How much are you contributing to the pension?Do you have a pension scheme? yes, defined contribution, fund value 115k
only 5% at the moment, matched by employer - but will resume either 10 or 15% asap. Had lowered last year as husband had been out of work for a periodHow much are you contributing to the pension?
Thank you! i think we should be able to pay for education mostly out of salary, even if it means less foreign holidays or cuts elsewhere - we should manage with minimum use of savings. Plus they dont seem very academically inclined so far...Looking at your circumstances, it would seem that your children's education may be an issue sooner than retirement.
You will get lots of people telling you to stay away from a BTL, while I am a believer in property, it does have its pitfalls, and you need to be willing to roll up your sleeves and commit to it, are you happy to do that.
Thank you, great points. We repaid mortgage on our main house in 12 years.With BTL, I really like the idea that if i have any extra cash i can use it to repay the mortgage early. I would aim at paying everything back in 10/15 years... and yes maximise my pension contributions as well on an ongoing basis. Looking for the flaws there, appreciate any inputSince your original question was specifically in relation to retirement, it would seem obvious that you should increase your pension contributions to maximum that you can get tax relief on.
If you only paid 5% last year, you can contribute a further 15,600 now, back dated. You'll get tax relief on it, so net cost to you is 9,400
Increase your contributions now for this year. Just by doing these things, with no market growth, your pension pot would go from current 115k to c. 150k in 12 months.
On a salary of 78k, with contributions of 25% plus 5% from employer, assuming just 3% growth per annum, you'll have over 800k in pot by the time you're 65. Take 200k tax free.
Or buy a BTL now, and aim to have the mortgage repaid in the same timeframe?
Have you actually worked out the numbers on it? Look at at like a business proposal.With BTL, I really like the idea that if i have any extra cash i can use it to repay the mortgage early.
I would say that is pretty low given your income and age. I would maximise tax-relieved pension contributions immediately.Do you have a pension scheme? yes, defined contribution, fund value 115k.
Thank you. I have tried to work this out , assuming minimum repayments as per mortgage terms- additional /faster payments would only happen if i have extra funds or savings, but in the first few years i would look at rebuilding up the emergency funds - and yes maximising pension too.Have you actually worked out the numbers on it? Look at at like a business proposal.
How much cashflow will you need every year, how much tax will you pay, etc etc. Don't go into it blind just because it seems like a good idea.
If you buy for 176k, you'll need 30% deposit. Plus stamp duty & legal fees. That'll leave your emergency fund a little light.
You'll have a mortgage of 123k to start.
Assuming no rental voids, interest of 4%, and expenses of 1,200 per annum, you'd need to put in an extra 3,200 of your own cash in year 1 to make repayments on a 15 year term. To repay over 15 years you'll need to put in an extra 63,500 of your own money, in addition to the total after tax rental income.
Where are you getting a wear & tear allowance from?wear & tear allowance €125 12.5% OF COST OVER 8 YEARS
maintenance & repairs 0
preletting expenses 0
Thank you very much - I will do more researchI would say that is pretty low given your income and age. I would maximise tax-relieved pension contributions immediately.
I tend to agree with @RedOnion on the BTL. For starters €12k/€176k =7% isn't an incredible yield. You could get something touching double digits if you look for an apartment in the right place. Financing at 4% isn't cheap, profits are taxed at marginal rate, and there is a huge amount of risk in having a lot of your wealth tied up in one place.
Remember:
Pension: contributions tax relieved, growth tax free, almost no hassle.
BTL: profits taxed at marginal rate, CGT at 33% on any increase in value, lots of hassle, potential negative equity.
Profit | Cashflow | |||||||||||||
Year | Rent | Interest | Expenses for Tax | W&T | Profit | Tax | After Tax Profit | Rent | Repayments | Costs | Repairs | Tax | Net Cashflow | |
1 | 13,080.00 | 5,677.76 | 390.00 | 125.00 | 6,887.24 | 3,581.36 | 3,305.87 | 13,080.00 | -8,752.73 | -390.00 | 0.00 | -3,581.36 | 355.91 | |
2 | 13,080.00 | 5,531.69 | 390.00 | 125.00 | 7,033.31 | 3,657.32 | 3,375.99 | 13,080.00 | -8,752.73 | -390.00 | 0.00 | -3,657.32 | 279.95 | |
3 | 13,080.00 | 5,378.68 | 390.00 | 125.00 | 7,186.32 | 3,736.89 | 3,449.43 | 13,080.00 | -8,752.73 | -390.00 | 0.00 | -3,736.89 | 200.39 | |
4 | 13,080.00 | 5,218.40 | 390.00 | 125.00 | 7,346.60 | 3,820.23 | 3,526.37 | 13,080.00 | -8,752.73 | -390.00 | 0.00 | -3,820.23 | 117.04 | |
5 | 13,080.00 | 5,050.50 | 390.00 | 125.00 | 7,514.50 | 3,907.54 | 3,606.96 | 13,080.00 | -8,752.73 | -390.00 | 0.00 | -3,907.54 | 29.74 | |
6 | 13,080.00 | 4,874.63 | 390.00 | 125.00 | 7,690.37 | 3,998.99 | 3,691.38 | 13,080.00 | -8,752.73 | -390.00 | 0.00 | -3,998.99 | -61.72 | |
7 | 13,080.00 | 4,690.41 | 390.00 | 125.00 | 7,874.59 | 4,094.79 | 3,779.80 | 13,080.00 | -8,752.73 | -390.00 | 0.00 | -4,094.79 | -157.51 | |
8 | 13,080.00 | 4,497.43 | 390.00 | 125.00 | 8,067.57 | 4,195.13 | 3,872.43 | 13,080.00 | -8,752.73 | -390.00 | -1,000.00 | -4,195.13 | -1,257.86 | |
9 | 13,080.00 | 4,295.29 | 390.00 | 125.00 | 8,269.71 | 4,300.25 | 3,969.46 | 13,080.00 | -8,752.73 | -390.00 | 0.00 | -4,300.25 | -362.97 | |
10 | 13,080.00 | 4,083.54 | 390.00 | 125.00 | 8,481.46 | 4,410.36 | 4,071.10 | 13,080.00 | -8,752.73 | -390.00 | 0.00 | -4,410.36 | -473.08 | |
11 | 13,080.00 | 3,861.74 | 390.00 | 125.00 | 8,703.26 | 4,525.70 | 4,177.56 | 13,080.00 | -8,752.73 | -390.00 | 0.00 | -4,525.70 | -588.42 | |
12 | 13,080.00 | 3,629.40 | 390.00 | 125.00 | 8,935.60 | 4,646.51 | 4,289.09 | 13,080.00 | -8,752.73 | -390.00 | 0.00 | -4,646.51 | -709.24 | |
13 | 13,080.00 | 3,386.02 | 390.00 | 125.00 | 9,178.98 | 4,773.07 | 4,405.91 | 13,080.00 | -8,752.73 | -390.00 | 0.00 | -4,773.07 | -835.79 | |
14 | 13,080.00 | 3,131.08 | 390.00 | 125.00 | 9,433.92 | 4,905.64 | 4,528.28 | 13,080.00 | -8,752.73 | -390.00 | 0.00 | -4,905.64 | -968.36 | |
15 | 13,080.00 | 2,864.03 | 390.00 | 125.00 | 9,700.97 | 5,044.50 | 4,656.47 | 13,080.00 | -8,752.73 | -390.00 | 0.00 | -5,044.50 | -1,107.23 | |
16 | 13,080.00 | 2,584.29 | 390.00 | 125.00 | 9,980.71 | 5,189.97 | 4,790.74 | 13,080.00 | -8,752.73 | -390.00 | -1,000.00 | -5,189.97 | -2,252.69 | |
17 | 13,080.00 | 2,291.27 | 390.00 | 125.00 | 10,273.73 | 5,342.34 | 4,931.39 | 13,080.00 | -8,752.73 | -390.00 | 0.00 | -5,342.34 | -1,405.07 | |
18 | 13,080.00 | 1,984.33 | 390.00 | 125.00 | 10,580.67 | 5,501.95 | 5,078.72 | 13,080.00 | -8,752.73 | -390.00 | 0.00 | -5,501.95 | -1,564.68 | |
19 | 13,080.00 | 1,662.80 | 390.00 | 125.00 | 10,902.20 | 5,669.14 | 5,233.06 | 13,080.00 | -8,752.73 | -390.00 | 0.00 | -5,669.14 | -1,731.87 | |
20 | 13,080.00 | 1,326.00 | 390.00 | 125.00 | 11,239.00 | 5,844.28 | 5,394.72 | 13,080.00 | -8,752.73 | -390.00 | 0.00 | -5,844.28 | -1,907.01 | |
21 | 13,080.00 | 973.20 | 390.00 | 125.00 | 11,591.80 | 6,027.74 | 5,564.06 | 13,080.00 | -8,752.73 | -390.00 | 0.00 | -6,027.74 | -2,090.46 | |
22 | 13,080.00 | 603.64 | 390.00 | 125.00 | 11,961.36 | 6,219.91 | 5,741.45 | 13,080.00 | -8,752.73 | -390.00 | 0.00 | -6,219.91 | -2,282.63 | |
23 | 13,080.00 | 216.53 | 390.00 | 125.00 | 12,348.47 | 6,421.20 | 5,927.27 | 13,080.00 | -8,752.73 | -390.00 | 0.00 | -6,421.20 | -2,483.93 |
I am thinking I would need to buy a new bed and couch, as the house is partially furnished and kitted out - total around 1k€ (I am thrifty, found good discounted stock) - so it seems from what I have read I can amortize this capital expenditure over 8 years at 12.5% of the cost each year - if I have got that right. For the rest the apartment is walk in conditions and sandwiched in between a supermarket and a dart station, in a quiet village...Where are you getting a wear & tear allowance from?
I'll rerun numbers based on your figures.
Sorry, I had missed the 1k spend first time.I am thinking I would need to buy a new bed and couch, as the house is partially furnished and kitted out - total around 1k€
Ah, an apartment. How much are the management fees?the apartment
1200/annum - right, I will add that back into the calc, unless i can rebill to the tenant...Sorry, I had missed the 1k spend first time.
Ah, an apartment. How much are the management fees?
Thanks RedOnion, I really appreciate you taking the time to run these numbers and indulging my ramblings.I really think you should be looking at pension funding first, and then investments outside of pension. A BTL might make sense, but you need to analyse it fully.
You've calculated 'leftover funds' of nearly 21k, so I can't see how you're making the additional contribution of 15,600 for last year?
Re BTL, here are the numbers I'm coming up with.
On left hand side is calculation for Tax, and on right is the cashflow piece. There's a tiny inaccuracy in the USC calculation, but it's not material.
A few key assumptions:
I've assumed no rental voids, & no growth in rent.
Based on 23 year term, and 4.65% rate.
I've gone with 1,000 for repairs every 8 years - I think this is light.
It's negative cashflow early on, and would need cash input of over 21k using these numbers.
Profit | Cashflow | |||||||||||||
Year | Rent | Interest | Expenses | W&T | Profit | Tax | After Tax Profit | Rent | Repayments | Costs | Repairs | Tax | Net Cashflow | |
1 | 13,080 | 5,680 | 1,590 | 125 | 5,685 | 2,956 | 2,729 | 13,080 | 8,756 | 6,590 | 200 | 2,956 | - 5,422 | |
2 | 13,211 | 5,534 | 1,590 | 125 | 5,962 | 3,100 | 2,862 | 13,211 | 8,756 | 1,590 | 200 | 3,100 | - 436 | |
3 | 13,343 | 5,381 | 1,590 | 125 | 6,247 | 3,248 | 2,999 | 13,343 | 8,756 | 1,590 | 200 | 3,248 | - 452 | |
4 | 13,476 | 5,221 | 1,590 | 125 | 6,541 | 3,401 | 3,140 | 13,476 | 8,756 | 1,590 | 200 | 3,401 | - 471 | |
5 | 13,611 | 5,053 | 1,590 | 125 | 6,844 | 3,559 | 3,285 | 13,611 | 8,756 | 1,590 | 200 | 3,559 | - 494 | |
6 | 13,747 | 4,877 | 1,590 | 125 | 7,156 | 3,721 | 3,435 | 13,747 | 8,756 | 1,590 | 200 | 3,721 | - 520 | |
7 | 13,885 | 4,692 | 1,590 | 125 | 7,477 | 3,888 | 3,589 | 13,885 | 8,756 | 1,590 | 200 | 3,888 | - 550 | |
8 | 14,024 | 4,499 | 1,590 | 125 | 7,809 | 4,061 | 3,748 | 14,024 | 8,756 | 1,590 | 200 | 4,061 | - 584 | |
9 | 14,164 | 4,297 | 1,590 | 125 | 8,152 | 4,239 | 3,913 | 14,164 | 8,756 | 1,590 | 200 | 4,239 | - 621 | |
10 | 14,305 | 4,085 | 1,590 | 125 | 8,505 | 4,423 | 4,082 | 14,305 | 8,756 | 1,590 | 200 | 4,423 | - 664 | |
11 | 14,448 | 3,863 | 1,590 | 125 | 8,870 | 4,612 | 4,258 | 14,448 | 8,756 | 1,590 | 200 | 4,612 | - 710 | |
12 | 14,593 | 3,631 | 1,590 | 125 | 9,247 | 4,808 | 4,439 | 14,593 | 8,756 | 1,590 | 200 | 4,808 | - 762 | |
13 | 14,739 | 3,387 | 1,590 | 125 | 9,636 | 5,011 | 4,626 | 14,739 | 8,756 | 1,590 | 200 | 5,011 | - 818 | |
14 | 14,886 | 3,132 | 1,590 | 125 | 10,039 | 5,220 | 4,819 | 14,886 | 8,756 | 1,590 | 200 | 5,220 | - 880 | |
15 | 15,035 | 2,865 | 1,590 | 125 | 10,455 | 5,437 | 5,018 | 15,035 | 8,756 | 1,590 | 200 | 5,437 | - 948 | |
16 | 15,185 | 2,585 | 1,590 | 125 | 10,885 | 5,660 | 5,225 | 15,185 | 8,756 | 1,590 | 200 | 5,660 | - 1,021 | |
17 | 15,337 | 2,292 | 1,590 | 125 | 11,330 | 5,892 | 5,438 | 15,337 | 8,756 | 1,590 | 200 | 5,892 | - 1,101 | |
18 | 15,491 | 1,985 | 1,590 | 125 | 11,791 | 6,131 | 5,659 | 15,491 | 8,756 | 1,590 | 200 | 6,131 | - 1,187 | |
19 | 15,646 | 1,663 | 1,590 | 125 | 12,267 | 6,379 | 5,888 | 15,646 | 8,756 | 1,590 | 200 | 6,379 | - 1,280 | |
20 | 15,802 | 1,327 | 1,590 | 125 | 12,761 | 6,635 | 6,125 | 15,802 | 8,756 | 1,590 | 200 | 6,635 | - 1,380 | |
21 | 15,960 | 974 | 1,590 | 125 | 13,271 | 6,901 | 6,370 | 15,960 | 8,756 | 1,590 | 200 | 6,901 | - 1,487 | |
22 | 16,120 | 604 | 1,590 | 125 | 13,801 | 7,176 | 6,624 | 16,120 | 8,756 | 1,590 | 200 | 7,176 | - 1,603 | |
23 | 16,281 | 217 | 1,590 | 125 | 14,349 | 7,462 | 6,888 | 16,281 | 8,756 | 1,590 | 200 | 7,462 | - 1,727 | |
336,369 | 77,844 | 36,570 | 2,875 | 219,080 | 113,922 | 105,158 | 336,369 | 201,394 | 41,570 | 4,600 | 113,922 | - 25,117 |
Prop. value | Outstanding Mtg | Equity | Capital rpmt | Net Cashflow | Amount invested to date | Equity | RETURN | |
Opening bal | 176,500.00 | 123,550.00 | 52,950.00 | - | ||||
Year 1 | 176,500.00 | 120,473.79 | 56,026.21 | 3,076.21 | 58,012.44 | 58,012.44 | 56,026.21 | - 1,986.23 |
Year 2 | 176,500.00 | 117,251.46 | 59,248.54 | 3,222.34 | 435.64 | 58,448.08 | 59,248.54 | 800.47 |
Year 3 | 176,500.00 | 113,876.04 | 62,623.96 | 3,375.41 | 451.83 | 58,899.91 | 62,623.96 | 3,724.05 |
Year 4 | 176,500.00 | 110,340.29 | 66,159.71 | 3,535.76 | 471.16 | 59,371.07 | 66,159.71 | 6,788.65 |
Year 5 | 176,500.00 | 106,636.57 | 69,863.43 | 3,703.72 | 493.82 | 59,864.88 | 69,863.43 | 9,998.55 |
Year 6 | 176,500.00 | 102,756.90 | 73,743.10 | 3,879.66 | 519.97 | 60,384.85 | 73,743.10 | 13,358.24 |
Year 7 | 176,500.00 | 98,692.94 | 77,807.06 | 4,063.96 | 549.82 | 60,934.67 | 77,807.06 | 16,872.38 |
Year 8 | 176,500.00 | 94,435.93 | 82,064.07 | 4,257.01 | 583.56 | 61,518.24 | 82,064.07 | 20,545.83 |
Year 9 | 176,500.00 | 89,976.69 | 86,523.31 | 4,459.24 | 621.41 | 62,139.64 | 86,523.31 | 24,383.67 |
Year 10 | 176,500.00 | 85,305.62 | 91,194.38 | 4,671.07 | 663.57 | 62,803.22 | 91,194.38 | 28,391.17 |
Year 11 | 176,500.00 | 80,412.65 | 96,087.35 | 4,892.97 | 710.29 | 63,513.51 | 96,087.35 | 32,573.84 |
Year 12 | 176,500.00 | 75,287.25 | 101,212.75 | 5,125.40 | 761.81 | 64,275.31 | 101,212.75 | 36,937.44 |
Year 13 | 176,500.00 | 69,918.37 | 106,581.63 | 5,368.88 | 818.37 | 65,093.68 | 106,581.63 | 41,487.95 |
Year 14 | 176,500.00 | 64,294.45 | 112,205.55 | 5,623.92 | 880.24 | 65,973.92 | 112,205.55 | 46,231.62 |
Year 15 | 176,500.00 | 58,403.38 | 118,096.62 | 5,891.08 | 947.71 | 66,921.63 | 118,096.62 | 51,174.99 |
Year 16 | 176,500.00 | 52,232.45 | 124,267.55 | 6,170.93 | 1,021.06 | 67,942.70 | 124,267.55 | 56,324.85 |
Year 17 | 176,500.00 | 45,768.38 | 130,731.62 | 6,464.07 | 1,100.61 | 69,043.31 | 130,731.62 | 61,688.32 |
Year 18 | 176,500.00 | 38,997.24 | 137,502.76 | 6,771.14 | 1,186.67 | 70,229.97 | 137,502.76 | 67,272.79 |
Year 19 | 176,500.00 | 31,904.44 | 144,595.56 | 7,092.80 | 1,279.57 | 71,509.54 | 144,595.56 | 73,086.02 |
Year 20 | 176,500.00 | 24,474.71 | 152,025.29 | 7,429.73 | 1,379.68 | 72,889.22 | 152,025.29 | 79,136.07 |
Year 21 | 176,500.00 | 16,692.03 | 159,807.97 | 7,782.67 | 1,487.36 | 74,376.58 | 159,807.97 | 85,431.39 |
Year 22 | 176,500.00 | 8,539.65 | 167,960.35 | 8,152.38 | 1,603.00 | 75,979.58 | 167,960.35 | 91,980.77 |
Year 23 | 176,500.00 | - | 176,500.00 | 8,539.65 | 1,727.00 | 77,706.58 | 176,500.00 | 98,793.42 |
This is where pensions are very powerful. Your looking at the return on investment property vs anything else you could invest in outside a pension, and it might make sense then.What I am trying to figure out is, is if I wanted to do something else with the money, e.g. put it into the pension or in an investment fund, while getting the same or better returns - what kind of interest rate/investment performance would I need to look at, in order to end up sitting on an asset of around 180k€, while investing 52k€ today and 25k over the course of the next 20 or so years...
You don't have to buy an annuity. If you do, then yes, it dies with you - the annuity is like an insurance contract, in that it guarantees an annual payment regardless of how long you live.whereas in my simple mind, with a pension, you have to give up the asset in order to get the annuity... with a property, I can pass the property onto my children, while still getting the income - am I looking at this the wrong way around?
Agree, at that price point, the rental yield would want to be higher. Particularly with the management fees thrown in. I'm assuming it's a 1 bed apartment on the Dart line, but quite a bit from city centre. I wouldn't consider the rent to be 'certain' enough over long term to justify a low yield.Final point, the rental income seems low, there are properties at a €176k purchase price which give higher rents, I am thinking about regional towns, I am not familiar with Dublin.
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