Decision Time...

Discussion in 'Money makeover' started by Rboydd, Nov 30, 2016.

  1. Rboydd

    Rboydd New Member

    Hi there, I would appreciate candid feedback please.

    As laid out below we have exposure to the residential investment market but have been in the business for a lot of years and have full occupancy rates for 10+ years. Although we have weathered the 2008 crash, we have concerns about Brexit and the possible lowering of US corporation tax rates and the resulting impact on well paid Irish jobs... and the possible fallout. Additionally, its getting more difficult to get a return for the significant work invovled with the responsbilities of being a landlord.

    With all the additional non deductable levies imposed coupled with an increased tax exposure, we are considering selling up. We would like to be financially independent and to get to a position where we can serious consider early retirement. Thoughts very much appreciated.

    Age: 49
    Spouse’s/Partner's age: 45

    Annual gross income from employment or profession: 148,000 (plus bonus 15-25k)
    Annual gross income of spouse:0

    Monthly take-home pay pre bonus 6,800 (nett)
    Annual bonus pre tax: ~20K
    DISB : 4 x annual salary

    Monthly expenses:
    Mortgage: 1,250 k incl protection
    Childcare: 0
    Car finance: 450
    On top living expenses / general spend:4,000
    Savings – Between 1,000 and 1,500 per month

    Type of employment: Private Sector

    In general are you:
    (a) spending more than you earn, or BREAKING EVEN
    (b) saving?

    Saving about 1,000 - 1,500 per month

    Rough estimate of value of home: 600,000
    Amount outstanding on your mortgage: 190,000 with 18 years remaining
    What interest rate are you paying? 3.5%

    Other borrowings – car loans/personal loans etc.: 450 per month on spouse's car (12K remaining over 2.5 years)

    Do you pay off your full credit card balance each month? No. Approx balance each month is 1,000

    Pension Scheme: DB with 15 years paid in (pot worth approx 560,000 currently projecting 28,000 per year upon retirement, excluding state pension)

    Savings and investments:
    This is where it gets a little complicated so please bear with me:
    Cash in bank: 25,000

    We currently have a number of residential investment properties and a holiday home:
    Property 1:
    Value: 350,000
    Mortgage: 220,000 @ 3.8%
    Term Remaining: 16 Years
    Monthly Repayment: 1,550
    Monthly Rent: 1,250
    Capital Gain Exposure: 40,000

    Property 2:
    Value: 220,000
    Mortgage: 22,000 @ 1.3%
    Term Remaining: 3.5 Years
    Monthly Repayment: 640
    Monthly Rent: 850
    Capital Gain Exposure: 30,000

    Property 3:
    Value: 210,000
    Mortgage 102,000 @ 1,3%
    Term Remaining: 13 Years
    Monthly Repayment: 750
    Monthly Rent: 790
    Capital Gain Exposure: 0

    Property 4:
    Value: 105,000
    Mortgage: 48,000 @5.5%
    Term Remaining: 18 Years
    Monthly Repayment: 330
    Monthly Rent: 850
    Capital Gain Exposure: 5,000

    Property 5:
    Value: 90,000
    Mortgage: 47,000 @5.5%
    Term Remaining: 17 Years
    Monthly Repayment: 330
    Monthly Rent: 800
    Capital Gain Exposure: 0

    Property 6: Holiday Home in Spain
    Value: 180,000
    Mortgage: 0
    Monthly Repayment: 0
    Monthly Rent: 0
    Capital Gain Exposure: 0

    Do you own any investment or other property? - See above

    Ages of children: One son aged 9

    Life insurance: Yes, completely covered on all bank borrowings.
  2. Bronte

    Bronte Frequent Poster

    Last edited: Dec 1, 2016
    I don't understand why you don't pay your CC on time? I'd hardly call it breakeven if you save between 1K and 1.5K a month.

    Is there interest on the car loan?

    I think you're too young to retire. What age do you want to be to retire and what do you want to do?

    Investment Properties

    On the 5 investment properties, you have significant equity. But I'd say you are probably paying tax of near 50% on them. (I expect Burgess will do his excel table on which are performing or not so I'll leave that)


    3 of them are 50% equity to debt. 1 is practically debt free and the remaining one is 1/3 positive equity. Can't see any problems arising on figures like that.

    Interest rates

    Property 2 & 3 seem to be trackers? 1.3% is very low.

    Property 4 7 5 have a high interest rate at 5.5% each, but, the repayments are low when you take into account the rents.

    Property 1, more mortgage than rent, a high interest rate of 3.8%. Also teh one with only 1/3 equity. Might be an idea to pay this one off quicker.

    You should also look at remortgaging to see if you can get a better deal. You have a portfolio of 5 properties, with good rent role and with a good job and plenty of equity.

    You specifically mentioned Brexit etc. I'd think about fixing mortgage rates on the expensive ones. Then you don't care about that.

    Rents versus Mortgage

    1250 + 850 + 790 + 850 +800 = 4540

    Mortgages 1550+ 640 +750+330 +330 =3600

    That looks fine to me.

    Holiday Home

    How much does the holiday home cost you annually. And how much do you use it.


    If you do sell, and I'm a landlord too, so I totally get your points on being a landlord, I'm looking for the holy grail of what to do with the cash realised instead of being invested in property.
    Last edited: Dec 1, 2016
  3. Gerry Canning

    Gerry Canning Frequent Poster


    On the language you use {weathered} + {brexit} concerns , I get the sense you might be tired of landlordism ?

    If so , do the sums , cash out ,stand back for a few months and then see what you both want to do.
    There are more things than landlordism you can do..
  4. noproblem

    noproblem Frequent Poster

    Your actual savings are very low at €25k for someone who's saving between €1 to €1.5 k per mth. Why the big balance on your credit card?
  5. cremeegg

    cremeegg Frequent Poster


    Please Bronte come back here and let us know if you find it. Better yet pm me, probably spoil it if everyone knew. :)
  6. cremeegg

    cremeegg Frequent Poster

    Property 6, doesn't come into it from a financial point of view, it costs you €6,660 in interest costs, plus whatever other costs there are, less what you would spend on a holiday if you didn't own it. If you like it that much keep it, if you don't sell it. Not really a financial decision.
  7. Sarenco

    Sarenco Frequent Poster

    Hi Rboydd

    It obviously doesn't have to be all or nothing and I think you should consider each individual property on its own merits.

    If it was me, I would definitely sell Property 1 (poor yield, relatively expensive finance) and apply the net proceeds to clear the outstanding car loan, credit card balance and the expensive mortgage loans on Property 4 & 5 (which I would retain - they are producing a terrific yield).

    I would also be inclined to sell Property 2 & 3 (poor yields but with reasonable finance costs) and use the net proceeds to pay off the PDH mortgage and I would personally invest the balance in a mix of investment trusts and savings certs. However, that's a closer call and is partly down to a view that your investment portfolio is not really adequately diversified across the different asset classes.

    As Cremeegg says Property 6 is not really investment at all - it's a consumption item. Whether you retain it or not really comes down to what value you place on the utility of having a holiday home versus your desire to be financially independent.

    Hope that helps.
  8. Rboydd

    Rboydd New Member


    Thank you for taking the time to review in such detail: Yes, you are correct; very little tax shelter remaining, and significant additional tax paid in recent years re rental income. Properties 1, 2, 3 are all on tracker, ECB + 0.8%. Properties 4 & 5 were purchased for the yield rather than any cap appreciation and are performing well.
    Property 1 is the first one that makes sense to sell... the CGT is painful though.

    The annual cost of running the holiday home is factored into our monthly expenses/general spend of 4,000 per year. It has been used extensively for 10 years but will think of selling that in 2018.
  9. Sarenco

    Sarenco Frequent Poster

    That can't be right - the ECB refi rate is currently 0%.
  10. Rboydd

    Rboydd New Member


    Yes, landlordism is very time consuming and expensive. It is a business for us and we run it as such, so can't complain. The real concern here is the various proposed legislative changes that are being muted that further vilify responsible tax compliant landlords. I think its time to exit the business completely.
  11. Rboydd

    Rboydd New Member

    Just double checked bank statement.... you are correct, now down to 0.8%... Great ! When I had originally gone through detailed analysis last year it was totalling 1.3%... that number had stuck in my head.
  12. Dan Murray

    Dan Murray Frequent Poster

    Hi Rboydd,

    Welcome to AAM. If you get a chance, would you mind listing the various proposed changes please? I suspect your views would be of interest to many.
  13. Sarenco

    Sarenco Frequent Poster


    That 0.5% difference, while obviously small, is probably enough to make the retain/sell decision for Property 2 & 3 an even closer call. If you did decide to retain these rentals and sold Property 1 (which looks like a pretty clear cut decision to me notwithstanding the resulting CGT liability) then you would probably be better off using the proceeds to pay off the mortgage on the PDH ahead of paying off the mortgages on Property 4 & 5 (as 80% of the interest on those loans will be tax deductible next year).

    Obviously this is all moot if you plan on liquidating the entire portfolio!
  14. Rboydd

    Rboydd New Member

    I know, you're right, its simply (costly) laziness on my part. New year resolution coming up. ! Thanks
    noproblem likes this.
  15. Rboydd

    Rboydd New Member

    Some proposals that have been discussed in the media are:
    Non corporate landlords holding more than 3 residential properties to be VAT registered. This would require a VAT return on a bi-monthly basis in addition to annualised returns.
    NCT type system to be introduced based on an annual inspection. No cert = no tenancy.
    Rent levels to be directly linked to inflation---> downward inflation = downward rent reviews. - No reference however to additional landlord costs being introduced which would mean these costs could not be passed on by way of rent.
    An undisclosed series of measures to actively counter and pursue perceived landlord discrimination against social welfare schemes.

    I understand from media commentary that these proposals (and others) are being presented to an oireachtas committee.
  16. cremeegg

    cremeegg Frequent Poster

  17. Rboydd

    Rboydd New Member

    Last edited by a moderator: Dec 19, 2016

    The reference to a proposed requirement re VAT registration for landlords holding 3 or more properties was mentioned during an interview with Lorcan Sirr on Newstalk radio earlier this year.
    Last edited by a moderator: Dec 19, 2016
    noproblem likes this.