Time horizon: My sister wants to keep the house for emotional reasons and would likely be able to buy my share in 5–10 years.
My personal investment portfolio is currently 90% equities / 10% bonds (long-term horizon). If I sold the house, I would invest the proceeds into this same strategy.
My thought process:
I’m generally not convinced that holding a house is a good investment (low returns, concentration risk).
As a compromise, I’ve considered increasing the mortgage by about CHF 300k now and investing that amount immediately into my equity/bond portfolio. I would then invest the remainder of my share when the house is sold in 5–10 years.
Questions for you:
Does this leverage make sense in your opinion?
Do you see the risk/return trade-off in this specific case as more positive or negative?
What factors should I pay special attention to (interest rates, real estate market, stock market crashes during the holding period, …)?
What’s the tenant situation? Long term tenants with little chance to move out? Any large expense upcoming cutting into cash flow? (insulation/heat pump/etc)
If you get a mortgage with good conditions, sure, why not? You are in a better position than someone that needs mortgage, because it is optional for you.
If you are sure you want to sell, you could also do it in stages e.g. if she can buy out 7.5% now, by taking on 150k of the mortgage. Or another 15% by increasing mortgage to 600k, that would already reduce your ownership to 27.5%.
Its not yet rented out, the bank estimated potential rental income. we probably will put in a heatpump , about 50k (regardless of the rent/sell decision)
Ah thats in interesting idea, thank you! Instead of me paying for the added mortgage she could increase mortgage and her share in the house. Increased share of rental income but also cost and increased share of the sale gain when it is sold at some point in few years. Is this what you mean?
Lets assume you would have inherited 1.7 million in cash instead (850k each) and that house (same emotional value) is in the process of being sold for 2.0 million. What would you and your sister decide to do?
You can replicate that decision in your current situation too. That’s the point of the question.
Very good point, I i think its refered to as endowment effect where people value things more they already own while might probably not acquire it if they wouldn’t already own it..
In this case its the house we grew up in an a lot of memories are associated with the house. This seems to weight strongly on her.
I looked into it, its quite some effort to model it for a limited time. It seems to involve all the steps as in a normal hosue sell (Notariat, Grundbuch change, Handänderungssteuer, change of mortgage structure, eligability checks etc.) But will consider it as one option.
I guess the key point of the original question is also : if you would generally advice on taking on mortgage on a house to invest the money in long term globally diversified etfs considering risk and reward profile of this leveraged investment option,.
This is the flip-side of the question: “if you have a house with a mortgage, would you still invest in the stock market or pay off the mortgage first?”
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