Is property purchase an option?

P

promoter

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In brief, 40 year old full time private sector PAYE worker (gross pay €50k), will only have State Contrib Pension at retirement. Will be getting 100-130k from house sale in the coming months. Want to invest the full amount for future pension income. Risk averse and this is a one-time opportunity. Would be able to make small ongoing payments to pension fund if needed.

A self-directed pension, purchasing a rental property seems like a reasonable option. Ideally get a mortgage of c.150k and purchase where rental return is optimal. Depending on circumstances, the intention would be to use the rental income as a "top up" in retirement rather than rely on capital gains on the property. I'm aware that mortgage term is max 15 years and property needs to be managed by agent so will be factoring these in when working out likely top up.

Q1: Is this an option for a PAYE worker? Some websites seem to propose it only for directors / self-employed?

Q2: Are the banks offering mortgages for this type of purchase? Currently no mortgage or debts in his name, no childcare.

Q3: Can a spouse be included in the pension? Would be useful from tax perspective if ongoing top ups are required while the mortgage is being paid and might be useful on retirement also. Spouse is post-95 public sector and will have full service.

Q4: Aside from rental uncertainty, is there any significant risk? Is this type of investment appropriate in these circumstances?

Will have to get expert advice at some stage but want to be as informed as possible on the options before we do so if this is a non-runner it would be helpful to know now. Any assistance much appreciated.
Regards
Kieran
 
It can be done but it is difficult.

First of all, you can't just lob €100k into your pension. From the way you are talking, I am presuming you are in non pensionable employment. You will have to open a personal pension plan. At 40 years of age, the maximum you can put in is 25% of earnings i.e. €12,500 a year. it will take 4 years to get the money in.

The banks do lend for pension property purchases but you really have to jump through hoops to get it. As a PAYE worker with a relatively small pension pot (when the money is transferred across), you will find it very difficult to get one.

Spouses can be included but they have to have a separate plan. The property would be put into a unit trust and your wife would have a PRSA AVC buying into it. It would be quite complicated.

Risk wise - you are taking massive risk. You are gearing up to invest in one asset class situated in a basket case of a country which has just come out of a property slump and looks as if it is headed for another.

Why not invest in dividend paying stocks and bonds? No gearing so you don't owe anyone, no tenants, lower ongoing costs, extremely liquid so you can move in and out at will and you still get a regular income from it?


Steven
www.bluewaterfp.ie
 
The banks do lend for pension property purchases but you really have to jump through hoops to get it.
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I think these pension backed loans have had their day! Unless Steven knows of a bank still in the market, I have not come across any new pension backed approvals since 2007!!
 
Steven

I actually had a similar thought process myself recently, although my circumstances are slightly different. I have an existing pension pot of ~200k and was hoping to leverage this with another 200k to invest in residential properly with a 15 year term mortgage. I believe this should be self financing over the 15 year term based on my initial sums, but does need to be worked out in detail. I was thinking this would be my 'baselined' pre-40 pension fund, and then pay into a standard one for my contributions post the age of 40.

Do you know if any banks are currently lending in this area ?
 
44brendan said:
I think these pension backed loans have had their day! Unless Steven knows of a bank still in the market, I have not come across any new pension backed approvals since 2007!!
Click to expand...

I haven't done one in years as the appetite wasn't there (when prices were really low. Now they're rising again, people want to buy!), so I've looked into it.

It's possible to get lending for commercial properties but not residential.

Steven
www.bluewaterfp.ie
 
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