Part 35

Hello and welcome back to Mortgage Advisor on F.I.R.E.  This week I will be talking a little about my mental health, and my frustration at the lack of progress towards FIRE.

Weekly Update

I’d love to sit here and write that I’ve had a good week but that would be a lie.  I’m stressed with my personal and professional life, and having to deal with disrespectful neighbours.  When you live in an apartment you expect that from time to time there will be noise.  Most people are fine when you point out that they’re being unreasonable, for example when blasting music out at midnight.  We have one neighbour who is far from reasonable.  For the last few weeks he has been making noise at all hours, either through music at unsocial hours or having a party with people on the balcony drinking, shouting and singing.  Yesterday, there were maybe eight young guys at that apartment and from roughly 2pm until midnight all you could hear was shouting, music and singing.  I was trying to study, but even over my headphones whilst listening to my notes, I could hear them.  From two rooms away, with internal doors closed, I could hear them.  I don’t mind noise now and then, but this is several times a week and the fact it stopped at midnight was unusual.  It would normally go on into the early hours.  

You’re probably asking why we didn’t just tell them to shut up.  Well, a few weeks ago I did.  It achieved nothing except a confrontation, and the behaviour hasn’t changed.  What am I going to do; knock on their door and then have a brawl?  What would that solve?  Yesterday, as the evening wore on, we stepped outside several times and tried to get their attention.  This is a balcony no more than five meters from ours.  Despite calling out, they looked up and ignored us.  They don’t care; they find it funny.  If the people causing the disturbance, find causing the disturbance amusing, how do you confront that behaviour?

The way I see it, the only way to deal with groups of drunk people is by getting angry.  You can’t reason with drunk people; especially drunk, young men.  These guys are in their early to mid-twenties.  I heard them talking about student life.  This isn’t a student apartment block; it’s a private residence.  I don’t want to get angry; I’m stressed enough as it is.  I used to like the area I lived in.  Now, I can’t stand it.  There are some good people living in the block, but the amount of idiots has increased in recent years.  I can’t wait to move.

I’ve got my first exam for my financial advisor qualification on Thursday.  I’m feeling cautiously optimistic.  I think there are some sections of the module that I know well, such as the regulation of mortgages and advice requirements.  Other sections relating to the general regulation of the financial industry are more complicated.  There are a number of sourcebooks, policies, laws and acts to be remembered, as well as a range of different UK, EU and global financial regulators that have different roles and responsibilities.  Remembering all of that is going to be almost impossible.  Fortunately, it’s a multiple choice exam so I can try and concentrate on the parts I know well and hope that my strengths in those sections bring me up to a passing mark overall.  

I can’t wait for this exam to be done, assuming I pass.  My mental health is worsening as a result of stress in my personal life, professional life and in relation to my physical condition (being overweight).  Assuming I do pass this exam, I’m going to give myself two months to prepare for the next exam.  I need a break somewhere in my life though.  When you are stressed in work, find no respite at home, are under pressure through studying and can’t exercise in the way you would want, it becomes difficult to see the light at the end of the tunnel.  

Health Update

Current Weight: 116kg (up 0.8kg from last update).

Current Body Fat: 38.8% (up 2.2% from last update).

BMI: 35 (up 0.2 from last update).

Weekly Goal: lose 0.75kg.

Ultimate Goal: 90kg.

Weekly Steps: 20,546.​

Financial Update

Premium Bonds: £17,250 (no change from last update).

Stocks and Shares ISA: £11,744.34 (down £264.92 from last update).

Fuck It Fund: £1,899.95 (up £45.01 from last update).

Property Value: £185,248 (no change from last update).

Total Assets: £216,142.29 (down £219.91 from last update).

Residential Mortgage: £143,886.47 (no change from last update). 

Total Debts: £143,886.47 (no change from last update).

Total Wealth Figure: £72,255.82 (down £219.91 from last update). 

Investment Income in 2020: £61.36 (up £4.92 from last update) (target £2,000).

This is the period of time between payday and my mortgage payment going out, and my regular investment into my ISA being taken.  As such, there’s not much to report.  I had some spare cash that I placed in my Fuck It Fund, which boosted the value slightly.  I didn’t pay attention to the balance until writing this blog, and I had the urge to add another 5p in there to satisfy the OCD part of my personality.  However, the monthly interest for that fund will be credited at the end of the month and take the balance above the £1,900 level.  

Interviews

I know last week I said I would have some interviews ready to be posted.  I’ve got the information ready, but with this exam coming up and everything else on my plate I’ve just not had the time or mental energy to deal with it.  Apologies if you were looking forward to reading them; I promise they will be posted in the next week or two.

How Long Until FIRE?

I’m becoming increasingly frustrated and impatient to achieve FIRE.  I desperately need a change, either in job or scenery; preferably both.  This lockdown is probably playing a big part in my low mood of late.  I can feel myself slipping once more into depression.  It’s like there are two versions of me; the version that is getting on with the tasks that need doing, and the other part of me that is demanding attention; The Black Dog (look it up).

So long as I keep busy, I’m managing to get through the minutes, hours and days.  I don’t want to have to go back on antidepressants again as they just make me mentally numb.  There was a line in the audiobook I’m listening to at the moment that struck a chord with me; it’s a character talking about their own depression:

“I once used drugs to fix it. Then I stopped. I stopped because I decided they were making me stupid, and I’d rather be miserable than stupid. I am what I am.”

Seveneves by Neal Stephenson

Drugs to treat depression work for some people.  I’ve tried a number of different types over the years when I’ve been depressed, and they’ve never really worked for me.  Exercise, a good diet and relaxation works for me.  I can’t get any of those things right now.

I’ve been spending a lot of time lately thinking about how long it will actually be until I can achieve FIRE.  It comes down to numbers and the power of compounded growth.  I also need the property market to stay stagnant for a time, before starting to increase so that I can more easily pull money out of each deal.  A quick reminder of the model I’m hoping to follow:

Step 1: Buy a property below market value.

This is best described with an example.  Let’s say I buy a property that would normally be worth £110,000 but for a variety of reasons I’m able to purchase it for £100,000.  I obtain an interest only mortgage for £75,000 and use a £25,000 deposit.  

Step 2: Increase the property value through home improvements or utilising growth in the property market.

When I took the mortgage out, the lender will have valued the property at £100,000.  Lenders will not generally value a property at more than what you are paying for it.  BTL mortgages are normally capped at a maximum LTV of 75%.  So, to release equity, I need to have a lower LTV.  I can either spend money on the property to improve it or wait for the market to grow.  Assuming that the property increases at 5% per year (figures can vary drastically), then after one year the property would be worth £105,000 with no improvements having been made.  However, assuming I had made a few simple improvements I could ask the lender to physically inspect the property rather than relying on their estimate.  I would be hoping that the increase in value was on top of the original, higher valuation when I bought the property.  So, at this point I would be hoping for a valuation of at least £115,000. 

Step 3: Release the equity

The valuation of the property came back at £115,000 and I have a mortgage of £75,000 which results in a LTV of 65.2%.  I could bring this back up to 75% by releasing equity in the property, amounting to an extra £11,250 which I then put towards my next BTL deposit.  

This is a very brief overview and in previous blog posts I break it down into much more detail.  

I’ve been thinking about the rent each property would achieve and how many properties I need to achieve my FIRE target.  I’ve assumed each property is bought for £100,000 and produces a gross rent of £550pcm.  Assuming this, five properties should produce a net income of at least £1,000pcm assuming I buy them in my sole name.  If I buy in joint names, the figure is halved but so is the amount I contribute to each deal.  Having ten properties in joint names is better than five in my sole name because the risks of problem tenants or damage to the properties is diluted across the portfolio.

With a clear idea of how many properties I need to achieve FIRE, my attention turns to how I will raise the deposit required as even the best models of Buy, Refurb, Refinance, Rent, do not predict you can pull out 100% of your cash on every deal.  I have a few ways to raise the cash.

  1. Regular savings: In a typical month I can save/invest £1,000.  If I do overtime, or get a bonus, the figure is higher.  As I receive investment income, the figure grows as well.  In just over two-years I can save a deposit for a property being purchased at £100,000 and the associated fees.
  1. Refinance the first BTL to release equity: This may help compliment the above option, but is unlikely to provide a full deposit (and fees) for another BTL.  If I have two BTLs at the same time, releasing equity from two may provide the funds to buy a third.
  1. Use the funds in my ISA: There is a stock in my ISA that I believe is going to steadily increase in value over the coming months and years.  I typically use a third, to a half, of my monthly investment into my ISA to purchase units of this stock.  Once I get to 25,000 units I will stop and switch back to investing in funds.  I believe this stock will increase in value to 100p per share in the next few years, and if I sell at that price, it will release enough funds for another BTL.
  1. Sell my residence:  I could release equity in my own residence, but I would be limited to 85% LTV (you can borrow more against your own home than a rental property).  However, if I sell the property I am, in effect, releasing all the equity.  My property is thought to be worth just over £185,000 right now.  Assuming a modest annual increase in value of 2.5%, the property will be worth over £200,000 in four-years.  At which point, my mortgage debt will be approximately £130,000.  That’s £70,000 of money released to put towards BTL properties.  

When I break the numbers down, I’m reassured.  I just need to get that first property bought and let.  

A few days ago I had a call with my investment partner and we hammered out some more precise criteria for our property searches.  We’ve had no success finding a property because everytime we enquire about one that has potential, it has already sold.  The market is insane right now, and I’m hearing the same thing from other property investors; the market is way, way too hot right now.

I’ve likened the property market to a plane climbing higher into the sky.  It’s getting higher and higher, and then the engines fail.  The plane does not immediately fall from the sky.  It might even continue to gain altitude for a while, but then it will level out, glide and fall.  Some people are predicting this fall will happen in Q4 of 2020, as the UK Government’s furlough scheme ends in October.  My prediction is people will live off short-term credit to get through Christmas and New Year, and then the shit will hit the fan.  Once Christmas is done, many employers will let staff go as they approach the new financial year.  Unemployment will soar and people will not be able to service their debts.  Properties will flood the market, and prices will drop.  I’m pretty much certain this is going to happen.  The only thing I’m not certain on, is whether this will be a long recession, or if we will see a quick bounce back.  

The government will have limited options to tackle this.  I thought initially that we would see tax hikes, but this would be political suicide for a government dealing with mass unemployment.  Taxation only works if there are people working who can pay tax.  The only way out I can see will be for the government to invest in infrastructure and manufacturing, to create jobs for people to move into.  

It’s going to be a difficult time ahead for many people.  Now is the best time to start looking at your finances and creating a budget, and if possible start building an emergency fund.  The worst thing that could happen is you don’t need to use it.

Final Notes

Thank you for reading this week, and I hope you have a great week ahead.  If you are following F.I.R.E. or would like to know more about it, please get in touch via Twitter (https://twitter.com/NowWeLive01) or leave a comment on this post.  ​

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