It's Friday, the day I normally post on my blog. But this year, I decided to be relaxed about it, if I miss a week now and then, what's the problem? It's my choice because it's not a job, I'm not trying to make money from it, I have no boss setting me targets or telling me what to do.
Between typing this, I'm alternating between WhatsApping with my daughter and gazing out of the window. Maybe I'll finish this post, maybe I won't. Having the freedom to choose is wonderful.
Because I do my blog for fun (with a slight hope that it's occasionally useful to someone), I can choose what I write about. If a post doesn't get read, it doesn't matter, other than perhaps a little to my vanity. If I choose, I can write a post aimed at just one person, and if that's how many people read it, than that's okay. I love that I have the freedom to make these choices.
So that's what I'm going to do. Today's post is for one person who asked me:
One of my goals is to buy a place in the French Alps, living in it around 6 months of the year and not renting it out when not using it. However I am really unsure as to what the running costs will be - could you let me have a feel for this?
Also I am slightly concerned about the yield on my "escape pot" - from what I can tell you invested heavily in the buy-to-let (BTL) market at the right time so would presume this covers your costs of living. Sadly I think I have missed the boat on BTL (as a new entrant to the market I am too worried that government policy will move to make BTLs uneconomical as investments - current tax changes are just the thin end of the wedge). Would really appreciate your views on how to maintain a decent yield if you had to move away from the BTL market (I currently max out ISAs, have ETF index trackers etc ).
So here goes, but first remember that I'm just a guy who somehow got to financial freedom and is trying to live an enjoyable, mostly good and conscientious early retired life. So far, that's working, but it doesn't make me an expert, so I need a disclaimer...don't take anything I say as gospel or any type of advice, it's just my version of how I'm finding things.
Now that's out of the way:
Running costs of our French Alps apartment
We have a relatively compact 61m² (650ft²) two bedroom apartment, so the costs may need to be scaled up or down for a different size place. Sally and I have different views on the size, I find the apartment plenty big enough for the two of us (the second bedroom and second bathroom only gets used when we have guests), but Sally would prefer a bit more space. Having an outside terrace makes a world of difference though.
So what are the running costs? For our two bedroom apartment, this is what we pay per year:
€1,085 Electric bill
€1,274 Hot water and heating¹
€257 House contents insurance
€873 Costs for common areas, snow clearing, building insurance, etc¹
€1,830 Taxe d'Habitation & Foncière - used for the provision of local services
¹These amounts are paid to the copropriété who provide these as shared services between the five apartments in our development.
Outside of this, we have costs for groceries, going out, hobbies, holidays, etc, but how much these will be depends on what we do.
Roughly, our investments are 60% in rental properties and 40% in low cost index funds, with the income from the rental properties pretty much covering our living costs.
The rental properties have served us well, but I think our portfolio is too biased towards them. I'd rather switch the percentages and have 60% (or more) in low cost index funds and 40% in rental property - Sally doesn't agree though.
My view is that rental property in the UK is becoming a less attractive investment because of ever increasing regulations which is costly to comply with and buy to let landlords being seen as easy targets for increased taxation.
So, if I was starting out now, what would I do? I probably wouldn't invest in rental property, or if I did, it would be a small part of my portfolio, say 10%, and I'd focus on lower cost housing that can generate better returns. For the rest, I don't know a sensible alternative to trusting that diversified low cost index funds will generate satisfactory returns over time. That said, I'd be nervous about putting a big lump sum into them at today's valuations, which is why I currently have a pile of cash ready to invest but can't bring myself to do it - time will tell whether this procrastination is a mistake, I don't have a good track record of getting these decisions right.
But without a functioning crystal ball, we don't know what the future will hold and so there is a possibility that investments don't return as much as we want or need, whether that be rental properties, index funds or something else. What to do about that? There's one more year syndrome which isn't always a bad idea - I inadvertently worked a few more years than I needed and it's given us a cushion that means we don't really need to worry. Other options are to cut costs, and I suspect I'd still have just as an enjoyable a life if I had to go that route. Or perhaps I'd work an occasional shift as a barista (my latte art would have to improve!), or even find a bit of accounting work for a day a week - not my preferred route, but it's an option in case of emergency. I guess my thought is that we can always think of reasons why we shouldn't do something, but most of the time it works out fine and, on the odd occasion when it doesn't, there are fixes that can be applied.
Returning to that disclaimer, I remember an old advert for Volkswagen about a man playing roulette who put everything on black, but it came up red. Too often that's been my story with investments, so I'm not one to be listened to on that topic. But on the plus side, I did once have a Volkswagen.
So, I did finish my post today, and maybe just one person will read it, and that's okay. I just hope it's a tiny help towards their French Alps dream.