Author Topic: Release equity from property to invest in stocks  (Read 3006 times)

drstarter33

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Release equity from property to invest in stocks
« on: May 20, 2015, 12:45:23 AM »
We are moving to Canada from the UK in the next 6 months. We fully own our present home which is located in a very desirable part of the town (schools nearby + good neighbourhood). We do not want to sell this property, just in case things do not work out and we return to the UK in few years. We are planning to give it on rent when we move.

Rental yield without mortgage interest (after tax and management charges) will be around 2%.

We have the option of re-mortgaging the house and release some equity for other investments. We will be renting a house at least for the first 1-2 years of our life in Ontario, Canada so we wont be able to shift the released equity to further real estate straight away. Plus, we anticipate sufficient cash from income in Canada to put down for a deposit there should we need to.
My question is: should we release the equity from UK property and invest in stocks?

We are a bit nervous for 2 reasons:
1. Interest rates (currently 2.5%) will go up soon in the UK so mortgages will become dearer (say 4 to 5%), we may not break even between the rental cash flow and the repayments of any new mortgage.
2. If we shift equity from real estate to stocks, we will have a huge change in our asset allocation: it will become lean on bricks and heavy on the market indices.

What do people think? Is it a good idea to remortgage and put in in the market?
Any thoughts are welcome.

(We are a family of 3 (aged 33 and 31, family income >100k/yr) with what we consider as a reasonable retirement plan already in place for hanging our boots at 55.
« Last Edit: May 20, 2015, 01:29:18 AM by drstarter33 »

Underscored

  • 5 O'Clock Shadow
  • *
  • Posts: 6
  • Location: UK
Re: Release equity from property to invest in stocks
« Reply #1 on: May 20, 2015, 01:32:15 AM »
British property obsession much? Releasing equity to invest is investing on margin. Just some thoughts...

KungfuRabbit

  • Stubble
  • **
  • Posts: 244
Re: Release equity from property to invest in stocks
« Reply #2 on: May 20, 2015, 06:05:37 AM »
Edit; I misread release equity.

It would depend on the values of your portfolio. If its all of your money I'd sell it (since you'd have a 100% portfolio in housing....), but if its a smaller chunk I'd keep it because you're right interest rates certainly are not going down.
« Last Edit: May 20, 2015, 06:08:41 AM by KungfuRabbit »

forummm

  • Walrus Stache
  • *******
  • Posts: 7357
  • Senior Mustachian
Re: Release equity from property to invest in stocks
« Reply #3 on: May 20, 2015, 06:09:24 AM »
Can you get a 30 year fixed rate mortgage, or something similar, at the 2.5% rate?

Tanor85

  • 5 O'Clock Shadow
  • *
  • Posts: 57
  • Age: 34
  • Location: Ottawa, Ontario
Re: Release equity from property to invest in stocks
« Reply #4 on: May 20, 2015, 06:49:47 AM »
I have no idea but welcome to Canada! :-)

drstarter33

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Release equity from property to invest in stocks
« Reply #5 on: May 20, 2015, 07:31:21 AM »
Hi all, thanks for your replies.
yes - there is some good old British bricks & mortar obsession playing up here, I admit!

This property makes up 42% of our current net worth. While not 100% of our portfolio, this is certainly a substantial chunk. We also have another mortgaged property rented out currently.
Any mortgage we can get will be a landlord mortgage (buy-to-let product), unlikely to get a deal of fixed rate for such long periods here.

Any more thoughts, folks?

leostrauss

  • 5 O'Clock Shadow
  • *
  • Posts: 34
Re: Release equity from property to invest in stocks
« Reply #6 on: May 20, 2015, 07:54:45 AM »
I'm not sure I fully understand what the OP is trying to do in Canada but buying a place here is a dicey proposition at this particular stage. Several reasons.

1. Most economists agree that properties in Canada are currently overvalued between 20%-80% depending on which one you ask
2. Mortgage rules in Canada are not borrower friendly. You can't lock in a rate for more than a few years (5 usually and 7 is max) and then you have to renegotiate your mortgage deal with the bank at a new rate. So there is no way to eliminate the risk of interest rates rise
3. Mortgage payments in Canada have to be made with after tax money and there are no tax benefits to owning one's home

I would steer away from buying anything here unless you happen to move to a place where home prices are not ridiculous which at this point is basically limited to the Maritime provinces (NB, NS, PEI). Everything else is priced for perfection and no interest rate rise ever. Be careful out there.

hodedofome

  • Handlebar Stache
  • *****
  • Posts: 1211
  • Age: 39
  • Location: Texas

mohawkbrah

  • Bristles
  • ***
  • Posts: 272
  • Age: 23
  • Location: Herefordshire, UK
  • every day they see me hustling those pennies away
Re: Release equity from property to invest in stocks
« Reply #8 on: May 22, 2015, 04:09:47 AM »
UK property market makes me sad... :(


2% rental yield on a house :'(

not to mention a 3 bedroom house can cost 140k+