August 2015-2016 Update

It has been a year now since I last published my August 2015 update.  That was when I decided to move to a new city (in a new country) via a week long conference in Seattle and took stock of what I was up to from August 2014 to 2015.

One of my goals that last time I worked overseas was to save income and funnel into an investment portfolio.  A few years ago, I was pretty much all about Carpe Diem-ing to the max.  I travelled to 12-15 countries, lived in two expensive areas (Primrose Hill, St John’s Wood), went out a lot, private membership clubs at Searcys, etc. I was living under a rock in terms of further teaching myself about personal finance.  I did sign up to a CFA Level 1 course offered by London School of Business and Finance but didn’t pull through (I ended up sitting the exam after 6 months of study two years later but that is another story..).

Today I continue to live overseas in a new country as a temporary resident.  I still get the feeling of being more exposed to the elements. Being on your own forces you to be more independent and to be more prepared.  Do you know that according to CNBC, 66 million Americans do not have a safety net for unplanned events?  The thought of having a safety net has been drilled into me the first time I moved out of the country town that I lived in at age 18, the first time I moved out of the country at age 23 and once again here.

So now I am looking forward to continuing to grow this.  Having this also helps put my mind to ease.  One of the issues that have been languishing is creating the investment base including retirement. I also want it to be mobile.  I am still researching the mobility part. There are also the additional shortfalls that I am still researching – such as exposure to currency risks, whether or not it’s better to move to my home bank etc.

The next 12 months

Savings: In the next 12 months I aim to be bringing up the percentage to 50%.  Maybe that’s too much.  I’ll take it to 40% instead.  Either way, the % needs to improve.  My goal is to eventually make it to 75% but I would love to one day see 90% going back.

What I will improve in the next 12 months:

  • Cut down on disposable income spending that I have in the past 12 months.  I improved in 2014-2015 but 2016 went downhill. I recognized that the additional spending was primarily driven by boredom.  Also driven by the need to ‘go for a walk’  which ended up walking to the nearest mall since there are no walkable pathways here.
  • Maybe: Cut down on travel. Instead allocate vacation days into personal development days.  I am getting a bit worn out with the hassles involved with travelling (see post about being involuntarily denied boarding) and I really do not mind at all not doing this again for a while now.
  • Cut down on private transport (i.e. taxis) unless for personal safety reasons.
  • Maintain the current % that I have in rent and utilities.
  • Decrease the current % that I have required to live (i.e. food, clothing). The current % I have can be decreased if I can work on the first point.


Keeping in contact

I have been approaching at least a couple of my managers to be my reference for new opportunities and one came back with great news about their family.

I remember the first time overseas, a couple of my ex co-workers made this website called Mandi and Bambi and sent it to me on my first year away.  It came at a good time – when I was missing Brisbane.

After I moved from the UK, I didn’t really get to know nor kept in that much personal contact with my British colleagues as much. Except for one who ended up starting their own business (we Skyped a couple of times, had a catchup coffee) and one in Austria (while I was meeting another co-worker who moved from Australia to Austria).

Thinking back on the past 15 months in Canada, there has been a couple of people that I have been keeping in touch with.  They were really instrumental in helping me first get Canadian experience while I was scoping out opportunities from when I was in Australia.

Even acquaintances that I haven’t seen for four years can suddenly appear and our first impressions of each other still remain.

One of my concerns has been keeping in touch with colleagues, co-workers, friends, good friends, and so on. In some cases, the connection weakens when I move companies, industries, roles, countries, cities, social groups, even hobby groups.  In others, the connection begins again when one initiatives contact out of the blue.  However this is the case in life in general.  People come and go.


To Live Globally, Better Rent – A Comparison between Residential Real Estate and Investing

Completely ignore the humdrum buzz of articles about how millennial / Generation Y is priced out of the housing market and completely locked out of ever owning a home.

Why? Because many of these are under the assumption that you’ll be living in your own home country.

If you are reading this blog, I am going to be assuming that you already live or seeking to live overseas and that you may have also previously rented overseas in another country before.

Actually, you don’t have to fit the above profile.  There are others out there that can make do with just renting, like this entrepreneur.

People that live overseas – as digital nomads or expats or whatever – have unique considerations to be made.  One of the most obvious is that as a non-resident, you must provide a down-payment of at least 35% of non-gifted funds to the bank.  More on that later.

Before I start, here’s a few hypothetical rental situations

  1. You rent way above your budget, knowing that this is a temporary situation anyway, that you might not ever come back here after you move out of the country so you might as well go for gold.
  2. Completely cut the budget down on rental and any other associated living costs to possible breaking point but still somehow survive through it.  This is a temporary situation anyway and you will end up moving elsewhere that is much better.  In another country.
  3. Maintain your living arrangement in two places because you either want to keep the second place and/or you can’t be bothered to move (yet).

What do these situations have in common?  Flexibility.

Flexibility is one of the main reasons why I continue to rent and will continue to rent within the foreseeable future.

Ever since I moved out of home, my rent is distributed across three countries – from houses to basement flats, to townhouses to apartments.  Home owners may think to themselves – While this person is gallivanting around the world in her 20s, I am spending my 20s building up a rental portfolio and then I can use the disposable income as leverage! 

This is great – but so long as this all held in your own home country and that your future is in your own home country. A majority of homeowners have local properties in their portfolio as well.

Thus lie another difference. As a non-resident, I am required to provide a down-payment of 35% in cash and that’s the minimum requirement.  Also, if you are seeking mortgage financing from the bank, that down-payment cannot be gifted funds.

Here’s a breakdown of what that really means:

Cost down-payment
$150,000 $52,500
$200,000 $70,000
$250,000 $87,500
$300,000 $105,000
$350,000 $122,500
$400,000 $140,000
$450,000 $157,500
$500,000 $175,000
$550,000 $192,500
$600,000 $210,000
$650,000 $227,500
$700,000 $245,000
$750,000 $262,500
$800,000 $280,000

Here’s a breakdown of how many months it will take to meet that down-payment:

Downpayment 2k saved p/m 2.3k saved p/m 2.75k saved p/m 3.1k saved p/m 3.5k saved p/m 4k saved p/m 4.4k saved p/m
$52,500 26 23 21 17 15 13 12
$70,000 35 30 25 22 20 18 16
$87,500 44 38 31 28 25 22 20
$105,000 53 45 38 33 30 26 24
$122,500 61 53 44 39 35 30 28
$140,000 70 60 50 45 40 35 32
$157,500 79 68 57 50 45 39 36
$175,000 88 76 63 56 50 44 40
$192,500 96 83 70 62 55 48 44
$210,000 105 91 76 67 60 52 48
$227,500 114 98 82 73 65 57 52
$245,000 123 106 89 79 70 61 56
$262,500 131 114 95 84 75 66 60
$280,000 140 121 101 90 80 70 63

That’s merely the down payment itself.  I am not counting in any other associated costs.  For example, you will also require a tax accountant to look into bilateral tax treaties.  There are also other limitations and risks involved as a non-resident as well as other factors like the market conditions.  And why invest in foreign property, when you can invest in your own home country?

The other issue here is that I am transferring a highly liquid asset (ie cash on hand) into something that is not only difficult to liquidate but screams residential property is not an asset class.  Yes, your main residential property is not considered an asset class.  And, if it’s not an asset, it “is an inefficient market with low price transparency, illiquidity and high transaction costs.”  I see residential real estate as a depreciating, compostable good akin to having rare stamps or artwork.

And yet most people still retain an emotional connection to residential property to the point that becomes a central focal point in someone’s life choice.  Great if you know what you’ll be doing in the next 20, 30 years.

Funds versus Residential Real Estate

Let’s say I have a $70,000 down payment that I save up for over 35 months at $2k per month goes towards a hypothetical $200,000 studio.  To meet the rest of the payments I need to spend another 70 months (5.8 years) providing a contribution of $2000 per month or $24,000 per year.  I intend to sell the studio after fully paying for it.

Let’s say the studio condo appreciates at 5% per year so that when I am ready to sell after paying it off fully (in 6 years’ time) it sells at $260,000.

However after taking away fees and any other expenses mentioned previously, I end up profiting $0 from the transaction.  The reason why is that I took away taxes and other fees (i.e. condo upkeep fees, realtor fees) where I am spending $60,000 over the 5.8 years to cover these fees.  I am not even counting any other fees related to the financier.

In a parallel universe I instead start at $24,000 – remember that as a non-resident I need to save 35% for a down-payment so in the previous example above, I already spent 35 months getting to $70,000.  In this example, I am able to start my investment plan early with $24,000.

I use that to begin a Dow Jones Industrial Average Index fund with a return of 8.68%.  I hold the investment over 9 years.  I contribute $24,000 per year, the same amount that I would have ended up contributing for the studio.  My return after fees would be $119,158.  My final investment value would be $335,000 should I sell this fund including investment amount.  This scenario does not take into account any further management fees, any rebalancing and so on.

But what about rental costs?

Since I have been keeping a spreadsheet of my rental costs, I anticipate spending $80,000 overall covering rent over the 9 years.

Overall, I would have profited $39,158 after 9 years compared to the risk of not profiting after putting all my liquid assets (ie cash on hand) on the studio condominium.

The biggest killjoy for those gunning for real estate investing is largely due to the time sink in coming up with the required 35% down payment for non-residents.  In this case, if you are a non-resident intending to invest in real estate, you are better off seeking ways to leverage without relying on highly liquid assets to propel you forwards.

What to do if you have been involuntarily denied boarding

Airlines deliberately oversell flights in order to make the most revenue.  When I was travelling to a popular destination route on a weekend, I had my first experience of being involuntarily denied boarding along with several other passengers.

For similar cases, the best course of action would be to talk to the customer service desk for your airline.  They may give you an option to call customer service however the agents at the airport will be able to help you also.

While waiting, I decided to use the time to research my airline policies and what I am entitled to.  I was also researching online as to what flights are available.  I could only find flights leaving later and these involved an overnight stop.  I also looked into options were if I had to go to another airport that was located under an hour from the main city.  They had a service agents talking to individuals in line so I was mentioning these to them and also what my situation is.  I wanted to be prepared with what I want by the time I reach the desk.
By the time I reached the desk, they immediately got to work on rebooking me to another flight.  They were able to book and check me in on a flight that did not appear on my search result online so it looks like the online results were not definitive.  I did put forward that there are earlier flights which involved a local changeover but these were on Business Class.  I did not realize until later on but if the arrival time was earlier then I would have been able to ask to switch to the Business Class flight.  However since the later flight also arrived at the same time, it was not something that I can ask for.
They placed me on a direct flight, however they mentioned that I do not have a seat allocated to me on that flight and that there is still the chance that I am going to be denied boarding.  In which case I need to repeat the process again. They did try to book me to a morning flight as well, but I told that them in my situation I would have to request for a full refund since there would have been no point in flying if I can’t arrive that same evening.
I also initially thought that the reason why I was involuntarily bumped was because I went with a third-party ticket consolidator.  It turned out that this was a common airline practice to make the most of selling tickets to their flights in case of last-minute cancellations, no-shows and so on.

The good news was that I was provided with compensation (the amount depended on how long I was delayed – it ended up being $800), two meal vouchers and I ended up flying later that day.

If you were involuntarily bumped, here is what you should do:

  • Immediately look up what the policies and procedures are for involuntarily denied boarding.
  • Request for involuntarily denied boarding compensation.
  • Try to fly out on the next available flight that they can give you even if they mention that you don’t have a seat – if the worst happen and you cannot get on the flight you can repeat the process again of obtaining compensation.
  • Find out what other regulations are in your region.  For example, under EU rule 261/2004 you are often entitled to compensation.  Now you are not going to know the details by memory but it does help to know where to start once you get the bad news.