Mortgage-free PPR and two Buy to Lets

aiddan

New Member
Messages
2
Personal details

Age: 38
Spouse’s/Partner's age: 38

Number and age of children: 2 (7&8)


Income and expenditure
Annual gross income from employment or profession: €62,000
Annual gross income of spouse: €50,000

Monthly take-home pay €6,400

Type of employment: I am working in private industry while Mrs. is in the public service

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

(a) - have always been savers although we have just recently relocated from living overseas so we are still trying to figure out our exact monthly savings figure as we juggle costs associated with relocating and figuring out the cost of living in Ireland.


Summary of Assets and Liabilities
Family home worth €380k with a €0k mortgage
Cash of €160k
Defined Contribution pension fund: €0k in Ireland - see below other information
Company shares : €0k
Buy to Let Property 1 worth €230k with mortgage of €0k
Buy to Let Property 2 worth €125k with mortgage of €0k


Other borrowings – car loans/personal loans etc

Do you pay off your full credit card balance each month? - Yes
If not, what is the balance on your credit card?

Car loan of €14k


Buy to let properties
Property 1
Value: €230k
Rental income per year: €12k
Rough annual expenses other than mortgage interest : €2.5k


Property 2
Value: €125k
Rental income per year: €10.2k
Rough annual expenses other than mortgage interest : €2.8k

Other savings and investments:

Do you have a pension scheme? Currently have a pension of €227k between us in the previous country we worked in (this is at todays currency conversion rate so may fluctuate). Note this money cannot be touched until we turn 65.

Do you own any investment or other property? - Minor share holdings. Purchase price €6k now worth €3k

Other information which might be relevant

Life insurance: Nil as yet but looking into it currently

Once I have been with my new employer for 6 months I can avail of the pension arrangement the company has which is 5% employee contribution with a 7% employer top-up. what I will do however is maximise the contributions to maximise the tax incentives to do so.


What specific question do you have or what issues are of concern to you?

I have a couple of queries that I am hoping to get some advise on as follows:

1. Now that we are residing in Ireland we are very deflated about the tax payable on the rental profits (48% in lieu of 20%). I see this as we are taking a lot of risk here for very little return considering the amount of cash tied up. Should we sell these properties?
2. We plan on doing some renovations to our PPR in the next 12-24month - budget around 75k - should we look at mortgaging one of the investment properties to pay for this to avail of the tax relief on the repayments - or is this even possible if we are spending the mortgaged cash on our PPR?
3. We feel that we are holding too much cash given the non-existent returns for deposits in the bank and are looking for some advise as to what is the best thing to do with the cash?

Any help / advice / guidance gladly appreciated.

Thanks for taking the time to read.
 

elcato

Moderator
Messages
3,747
Do the home renovations now with the cash. Your pulling in 15k net from rental income and getting whacked for tax. You need to do AVC between the 2 of you to offset this. This would save the 40% tax your currently paying on it into your pension.
 
Last edited:

goingforgold

Registered User
Messages
299
Congrats on very healthy financial position.

You can't remortgage an investment property and claim tax relief on it for works on PPR. Like others said, no point paying interest on car loan while earning zero interest on deposit. This is costing you money. Clear car loan and do renovations with cash. Your spouse will be in public sector pension scheme but you both should be maxing AVCs from this point on and claim for last year also.
 

Brendan Burgess

Founder
Messages
46,528
In summary
Family home: €380k
Cash:€160k
Buy to Let 1: €230k
Buy to Let 2: €125k
Car loan: (€14k)
Pension fund: €227k
Total net worth: €1,108

With a gross salary of €110k, you are doing very well.

Is your PPR your final home? Or might you want to trade up? This really is the key question to be answered first.

As you have not mentioned trading up and as you are planning to refurbish your home, then I assume you have no plans to trade up.

As passive investment, the Buy to Lets are profitable.
Take Property 2 for example:
Rental income after expenses €7k
Gross return: 5.6% ( 7/125)
After tax return: 3.3%

If it's not much hassle, then that is a good net return. But property is a time-consuming active business. If you are spending time on it, then €4k a year gross is not a good return.
If you sell it, where will you invest the proceeds? You don't have a mortgage to clear. You have enough cash and gross income to max your pension contributions.

You do have 75% of your wealth in property which is a bit high. You could diversify by selling one of the properties and investing in equities.

So, if either of them is hassle, then sell. Or if then tenant leaves, then sell it.

Or if you think you might trade up, then sell and put the proceeds in a liquid investment like shares so that when you decide to trade up, you will have the deposit and will be able to buy your new home without selling your existing home.

Brendan
 

Baby boomer

Registered User
Messages
741
Hard to beat Brendan's advice. Definitely clear the car loan from cash. Otherwise, don't do anything in a hurry and wait to get a feel for your incoming and outgoing cash flow in Ireland.

Your BTLs, especially the second, are excellent investments and I'd be slow to let them go unless you need the cash.

You are being hammered on tax. Welcome to Ireland! You should consider maxing out both your pension fund contributions, again assuming you don't need the cash. Also have a look at EIIS shares or funds - it's an excellent and much overlooked, tax-deductible investment over a five year period.
 
Top