Ladies and gentlemen, it’s time to put my money where my mouth (my fingers *?*) is!
I’ve spend the last couple of weeks, pondering how to reach my ultimate Total Balance goal of DKK 3.000.000 in 15 years (give or take). I believe I’ve now decided on a strategy for the next couple of years, and I would like to share my thoughts on this strategy, in hopes to get some feedback from you guys on the plan!
The avid reader (thanks, guys!) noticed in my first monthly update that I was planning to keep a lot of cash in my portfolio (this was short-term, remember?). The reason for that (as I revealed in my comments to some of your questions – again, thanks guys! Your questions and comments are much appreciated!), is because I’m planning to make a big investment in real estate soon.
I’ve been looking at smaller apartment buildings, with 4-6 rental apartments, which would require a down payment around DKK 1.000.000 (€133.000). Since I don’t have that (yet), and since this would also make me a landlord, I’ve decided to postpone that dream for a while. Maybe work on my landlording skills while I wait to accrue my first million DKK 😛
So anyway, I’ve decided to invest in a project with a real estate developer called imbro.dk. They make some really nice prospects, and their projects are focused on smaller apartment buildings in or around the so called “growth cities”. It’s cities that are projected to grow significantly over the coming years, and thus the real estate prices is expected to grow also. However, this investment is not a property speculation investment. The yield from the projects is (primarily) based on the revenue from the rental operation.
The typical project is projected to “run” for 5-10 years, before the planned exit-strategy will be executed. This means that my money will be tied down for up to 10 years…This is not ideal, if you want to benefit from the magic of compounding. – Enter, the dividend. Most of the projects that I’ve been eye-balling has a yearly (avg) yield between 12-14%, and some of them will payout a dividend from the 2nd year of running, of 4-6%. That’s pretty good, in my opinion. It’s important to note that in this kind of projects, you will not receive your yield until you exit the project (you sell it after 5-10 years, depending on the market etc.). So you have to trust that your money is safe in the project.
The way they structure the projects, is they bring in 10 investors who each pay an equal amount of money, for a 10% share in the project. The facilitator (in this case Imbro) takes care of the financing and the administration in the entire lifespan of the project. This whole hands-off approach is highly attractive to me. Even if the facilitator was to go bankrupt for some reason, I would still own 10% of a physical building(s). Each project is its own self-containing company, of which I own 10%. If one of the other 10 investors were to go bankrupt, it would not affect the project-company as a whole. In fact, you might even be able to get another 10% share at a bargain price 😉
So the major downside to this type of investment is that you put your money in, and don’t see the majority of it again, until after up to 10 years…
If you can live with that (I guess I can *?*) then I find this kind of investment very attractive.
Now, all I have to do is wait for the right project to appear…
In the meantime – my long-term plan is to continue to invest the dividends from all my investments, in crowd lending platforms, such as grupeer.com, bulkestate.com and envestio.com (I’m very impressed with envestio so far actually). I will go into more details about my crowd investments in my next monthly update.
In other news: Now that I’ve decided on a strategy (somewhat), I’ve also discussed the possibility of upping my savings rate significantly with TEoW.
Luck would have it (remember: luck favors the prepared mind) that our mortgage is up for re-financing in the spring of 2020 (yes, that’s in 1.5 years – which is still a while down the road) and we’ve decided to stop paying of the loan for a couple of years, in order to accrue enough savings to purchase ANOTHER development project building (similar to the Imbro one. Maybe it’ll be another Imbro project, it’ll depend on how well the first project does).
This is technically leveraging our equity, which was not in my original plans. However: No guts, no glory!
By not paying off our loan for a couple of years (we obviously still pay the interests – which is currently only 0.5%), we should be able to make the 2nd major real estate investment as early as 2021. That’s in 2 years (give or take)!
If those two projects can deliver an average yield of 14% (as projected) during the next 10-12 years, I should be able to pocket around DKK 1.500.000 (€200.000) after tax in the year 2032. If I continue saving on average DKK 5.000 (which is my current conservative goal) each month for the next 10-12 years, my Total Balance in 2032 will be more than DKK 2.100.000 (€280.000). This is if I don’t invest my savings continuously during those years, which I obviously plan to do. Remember, my retirement year is supposed to be the year 2033. So I will most likely need to re-evaluate my strategy in 5 years or so, because the key to reach my goal of early retirement will ultimately depend on my ability to continuously invest my dividends. Ideally, I would like to only invest my dividends in higher risk investment classes. My savings I will only use to invest in lower risk assets. – So It’s likely that I will put some of my savings into stock index funds, or something similar along the way.
So, what do you guys think? Mad, or brilliant? 😛 Or maybe somewhere in between? (That’s what I’m going for…)