IT article Pension investment in property

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cremeegg

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The Irish Times has an article about investing in property through your pension.

Although I am always wary of anything suggested in the newspaper, this seems like a good idea. Are there any pitfalls I should be aware of.

Specifically any pitfalls on the pension side. I feel more confident in my knowledge of property investing.

After a bad experience in a structured product, I am slow to get into something I do not understand. But this seems too good to be true. !!

link to article
https://www.irishtimes.com/business...ith-no-tax-no-tax-returns-no-hassle-1.3444486
 

You are taxed on the proceeds when you take it out of your pension.

It is no different to any other pension. Shares and property funds all accumulate tax free with no tax on dividends and the asset can be sold without capital gains tax. Having one investment property instead of a number of large commercial buildings in a property fund is no different.

And remember, the property isn't yours, it's your pension funds. The transaction has to be at arms length and you can't be involved in the management of it.

You need liquidity too as part of the pension set up. You can borrow 50% of the value but need 10% of the mortgage amount in cash. You also need close of €30,000 in fees for fit out, legal fees (your solicitor, the pensioneer trustees and the mortgage lenders), stamp duty etc.

It's suitable if you have a decent pension pot and it forms part of your overall retirement plan. I get a lot of calls from people looking to buy an apartment in Carlow with 2/3 others (no offence to Carlow). That's honestly more hassle than it's worth.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Gordon Gekko said:
The article in question was a disgrace...a completely unbalanced puff-piece.
Click to expand...

I've dealt with the fall out of the last time people were buying properties through their pensions. Shortfall in rental income to cover the repayments. Recession happened, no spare cash to make pension contributions to make up shortfall...property in arrears. As usual, people fight tooth and nail to hang onto a property they can't afford even though they can hand back the keys and walk away.

Certainly not suitable to members of occupational pension schemes where any self directed pension will be by a PRSA AVC.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
I can't read the article as it's subscribers only.

A lot of people who don't have a pension point at a property and say "My investment property is my pension."

That is terrible and I point out to them that they could have bought the investment property through their pension fund.

I know people whose pension funds have been wiped out by highly leveraged property investments.

If you have a pension fund with €1m in it and want to invest some of it in a property, that is fine. But borrowing money in a pension fund to buy one property is crazy.

Brendan
 
It was reckless in the extreme. Why in God’s name should investors take concentrated punts on Irish property through their pension funds? A single asset class in a single geography; madness. The article should have had “Advertorial” in bold writing across the top.
 

I never understand it. The life companies can buy loads of commercial properties and have lots of liquidity, no repayments. Why is owning a 1 bed in Cavan better than that?

Same with people investing in Irish banks! If I was going to invest in one bank, I'd be investing in something like Goldman Sachs, not a small cap company like Bank of Ireland or AIB.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 

Hi Brendan,

With the advent of REITs and other means of investing in a liquid diversified manner, I just don’t see why people would go down this route.

If someone has a strong view on little old Ireland, by all means layer in some liquid options such as IRes, Green, and/or Hibernian, but otherwise my sense is that they should look at liquid globally diversified property solutions.

And I’m not convinced that the average punter should be making big asset allocation calls like this on their own.

It’s a road to disaster based on what I’ve seen over the years.

Gordon
 
“It’s as bullet-proof a solution as exists...” WOW

“It’s as close to perfect for an ARF as exists...” WOW x 2

“You’re not going to be able to self-direct if you work for a large employer...” WRONG

“the funds to fix things will come out of your pension fund too so there can be savings on this end too...” IRRELEVANT (REPAIRS & MAINTENANCE ARE TAX DEDUCTIBLE IN ANY EVENT)

“Instead of buying one property, you may be in a position to buy two...” WOW x 3
 

What is involved here in the €30k.

By fit out if you mean fit out of the property, thats no different than a fit out that may be needed for any property investment. Or is there something involved specifically because of the pension structure.

I presume the solicitor, and the pensioneer trustees and the mortgage lenders fees are the same for any self directed pension, irrespective of the asset invested in.

What size of pension pot is usually considered large enough to justify these fees.


In not looking at Carlow, or an apartment. I have outlined the prospective property on this thread. https://www.askaboutmoney.com/threa...y-mortgages-for-investment-properties.207871/ on post number 3
 
Goldman Sachs PE 28
Bank Ireland PE 12

Which is overvalued

SBarrett said:
Same with people investing in Irish banks! If I was going to invest in one bank, I'd be investing in something like Goldman Sachs, not a small cap company like Bank of Ireland or AIB.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
Click to expand...
 

I'm only outlining the costs that are required. People think they just need the deposit but the pension has to be set up and the funds in place to pay for fees. But you are correct, fit out fees would need to be paid anyway.

If you buy the property yourself, you just pay your own solicitors fees. If you do it through a pension, you also pay the pensioneer trustees solicitor's fees and the bank's if you are getting a loan. And the financial advisors too as they will coordinate the whole thing. Solicitor fees wouldn't be involved if purchasing other assets.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
elacsaplau said:
OK Steven - I take it you're not a fan!

A few points:

1. I'm struggling to understand your €30k reference and

2. The bit quoted is flat wrong
Click to expand...

Example of purchase of property
Purchase Price €215,000
Loan Value €107,500
Term 15 years
Interest rate
- Capital & Interest 5.45% - €871 repayments
- Interest Only 5.59% - €500 repayments
Rental Income €1,700 a month

Costs
50% of Purchase price €107,500
Stamp Duty €2,150
Fit Out €3,500
Estate Agent Costs €900
ITC Legal Fees €1,984
Dilosk Legal Fees €2,000
Conveyancy Fees €2,050
Dilosk Application Fee €538
Bluewater Fee €2,500
Insurance €395
10% Liquidity €10,750
Total €134,267


I have no problem with the purchase of property if you have a big enough pension so it is a diversified part of your overall retirement fund. It is not a good idea though to put all your eggs in one basket. I would never tell a client to just buy one share, so I would never tell them to just buy one property and that's it. In these cases, the people tend to just about be able to afford a property and so look at the cheapest one available. They let the excitement of owning a property through their pension fog their judgement. Have a diversified portfolio and don't borrow in your pension (15 years is a long time to have to make pension contributions).


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
I have a major issue with people who already have a massive exposure to Irish property in the form of their home layering in more exposure to a single asset class within a tiny geography.
 
Gordon Gekko said:
I have a major issue with people who already have a massive exposure to Irish property in the form of their home layering in more exposure to a single asset class within a tiny geography.
Click to expand...

Agree fully. And this applies to whether that other property is bought through a pension fund or directly.

But it doubly applies if the person is borrowing to buy the property and the very high mortgage rates being charged in Ireland.

Brendan
 
Is there a preclusion against buying property abroad under this approach?

Could I for example buy a holiday home somewhere, get it managed locally, and have 8 weeks of the year to use it?
 
Dardania said:
Is there a preclusion against buying property abroad under this approach?

Could I for example buy a holiday home somewhere, get it managed locally, and have 8 weeks of the year to use it?
Click to expand...

Strictly not allowed. It can't be used for personal use, rented to family members or to your business.

Holiday homes are usually excluded for that reason. Also quite difficult to manage with a weekly/ 2 weekly turnover of tenant (which will be costly anyway with more cleaning, greater chances of damage, large periods of being unoccupied).

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Brendan Burgess said:
Agree fully. And this applies to whether that other property is bought through a pension fund or directly.

But it doubly applies if the person is borrowing to buy the property and the very high mortgage rates being charged in Ireland.

Brendan
Click to expand...

It should be noted that Dilosk’s rates are circa 5.5%!

There was so much wrong with that article...reckless journalism...in effect an advertorial.
 
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