Sell buy to let and invest proceeds in the stock market?

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fitz

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I don't think this has been covered before, if it has please point me to the appropriate thread with apologies!

I'm an accidental landlord and considering exiting and investing in the stock market instead as the red tape and complications of being a landlord are tiresome. Would appreciate a second look at my numbers to see if I have missed anything:
Two properties - Total Market Value ~€650k
Current total rent less expenses ~€34k (much less than market rate due to the rent controls)
Gross Yield = ~5.2%
After Tax ~2.6%
And Irish property typically increases by 2.6%pa (https://www.finfacts-blog.com/2018/07/irish-real-house-prices-up-175-in-50.html).
So 5.2% net per annum.

If I sold after paying last of the mortgage (€100k) and CGT I would have c. €520k to invest. I'm making the assumption you can't time the market, would buy a diverse portfolio of shares and hold for the long-term. Based on historical figures:
Stock market typically increases by 10% pa less inflation = 8% and ultimately would be paying 33% CGT on that.
So, 5.3% average.

What mistakes have I made? Obviously based on a lot of assumptions!
One complicating factor is the €100k mortgage is a 0.85% tracker on one property. So perhaps based on the above, I should sell one and hold the one with the tracker?
Appreciate any replies.
 
A very interesting question. Some initial observations.

1) Investing in property is an active investment. Investing in shares is a passive investment. You get less hassle from investing in shares.

2) One "problem" with shares is that they are revalued every day. Your €650k in property is also going up and down every day if you put it on the market every day.

3) You are basing everything on the future growth and income. No one can be sure which will have a higher return over your investment horizon.
 
fitz said:
And Irish property typically increases by 2.6%pa
Click to expand...

fitz said:
Stock market typically increases by 10% pa less inflation = 8%
Click to expand...

The historical figures look wrong. They might be right, but I doubt it.

In any event, no one knows which will do better over your investment horizon.

It's immaterial but you don't appear to have allowed for CGT on the property price increases?

Brendan
 
You should look at your total portfolio.

Do you own your own home?
Are you maxing your pension contributions?

If you already own your own home, then you have an exposure to the property market already.
If you have a non-tracker mortgage, it might make sense to sell a property and pay down the mortgage.
This gives you a risk-free, tax-free, hassle-free, charges-free return equal to the mortgage rate - say 3%.

If, on the other hand, you don't own your own home, and you have a pension fund with €1m in equities, then property in your own name would be a good diversification.

Brendan
 
A last point is liquidity.

You can sell either of your properties, but you can't sell part of one if you ever need, say €50k.

If you have shares, you can sell as much or as little as you like.

Brendan
 
fitz said:
Two properties - Total Market Value ~€650k
Current total rent less expenses ~€34k (much less than market rate due to the rent controls)
Gross Yield = ~5.2%
Click to expand...
That is factual, everything else is speculation.

And in my opinion a 10% nominal return on equities is fanciful speculation.
 
fitz said:
I don't think this has been covered before, if it has please point me to the appropriate thread with apologies!

I'm an accidental landlord and considering exiting and investing in the stock market instead as the red tape and complications of being a landlord are tiresome. Would appreciate a second look at my numbers to see if I have missed anything:
Two properties - Total Market Value ~€650k
Current total rent less expenses ~€34k (much less than market rate due to the rent controls)
Gross Yield = ~5.2%
After Tax ~2.6%
And Irish property typically increases by 2.6%pa (https://www.finfacts-blog.com/2018/07/irish-real-house-prices-up-175-in-50.html).
So 5.2% net per annum.

If I sold after paying last of the mortgage (€100k) and CGT I would have c. €520k to invest. I'm making the assumption you can't time the market, would buy a diverse portfolio of shares and hold for the long-term. Based on historical figures:
Stock market typically increases by 10% pa less inflation = 8% and ultimately would be paying 33% CGT on that.
So, 5.3% average.

What mistakes have I made? Obviously based on a lot of assumptions!
One complicating factor is the €100k mortgage is a 0.85% tracker on one property. So perhaps based on the above, I should sell one and hold the one with the tracker?
Appreciate any replies.
Click to expand...
My initial view is how can you be an " accidental landlord " with 2 properties?

Other observations are inflation at 2 % , historically maybe but not going forward.
 
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Both propertied before coupling up and then upgraded/moved into a more suitable hird home together would be one way.
 
Thanks for all the responses.

Yes, the two houses are originally myself and my late wife's PPRs, hence the CGT is low. However I need to confirm her time there still counts against CGT even if the house is now in my name.

I am fortunate to be maxing my pension contributions and own my home, so currently my total assets are 3:1 property:investments; probably another reason to sell one and rebalance slightly.

@Brendan Burgess - You say the historical figures look wrong, is your sense they are underestimates or over? They are based on researched figures but maybe I am looking in the wrong places! I know of course that past performance isn't an indicator for future etc...

Agree on the inflation point @Paul O Mahoney thanks.

Looking over my figures again, I think I was taking CGT on both the rent and capital appreciation of the houses, when it should just be the latter. With that corrected and a 3% inflation rate, it now looks like 4.3% lease and 4.6% invest!
 
This is really a money makeover question. It's hard to give good advice without a wider picture of your financial circumstances. You should head to the forum.

Otherwise I don't think you should be thinking too hard about the relative returns of the asset classes. It really is apples and oranges. Your share portfolio isn't going to call you at midnight to tell you about a burst pipe!
 
We can't know the future. Timing the market is futile.....but..... Generally speaking buying lower and selling higher is good.

we can observe Irish property is at all time high (up 10 or 15p.c. last year iirc) and stock markets are down 20 or 30 percent from all time high.

I think most people would agree that sentiment right now is negative on stock price and (depressingly) positive on property price.

It may be a very good time to sell btl and buy equity.

It looks like you end up with about 30 percent more stock if you do it now vs doing it last year.

But maybe next year will be an even better time!
 
I'd be more comfortable modeling long term real property price increase at about 1p.c. p.a. or lower.

Last 50 year in Ireland have seen a lot of systemic changes that have increased price a lot.

Iirc the street/houses that has the longest price history in the world indicates long term price increase just slightly above inflation. (Think it's a couple of hundred years of data)
 
You also don't seem to be factoring in cgt on future house price growth. Cgt would be applied on the nominal increase.

And as they are no longer your ppr the cgt will be increasing too.
 
Fitz,
I'm in a similar situation as I am currently in the process of selling my late wife's apartment that has been rented out for the last 12 years. When my wife passed away 6 years ago, her property was in her name and it was left to me in her will. The mortgage was cleared and I had to have the property valued. I am now selling the property but I am only liable for CGT from when it was transferred to my name.
If you had the properties in joint names it may be handled differently.
 
I am now selling the property but I am only liable for CGT from when it was transferred to my name.
Click to expand...

Presumably this is because you and your wife were separately assessed for taxes?
 
jpd said:
Presumably this is because you and your wife were separately assessed for taxes?
Click to expand...
Yes, we were separately assessed. But we had not changed the deeds/mortgages of our properties to joint. They were held in our separate names
 
if you were jointly assessed for tax but the apartment was in her name, what would be the consequence on her passing otherwise?
 
jpd said:
Presumably this is because you and your wife were separately assessed for taxes?
Click to expand...
No, it's one of the basics of CGT. Joint or separate assessment for income tax has nothing to do with CGT or other taxes. There is no such thing as joint or separate assessment when it comes to CGT.
 
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