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Paying the rent with profit of private investment company: What what would be the best construct?

Personal Finance & Money Asked by ManuelAtWork on January 14, 2021

My partner and I have rented a home in a small village and would like to stay there for many decades to come. However, I feel uncomfortable being a tenant. So, we have saved enough money to buy a house.

Unfortunately, no house has been for sale in this area for at least six years. What should I do with the money while we wait for a buying opportunity? I want to minimize the volatility risk of the real estate market and avoid bleeding money to the landlord.

My idea was to “indirectly” buy a house through investing in real estate companies. The dividends would pay our current rent and the value of the shares would roughly match the price changes on the local real estate market.

However, compared to (directly) owning a home we would have to pay 25% tax on the dividend income.

Is there a way to save the money without additional losses compared to buying a home now?

(I was thinking about founding a “home cooperative” with my partner, which holds the shares and becomes the tenant for the current home. The rent reduces the profit of the cooperative to near-zero.)

2 Answers

Investments in real estate companies along with paying taxes on the income is probably as good a plan as anything. However, if the investments build up unrealized capital-gains then the future house might be financed instead of cash-bought so as to avoid capital-gain taxes on the investments.

Or put the funds into growth investments and then there is no income tax.

Then plan on financing the house but hedge future interest rates with sell-side government-bond futures.

Answered by S Spring on January 14, 2021

Conceivably you could buy a house in another nearby (large) town, and rent it out.

Then the "rents offset", as it were.

(With luck, the capital appreciation on the "House In Large Town" would indeed be greater over the years than a local house.)

Eventually you could buy Local House, and, then, take your time to sell House In Large Town.

Answered by Fattie on January 14, 2021

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