Moneymakeover 60s looking towards retirement. Rental properties

C

cremeegg

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Personal details

Your age: 59
Your spouse's age: 64

Number and age of children: 4 Children. 2 in Careers, 2 in College


Income and expenditure
Annual gross income from employment or profession: €56,000
Annual gross income of spouse/partner: Nil

Monthly take-home pay:€3,200

Type of employment - Employee - public servant

In general are you:
(a) spending more than you earn, or
(b) saving? €1,000 per month


Summary of Assets and Liabilities
Family home value: €550,000
Mortgage on family home: Nil
Net equity: €550,000

Cash: €60,000
Defined Contribution pension fund: €180,000
Company shares : Nil
Buy to Let Property value: €1,450,000
Buy to let Mortgage: €458,000
CGT on sale: €260,000

Total net assets: €1,522,000


Family home mortgage information

Value €550,000 no mortgage

Other borrowings – car loans/personal loans etc

Car loan approx €10k outstanding HP so no saving if cleared.

Do you pay off your full credit card balance each month? Yes



Pension information

Value of pension fund: €180,000 in 2 separate DC schemes

Buy to let properties

1
Value: €425,000
CGT if sold €100,000
Rental income per year: €44,160
Rough annual expenses other than mortgage interest : €1,000
Lender: ICS Mortgages
Interest rate: Tracker ECB + 0.75%

2
Value: €325,000
CGT if sold €66,000
Rental income per year: €33,600
Rough annual expenses other than mortgage interest : €1,000
Lender: N/A
Interest rate: N/A

3
Value: €300,000
CGT if sold €15,000
Rental income per year: €33,600
Rough annual expenses other than mortgage interest : €1,000
Lender: BOS / Pepper
Mortgage outstanding €208,000
Interest rate: Tracker ECB + 0.75%
Interest Only. Expires 2033

4
Value: €400,000
CGT if sold €80,000
Rental income per year: €12,000
Rough annual expenses other than mortgage interest : €1,000
Lender: BOS / Pepper
Mortgage outstanding €200,000
Interest rate: Tracker ECB + 0.75%
Interest Only. Expires 2033


Other savings and investments:

None

Other information which might be relevant


Spouse will be entitled to 80% of Irish contributory OAP

I will be entitled to 70% Irish contributory OAP

I will be entitled to 100% UK contributory OAP

Potential inheritance of €200,000 at some point in the future



What specific question do you have or what issues are of concern to you?

What should I do with the cash (its the remaining proceeds of a previous buy to let sold recently), pension contribution ? Pay down mortgage ?

My long term aims are to have enough to live comfortably in retirement, and to help my children onto the property ladder.
 
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You're in an excellent financial position and I don't think you require much advice, you know what you're doing. Your investments in property are paying off handsomely. To address your question, with the cash I would:

1. Max AVCs for last year and this
2. Consider €3,000 gifts for each of your children from both yourself and spouse if you think it will help towards your goal of getting them on the property ladder.
3. Pay off mortgages.

When are you planning to retire and will you have a full public service pension?

Have you a strategy in mind with regard to possibly selling some of your investment properties in retirement? I'd be inclined to sell one soon if I were you and clear almost all of your mortgage debt. The yield on No. 4 is clearly very low.
 
Are you comfortable retaining the 4 properties knowing you’ll be considered a large landlord under the incoming rules? No fault evictions gone etc. if you are thinking of retaining properties for children’s use in the future, I’d be selling one to stay out of the large LL category (assuming you can live with the incoming rules for small landlords)
 

Your monthly take-home pay is €3,200 and you're saving €1,000 of this - are your monthly living costs €2,200 or are you spending some proportion of your rental income as well? Important question in order to judge what living comfortably means to you.

But let's assume that the various state and DC pensions give you a reasonably comfortable lifestyle, give or take. You currently have another €1m of equity in property, less CGT, but with a preference for supporting your kids sooner (getting on the property ladder) rather than later (when you are deceased in probably 20+ years).

If this were me, after I had figured out what I needed to keep for my own needs, I would consider gifting property to the kids for them to sell. If I'm not mistaken, done cleverly then this would reset the basis for CGT calculations and all but eliminate it? Presumably this would have to property #2 (mortgage-free) as #3 and #4 have interest-only mortgages outstanding and you don't seem to have the cash at hand to clear them.
 
cremeegg said:
Buy to Let Property value: €1,450,000
Buy to let Mortgage: €458,000
Click to expand...
cremeegg said:
Value: €400,000
CGT if sold €80,000
Rental income per year: €12,000
....
Interest Only. Expires 2033
Click to expand...

You have €60k in cash and would probably clear about €300k on property 4 after costs and CGT.

You have 3 properties grossing >10% and then property 4 is only 3%. Are you discounting this rent for family?

It seems obvious that you should sell property 4 now and use the proceeds to maximize pensions and then reduce your outstanding mortgage balance. It would leave you with ~€1.05m property and a little under €150k in mortgages.

You don't mention when you want to retire (will you go to 66?) but selling #4 should improve cashflow allowing you to maximize pension contributions and chip away at the remaining mortgage balance. The IO's run to 2033 so you should be comfortable to clear by then with income and pension lumpsum in the meantime.
 
conor_mc said:
. If I'm not mistaken, done cleverly then this would reset the basis for CGT calculations and all but eliminate it?
Click to expand...
I think you are mistaken on this. The recipient can reduce their CAT bill if CGT is paid by the disponer on the same transaction. But the OP will have to pay the CGT one way or another.

I don't think gifting is an option because the OP cannot afford the CGT bill from other sources. If they want to help their children in the future, it will have to be regular gifts (small gift exemption) from their income or the distribution of proceeds from another sale at some point in the future.

If OP sells #4 now. They should comfortably clear the remaining mortgage balance over the next ~5 years. At retirement they will have €110k rental income plus the various state pension. In this scenario, I think it makes sense to use the small gift exemption for the kids. It would be easy to transfer €12k in one calendar year from OP+spouse to child+partner.

If the kids are all close in age and looking for property at the same time then the OP should consider selling another property (#3) at some point in the future. They are most likely to still have close to €100k in income as retirees which is very comfortable
 
Unless I’ve missed it, I don’t think we’ve been told how much of the €458k (interest-only) BTL loan relates to property 4.

As pointed out by others, it seems odd that three of the rentals have gross yields in excess of 10% (very impressive!) but property 4 is only yielding 3%. I’m guessing there is a family arrangement (or similar) in place and you may be reluctant to sell property 4.

Did the recently sold rental result in a capital gain or loss? Might be relevant for tax planning purposes.

Finally, you say you are a public servant. Does that come with a DB pension?
 
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The rents are very high on several properties. Interested to know how did you manage to achieve this ? Do you think they are sustainable long term in the event of an economic downturn ? Do you think these tenants are going to stay or buy their own place ? In which case you will have to replace them. I would argue that top rents like this may not last forever and that they are risky in that if a tenant loses their job you could be down a lot of money quickly with a difficult situation to deal with in your retirement.
 
_OkGo_ said:
I think you are mistaken on this. The recipient can reduce their CAT bill if CGT is paid by the disponer on the same transaction. But the OP will have to pay the CGT one way or another.
Click to expand...
Ah sorry, I think you're right. I guess I was mixing it up with the rules around inheritance but of course this would be a gift whilst alive.
 
Sarenco said:
Unless I’ve missed it, I don’t think we’ve been told how much of the €458k (interest-only) BTL loan relates to property 4.
Click to expand...
Apologies, I have edited the original post to show the mortgage outstanding on each. Its €200,000 on property 4.
 

No family arrangement. This was originally my home and is not typical BTL type property, its out the country, and the RPZ has kept the rent down.
 
Sarenco said:
Finally, you say you are a public servant. Does that come with a DB pension?
Click to expand...
Yes, however, I have only been in the public service for the last 8 years and much of that temporary/part time. My current pension so far seems to be €1,200 per year, and as I understand it that increases about €400 every year I work. So not much really.
 
January25 said:
Do you think they are sustainable long term in the event of an economic downturn ?
Click to expand...
Apart from property no 4, they are well located. In the event of a downturn rents may soften, there may be voids, but I don't expect any serious reduction in rent.
 
Nerak14 said:
Are you comfortable retaining the 4 properties knowing you’ll be considered a large landlord under the incoming rules? No fault evictions gone etc
Click to expand...


I certainly wouldn’t sell the 4th property based on being a large landlord until the legislation is confirmed….. according to my post above.
 
Thanks for the clarification.

Seems pretty clear to me that you should sell Property 4 and apply the net proceeds, after paying the CGT, together with the bulk of your cash savings, against the remaining BTL loans.
 
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