Invest in a more expensive house

clueless2019

Registered User
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14
This might be a bit insensitive due to housing crisis, and people generally struggling,

But I wonder if its a good investment to move house and buy something more expensive. The circumstances:

1. Pension contributions use up all tax free allowances as a percentage of salary
2. a buy to let or other investments are subject to dividends tax or CGT
3. No CGT on principle private residence
3. Houses generally increase with inflation irrespective of boom/bust. land is a limited resource.

i dont need a more expensive house, im happy in my area and dont need anything bigger.

but its an asset investment that i can enjoy. Alternatively i could use the interest payments, about 3000euro per year for each 100k borrowed on enjoying life, but i wouldn't have anything to show for it. any views greatly appreciated.
 
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SBarrett

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Your money will be tied up in an illquid asset that you don't really want. If you want to access some of the value, it will take months to realise the cash, be expensive to do so and you will have to move house too. You may also get push back from other members of the family (if there are any). It's a terrible idea.




Steven
www.bluewaterfp.ie
 

Brendan Burgess

Founder
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37,696
It would not make sense to borrow money to buy more house than you actually need and enjoy.

It might make sense if you had cash savings.

"investing" in your own home does get a better return than other asset classes because of the tax treatment, but you are already heavily invested in property, so if you have surplus savings, diversify into equities.

Brendan
 

clueless2019

Registered User
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14
Thanks guys. i dont think it would make sense if i had cash savings. as in order to save an extra 100,000 euros for example i would need to save and why would i do that, with 0.01% deposit interest rates. if i was to borrow 100k euros, interest rates are about 3% but likely the extra 100K invested in private house would raise by 3%, or similar to what inflation is.

illiquidacy of the asset is irrelevant, its there for my kids when i die.

i think equities and land purchase are quite linked so i dont think there is a need to diversity. plus with equities i have to pay tax on dividends and increase in value.

In the absence of compelling arguments against, this is what i will do, which is not good public policy.
 

huskerdu

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The reason why illiquidacy is relevant is that you can only release those assets to your children when you die.

If you live to be 88, and you had kids in your 30s, you cant hand it on to them until they are in their 50s.
 

clueless2019

Registered User
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actually thats a good point Red Onion, and sure CAT only arrises if its over the threshold, which it wont, so it wont matter what the asset it. well spotted. Thanks for that.

and thanks Huskerdu, i didnt think that my kids would be quite that old (them being in their 50s and probably need it sooner). good point too.

suppose there is always the chance i want to liquidise it. so CGT would be relevant then.

besides from pension and principle private residence, any other ways to save without incurring tax. im ignoring state savings with post office (prize bonds etc) as they are so puny. And i dont feel good about avoiding tax, but im only talking about 500euros a month, im hardly in the 1% richest.
 

clueless2019

Registered User
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14
I give up.
hahhaa, i expect you have to deal with my sweeping statement regularly enough.

going on the 2008 crash, we saw both equities and land values decreased. If a companies fail, their values decrease. and so they lay off staff, staff cant afford houses, so there values are loosely linked.

What i mean is, id rather take a bigger hit on property decreasing than equities decreasing as ill take a 50% hit on dividends and 25% hit on CGT of equities.
 

Gordon Gekko

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I can see the logic in buying a more valuable house than one might need if the intention is to downsize. But there are so many other variables. And, for non-downsizers, the fact that CGT disappears on death is a key point. However, so too is the ability of an older parent to cohabit with his/her kids and to pass on a home free of CAT.
 

moneymakeover

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I think the idea makes perfect sense

The only negative I can see is if you do need the money, it might not be ideal having to move house/neighborhood in your retirement
 

clueless2019

Registered User
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14
why thank you very much 'moneymakeover'. stamp duty is 1% so wont be a problem to downsize and profit the difference. suppose if it was increased to 2006 stamp duty rates, it might become more of a problem .

Gordan Gekko, i dont suppose you could briefly advise what the "other variables" are that you refer to in your post 2 above.

i came to this site as opposed to a financial advisor, as i was looking for general advise, not which equities to invest in. and i am genuinely looking for advice, wondering if there are hypothetically good reasons not to buy a more expensive house than is needed for investment purposes.

in case someone suggests buy to let as investment, ive seen the hassle and cost that entails.

Its bad policy by the government, there should be an incentive to not buy a bigger house in a nicer area. but there you go.
 

joe sod

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653
i dont need a more expensive house, im happy in my area and dont need anything bigger.
there seems to be a fashion especially in rural ireland of building bigger houses than you actually need, its also the case that people dont downsize when they get older, at that stage its too much hassle even if the "big house " is alot of work and hard to maintain. Big houses are hard to sell especially in downturns, remember the half finished mansions that could not be sold back in 2010 even at ridiculously low prices.
 

SBarrett

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If the purpose of the exercise is to leave inheritance to your kids, stick it in a PRSA and leave it until you die. You can pay in the equivalent monthly mortgage repayments instead of having to take on the obligations and cost of moving house. You will also get tax relief on your contributions and can access some/ all of the fund if you wish in the future.

And yes, property and equities are linked except equities perform better over the long term. Don't know why I would invest in the 2nd best performing asset when the best one is also available.

Also, you are not generating any return by investing in your own home. There's no rental income being generated. All you are doing is going without now so your kids (who will be adults nearing retirement with children of their own) can inherit more.



Steven
www.bluewaterfp.ie
 

NoRegretsCoyote

Frequent Poster
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567
If you have a solid income, and have €200k sitting in the bank, and you really, really like living in a big house, then it might be a good use of your wealth.

Any gain isn't of course taxed, and stamp duty and estate agents' fees are low in Ireland if you ever want to downsize.

That said, houses depreciate, and can decline in value too.
 

Sarenco

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5,432
If the purpose of the exercise is to leave inheritance to your kids, stick it in a PRSA and leave it until you die.
Not sure that works here -
Pension contributions use up all tax free allowances as a percentage of salary
Also, wouldn't you have deemed drawdowns from 75?
And yes, property and equities are linked except equities perform better over the long term.
Actually, some academics dispute that claim -
https://qz.com/1170694/housing-was-the-worlds-best-investment-over-the-last-150-years/

But I agree that borrowing money to buy a bigger PPR than you either want or need is bonkers.
 

Gordon Gekko

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3,572
If the purpose of the exercise is to leave inheritance to your kids, stick it in a PRSA and leave it until you die. You can pay in the equivalent monthly mortgage repayments instead of having to take on the obligations and cost of moving house. You will also get tax relief on your contributions and can access some/ all of the fund if you wish in the future.

And yes, property and equities are linked except equities perform better over the long term. Don't know why I would invest in the 2nd best performing asset when the best one is also available.

Also, you are not generating any return by investing in your own home. There's no rental income being generated. All you are doing is going without now so your kids (who will be adults nearing retirement with children of their own) can inherit more.



Steven
www.bluewaterfp.ie
Has that ship not sailed?

i.e. it’s now deemed to become an ARF at age 75
 

clueless2019

Registered User
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14
Thank you all. very good insights.

i hope this thread will be useful for anyone else wondering if they should use money to invest in a bigger house instead of equities that are taxed. and based on that from Sarenco, property has performed better.

For me personally, i will reflect on how easy i will find it to downsize when i retire so i can pass on $$$$ to kids. And whether i would benefit from having a more expensive house, with depreciation, upkeep, etc.
 

clueless2019

Registered User
Messages
14
quick question, i have checked about 10 different websites but its not stated anywhere so i need to ask:

You are permitted to take 25% of the value of your pension fund at retirement. (200k threshold). Anyone know what the retirement age for this purpose is??? As in, can i leave work at 50years old and say im 'retiring' and proceed to take 25% of my pension pot without paying tax.
 
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