Knowing how much you are worth is not enough.
Yep. You may know your net worth to the last penny but if you don’t understand how your wealth is structured you are not likely to get ahead in this game of wealth.
This sounds very abstract so let me give you an example.
I seldom discuss out net worth here despite calls from readers to share. I get the interest: after all, we have set our-selves the goal to have £2.5 ($4) million or equivalent (the equivalence means to have generated passive income of £10,000 per month) by October 2018.
We are more or less on track if John’s theory of the accelerated returns is to be believed. He reckons that building the initial capital takes a long time but then accumulation speeds up – he’s calculated the whole thing but I’m not going to bother you with that.
Here is the thing, though.
In June 2013, I published a post in which I argues that John and I share the ‘British decease’ and our net worth is structured in a rather wasteful way.
We observed that:
- Observation 1: About half of our net wealth was in non-income generating property (houses, apartments and land) and possessions.
- Observation 2: Another 45% of our wealth was in our pension funds.
- Observation 3: We had very few investments (apart from our pension funds).
- Observation 4: We had low level of liquidity.
While we have made some investments and our level of liquidity has increased the majority of our wealth is still in property and pensions.
Over the last couple of years, I’ve put considerable effort into changing the property situation. To achieve that I:
- Sold the apartment in Bulgaria we inherited from my parents.
- Rented out our apartment in Sofia.
- Started accepting the occasional paying guest in our house.
This coming Thursday, my sister and I are off to Bulgaria to sell the land – we’ll never work it and the rent for using it is more bother than it’s worth.
So you see, we’ve been getting on. It’s enough to say that in five years we’ve managed to flip our finances and from £100,000 worth of consumer debt, to over £100,000 in new investments. About £60,000 of this is entirely liquid and ready for investment opportunities.
About a month ago the situation changed back. Our tenant in Sofia had to move to another part of town and decided to get another place.
Now, this raises interesting possibilities and I need your opinion on this one.
The way I see it, there are four options:
#1. Keep the apartment in Sofia for our use. At the surface this sounds tempting: having a base in a capital city, being able to visit with friends and to pop into the mountains or to the beach is quality. On the negative: this will cost approximately £1,800 annually in bills and taxes; I’ll feel obliged to go there and obligation doesn’t come naturally to me; and we no longer have close family in Bulgaria to visit.
#2. Keep the apartment and rent it out. This option is attractive because the apartment will be bringing regular, monthly income rather than costing me. There are risk involved though: letting random people in your apartment means that you should forgo expectations of order, cleanliness and maintenance (well, these may happen or not). Also, the rent will be very modest (less than £200 per month).
#3. Sell the apartment. This is an option that I’m considering very seriously. I don’t have emotional attachment to property (on the other hand, John does). Three thing are stopping me: a) property prices are recovering but not recovered (we could probably get £60,000 for it conservatively which is still three times more than we paid for it); b) we’ll have to keep the money in Bulgaria (the Bulgarian lev is tied to the Euro and at the moment…well, it’s better to wait); and c) this will mean that I have absolutely no links to the country of my birth.
#4. Sell the apartment and buy a house near a skiing resort (but not in one). This is also attractive. We can buy a house near a premier skiing resort – with a large plot of land – for much less than what we get for the apartment. A place where we could spend the summer months (and have someone to grow vegetables for us when we are not there).
Now, we’ve got to the crunch: for the life of me, I can’t decide what to do with this apartment. Each of these options could be an opportunity to re-structure our net wealth or a very foolish mistake indeed.
At the same time, general awareness will determine what I look for and check while in Sofia.
Need your help, guys.
Which of the four options would you choose if you were me?