Pay off Mortgage/AVC’s? Rent second property out?

world201812

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54
Age: 42

Spouse’s/Partner's age: 38

Annual gross income from employment or profession: €50K

Annual gross income of spouse: €50K

Type of employment: – PAYE/Public Sector x 2

PPR: €550K (was value pre-Covid but god only knows now), €270K is mortgage outstanding, on KBC 3 year fixed rate of 2.55%

Second property: €450 (was value pre-Covid but god only knows now), €100K is mortgage outstanding, PTSB tracker of next to nothing.

Other borrowings – None

Do you pay off your full credit card balance each month? – Don’t Have credit cards

Savings and investments: €50k in current account

Do you have a pension scheme? Both in Public Service scheme, one in pre 2013 and one post 2013 scheme

Ages of children: 4 and 3

Life insurance: Zurich Life Guaranteed Protection Plan with accelerated serious illness cover etc, not cheap at €110 per month, on the PPR only.

There is a second Life insurance policy on the second mortgage, in the one of our names who the property belongs to, €15 per month.

One of us is late entrant to public sector at 35, and has effectively no pre-public sector pension benefits (post 2013 public sector pension scheme), the second person in the (pre 2013 public sector pension scheme) won’t be far off a full pension.

Last year we both did max AVC payments into separate PRSA’s we have set up, the reason we have set these up is both work in areas of the public sector where you don’t want to be working far beyond 60, if at all possible.

The savings we have of €50k are earning no interest for us, and in terms of priorities we have mortgage payments of almost €2,000 per month, before we rent out the second property with a possible rent of €2,000 per month on it.

In recent years we prioritised paying off as much debt as possible, our PPR mortgage is approx €1,300 per month and second mortgage is approx 650 a month, and we’ve yet to rent second property out.

Our priorities are to be in a position to boost our pension pots so that we can look at the possibility of retiring as early as possible, and also reduce our mortgage debt.

On the pension background information, one of us will have 10 year’s worth of UK pension benefits come retirement.

Among my questions, some of which are probably best suited to the pensions forum, as below. Any general observations and thoughts appreciated.

Should we do max of pension buy-back of years and/or AVC?

If we are to pension buy-back of years would we be better off doing that on the pre-2013 employee scheme as opposed to post 2013 scheme?

Or should we prioritise early pay off of mortgage?

What sort of rainy day fund should a couple with two kids and public sector jobs have?

(I would think not a huge amount required as if, heaven forbid, anything happens health wise to either of us, we have a very good life assurance scheme in place).

Our main outgoings would be childcare, one of us only got our career on track in last couple of years, and will be significantly behind on pension contributions as very late entrant to public sector.

Long term we’d like to have second property for children when adults to have as theirs, as their home, or to sell it and split proceeds.

In terms of the second property, if we were to rent it out, what % of the gross income will we get net after taxes etc?

Among considerations, if possibility is one of us to take unpaid leave to mind children etc, if our joint incomes coupled with potential tax liability on rental income mean we might pay a lot of tax, one of us might be better off staying at home more and incurring less childcare cost?

Also, on the rental property, in light of falling rents I’ve read about, and fact so many people working from home would we be better off leaving second property vacant until the autumn when the rental market may pick up?

Or if we want to keep rental property for children many years from now, and if face prospect of 50% tax on its income, coupled with risk of rogue tenants, should we just incur mortgage costs with no rental income, and leave property vacant?

What’s the most prudent thing to do?
 

cremeegg

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3,316
From a practical point of view your first question is what to do with the second property.

The answer is sell it.

You do not seem to experienced landlords, renting property has become a business for these who are committed to it. A €450k property with rental income of €24k per year is a poor investment. Leaving a property vacant until your kids need in 20 years time is not sense.

You might want to wait until the impact of Covid is clearer, or you might not.

If you sell and have €350k cash or even €270k pay off your home mortgage. A 2.55% guaranteed after tax return is excellent.

That will free up €2k per month. Invest it as tax efficiently as you can, or just spend it.
 

world201812

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54
Thanks Cremeegg for your swift response.

We definitely are not experienced landlords, and I've heard horror stories from other amateur landlords.

However, given how unaffordable property has become for people starting out, we only have the two properties due to good fortune/timing, we did wonder should we have our childrens housing needs sorted long term?

Then again there are management fees etc on an annual basis.

If we had 350 cash from second property sale, we should simply pay off house mortgage? Leaving us with 70k.

Having cash in bank seems to be a no-no in terms of interest rates at the minute.
 

Laughahalla

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Messages
205
Sell second property and pay off your principal residence tomorrow.
Invest surplus cash.
Never borrow again.

You should become very comfortable/ wealthy doing this.

At a minimum you've simplified your life and reduced your risk.
 

Ndiddy

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Messages
106
Without a mortgage, you can save a high percentage from your salaries to fund both your early retirement needs and contribute 3k per year/per parent/per child to a fund that will allow you to help your children get on the property ladder in a place they would like to live. 15-20 years before your kids need to be on the ladder is a long time to deal with possible tenant issues, taxes and the gradual decline/constant upkeep of keeping an extra property that won't give you much after-tax income!
 

LS400

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544
I dont agree.. I would think long and hard about selling the second property.

You've already done the hard work in getting this property and to the stage of only having €100k outstanding on it, and, it costing you so little in interest into the bargain.

Also, there is no "Landlord experience school" except for the real life experiences you come across and solve, and then move on. Landlords going into Property rentals, didn't start off with a diploma in their hand, so I wouldn't be put off by that.

If you prefer not to have the hassle of looking after a rental, I would be handing it over to an agent... and then forget about it. Your in a strong position financially without the need to rely on its income. This would also give you the piece of mind to know the Kids will have a head start on the housing crisis/non-crisis (who knows) in 20 years time. It really will go in faster that you think, and Id rather not have that stress in the pipeline.

So really, with you both being in well paid secure jobs, you can still have your cake, and eat it.
 
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