How to achieve FIRE
You might already know from this recent post on my site I’m more curious about FIRE – which stands for Financial Independence Retire Early in the personal financial community.
Tamarindo Beach, Tamarindo, Costa Rica.
Over the years of running this blog I’ve been fortunate to meet and learn from a number of very bright and successful early retirees – to help tailor my own financial plan. You can read some of these retirement success stories here.
This month is no different. I’m happy to share a new early retirement story from a financial blogger ‘down under’. Martin at Get FIRE’d asap achieved financial independence recently at the age of 50. I reached out to Martin to learn about how he got there, what he learned during the process, how he’s going to sustain his wealth and what advice he has for other investors on their financial freedom quest.
Martin, welcome to the blog, thanks for the time.
Hi Mark and thank you for the opportunity to feature on your blog and share my humble story with your readers.
Martin, some background first. When and how did you get started in investing? What did you start investing in?
I’d consider myself a bit of a ‘late starter’ on the investing front although I did try my hand at share trading in my twenties, not very successfully, I might add. In fact, I don’t think that any of the companies I invested in back then still exist.
It wasn’t until I was about 36 that I had one of those unexpected 2 am epiphanies where you wake up with the ‘best idea ever’ and lay awake for the rest of the night working through the feasibility of it.
My ‘idea’ was that perhaps I could use the equity in my home to purchase an investment property. Yes, seriously, I thought that I had just discovered a new way to leverage my existing house to buy more property!
It wasn’t until I ran the idea past a friend in real estate, that I discovered that, yes, this is what you can do, and no, I didn’t just invent it. Darn!
So that’s what I did. I initially bought a 2-bedroom apartment with a small cash deposit and used the equity I already had to secure a loan.
Since then, I’ve bought and sold seven properties and still have two left. These have all been rented out while I’ve owned them.
When did you realize that investing, real estate or otherwise, could help you realize financial independence? Tell us about your journey…
I’ve always been interested in how money works, and the power of investing and compounding interest.
I also saw my parents working well into their 60’s because they didn’t have a sufficient financial buffer to allow them to retire any earlier.
I decided that I didn’t want to be in the same financial position as my parents and I wanted to be financially independent well before the official retirement age of 65.
This could be achieved either through saving money for most of my working life, or by leveraging the funds and the equity in the house that I had to accelerate the process.
Now, I do have a small caveat here for anyone who thinks that investing in real estate properties is a sure-fire way to getting rich. I consider myself to have been very lucky, and a good dose of luck doesn’t hurt, but I ended up with a number of properties in a market that has since gone ballistic with huge increases in property prices over the last 10 years. I’ve now sold several of them to reduce my mortgage (which at one time was on the wrong side of seven figures) and reinvested the money into a more diversified portfolio of mostly Exchange Traded Funds (ETFs).
What makes a great Exchange Traded Fund?
At this time, the ETF portfolio provides most of my income, topped up with a couple of side-hustles. In time, the other properties will be sold and I’ll go fully the ETF route so that I don’t have to deal with any of the ongoing requirements of being a landlord.
You’ve obviously done very well with real estate. Do you have an investing philosophy? If so, what is it? What were some of your keys to becoming financially independent?
Hmmmm, I have never really thought about whether I have an ‘investment philosophy’ per se. I have always taken a fairly pragmatic approach to investing and have never become emotionally tied to an investment, besides the early days when I may have become a little emotional as my shares went down the tubes. Who wouldn’t?
I decided, years ago, that I wanted a million dollars invested before I would retire. I’m still not sure how I got this number and back then, a mill would have been worth a lot more than today. However, that number stuck in my mind and now, it appears to be about right.
I believe a million dollars, invested well and working hard on your behalf, gives you a 4% safe withdrawal rate of around $40,000 (or so) per year which is more than enough to afford my relatively frugal lifestyle.
I can live a pretty good life on even less than that and not want for anything. And that’s where the cruncher is for many people. If your annual spending is well above that, then you can either work much longer, or reduce your frivolous and excessive spending to match your income, and retire much sooner.
That’s what I did and haven’t looked back.
It’s partly why I started writing Get FIRE’d asap. Because I wanted to share what I did to retire early with the rest of the world. It’s a shame most of them aren’t listening eh?
What have you learned about money? What did you learn about yourself during your journey?
Through much trial and error, I have learned that money is merely a tool to provide you with a lifestyle.
Obviously, not having any money won’t give you much of a lifestyle, but having far more than you need isn’t necessarily going to improve your levels of happiness either.
Studies have shown that in many cases, once a person earns an annual income of $75,000, their level of happiness and fulfillment doesn’t improve much further when earning in excess of that amount.
Sure, they can afford bigger and better toys, take fancier holidays, and live in bigger McMansions, but are they any happier? The research suggests not. The more you have, the more time you spend worrying about losing it or trying to keep up with the Joneses’.
One of the most important lessons I learned was knowing when ‘enough is enough’. Enough to say that I am now financially independent, enough to enjoy the rest of my life and never run out, and enough that I never have to work again if I don’t want to.
When you determine you have ‘enough’, as I did at age 50, it’s like a huge weight being lifted from your shoulders. The freedom from knowing your ‘enough’ number makes all of the hard work getting there rewarding.
Financial Freedom Target: Age 50
How are you going to sustain your wealth?
I now have around 40% of my capital invested in a variety of ETF funds, mostly with Vanguard Australia, because the returns are consistently positive, Vanguard’s low fees, and the fact that I can just let the funds do all the hard work for me.
The other 60% of my capital is still invested in real estate and that’s unlikely to change for 3-5 years. It’s a safe bet that over time the capital gains will easily out-pace inflation in the market where my property is located. Better than money in the bank I reckon.
Eventually, the properties will be sold to buy more ETFs due to the simplicity and security of these as long-term investments.
Around this time, the plan is to make a move to live in some as-yet-to-be-decided location in South East Asia. Thailand, Bali, and Malaysia are currently on the shortlist and the next few years there will be some extended stays in these locations (we’ve just returned from a month in Bali) to determine where we want to live.
Why you may ask? Because we love life in this part of the world, and in many locations, you can live very comfortably for half to a third of the average cost of living here in Australia. That should not only provide us with a great lifestyle, but doing so will ensure that the financial pool will never run dry.
What advice do you have for anyone seeking to achieve FIRE? What advice do you have for savers and investors in general?
My advice for a successful FIRE plan is start early. If you cotton on to the benefits of financial freedom at a young enough age and start planning your savings and investment goals from your first pay packet, you can honestly be financially independent in 15 years without making too many sacrifices.
If you’re planning to start this FIRE journey later in life, the best time to start is in fact, right now.
The best time to invest was yesterday
Start tracking your spending. Cut back the habitual and excessive purchases you make all the time, such as coffees and buying lunch every day. Set savings goals and aggressively work them. Push back from your spendy friends who knock you for being more careful with your money. (Remember, I’m retired and almost none of my friends can afford to be!). Start reading plenty of blogs like this one (and mine) that will share how others are achieving their FIRE plans. This can help you stay focused on your goals.
As for making smart investments, don’t be afraid to ask for advice from those who know what they’re talking about and have a track record to back it up. But make sure that you maintain full control of your investment portfolio. Maybe I’m being a little over-cautious but I wouldn’t turn over control of my hard earned cash to anyone who claims to know how best to invest it for me.
I could go on for hours, Mark, but I hope that helps motivate a reader or two to travel the journey to financial freedom and retire early like I have.
Thanks for this Martin.
I want to congratulate Martin on fulfilling his early retirement dreams and I look forward to staying in touch with him as he plans to move to Asia – sounds like an adventure!
Any questions for Martin? Have you considered striving for an early retirement? What does your financial future look like and how are you getting there?
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
Martin, great job on utilizing both real estate and investments to net a comfortable retirement. It’s not easy to do, and my guess is your hard work and dedication had more to do with you being “lucky”.
It wasn’t all smooth sailing or easy money. There have been plenty of trials along the way. I am fortunate to have a close friend in real estate who guided me along that path and kept an eye out for properties coming on the market that would make excellent investments, and he wasn’t wrong either.
The luck came with the explosive growth in the market my properties are located in, which was unexpected when I first started investing in real estate. I did consider investing in property where I’m currently living but the numbers just don’t add up here. There’s virtually no capital gains and rents are actually on the decrease.
So I decided not to do it. But who knows, the market could explode in the next few years, but I’m not counting on it for my retirement fund. Thanks for your comments.
Thanks for your comments!
Congratulations Martin for recognizing you wanted something different than your parents had and for taking action to get it. You’re also to be commended for being humble about your achievement, acknowledging your luck and recognizing what, how much you need to keep you happy.
Your method of getting there may not be for a lot of people but you’re making it work.
I would caution however that your returns may not be “consistently positive” with your ETFs, depending on how long a time frame you’re speaking of.
Good luck.
I agree that Martin’s approach was not what I would feel comfortable in but I respect Martin for having a plan, striving to achieve it and celebrating what he has accomplished. Certainly nothing wrong with goal setting and realizing your goals – whatever they may be.
Thanks for your comment RBull.
Thanks RBull. I have never professed to being some sort of expert on attaining financial independence but what I did worked for me and I guess, at the end of the day, that’s what it’s all about. I know that I would have done things differently had I had the foresight to start working towards FI at a younger age but I was not immune to the arrogance of youth.
I do take your point about ETFs being consistently positive but I feel I have set my safe withdrawal rate (around 3.5%) about right to weather market rises and falls and I also have my real estate investments and side-hustle incomes to help buffer that. It’s still early days so only time will tell whether I’ve got it right. Adjustments can be made as time provides a greater amount of data. Thanks for your comments.
I’m breaking my vow of weekend-only posting just to sweep out the last of my irks regarding FIRE.
The most telling part is this:
“In my working life, I’ve been a Telecom lineman, telephone technician, computer network installer, several sales jobs, worked in remote Australian camp sites, operated earthmoving machines, and done plenty of manual labour.”
Appears he never developed a person nor professional calling/purpose, thus never being fully engaged, or truly enjoying, a life of meaningful work. The decision to drop out of the perceived rat rat was already made for him. He also chased the money (“What I wanted to do was get one of those well-paying mine jobs…”), which, as he himself states, does not lead to happiness…just lots of years of confusion. If he wasn’t able to find satisfaction and fulfilment in the last 30 years of active pursuit, what makes him think he’ll find it in the next 30 years of leisure? If you aren’t doing what you want now, what makes you think you’ll do it when you retire (esp. to a foreign country)?
He is also a fanboy of MMM (“I discovered the blog of Mr Money Mustache and immediately became a follower of his philosophy…” who equates employment as prison.* Thus, never being on firm footing himself, he was easily swayed by that propaganda.
The PF crowd may applaud and admire FIRE as some kind of brass ring achievement, but it’s more often than not the outcome of a lazy and defeated mindset. There is a very narrow bandwidth at play, engrained in those who obsess over FIRE et al. Let’s take the guru who almost every PFer/FIRE bug worships — Warren Buffett (I could mention other ‘Top 10 Richest’ people, but dear Warren is almost the only investment-only person on the list; perhaps John Bogle). They all want his money and money skills…but that’s it. They don’t want to work as long as him, they don’t want to work as hard as him, etc. FIRE views life in a very constricted and scarcity-based manner, compared to those who have transcended beyond money and are now giving away at least half and in some cases ALL their wealth in order to try and make the world at large a better place (e.g. https://givingpledge.org/index.html). FIRE chasers try to align themselves to the bank accounts of the wealthy but rarely their value/belief systems.
I’d also love to hear the opinion/journey of FIRE from anyone other than a middle-aged white male…which seems to be the largest/loudest contingent of this movement (a very glaring insight) Any single parents out there? First-generation immigrants? First Nations FIRE bug? Women? Anyone? Hello?
*(MMM regards working for money as a ‘prison sentence’. I find this outlook to be revolting, as well as completely faulty. First off, if your job is a ‘prison sentence’, that means you are a convict, you’ve done something very wrong and are being punished. By viewing yourself in this way you i) give up autonomy/choice over your work life, and ii) see work as punishment. Not only that, but don’t forget that most convicts re-offend and end up back in prison. To deem freedom as imprisonment is vastly insulting to actual real-life prisoners who have zero freedom as well as the billions of people around the world whose daily work gives you the life you have. It’s always going to be you who creates your own prison.)
Time’s up. 🙂
Happy to see your comments and views…
I disagree about the generalizations of the FIRE crowd. Some that I’ve met are entrepreneurs – they have reached independence because of their hard work and creativity to build something not because ” of a lazy and defeated mindset.”
For what’s it worth, I don’t worship Buffett at all.
While I respect the angle of MMM regarding his own job as ‘prison sentence’ I don’t feel the same for mine. I simply want more autonomy over how I spend my time and I’m using investments for part of that purpose; for the foreseeable future I will always work and try to be a productive member of society.
Completely agree with you there Mark.
“…entrepreneurs – they have reached independence because of their hard work and creativity to build something…”
Exactly. FIRE was a *byproduct* of their life’s work, not the overarching goal or focused aim.
Martin utilized debt (against his house) to buy real estate, not because he loved dealing in real estate or being a landlord, but because he didn’t want to work for “The Man” any longer and the only solution he could think of was “more money”. Conversely, one of my last landlords got into the real estate game straight out of high school because he loved it; he’s made millions and is still doing it, 40+ years later, even though he achieved FIRE a very long time ago.
The accumulation of time well spent can lead you to happiness but the accumulation of money with no precise end won’t make you richer.
Until the weekend…
Where I personally struggle is I want to do both = be a builder and be FIRE at age 50. I have no problem if FIRE is a byproduct of any efforts I have…I’m certainly not sacrificing much to get there sooner otherwise I would have reached it a few years ago. (i.e., live in a smaller house, own one car, cut out travel, other; that list goes on!)
Wowzer someone forgot to take thier meds today?, FIRE seekers want freedom, money is simply an end to that, a few such as ERE’s Jacob got freedom by being ultra skinflints, not my idea but it works for him.
Wow. Don’t sit on the fence, tell us what you really feel!
Why does everybody’s 9-5 job need to be a vocation or a calling? Everyone doesn’t find the perfect job. From everything Martin says and looking at his website it appears he had used the tools available to him to create a very happy life for himself. I would wager that this happy life has ultimately improved the life of others Martin is in contact with, including me reading articles he writes or is involved in. Maybe i’ve misinterpreted the post but your irks appear to me quite mean.
I don’t think anything you are irked over is vastly insulting. Everyone’s different.
Yeah…let’s break all this down.
To achieve the coveted FIRE, this person:
1) Utilized debt to compensate for the loss of time and inadequate savings/investments;
2) Use debt to buy into one of the most over-priced/bubblicious asset markets on the planet (Aussie RE);
Dear reader, please don’t follow the same path.
(Unless you foresee yourself also becoming “very lucky”.)
Moving on….
“…the plan is to make a move to live in some as-yet-to-be-decided location in South East Asia…in many locations, you can live very comfortably for half to a third of the average cost of living here in Australia. That should not only provide us with a great lifestyle, but doing so will ensure that the financial pool will never run dry.”
Ah, yes. You forgot a major component of your FIRE plan — exporting inflation. Guess that’s been the Great Capitalist way of doing business for the last 30 years. When you finally do retire in one of those poor, still-developing countries, you might look around and, after seeing the indigenous population living on 1/3 of your 1/3, question how much is enough.
You might also want to question why, if you are considering retiring ex-pat, you haven’t bought RE in various “as-yet-to-be-decided location[s] in South East Asia”.
I could go on and on.
In the end, it’s yet one more PF blogger with conflicting ideas that even he doesn’t fully understand. Funny how people think just because they got the outcome they desired, that their method(s) must be valid.
@Chad — re: “To me, my opinion here, a well diversified portfolio isn’t just “stocks, bonds, mutual funds, ETF’s.” Those are all STOCK MARKET diversifications. Keeping the RE and expanding to bigger things like businesses and multifamily while keeping the ETFs seems like a more balanced portfolio.” — Yup. Actually, ‘yup’ to your entire comment. +1.
Thanks for your detailed comments SST. To your point, and to an earlier commenter on my site, I couldn’t go as leveraged as Martin was/did but it seems it worked out very well for him. I figure one house is enough for us and we don’t even own all of it yet!
I like the conversation here. But was confused by some of the comments from Martin. He said that
“I now have around 40% of my capital invested in a variety of ETF funds, mostly with Vanguard Australia, because the returns are consistently positive, Vanguard’s low fees, and the fact that I can just let the funds do all the hard work for me.”
And at the end of the conversation about what he had learned he stated
“As for making smart investments, don’t be afraid to ask for advice from those who know what they’re talking about and have a track record to back it up. But make sure that you maintain full control of your investment portfolio. Maybe I’m being a little over-cautious but I wouldn’t turn over control of my hard earned cash to anyone who claims to know how best to invest it for me.”
The very nature of the stock market is turning over any and all control of your investments to “someone who knows best” to do the hard work for you. This is very contradictory for someone who had reached the FIRE status. I’m concerned that Martin will not be ready when something systemic hits the market and then finds himself back in a J.O.B. kicking himself about putting everything into ETF’s. To me, my opinion here, a well diversified portfolio isn’t just “stocks, bonds, mutual funds, ETF’s.” Those are all STOCK MARKET diversifications. Keeping the RE and expanding to bigger things like businesses and multifamily while keeping the ETFs seems like a more balanced portfolio. Sure there will be more work involved than clicking a few buttons on your phone to make a trade. But that is where the control is and where you will make real long term wealth.
Thanks for the comments Chad. I’ll let Martin respond!
When it comes to us and FIRE, I’m not/we’re not aggressively working towards it but we are inching our way there I guess. I personally couldn’t be as leveraged as Martin is/was to achieve what he has…I dunno…that’s just not me. He seems to have done very well and good on him.
I do own RE but I own it via REITs. I also consider our principal residence an asset so I wouldn’t want too much RE vs. stocks vs. fixed income. For us it’s all about balance and to your diversification.
Believe me, I know about the inching towards the FIRE goal. With all the things going on in my/our lives now between jobs, kids and trying to keep everyone sane. Finances typically fall to the back seat.
My concern was more around Martin’s concept of wanting to be in charge, but then handing over the investment money to someone else to manage. These presents an incongruity. I also like to be in control. To that end I have moved and consolidated a number of my retirement accounts into an SDIRA and am looking to invest in businesses or real estate deals that “I” deem worthy. Not the director of a fund or REIT.
As for your comments about debt. I like debt. Good debt that is. I’ve done a number of private lending deals, purchased a number of rentals and other things and as I was learning more about all of this, I was using better and better structured debt to make these deals go. Leverage is what makes a person wealthy. Having the leverage of OPM to help you get into deals that you otherwise wouldn’t be able to access is huge for your net growth down the line. We have mortgages on all of our rentals and would only consider paying them down in a structured, intelligent way to improve our ability to gain more leverage. IE through HELOC’s to have access to our equity for the right deal.
I do focus on my personal finances every week though to ensure that we keep moving in the right direction. Even if it is only a tiny step. But that tiny step is still more than most will ever take so I’m “well on my way.”
Gotcha Chad…
As for the debt, I think debt to buy an appreciating asset is a good thing. Leverage can absolutely make someone wealthy. Leverage can also make many people poor. If you have a “structured, intelligent way” to leverage yourself and could get out of your deals if you really needed to then that’s a good thing.
Tiny steps lead to huge steps. Kudos to you to keep tabs on your finances every week.
Hi Chad, and thanks for your comments. Perhaps I should have been a bit more specific when I said I wouldn’t hand over control of my cash for someone to invest for me. I was specifically referring to fund managers who tend to charge large fees and not actually achieve higher gains than investing in ETFs, which are in effect, managed funds anyway aren’t they, but without the big fees. However, I am invested in 6 different and well diversified funds including REITs and I keep a eye on them as well so I’m not leaving them purely to chance. I also have a couple of side-hustles including an online business and I do some freelance writing. These are more to stop boredom from setting in but also give me some additional income, besides the investments, that I don’t necessarily ‘need’ but it doesn’t do any harm to keep the money pool topped up while I’m still able. I have also done some labour hire work for a few days here and there which generates additional income so plenty of fingers in various pies. Whether that makes me fully retired or not, I don’t know but at the end of the day, I suit myself how I spend my days and that’s close enough for me. I hope that makes it a little clearer.
Martin, I guess what my concern for you would be, what happens when another more dramatic stock market crash happens and money evaporates overnight? Having so much money in the stock market, well diversified or not, it is still in a single major asset allocation. Do you hedge in some other way or have other assets? You mentioned having rentals but more that you would eventually get rid of them to buy more ETFs. I live in the SF Bay area, where housing prices are crazy too and have talked to people about different ideas for rentals in this market. But we know that having any kind of rental is better than none and have invested out of state in more stable markets with lower purchase prices. I’m also learning more about investing in businesses and have done some private lending. I guess what I’m saying is that I’m weary of your FIRE solution since it is so dependent on the stock market, even if you are “watching it closely.” What kinds of metrics tracking are you doing in your personal finances, the day to day stuff? There is a lot that can be done to leverage your time holding money that doesn’t have anything to do with investing.
Hi again Chad, the “sell the rentals” is not set in stone but one of the issues I do have is that they are located in New Zealand and I am living in Australia. That means that I have to pay a property manager and every time some maintenance is required, I have to pay a contractor to do it which is expensive. These are the things I use to do when I lived there. I may consider buying rental property again wherever I end up but again, if I wish to move on again in the future, I have the same issue. My plan is to experience living in a few different places and experience so much more of them than you can do on holidays. That’s one of the reasons why I will consider selling them, but a final decision will require more analysis. I do take your point that being too highly leveraged in one or two markets is risky which is why I am diversifying somewhat. At the end of the day, there will always be risk in what you choose to put your money in. Thanks again for your comments.
To answer that question, first off ETFs are a large basket of stocks so unlike individual stocks, say Nortel, the price may decline, a lot, but it won’t get delisted. Second the real risk in a crash, isn’t the crash perse but the panic that accompanies said crash when people sell at the worst possible time. A correction is an opportunity to buy on the cheap. For the retiree it may mean Withdrawaling from a bond fund rather than stock fund. For dividend investors like my self the price is meaningless, I still get my quarterly cheque regardless of the stock price.
@Martin get FIRED, how has your experience as a landlod been. My SIL wanted to invest in more rental properties but my brother said no, way too much effort and one bad tenant can ruin you. I own two rental units in Frankfurt Germany and the experience has been nothing but positive
“Second the real risk in a crash, isn’t the crash per se but the panic that accompanies said crash when people sell at the worst possible time. A correction is an opportunity to buy on the cheap.”
This is why I always try and keep a bit of cash onhand – when markets do slide or correct, time to back up the truck!
Hi Rob, I do think that some people go into property investment rentals without having done their homework. I don’t quite understand how one tenant could ruin you but having the wrong tenant could make your landlord experience seem like a nightmare.
I’ve had around 25 tenants come and go and only 2 proved to be less than desirable. One was doing a little prostitution and drug dealing from my place to supplement the benefit she was on. When I rented to her she was full-time working. And the other seemed to think that paying the rent on time was optional. I evicted both and took both to court for costs which have since been paid. Other than that, smooth sailing and I would say that most have been a delight. My current tenants were already living in the properties when I bought them.
I think that it’s important to vet your applicants carefully and if something doesn’t seem right, don’t let to them. Do your background checks and set the ground rules early with them. I also get to know the neighbours enough to give them my contact details and say that if something isn’t right, to call me, anonymously of course.
Then do regular inspections and make sure that the rent goes in every time on time. I’ve had tenants who, for whatever reason, haven’t been able to pay on time but if they let me know and catch up immediately, then fine. If not, it’s eviction time.
Remember, it’s a business not a charity and although you should always want to treat tenants with respect (they are your clients), you should ensure that you are protecting your investment at the end of the day.
I would say that being an distant owner and paying a property manager does take a big chunk out of your profit. So I would recommend that you buy near where you live so you can self-manage and do small repairs yourself.
I’m pleased to hear that your experience has been positive and maybe you could share some of your knowledge with your SIL so that they may reconsider becoming landlords.
As noted I live in Germany and as long as you understand that you are investing for income not capital gains it is one of the best places to invest in, mostly due to the fact the law greatly favours the landlord. Culturally tenants tend to paint and renovate at their own expense, this includes supplying a kitchen. It’s not uncommon for people to take them when they move. Also you can demand a deposit up to 3 months, and till last year tenants also paid the real estate agent fee, 2 months rent plus VAT. So even before you move you’re out 5 months rent. Then depending on the property you might have to paint, buy new flooring and get a kitchen and appliances! Of course the flip side is people simply don’t move, not unusual for people to live in the same place for 40 years. Also with the rent, tenants are also responsible for paying property taxes and the bulk of the community fees. As 95% of Germans live in apartments and Germans are used to using real estate agents to find a place being a long distance landlord is not an issue.
German landlords tend not to raise rent, or raise it very slowly. That has started to change and now major cities have started implementing a rent brake. Before a landlord could raise the rent 20% to the local average, which, as mentioned, didn’t mean much as rents rose very slowly. Now you’re limited to 10% but it can’t exceed the local average. We’ve owned our places for 5 years and have raised the rent twice, this last time 10%. Generally I also raise it the rent every 2 years. With Brexit and a booming economy I foresee rents rising 3-5% a year going forward. When we bought I had to search high and low to find a place that was yielding anything close to 5%.
From a tax point of view their are several advantages, the biggest being one being research trips can be tax deductible. Last year I wrote off a trip to Spain and to Berlin. My taxes are still being processed so I don’t know if they will accept it or not.
Also you’re allowed to deprecate the building which works out for our places to be a 1000€ a year deduction against the rental income. After 10 years there is no capital cost recapture or capital gains tax. But as mentioned till recently prices were mostly flat so it didn’t matter.
One thing I didn’t realise when I bought the properties was how it would benefit us in retirement. Capital gains, dividends and interest are taxed as a flat 25% where as once I’m retired our rental income should be taxed at around 10%.
Oh and like anywhere professional tenants can ruin anyone’s experience, evictions can take months or even years, thankfully that is rare.