Monthly Portfolio update – August 2017

Monthly dividend and real estate update - august 2017

Looking back this past month, I was thinking what were the things that really stood out for us. Besides some steady dividend income, we’ve also paid down the deposit for our rental property and are finalizing some last steps on the total financing package, like getting our current home appraised. To add some fun to the mix, I got the opportunity to attend a blockchain masterclass, which was awesome. And I’ve booked a 5-day holiday to Lisbon, where I will go to with a friend in October. Let the money roll, right 😉 And not to forget, Divnomics had its first birthday last week!

It still amazes me sometimes how much we can do in only one month. And how often our plans keep changing while we figure out the best method to fully profit from our investments. Unfortunately, due to a very busy month related to work, investing and wedding plans, I wasn’t able to publish as much content as I wanted. The coming weeks will still be giving some turmoil, so I probably won’t be around as much online as I wish to be.

Real estate

Although we bought our first rental property a while ago already, the due date won’t be until the end of November. We used this time to analyze multiple methods on using leverage in order to find out what would work best for our particular situation. Because of a talk we had with our local real estate agent, we got the insight that our current home value was higher than we had anticipated. In order to lock up this capacity, which we will use in a HELOC to fund future rental properties, we asked for an official appraisal. Turns out, our home is worth 25% more than when we bought it 3 years ago.

A small part of this will already be used for our first deal. Of which I will share the details somewhere within this coming month.

Still talking about real estate, we have also found a potential tenant who is looking for a place to live in the area of our property and he likes to check out our property. We connected through a mutual friend, and he offered to help us fix it up a bit before moving in. We have yet to meet him, but this might be very interesting. If this plays out right, we won’t have to use the services of a property manager anymore.

Dividends & Portfolio

Dividends-august-2017

Steady as she goes. With €37.60 as ‘passive’ dividend income, you can tell it’s a slow month. But with a pretty decent growth rate of 44.3% going up from last year. Nothing to complain, right. Starbucks and MasterCard have been a new addition to the portfolio since last year and provided the most growth. As the EUR/USD price is getting higher, we notice a direct hit in our dividend income. Dividends received from US companies are lower than usual. For example, P&G had paid us €11.62 in May but has fallen to €10.94 this past month. It’s one of the downsides tracking our dividends after taxes. but it gives us great insight into how much we are actually receiving. Since dividends will be one of the income streams we hope to cover our expenses with one day, we favor of tracking the net income over the gross income.

Dividens-august-2017.png

Since we have not been adding new holdings to our portfolio, nothing much surprising happens anymore. It does take out the thrill a bit, and we’ve hoped to regain focus on dividend investing later this year. But with the recent developments within our real estate portfolio, we won’t focus on dividend investing for anytime soon. It will still be a big part of our portfolio, and when the time comes we will be adding fresh stocks like crazy.

Over the year, our portfolio performed kind of steady as well.

Portfolio-august-2017

I don’t see any big fluctuations in our performance. It might seem that Mr. Market doesn’t’ have any up- or downswings looking at this portfolio trend. It’s just a horizontal moving average holding the same line for over 6 months now. It’s a great tool that shows that a lot of the volatility is being flattened out over a longer period of time.

Our total portfolio currently stands at a value of €46490.54 and consists of 20 different companies. 

Upcoming

September will be an end-of-a-quarter month again. Which means more dividends! All that is coming in, will be directly transferred through to our real estate fund. Currently, we have a comfy cash position, even with our deposit being paid. It still is 2 months away until we fully own our rental property. Until then we hope to meet our (possible) future tenant, planting some seeds for future deals and from this month forward we are going to work together with a seasoned investor from our network in order to find a second RE deal. It’s going to be a busy month with also finalizing some wedding offers, attending a 3-day seminar on personal development, and the aftermath of the ‘busy’ season at work.

Steady and insightful are the best words to describe the past month. Certainly very pleased with how things are progressing. Hope you had a very steady month yourself as well!

31 thoughts on “Monthly Portfolio update – August 2017

  1. Very interesting to see what your plans are and what you achieved in just one month! You’re right: it’s easy to underestimate what you can do in for example a month. I’ve put some extra cash into my investments and and added some index funds to my portfolio. I also (finally..) created an automated payment into my investment account. I decided to put half of the amount I usually transfer to my buffer account in, since that buffer account is now on my target level and it doesn’t necessarily have to grow that fast now. If it is necessary, I can always give myself a raise 😉

    Good luck to you in September!

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    • You’re making some big steps as well! Once you’ve set your mind on something, it’s pretty easy to get there. But making the decisions is the hard part. Good luck with your investments. I will probably be reading about them very soon 😉

      And thanks!

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  2. Lovely update! So great to see European representation from personal finance blogs! Curious, do you mostly have EU stocks in your portfolio? In Canada, I have a bigger asset allocation in Canadian companies compared to elsewhere. Also love your picture- that looks like Bagan, Myanmar to me- have you been? I just went last year :). Congrats on wedding planning and upcoming trip to Portugal!

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    • Thanks! We do have some EU stocks in our portfolio, like Munich RE, Shell, and Unilever. Most are US based though, partially because the dividend pay outs are more common there.

      We haven’t been there, but I love to use pictures of places we once want to go to. Portugal will have to do for now 😉

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  3. Ok, this is getting a bit scary: we’re also going to Lisbon in October 🙂 The only difference is that we’ll be there for 4 days.

    Well done on the appraisal of your house! This has also helped us both when we decreased our mortgage interest rate, and now during the financing of the rental purchase.

    Best of luck during the next few months; sounds like you don’t bore either!

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    • It’s indeed getting a bit scary… is it possible to have that much in common? 😉

      Your blog post about it helped us a bit in asking for the appraisal! Was a good move you made there.

      You’re getting the keys pretty soon, right? Best of luck! Looking forward to reading about how things will go from here.

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  4. Love the update. Hopefully your gardening will help you find a nice tenant for your rental property so you can begin cash flowing right away. Cannot believe your property increased 25% in three years. That is amazing!

    Bert

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    • Thanks for the comment Bert! Amazing right, the housing market in the NL is really growing again the last few years.

      Our plan is to get cash flow as soon as possible so this would be a great way of getting there!

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  5. Hi there. Like your site. One question: at the beginning of your journey towards financial independence you – like many others – focused on dividend growth investing as your strategy to get closer to your FI goals. From what I understand now, you have shifted away from this strategy and put more focus on real estate. Could you elaborate a bit more on why you made this choice? Are the dividend returns not yielding what you initially hoped for or are they progressing too slowly? Or are you of the opinion that real estate investing provides better returns? Or are you simply more comfortable with “tangible” investments such as RE vs stocks? Just curious howyou have analysed both asset classes and ultimately chose for the real estate route.. Cheers, Jack

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    • Hi Jack, thanks for the comment and like the question!

      We were indeed really focused on dividend investing at the start, and I still believe it’s a great way to build passive income.

      We shifted our focus to Real Estate at the beginning of the year, for 3 reasons mainly.

      1. Diversification, we didn’t want all our money to be in the stock market.
      2. Leverage. The dividends are yielding like expected. So, no disappointment there. But with real estate, we can use leverage and therefore will have a higher return on investment.
      3. We like the type of investment, we basically enjoy doing this.

      The possibility to make use of leverage is the biggest reason for us to step into real estate. We aim to continue both types of investments were dividends are great at compounding income over the long term. And real estate will provide us more cash flow in the short term. Combined it will become a stronger strategy, in our personal view, to get to where we want.

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      • Thanks for the feedback.. It’s an interesting way to look at things.. Long term compounding vs short term cash flow.. One question though, is your mortgage amortising? If so, does your return on capital calculations consider the fact that your capital invested gradually increases as you pay back principle (funded by part of the received rent) on the mortgage? The stock vs real estate “trade-off” has been on my mind as well.. I definately see the advantage of leverage, but if one assumes the rental income not only needs to cover interest but also principal, the return on capital (ultimately) converges to return on asset (house) and then generally does not yield more than 3-4%.. Obviously if you are able to secure very high rental income, your cash flow may still be very rewarding..it also of course depends on how one defines return on capital.. In the example i use above, i implicitly assume that the gross rent received becomes part of your net worth and if you allocate part of this gross rent to pay back principal payments on the mortgage, it de facto adds to the capital invested.. Alternatively, if one only considers net rent (after interest and principal and other miscellaneous costs) the net yield on investment is usually not that high (at least on the basis of what i observe in terms of house prices and expected rents).. Any thoughts on this?

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  6. One additional point: you say you have a low loan-to-value resulting in excess value of your existing house vs the underlying mortgage.. At the same time you said you like real estate investing due to the leverage effect.. But have you considered using the available funding from the excess value from your existing house to finance dividend stocks or REITS for that matter? I understand that the leverage multiplier is most likley significanly higher if you buy a house (required equity 5% – 25%?), but you do assume considerable concentration risk (single exposure) and quite some liquidity risk (time to sell, potential to sell and transaction costs). But if you could secure fixed interrst mortgage financing for ~2-3% against the excess value of your home to buy a diversified dividend portfolio yielding 4-5% , you could still make a nice return with the benefit of potential capital gains which are easier to liquidate than capital gains underlying real estate..

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    • Some very good questions.

      When calculating returns we look at return on investment (ROI). Net Cashflows + the principal payments (funded by the rental income) divided by the investment/own money. To keep it simple we do not take capital appreciation (the icing) into account in the equation. But the ROI increases every year due to increasing principal pay down (because it’s an annuity mortgage) and a yearly increase of the rent. The estimation of the ROI on the property we just bought is between the 15%-20%.

      And we also use the cash on cash yield (Net cash flow divided by investment/own money) to calculate returns. This return basically says how much of your cash went in the property and how much you can put in your pocket at the end of every month. For the property we just bought, this return is higher than 10%. Not bad right? So you can still get a decent yield if you find the right property and with good financing conditions. Think dividend yields are around 3%-4% now (and that is before taxes and Valuta effects).

      Excellent point you made that due to principal pay down the Return on Equity converges into Return on Asset. This obviously decreases the yield on the property along the way. Our plan is, therefore, to use the equity in the property created by principal pay down plus capital appreciation to fund new properties. As you will notice buying properties below market helps a lot in this process. We basically pull out the equity by taking a second mortgage on the property. This process keeps our money (equity) working at a higher yield. In our view equity sitting in a property is basically a waste due to the opportunity value of cash.

      As for using our home equity to buy stocks/REITs:
      We’ll take a HELOC on the excess value of our own house. The interest rate is variable. So we don’t think it’s wise to use this to finance dividend stocks/REITs :). The plan is to use these funds as working capital (short term) to fund new properties. The HELOC structure gives us the possibility to make cash offers when an opportunity comes along.

      Agree with you about the liquidity risk involved with investing in RE. This has obviously an effect on the risk premium of the investment. We, therefore, take this liquidity risk into account when looking at our minimum level of return we want to have on a certain property. To mitigate this risk we also buy and hold for the long term, and of course with positive cash flows 🙂

      We aim to have a portfolio with more than a few properties in the coming years. If possible also across different cities.
      Additionally, we will keep a stock portfolio to lower the concentration risk.

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      • Thanks a lot for your comprehensive answer!

        So essentially the difference beween the ROI and cash-on-cash yield measures you apply is mainly driven by the principal repayment component that feeds into the ROI metric but not in the latter metric (hence the big difference between both measures 15-20% vs 10%)?

        A ROI of 15-20% btw sounds very nice! Just out of curiosity as I’m also from the Netherlands, in which city do you see this opportunities?

        From my preliminary research in the “Randstad” i see 2-3 room apartments (80-90M2) ranging between ~200k – 350k (depending on location of course). The corresponding rents would be in the range of 1,000-2,000. If we focus on the upperside of this spectrum (2k rent on 350k house) and we assume 50% of mortgage is subject to mandatory amortisation (30years) i come to the following ballpark figure (assuming 3% interest rate and 10% equity): interest payment of 3% x 315k =9,450 per annum / 788 per month and principal payment (linear assumption) of (315k x 50% / 30 year) = 5,250 p.a. or 438 p.m. This sums up to 1,225 p.m. (Principal + interest). Net rental income would then be 2,000 minus 1,225 = 775 p.m… not bad indeed as this would take a stock portfolio of 310k to produce a similar monthly cashflow assuming a dividend yield on cost of 3%. The example above simplifies things obviously, as maintenance costs, initial transaction costs and vacancy rates are not taken into account.. but then again, a dividend growth portfolio is also subject to various risks investors often do not fully take into account (FX risk when investing as an EU investor in USD exposure, dividend cuts)

        Hmmm i may have to reconsider this real estate proposition again.. it actually looks quite promising..

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      • You’re welcome 🙂

        And yes correct, principal payment is included in ROI, and not in the Cash-on-Cash (CoC) yield. The CoC yield takes only cash flows after financing into account.

        If you would have a property with no cash flows you basically could still have an ROI due to principal repayment, but your CoC yield would be zero. Because we only would buy a property with positive cash flows, the CoC yield is a good metric to compare investments.

        At the moment we look for properties in the Rotterdam area between euro 100k-125k. In this area we believe are still opportunities to find. If you find the right property with good financing condition good returns are possible in our view. We also work closely with other investors in our network to find good deals.

        To have a clear picture of the research you did on the apartment you would have to look at the cost to operate it (VVE, maintenance etc.).

        Best of luck going forward. We’re interested in how things will go from here for you. Keep us posted!

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  7. Nice to see you your rental stuff is almost figured out hopefully. That will help. The value alone increasing so much is an achievement. Nice increase of dividend as well. Looking forward to seeing what the quarter ending month brings!

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    • Pieces are really getting together. The increase of value is really something, and will help us with our next projects! And end of quarter months are always something to look forward to 😉

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