It was pretty unexpected but I sold an investment recently, and with another one coming to term, the insurance money from the investment gone wrong, and some decent online income, I now have quite a bit of cash and don’t know what to do. It is a $200,000 question… No, I am not going to blow it all on booze and parties. Here are a few options I have lined up.
Pay off my UK mortgage
That would leave me 100% debt free, but at 2.29%, it is not very tempting. The property is cash flow positive and apart from the peace of mind, I can’t really find a good reason to go down this road.
Buy a new rental in the UK
I love the little college town where I invested on that other rental. I believe prices are quite high, but I managed to get a decent yield thanks to the student population maintaining a high demand on rentals. I rent with all bills included, room per room, to three different people, and have only had a week vacancy in four year in one of the rooms. Buying in the same town would limit traveling if I ever need to go there, I know how to get there, am familiar with airport shuttles, already have a lawyer, know the local plumbers, where to find tenants, etc. Familiar feels good sometimes. I saw a 3 bed flat for $225,000 and could borrow the missing $25,000 from the bank of mum or take a consumer loan instead of a mortgage if needed. With a 90% deposit I think the bank would lend me as a buy-to-let mortgage but the rate may be similar to my mum’s 4%, with fees and so on, I plan on paying the loan back in a year or two with the rents, so taking up a mortgage would not be worth it, unless the bank is ready to lend me 50% or more. That is unlikely considering I don’t have a stable employment record. That property could be rented for $2,000, a 10.6% gross yield before taxes and maintenance. It looks in average shape but students are not very picky so a fresh coat of paint and maybe a bathroom remodel should be enough to put it on the market. At $2,000, I would still be renting by the room, in not as good a neighborhood as my other property. That could mean potential bad tenants, and being an ocean away to manage it is complicated if something happens. One advantage of UK property is the legal costs are very low and the process is easy compared to the next option.
Buy a new rental in Paris
Ahhhhhh Paris. My hometown, the most beautiful city in the world. At least in my eyes. $200K would buy me… 250sqft at most. I could turn the place into a bijou apartment, and rent it to tourists via Airbnb for $100 a night or more, but would need a system in place to give them the keys, change the sheets and clean up the place. My profit could be $75 a night if a neighbor is willing to do that (likely). Once the ball gets rolling, a 50% occupancy rate is reasonable, at $1,125 net per month. Short term tenancies also allow me to use the place when I am around. Isn’t it fancy to have a Parisian pied-à-terre? Renting it long term exposes me to more problems. I could get $1,000 per month, so less than the UK property, and evicting a bad tenant is hell. My last tenant died and it took 18 months to evict his widow legally.
Buy a “viager” in Paris
I believe the closest approximation of those would be a reverse mortgage. Old people, who haven’t saved for retirement or have no heirs, choose to get a windfall today, and a rent for life until they die. Once they pass, you get full ownership of the place. Pretty morbid, you are expecting the person to die soon enough to make it a worthwhile investment. It would allow me to put less money down and get a bigger place without needing a mortgage. For example instead of 250sqft, I can get 600 sqft for $130,000 upfront and $1,500 per month until a 88 year old lady dies. If she dies in 4 years, I would have double the space for the same money, compared to buying a 250sqft cash today. If she lives like Jeanne Calmant, the oldest French person who lived to be 116, well… I think I’ll walk out at her 101 birthday bash. You can also stipulate a maximum date in the contract, say 15 years. Also, she is to live there until she dies so I can’t rent the place, so that is making the property more expensive. And if I default on monthly payments, I lose my deposit and every right to the place. I think it is awesome to be able to buy a bigger place with no mortgage, just your word that you will pay, for the self employed/early retirees/people with bad credit, anyone who wouldn’t get access to a mortgage, and the default clause is strict enough to protect the old person as well. Some of those properties are empty, with a higher monthly rent, that you offset by renting out the place. It could be a good way to get a decent sized property and pay it over a few years.
Buy a home in the South of France
With $200K I can get a much bigger place in a smaller, sunnier town in the South of France. Before I relocated to Guatemala I had been looking at properties in France but didn’t have that much cash in hand, this time I can look for a 1,500 sqft easily, or at least 1,000 sqft in a major city like Marseille. I could try the same thing than the UK, rent to students for the school year, by the room, and get $1,300 to $1,500 per month for a nice place with 2-3 bedrooms. French consideration: When I sold my Parisian rental last year, I did it under a tax exemption that stipulates you need to reinvest the proceeds of the sale in the next 24 months into another property, or pay 30% in taxes. The last two projects would take care of the tax credit. BUT legal costs are sky high in France, I would pay at least $20K in legal fees to buy a $200K place, making the tax savings a secondary concern.
Pour it progressively into my land development
$200K would make the place look even more awesome in no time, we could asphalt the roads, install electricity and water meters on every single plot. But what if you want to buy 5 plots just to build one house? I would have spent money on infrastructures for nothing. Plus, BF doesn’t have a lot of cash at the moment, and when I was cash poor last month I perfectly agreed with his plan to wait until we sell plots and only reinvest money from the plots back into the development.
Buy a property in Guatemala
There is a property nearby that is calling me. About 3 acres of beachfront property, for $75,000. The owner is an acquaintance but she has no deed, she is renting her plot from the council so far. She has to apply for a state 30 year concession (all shores are public property you lease for 30 years) or I would have to go fight with the council and risk some dirty move from one of my favorite corrupt politicians. Once the deed is out of the way, it could be split in two or three to get back part of the price and based on our construction costs I could build a nice 3 bed house for another $75,000. Another property I loved was one we visited before buying this one, on volcanic lake Atitlan. It is a beautiful stone house, that has 4 bedrooms, another independent unit that could be rented to tourists, a deck, etc. The owners wanted $200,000 but will probably accept a lower bid for a cash offer. Lake Atitlan is the second tourist destination of the country and renting the place out or starting a small B&B with an administrator should not be a problem, but there is less room for appreciation than the first one. Guatemala City used to be a great place to invest in a modern condo, targeting expats or young professionals as tenants, you could make an easy 12% annually, but it looks like the rental market has reached a plateau and an emergent strong middle class has pushed property prices higher. While Paris is “home” and the UK is close to home and a destination I know I will always visit once in a while, if I decide to pack tomorrow and leave Guatemala for good, having two properties to sell instead of one could be tough.
Invest in the stock market
I don’t know a whole lot about the stock market beside index funds, most of my active trading is with Forex. There would be a learning curve during which the money would be sitting idly in a savings account. With a mix of index and individual picks, dividend stocks and classic shares, let’s assume a 5% return, $10,000 per year or $833 per month, with no tenants or property to look after, that would cover my living expenses here if other sources of passive income dry up. This is not money I need anytime soon, so I could be in the market for the long term and stay put if it goes up and down. But I have preferred tangible assets so far, I feel like the market could crash really bad, and with a property at least you have a roof to stay under even if you are broke.
Nothing… for now
I got most of that money a few months back, and I hate to have such a big emergency fund, looking at it on my online banking, getting slowly eaten up by inflation is driving me crazy. But I am forcing myself not to rush into anything. It is a buyers’ market if you have cash those days, and waiting for a good deal may turn out being a better return than jumping into anything right now. Still, it is killing me. I recommend you take your time too, if you have cash and are not sure where to invest it.
What would you do with so much $$ if your only debt was a mortgage?
I’d totally go out and buy the beachfront condo in Panama City Beach that I’ve been eyeing… Would totally be worth it, although not the optimal financial decision.
I knew you would say that!
Sounds like a pretty cool plan! I checked FL real estate when I was in Miami a few weeks back and it looks like it is picking up again. With sea side living I am just concerned about storms, and the beach not being cool anymore, and slowly turning into a ghost village, like some Italian resort towns along the Mediterranean. But there is only so much beach so it should eventually become attractive again.
Gulf coast beaches around where I live are amazing. So much better than the east coast!
This is a problem I wish I had! I would 1) take a much needed stress free vacation 2) invest (likely higher risk) 3) donate some.
Have you chatted with a financial advisor to get their opinion?
I know a certain couple who would gladly take the money off your hands and pay their debt off if all else fails Pauline 😉
haha duly noted!
Yes I talked to advisors but having the money/tax situation spread over three countries, one of which is Guatemala and nobody knows how it works here, makes things more complicated. I was to legally minimize my tax burden so need to have all opinions and make my own out of it. Guatemalan advisors are knowledgeable about the US at most, but not Europe.
Agree with Catherine, I wish I had this problem 🙂 I would pay off student loans, put a chunk into the stock market and then save another chunk for a downpayment for a house. Let us know what you decide, Pauline.
That is pretty balanced. I think I may do the little bit here, little bit there too. Thanks Liz.
Dear Debt says
Such a good problem to have! In your situation I’d buy a beach front property or maybe a vacation rental in the UK. In my situation, I’d pay off loans, travel and invest. You go girl, you are rocking the income!
Thanks! Paying off loans, investing enough to fund the travels and fun sounds like a great plan too.
Anne @ Unique Gifter says
Wow, that’s an awesome problem to have! I love the evaluation of a bunch of your different options, so many pros and cons to weigh 🙂 It’s not like having $5000 to throw into the stock market and it being okay if things go south on you.
I’m looking forward to seeing which option you pick!
haha I know, I am frozen so far, $5K I wouldn’t think twice.
This is a hard decision, but a great problem to have 🙂 Your options all sound wonderful, any sound great. Since we do plan on buying our next house in 2015, I’d probably throw it all at the down payment.
Don’t you mind that the downpayment would only be equivalent to a 3-4% return? Or that you could get a $100K payment on a rental and $100K on your house and start generating rental income? I own my house so I understand the peace of mind behind it but I’d be torn between returns and safety.
I would probably go with the student accommodation property in the UK (if it is outside London). UK house prices have increase recently, but all of the growth has come from London. Therefore, the ripple effect is due around the rest of the UK.
Equally, the economy is generally looking stronger than the equivalent in France at the moment. Lower unemployment (especially youth unemployment), improving GDP, manageable inflation, etc etc.
Finally, you know the area well which is a great help.
Alternatively, you could buy a property in Marseille and rent it out to me for a bargain rate!! Your call!! 🙂
The good part about the UK is the pound is still relatively low, and I expect it to appreciate over the long term which would be a double bonus.
jane savers @ solving the money puzzle says
Very young you has most of her assets in real estate and it might be a good idea to diversify and enter the stock market with ETFs or blue chip stocks. I consider the properties in Guatemala risky and if you could invest in ETFs of boring stocks in some way that would eliminate the need to pay the French government’s tax penalty that would be a good idea.
The deciding factor might be the tax situation for you. It must all be so complicated with assets in 3 countries, living in 1 but being a citizen in another. If you think you will live in Guatemala forever then that will sway you in one direction. If you see retirement in France then having assets there might be a good plan. No one wants to retire to the UK so I wouldn’t invest more there.
Taxes now and taxes in the future are something you must figure out.
awww thanks for calling me very young :). You are right about the UK, however with bill and rent automation, managing that rental has been super easy. If a tenant stops paying in the UK I can evict within a month, in Paris it took me 18 months to evict and that was hell. The tax is quite low if you consider the full amount to invest, so maybe not worth obsessing about, although it always hurt to pay taxes, I don’t think there is a way around apart from buying another piece of real estate.
I think down the road the best way is to have a company that owns all my things in different countries and pay taxes only in one place, under the company. So far I DIY because it is cheaper but it is a real pain.
DC @ Young Adult Money says
Congrats on accumulating that much cash! I would probably put it in the stock market. Like you said, there’s really no reason to pay down your mortgage because the rate is so low.
The stock market is a good option, however I have that money in US$ mostly, so I would need to convert and send back to Europe, which would be a 4-5% fee and the return would take a hit because of that.
All of those options sound like good ones, Pauline! It sounds like you’re going to think about it for a while.
Joe @ stackingbenjamins says
Isn’t most of your money in real estate now? If so, I’d definitely go with the stock market. Keeping some money in a more liquid spot than real estate so you can take advantage of future opportunities seems wise, especially since you’re so unsure right now.
About over a third is in RE. I am trying to max out my tax free accounts with stocks and shares but I am wary of putting the whole amount in the stock market right now because I am not sure it is a good moment to jump it. Is there ever one? Not sure either. That’s why I was happy with my cattle, if you need an early exit there will always be someone ready to eat a cow. It may not be as fat as you expected but it gains weight regularly. The stock market will do it over the long term but if I want out in 18 months to buy something else there is a risk of getting back less than invested.
John S @ Frugal Rules says
That’s quite a problem to have. 🙂 If it were us we’d likely pay off the mortgage and invest the rest in some index funds. I’m sort of with Joe on this one. I like a few of the RE options, but seeing as that you have about 1/3 in RE I would look more towards the market to keep yourself a little more liquid.
I know, life is tough haha. With $10K in cash I am good for a year of basic living expenses, with a family it would be different but I am confident I can find a job anywhere at minimum wage if I am broke or stuck with non liquid assets, so I am not a big fan of the market, as it depends on other people’s decisions, not yours. If another crash happens, people will need roofs (and chickens lol) and if the economy is good, people will need roofs too. But you are right about diversifying more.
Skint in the City says
What a nice, but tough decision. The closest I’ve come is a few years back when I changes job and took my pension with me. I had the option to reinvest in pension shares or take the cash and do something else with it. I chose to reinvest, but in your shoes I’d definitely go for property, as you are. I didn’t realise that here in the UK we are so lucky with legal costs. A buy-to-rent in a student town is, in my book, a great bet. God luck with your decision!
I did the opposite, chose not to invest in my pension with company match and bought the rental instead, so far returns are great so I can’t complain but stocks are definitely lower maintenance. Legal costs are really low in the US as well, I don’t know what is wrong with France, the notary prices are fixed, like a doctor’s so you can’t even shop around, and taxes are crazy high.
Done by Forty says
I like the option of the $150k total cost beachfront Guatemalan property, though it sounds like a good deal of work. If I had a lot on my plate, and wanted something easy….index stock mutual funds would be the way I’d go. I might not have the guts to throw it all in on one day, and might DCA over a couple months.
It is a ton of work and I spent the last year in works for the house I live in so I am not sure I want to talk to a contractor anymore! It would be cool to have a house on such a big waterfront plot though.
I would do the real estate investments in the UK or France if you think Guatemala might not be your home forever. I’ve never lived there, but it seem that properties are generally pretty expensive, so there will always be a rental market.
Yes, they’re much more expensive than the US for a similar mid size city, mostly because we don’t have the space you do between coasts, so people have to live somewhere and population is always on a slow rise. The rental yields are lower than the US though, you don’t find multi units that will give you 10%+ returns, or it is very rare, and 5% return with all the landlord trouble is not much compared to a stress free stock market.
These all sound like good options! I’m sure you’ll make the right decision in the end. The college town property sounds like a decent bet considering you’re familiar with the area, but I would want to diversify a bit as well. I don’t think I’d put the entire $200k in the market, though. Good luck with your decision!
I have concerns about diversification too, so good point, although when things work why not get more? It has been working for this blog and buying another one..
Mrs. Snarkfinance says
I would probably do the exact same thing as Liz, pay off my awful student loans, invest in the stock market and put a down payment on a home in Burlington, VT 🙂
Wiping off the student loans all at once would be awesome!
Tonya@Budget and the Beach says
I want this problem! You are such a good investor, so it’s hard for me to give advice about the properties and such. For me it would be a down payment on a condo in LA, or a house somewhere else, or retirement. Pretty boring stuff. Good luck with your decision.
So you partly answered your question about moving, if you could afford it, you would stay. So let’s boost that freelance income!
Hmm… if I had 200K, I’d quit my job and keep building my business. I’d probably also invest in a rental property.
For you, it does seem like a little bit in a bunch of places would suit you. Keep some on hand for a future opportunity, put a little in the stock market, etc. I’m not sure if any of the options above are the right ones.
You are right, most options are all or nothing which would mean not spreading the risk.
Attention avec des viagers!!! 🙂
I heard a story on Les Grosses Tetes the other day where an old woman sold her place to a guy who was in his 50s I think (she was in her 80s), and he was so sure she would die and he would get the place.
She OUTLIVED HIM!!! Then she resold it again, and everyone was sure at 90 something she would not outlive this one, and she outlived the second guy as well!!!!
Personally I’d put it in the stock market and invest in index funds. Safe, boring.. passive.. no property to contend with.
I heard a similar story about Jeanne Calment, who lived to be 115. That would be unfortunate!
Stefanie @ The Broke and Beautiful Life says
Maybe put it in the market in an index fund while you’re figuring out what you really want to do with it?
That is an option, however I don’t know how long I want to do nothing, so a market dip could mean being stuck for a couple of years while it goes back, and missing on other opportunities.
I would also selfishly say to buy in Marseilles , and rent it to me!!! The U.K sounds good, but aren’t the taxes almost as high as France. Council, VAT tax at 18% of you rental (even though you could get an exemption number since you are nit domiciled). You would still need an estate agent more than likely (11% average fee of total rent) etc. you are probably doing the best thing for you right now, which is nothing. Guatemala sounds good, but l am always wary of stuff happening and losing the house (happened to my friend in Mexico). Maybe start off small in the stock market, dip your goes, and keep the rest till you decide. Even 5,000 per year in dividends would be half your living expenses. Good luck with your decision. What a lovely problem to have!!! :0))
When you buy a property in France, you pay around 10% to the notary, and then 27% of your profit when you sell (that is degressive after 10 years if I remember correctly), plus local taxes are a bit higher than council tax. I think for an apple to apple purchase, the taxes would be a bit lower in the UK, and I had a better experience renting there than in France, I am weary of the eviction process in France. Yeah, tough decision, I think the stock market is better for a hassle free investment.
Erin @ My Alternate Life says
Nice problem! I’d put it in the stock market, but that’s because I don’t know enough about investment properties to purchase one! I just dig easy investing, so I’m going index funds on this one.
We would invest some either through a rental property or wait for stocks to be cheap. I’d use $10K for travel and some home renovations.
I feel like stocks aren’t cheap like you do, but at the minor price hike I think I would jump in for fear it will never go down. Which is stupid and why I generally stay away from the market.
Bryce @ Save and Conquer says
It seems like you have enough in real estate already. Luckily, things have worked out for you. I would just roll the money into my current asset allocation of total stock market, total international stock market, and total bond market. Since you are more worldly than I am, you might also consider a portion of international bonds. I would look into tax repercussions in Guatemala before doing much of anything.
Taxes in Guatemala are 6% of what I make as it all goes under a company, but my trading accounts are abroad so it makes things a bit more complicated. You make a good point about diversification though.
These are great ideas. I too have 200,000 from the sale of some real estate. how about marriage for buying power? double the capital.. quadruple the potential. Shotgun.. las vegas style!..
The paris thing… france…Guatemala.. sounds good to me!
haha I am actually looking at several small investments at the moment, land and real estate. Looks like in Guatemala the small houses have more growth capital than bigger ones.