If your long term plan is to move to Spain, how are you going to manage longer term £/Euro exchange rate risk?
Moving UK property income to international earning shares would help a lot

[Gilgongo]

It's always interesting reading what others have in mind for retirement income and activities. Each to his own, and of course you can't explain everything to everyone in a way they'll understand. But I would rather stick pins in my eyes than maintain rental properties in my retirement.

[DrFfybes]

It's always interesting reading what others have in mind for retirement income and activities. Each to his own, and of course you can't explain everything to everyone in a way they'll understand. But I would rather stick pins in my eyes than maintain rental properties in my retirement.

No no no, it's fine. It's really easy, just find a good agent, pick the right properties, and just sit back and let the money roll in.

At least that's what MrsF's sister said 7 years ago when I told her the same thing. I think she's tried to sell them twice now and had court judgements over unpaid ground rent (bill sent to the ptoperty and binned by the tenant), leaks, issues with neighbours, and fences, etc etc.

OTOH I did persuade her to invest in Trackers for a while, she sold one lot when they went up 10% and then panicked when the other dropped 5% (from the high, still up) and sold that as well, so I've long since given up.

[kempiejon]

It's always interesting reading what others have in mind for retirement income and activities. Each to his own, and of course you can't explain everything to everyone in a way they'll understand. But I would rather stick pins in my eyes than maintain rental properties in my retirement.

I have again given up full time work for a while and was talking with some friends the other weekend about what I could do now with my time, they suggested moving - it's been on the cards with SO - and getting a doer-upper. I was of the opinion that with my time, picking my retirement activities, I wouldn't want to be a 3rd rate decorator, builder, plumber etc, although I'm handy enough I don't take on home repairs for fun and I'd not want what effectively becomes a job to fill my time.

At least that's what MrsF's sister said 7 years ago when I told her the same thing. I think she's tried to sell them twice now and had court judgements over unpaid ground rent (bill sent to the ptoperty and binned by the tenant), leaks, issues with neighbours, and fences, etc etc.

Like Drffybes I have heard a few people suggest being a landlord is easy and without effort, I know a couple of landlords and they have to work at it and have bad experiences along with the piles of cash.

[bofh]

Cash £86k (c£30k of this is held in Euros and will remain there). UK balances earning just under 4.9%. Euro balances earning 0.

Are the euros trapped, or can you put them to work and earn some interest? With current rates, you're missing out on roughly 1K EUR interest this year with euro balances earning 0%. Or, perhaps a few grand by the time you retire...

[the0ni0nking]

Cash £86k (c£30k of this is held in Euros and will remain there). UK balances earning just under 4.9%. Euro balances earning 0.

Are the euros trapped, or can you put them to work and earn some interest? With current rates, you're missing out on roughly 1K EUR interest this year with euro balances earning 0%. Or, perhaps a few grand by the time you retire...

The Euros aren't trapped in as much as they're simply sat in an N26 account earning 0.0% interest. N26 do offer a savings account which would pay something like 2.2% IIRC but for them to be willing to open that for you, you need to make a declaration that you are a Spanish resident (so I'd need to tell a "white" lie).

You now need to do something similar if opening an N26 ES account now - but my account pre-dates this.

I have to do quarterly tax returns in Spain in respect of my rental income (and to think people moan about the UKs tax system - not only that, but there are no deductions on the gross rent for non-EU residents and the tax rate is higher at 24% rather than 19% for those in the EU).

IIRC the Modelo 210 (non-resident tax form) which I complete online allows you to declare interest so there's no reason I couldn't put the money on time deposit or similar until such time as needed - but I've not looked at that closely or the options available. I'd want instant access just incase an investment opportunity (business or property) arose. Maybe I'll see if I can do something with Revolut or similar as like you say I'm probably missing out on at least a few nice bottles of vino in interest.

[the0ni0nking]

It's always interesting reading what others have in mind for retirement income and activities. Each to his own, and of course you can't explain everything to everyone in a way they'll understand. But I would rather stick pins in my eyes than maintain rental properties in my retirement.

It's an interesting point - would it be less stressful and easier to tax plan with a bucket of shares/ITs etc rather than some bricks and mortar? Probably.

I don't find it particularly stressful in the 15 or so years I've been doing it. Would it be more hassle doing it from Spain in a few years time, yes - but not really; I have all the contacts I need to do the work on the property local to me so that not an issue. I've recently had a flat roof replacement sorted and resolved while I've been working in Spain.

And the one that is far away from me is managed by an agent and even after all the costs it offers a return of >5% on the originally invested capital. (Probably more like 3.XX% on current value).

[Gilgongo]

And the one that is far away from me is managed by an agent and even after all the costs it offers a return of >5% on the originally invested capital. (Probably more like 3.XX% on current value).

Yes, each to his own really as I say - and I don't wish to derail this into a discussion about property management. Good luck in your retirement!

[the0ni0nking]

Partly replying to myself but also open for other options people may either use or be aware of:

https://www.lloydsbank.com/internationa ... count.html

It appears I can open a Lloyds International Saver account based in the IoM in Euros which would facilitate me earning a small amount of interest on the Euro balances. I can take the amount up to 50k Euros which would mean an interest rate of 3.00%

As I'm not going to be touching the Euros for at least a couple of years and offering no risk to the initial capital it seems a sensible option.

[ignatius]

We bank with Starling and each have a euro slush fund. We use it for family holiday spending and personal expenses when in Europe for business.

0% interest, but an absolute breeze.

https://www.starlingbank.com/current-ac ... k-account/

[Hariseldon58]

On the property front we have an industrial building, purchased in 1991 for our own use, extended in 1999 and rented out in 2007 when I retired.

The present tenant has been in 10 years and is renewing for a further 10 years, tenant pays insurance and is responsible for all maintenance. Yield over the length of the tenancy is around 9%. Capital value has beaten inflation by around 2% pa, not unattractive.

Location is very important, this unit by the end of the next tenancy is going to be rather tired but I anticipate it will sell for a good sum to be refurbished as it is in a great location, surprisingly few freehold units are available in this area so demand is maintained.

[the0ni0nking]

Primarily for my own benefit, I decided here is as best place as anywhere to post a very slightly updated position (as I only originally posted in Oct-23) but primarily to identify the key targets for CY24.

Position as at 2nd January 2024 (when I do my updates on Excel they're always done on 1st working day of month after all mortgage and other DDs have gone out)

"Balance Sheet":

Property (at cost) £480k. I would estimate realisable value around £1050k-£1100k of which c£350k would be main residence.
Pensions (3 separate ones, all company , no SIPP) £283k
Cash £56k (c£43k of this is held in Euros and will remain there). UK balances earning just over 5.0%. Euro balances earning 3.0%. Both rates are quoted pre-tax)
Premium Bonds £50k (moved from cash as already above savings allowance so better return than just holding in taxable savings account - hopefully!)
Vested share options (in company I work for) c£15k
Unvested share options (next 2-3 years) c£15k
Other share investments (UK) c£25k
Mortgages (spread across 4 properties) £166k

Net balance sheet position - c£763k - using property at cost

"Annual P&L Key Figures": (Single, no dependents, age 43)

Salary £80k (was previously higher but lowered when I moved back to UK c3.5 years ago just before pandemic)
Rental Income (gross) c£28k
Mortgage Payments (including on main property) c£13k
Main Household bills c£7k (utilities, council tax, broadband etc)
Pension Contributions c£20k from me, c£9k from employer

Simply put - the only meaningful changes in the last couple of months of CY23, I cashed out some share options to take my Euro cash balance to 50k Euros and moved those across to a savings account in the IoM (through Lloyds) which are now earning 3.0% on the balance. Not great, but better than the 0.0% it had been earning. I also moved £50k of my cash savings across into Premium bonds as I'd exhausted my higher rate savings allowance - will need to see whether I have no luck or just below average luck!

The biggest issue this year is that £82k of mortgage debt comes off its fixed rate in Aug-24. Currently at 2.45%, the reversion rate is currently 8.24%. The next mortgage after that trips off its fixed rate in Jun-25. The balance on that mortgage is £30k currently at 1.84% with a reversion to 6.99%.
The last mortgage trips off its fixed rate in Dec-26. The balance on that mortgage is £53k currently at 2.69% with a reversion to 6.99%.
(Other properties don't have any O/S mortgage debt and I don't want to raise any more finance against them).

So, I think my primary objective should be to pay off as much as possible of the £82k at the point it reverts to 8.24% (and at that time penalties for overpayment cease). I suspect I could re-mortgage with a rate that likely starts with a low 4.X% - as I bank with HSBC I just simply checked their BTL rates and a 5 year fee free fix is 4.59% for a BTL remortgage from another lender. The £82k mortgage is the only one set to interest only (although I've made LSOPs on it). Other mortgages are on repayment terms.

With my existing GBP cash savings (exc Premium Bonds and Euro balances) together with earnings over the next 12 months I think I'd comfortably reduce it by 25k without even really trying - £13k current cash and the remaining £12k coming at £1k/month from earnt income exceeding costs. Together with repayments on my other mortgages that would put my year end 2024 position as (exc Premium Bonds/Euro cash) as:

Cash - c£3k (so c£10k down on year)
Mortgages - c£126k (so c£40k down on the year - with balances of £57k, £25k and £44k)
Net increase in assets - c£30k

I don't like that answer as despite the impact of snowballing etc, I don't think it gets me to my target of mortgage free by end 2026 especially when my mortgage rates will increase as each falls out of the fixed rate.

Looking back over the last 3 years, my mortgages have reduced by £37k, £32k and £29k respectively. so a reduction of £40k would be the largest I've managed but also in keeping with the steadily increasing figure.

I'm planning to spend c5months of this year outside of the UK which should help with my day to day expenses so taking all the above into account I'm going to officially target a reduction to my mortgages of £49k based on utilising £25k of cash savings over the year (of which currently I have c£10k in savings accounts earning between 4.84% and 7.00%) and then £2k/month repayment. That would mean my mortgages would sit at c£116k after the payments are taken in Jan-25. That would put me close to been on course to been mortgage free at end 2026/Jan-27.

I think that's stretching but achievable - will post another update in c12 months time to see what spanners were put in the works to prevent that.

NB - I don't intend to utilise my share options or premium bonds to help here (or if I did, I'd expect to overachieve the target by the amount they add - this is purely about throwing my salary and rental income earned to reduce balances and putting something down in public that I have to reflect on in 12 months time with excuses at the ready!)