Should I sell real estate for ETFs?

Investing / Portfolios
1

I have this idea for sometime and can’t make my mind. I need to get rid of this idea or do something with it.

So, I have an apartment in a one of the third world countries. Estimated cost will be around 50k USD. I rent it out, and it brings 250USD monthly. No expenses. That was a deal with the tenant. It is little bit cheaper that normal rate, however, they don’t bother me.

Now, reading about ETFs and all that, I am thinking maybe I should sell the apartment and invest all the money in ETF (VT, or something similar. I don’t know yet). And contribute to that investment on monthly based, let’s say around 1000CHF.

So, the question is, will it be a wise move? What are the risks related to this move? I know that there will be some expenses bringing the money to Swiss, bank transfers and all that. Apart from these, what I should be concerned with?

2

I guess it depends on the likelihood for capital growth. For the small amount of income, IMO it is not worth the hassle without the expectation of huge capital growth.

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3

Seems like a huge hassle to have an appartment thousands of kilometers away?

You always have to factor in cost of your work and stress you have with managing the property. Also the rent income is fully taxable.

Also will the building hold its value or better appreciate? Maintenance? Build quality? Any other (political) risks?

If return prospects are similar, I would just stocks. Although the return will everything but constant. If you like having the more or less fixed monthly income, you‘ll have a bad time with stocks.

4

The real estate is giving you 6% return from rent. So the question comes down to what is expected return from capital growth?

ETF like VT most likely can be expected around 5-7% (which includes 2% dividend)

5

Depending on currency/inflation real returns might be much smaller or negative.

6

Yes, for the moment. But what is the tenant decides to leave? Then probably some renovations are due, advertisments, … I would not count this as a 6% net return.

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7

Well I cannot comment about the problems of not finding a tenant or other issues related to real estate.

However let’s not underestimate the challenges to find a buyer etc. without any details, it’s tough to comment

My comment was only based on financials.

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8

Please also think about your overall asset allocation. Normally a good portfolio has money allocated to different asset classes (stocks, bonds, cash, real estate etc)

I am not suggesting that real estate is better or worse vs. Stocks. But I can definitely tell you that it all depends on how world will progress over the time in future.

Looking at your note , it seems your main driver here is financial return and that’s why I think you should not overestimate the equity returns while making this decision.

If your driver was reduce hassle, then the decision can be very simple :slight_smile:

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9

I think you will have to look into it more in detail. What are the realistic costs, and returns. How active would you be in taking care of the apartment?

I have (distant) family who also own properties that they rent, in a third world country. They pay a management to take care of the property including repairs and cleaning. While I do not know the percentage return, they are satisfied with it. It’s in a good location that is flourishing so they are pretty convinced it will grow well in the future.

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