Episode 020 – Reaching FI in the US vs in Europe | The Mastermind Within
A very interesting episode brought to you today with Erik from the USA! We chat about the differences between reaching FI in the US versus in Europe, his house-hacking strategies and entrepreneurship on both sides of the ocean.
What we talk about:
- The FIRE movement in the US vs in Europe
- Entrepreneurship is easier in the US
- House hacking
- The pros and cons of reaching FI in Europe
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Why is the FI mindset different in the US?
Erik tells us FI is a way for Americans to escape their menial work, which can be a 40-60 hour work week for them (maybe not as much in Europe). They take debt early on, and they can easily feel trapped by banks with all these payments. FI is a way for Americans to gain back that freedom. He says that although health insurance and college is much more expensive, Americans do have more flexibility in creating wealth with their own businesses and investments.
I do ask him if he believes reaching FI is easier in the States rather than Europe, but Erik answers that really it comes down to making the right decisions and keeping to the simple daily disciplines. Although it’s also true that Americans do have access to bigger capital markets and it is easier to get loans from banks.
Entrepreneurship in the US vs Europe
Both Alvar and I feel there is not as great support for entrepreneurship in Europe than in the US, most likely because we are less focused on growth and volume. We argue that in Europe, many times governments make choices for people because they don’t want them making stupid mistakes. This is why we have higher taxes and more restrictions. Erik tells us this scares him 😛 (wealth tax is coming for you!)
Erik has a great house hacking story. At the age of 23 he was able to get a mortgage with a crazy 2.5% down payment. His mortgage was $1800 and his roommates were paying him $1650, so after equity and appreciation he was pretty much coming on top.
Could we do this in Europe? Maybe not at 23.
First of all he had a pretty great starting salary of $63,000, and his lack of credit history did not affect his ability to buy a house (nopety nope in Europe). He also bought the house at a time of lower interests and combined with a bit of luck, he managed to pull it off. Pretty crazy.
Erik admits the US is on the brink of a massive debt crash, since all this debt requires cheap energy which is slowly drying out. He also admits he could have been easily wiped out if his house had lost value – this is certainly what happens to many other Americans.
Europe is a little more careful when it comes to mortgages and buying houses. Plus on top of that we have a ton of taxes to take care of. Not so great for the FI community here – however it’s important to remember that this helps us and many others with free healthcare and education.
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- Erik’s podcast: The Simple Minded Millennial
- Erik’s blog: The Mastermind Within
- Book: The Slight Edge
4 thoughts on “Episode 020 – Reaching FI in the US vs in Europe | The Mastermind Within”
Very good points here from both sides. While house hacking is a very attractive option I honestly think that we have more barriers over here. Also as Europe is so diverse, at some places (like in my home country) even the math does not work. Thanks to the neutral real estate market, low salaries, low rent, and the overall lack of regulation and lack of renting culture puts house hacking not in the “mission impossible” category but into the “does it worth the hassle?”.
Just to mention some concrete numbers I have a friend who has a flat for rent. Its value is around €36k and he is able to collect €150 per month in rent. Subtract taxes, a little bit for vacancy and maintenance you end up with let’s say €100/month in net profits. Also, have to note that do not count on any appreciation here, I have only seen real estate value decreasing over time. So you end up with €1200 profits on a €36k property which leaves you with 3.3% ROI. This could be achieved more easily with some simple investments hassle free so as I see it does not really worth it.
Buying a property on credit is not so easy also. A 20% downpayment is a must and you also have earnings reqs (max monthly payment should not exceed 60% of your monthly salary, which is still a very dangerous rule if you ask me). Interest is a tricky thing too. Just checked and if you get your mortgage in local currency(RSD) your actual interest rate would be 10+%, but if you take it out based on € value (which is also a dangerous combination) you can get something like 3-4%.
I also have one question about your strategy, Erik. You bought a three bedroom house (a detached house I guess) on a mortgage. How long is the payback period? I assume it is longer than the time you plan living with roommates as you have plans on starting a family. What is your plan for that time? Renting out your room too, continue paying back the mortgage, and keep it as a purely rental property or selling the property, paying back the mortgage immediately and cashing out the gains so far?
Thanks for the good thought food to all of you 😉 Have a nice weekend.
Hey HCF, thanks for dropping by!
Yes, very true. Real estate in Europe many times is too much of a hassle. Thanks for putting in some numbers, would you mind telling us in which country you’re in?
Good question for Erik, I’ll let him know he can answer in the comments 🙂
Thanks for the comment.
It’s a single family house with 3 bedrooms. I live in the house (it’s not detached) and I’m still living there. I have 1 roommate currently.
Since work for me is about 1 mile away, I’m still comfortable with living there. It previously was a rental, and I could cash out a little bit of equity, but at the end of the day, I need somewhere to live and can afford the payments with 1 roommate.
So to answer your question more directly, I don’t know! 🙂
The location is great, and I’m comfortable with the payments for now. In 2-3 years, I’ll have to make decisions most likely, but for now, I’m loving it.
Sorry, just realized it is not there.
I am located in Serbia.
Looking forward to hearing his answers.