Savings Rate (SR), it's probably one, if not the, most important concept you must understand when you try to reach Financial Independence and Retire Early. It's also the perfect place to start if you are wondering how to get into FIRE. Let us see what this "fire ratio" actually is.
Post Series: Road to home ownership
- 1.Starting my journey towards my own home
- 2.Should I buy or rent my first home?
- 3.Hotel room investments aren’t all-inclusive
- 4.Apartment here, apartment there
- 5.The big move and moving around
- 6.My mortgage: an interesting experience
- 7.Apartment progress: 5%
- 8.How one tax deduction reduced my apartment cost by 17K
- 9.Coronavirus impact on my new apartment
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Something interesting happened about a week ago. As you might have read –on my twitter feed or on the blog– I signed the deed of the mortgage and apartment. As a result I’m official the owner the apartment and the land the building is build on; Partially when it comes to the land. What I hadn’t mentioned was that I got a 16,575 EUR tax deduction!
OK, so it’s not like I earned almost 17,000 EUR or something (which would be sweet!). While drawing up the deed, the notary noticed that I paid too much which I now used to buy the recent dip. Wait, paid too much? Yep.
Laws and regulations
The government has strictly regulations when it comes to new constructions like mine. There is one specific law I want to talk about and that applies to my apartment. The law of 9 July 1971 regulating the construction and sale of housing, aka The law Breyne (after the guy that designed it). It offers comprehensive protection to everyone who:
- has a home built
- buys a house to build
- buys a home under construction
The Breyne law protects the future owner against the insolvency of the company. It guarantees an owner complete and correct information, without an unlawful clause in the contract.
Thanks to this law, I know when I have to pay for what. My next payments are the following:
Even with all of this clearly laid out, screw-ups still happened and I paid too much upfront; a payment that was clearly stipulated in the contract.
Show me the money
One of the first things that I had to pay was a 5% of the apartment cost as a down payment. This 5% is on the value of the apartment not on the total costs. I.e., 332500 x 5% = 16,625 EUR that I had to pay 7 days after the sales agreement, which I did.
The next payment had to be fulfilled before the signing of the deed. The price of the land, the notary & architect costs, and the registration costs, as per the sales agreement, were due. The total for all of these costs was 142,544.87 EUR. This was a big chunk of everything I had to pay and this amount was wrong due to what is called abattement.
One of the benefits of buying your first and only house in Brussels is that you receive a tax deduction on the registration costs: the so-called Abattement [NL]. There are certain restrictions linked to this tax deduction, of course:
- Property is located in the Brussels-Capital Region
- Buyer is a natural person
- Purchase concerns an “entity wholly owned”
- Purchase must relate to property wholly or partially intended as a home
- At the time of the sales agreement, the buyer may not be in possession of another property that is wholly or partially intended as a home
- There is one exception to this condition: the abatement “by means of a refund”. If the buyer at the time of the conclusion of the purchase agreement has another building in full ownership that is wholly or partially intended as a dwelling, but resells it within 2 years after the date of registration of the deed of acquisition of the 2nd dwelling, the abattement may request through reimbursement
- The buyer undertakes to establish his principal residence in the property for which he received the appraisal within 2 years after the date of registration of the authentic deed on which the proportional rights were levied. In the case of the purchase of a house or apartment under construction or according to plan, this period is extended to 3 years
- The buyer must keep his principal residence in the purchased good for an uninterrupted period of 5 years from the date of establishment of the principal residence.
- Amount for which registration fees are paid may not exceed 500,000 EUR
Since I checked all the boxes, I didn’t have to pay this registration costs, but I did. It’s this amount that I got back. On a side note, I also got back the extra 2,455.13 EUR I transferred too much. The math goes as followed:
- Land = (133,000 EUR)
- Provisional costs:
- on purchase = (21.069.40 EUR)
- For credit = (3,203.73 EUR)
- On mandate = (868.24 EUR)
- Costs deed = (1,028.50 EUR)
- TOTAL COST= (142.544,87 EUR)
- Deposit = +16,625 EUR + 145,000
- TOTAL DEPOSIT = 161,625.00 EUR
- TOTAL = 2,455.13
But these land costs also includes the registration costs, which I didn’t have to pay. Using the calculator of Brussels the amount I paid too much was 16,625.00 EUR. Of course, not having to pay any taxes is ridiculous so there is a 50 EUR “fee” leaving me with 16,575.00 EUR.
This tax deduction + the excess paid meant a refund of 2,455.13 + 16,575.00 = 19,030.13 EUR.
Shut up and take my money!
Receiving all of this “extra” money right as the market was tumbling down was nothing but perfect timing. I’ll be honest though. I don’t plan on using all of it right away. The reason is two-fold.
One is that this bear market is probably just the beginning and it’s best to do some DCA (Dollar Cost Averaging).
The second reason is that I want to hold on to it to see if I want to reduce my mortgage loan. By keeping this money on the side I can reduce my loan by about 10K.
For now I put 7,500 EUR into my Lynx trading account, increasing my total invested amount to 32,500 EUR. Now I just wait for the end of the month to see how things evolve. While I do not refute that this is in essence market timing, as I can use it to reduce my mortgage I’d rather wait a bit.
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