Invest in property using Redundancy Money

T

thecats

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Hi,

Can anyone out there please give me some advise on the following?

I will be coming into some redundancy money in the next few months.

As the price of property has dropped considerably in my area I was looking at investing this money and buying a small apartment for around 60k (no mortgage required).

I was then hoping that the rent from this apartment would be used to help top up my current mortgage on my family home. The property will basically be an investment for the future.

I am thinking that If I sold the property for the same money in ten to 15yrs time the rent earned from now until then will help pay off my main house mortgage quicker. (assume I still will be in employment).

What are the pros and cons ie income tax implications, property tax etc
 
Without wishing to be glib, it seems to me you haven't thought this through. Pros and cons re income tax and property tax - if I had 30-40 minutes .... ....

But at the outset before getting into how your rental-after-tax-profits (note, not your rents) will part-finance your current mortgage; how will you fund your day-to-day living until you find a new job? How long will you be out of work?

What is the rental yield expected? What is the rental market like where you live, and what segment are you aiming for?
 
Leaving the tax issue aside for a moment there are other, and probably more significant issues to consider.

If you decide to become a landlord, you will considered to be in the renting business and therefore you must know and understand full all your rights and obligations as well as those of your tenant. Because you are a "professional", ignorance of the law will not be accepted as a defence.

There are many "reluctant" landlords out there, who have been more or less forced to rent their property. A large number of them have fallen foul of the law by not knowing the tenant's rights or the correct procedures in cases of Rent arrears, anti-social behaviour, illegal evictions, part 4 tenancy rights of the tenant, deposit retention and landlord's obligations, to name but a few problem areas.

IMHO, an apartment/property of the value of 60k is looking at the lower end of the rental market and probably the area where there are the most problems.

Apart from tax implications, you will also have to consider:
PRTB registration
PRSI as a landlord
Household charge
Water charges
Landlord insurance
If an apartment, management fees (and is the management company in a sound financial position)

Just a few thoughts.

Have a read through many posts on AAM to see some of the issues between landlords and tenants.
 
Agree with above. Also look on balanced investment portfolio and diversification from one class of asset. The last 6 years have thought us one lesson again and again - don't put all your eggs in one basket.

Property is illiquid and with very significant transaction costs.
 
thecats said:
I was then hoping that the rent from this apartment would be used to help top up my current mortgage on my family home. The property will basically be an investment for the future.

I am thinking that If I sold the property for the same money in ten to 15yrs time the rent earned from now until then will help pay off my main house mortgage quicker. (assume I still will be in employment).
Click to expand...

Hi the cats.

Why not simply use the money to pay down or pay off the mortgage on your home now?

You will get a tax-free return of the interest rate you are paying.

If you have €60k of separate assets, any means tested jobskeekers allowance will be reduced. Whereas your home is not considered an asset when assessing you for means-tested social welfare benefits.

If you are unemployed, you should not have borrowing.

Nor should you increase your exposure to property.

So pay off your mortgage but make sure that the bank considers it to be a payment in advance so that if you get into difficulty later you can take a payment break.

If you have a cheap tracker mortgage, the decision won't be as clear. But you should put your money into some liquid investments so that you can pay off your mortgage, if that is the best thing for you.
 
Thanks for reply,
Very helpful tips by all.

Assume I will be working as I will not carry out the investment unless I am employed.I'm not in a bad position as I will be still employed in my current job until I find another position.(12mths anyway) and then take redundency.

My expected yeild should be 5-6% and the rental area is Kilkenny City which is not a bad rental area.I would hope to buy a 1/2 bed apartment in the city centre which are going for 50-80K .
I would also expect to go through a rental agency to take control of tenents and rents etc
-I would expect to get 500 euro rent and I have allowed 200 euro of this to go towards management fees,tax up keep etc.
-My thinking is that with current property prices it would be better to invest in a small property rather than leaving this lump sum sit in a deposit account or post office .

I fully understand the problms landlords can have ,this is the reason I did not hold onto my first house a number of years ago and instead sold and used the profit I made in the good times to upgrade to my current house .

I suppose my options are

  • to invest in a small property
  • paying a chunck off my mortgage but will still leave me with a considerable mortgage
  • leave lump sum gather very small interest in deposit account.

Would love some feedback.
 
Last edited:
Very useful information guys ,I have taken note of all the feedback you guys have given me.Thanks
 
  • paying a chunck off my mortgage but will still leave me with a considerable mortgage
    Click to expand...
If you pay the €50k off your mortgage, you will be left with a considerable mortgage.



If you don't, you will be left with a considerable mortgage + €50k.


I think it's pretty clear that you are better off reducing your "considerable mortgage + €50k"


You will get a more comprehensive answer if you provide all the figures e.g. Current mortgage, value of property, interest rate, term, other assets etc



Brendan
 
Brendan,

215K left on mortgage
Value of property 220K (Bought for 276K in 2005)
20yrs left on mortgage
Variable rate 4.58%
Current repayments E1258
No other assets
 
By paying the money off your mortgage, you are getting the equivalent of a 4.58% tax free return on your money - with no risk.

This is clear, pay down your mortgage.

It is a good financial investment.
It is good psychologically, to have a good bit of positive equity in your home.
It is also good tactically, as you will have flexibility if you ever need to sell your home, you will be able to.

Brendan
 
I think you have knocked a bit of sense into me.

What is the best way to pay down on the mortgage.
-One lump sum
-Increase my monthly repayments for a period of time (pay normal repayment + top up from my lump sum.
 
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