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.
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?