Planning to buy a 1M+ property

O

owly_owl

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Personal details

Age: Mid 30s
Spouse’s/Partner's age: 30s

Number and age of children: one cute baby, less than 1 YO


Income and expenditure
Annual gross income from employment or profession: 160K-200K (100K base salary, 15K guaranteed bonus. The rest is RSUs and other bonuses)
Annual gross income of spouse: 80K

Monthly take-home pay: 6.5K~

Type of employment: Salaried employee

In general are you:
(a) spending more than you earn, or
(b) saving. Our spend has been very low so far (1K-1.5K per month, not including mortgage)


Summary of Assets and Liabilities
Family home worth €350k with a €160k mortgage
Cash of €20k
Defined Contribution pension fund: €200k
Investment Portfolio 1: 35K
Investment Portfolio 2 (can't by used in Ireland for tax reasons): 190K

Family home mortgage information
Lender: AIB
Interest rate: around 2.5%
If fixed, what is the term remaining of the fixed rate? 4.5 years
My partner bought the property on her own

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?


Other savings and investments:

Do you have a pension scheme? Yes, 200K saved so far for both partners

Do you own any investment or other property? Yes, investment value listed above

Other information which might be relevant

Life insurance: We have it from work


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

1. We'd like to move to a nicer area and a bigger house in the next 1-3 years but not sell our current house (we can rent it). We're looking at 1M-1.5M houses in South Dublin. When it comes to 1M+ houses, is it better to rent or to buy? Is the rental yield different for more expensive houses?
2. My partner owns our house. Can she get a second mortgage jointly with me? How much would banks be willing to lend?
3. We'd like to set up a bare trust for the baby. Can we open a brokerage account for the bare trust?
4. Since we're not Irish and not domiciled here, does it make sense to start the bare trust somewhere else, like the UK?
 

rent on the kind of house you are thinking about will be 5-6.5k per month, itll be a lot cheaper to mortgage it (mortage around 4 on 1m at 2.5% over 30 years(

say you buy a house for 1.3m, you will need a 20% deposit - 260k, that leaves 1.04m as a mortgage, you wont get that on those salaries, am i missing something or what makes you think you can afford this? at the very least the other property would need to be sold to release the equity and make it easier to borrow the larger mortgage.
 
owly_owl said:
Family home worth €350k with a €160k mortgage
Cash of €20k
Defined Contribution pension fund: €200k
Investment Portfolio 1: 35K
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If you sell your current home, you will have a deposit of €250k

You have about €200k of income for mortgage purposes, so the bank will lend you €700k

So you could just about manage to buy a house for €950k - with an exemption a bit more.

Without selling your home, you can't buy a house for €1m.

Even if a bank was willing to allow you to keep your existing home, you should not do so, as you would be too exposed to the Irish property market.

Brendan
 
owly_owl said:
3. We'd like to set up a bare trust for the baby.
Click to expand...

Don't be worrying about things like this for the moment.
You want to borrow an enormous sum of money to provide the baby with a cute home.

So focus on getting the deposit together, buying the house and then getting the mortgage down to a comfortable level.

Brendan
 
owly_owl said:
Investment Portfolio 2 (can't by used in Ireland for tax reasons): 190K
Click to expand...

Talk to someone like Marc Westlake https://everlake.ie/contact-us/ about all this. He has very good knowledge of investment and financial planning for non domiciled individuals.

What would the tax hit be on the €190k? It might be worth your while to just take the hit now and improve your firepower in the house buying market.

Or is there someway of borrowing against the €190k?

Brendan
 
owly_owl said:
We'd like to move to a nicer area and a bigger house in the next 1-3 years
Click to expand...

If it's not immediate and might be as long as three years away, then stop all pension contributions which are not matched by your employer. Maxing the cash on hand is what you want. You can make up the lost contributions later.

Brendan
 
 
The hit will be too much for us unfortunately. This account has some funds with too much gains
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You do know that unless you leave it there until you die, you have to pay the tax at some stage. Not cashing in an investment when you need the money because of the tax liability flies in the face of the reason of investing i.e. putting the money away today for use at a time in the future.

You are looking to buy a new home. Your incomes, while decent, won't qualify you to get the level of mortgage that you want. Getting a smaller mortgage and using the assets that you already have it the most clear solution to this problem. That includes selling the current house (which will be an ongoing cost to you as well). A €1m mortgage is going to cost you €3,650 a month for 30 years. That is a big mortgage and is over 50% of your current take home pay.

And that's before factoring in all the additional costs of life that are going to come along.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
You're assuming I'll stay in Ireland forever and I'm not planning to do that. I will not pay tax on this money if I use it somewhere else.
Steven Barrett said:
A €1m mortgage is going to cost you €3,650 a month for 30 years. That is a big mortgage and is over 50% of your current take home pay.
Click to expand...
My take home pay is 6.5K. With my partner's take home pay we're closer to 10K.
 
owly_owl said:
You're assuming I'll stay in Ireland forever and I'm not planning to do that. I will not pay tax on this money if I use it somewhere else.
Click to expand...
That still doesn't solve your problem of getting as much equity as possible to get the mortgage down so you can afford to get it. Your RSU's are a constant, you can start again.

Reminds me of when Homer Simpson got his hands stuck in the vending machines.
 
owly_owl said:
You're assuming I'll stay in Ireland forever and I'm not planning to do that. I will not pay tax on this money if I use it somewhere else.
Click to expand...

Hi Owly

It's very easy to say "If I sell these shares, I will pay tax. So I won't sell the shares." And then stick to that forever.

And I would guess that you are correct not to bring the shares into Ireland and sell them.

But you should keep it under review and it may become right to sell the shares.

How much tax will you pay?

Forgetting about the tax, would it make sense to sell them to diversify your investments?

If selling them gives you an opportunity to buy the house you want earlier, then it might be the right thing to do.

A lot of people make big financial mistakes in an effort to pay less tax.

Brendan
 
Brendan Burgess said:
But you should keep it under review and it may become right to sell the shares.
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Sure. I actually forgot to mention my vested RSUs ("Investment Portfolio 3"), currently worth 35K. I sell most of the RSUs upon vesting and can consider selling the rest if needed.
 
You’ll pay no tax on any gain in relation to your home either which is an argument for diverting surplus resources into it.

I’d also be wary enough of assuming that the ‘RSU train’ will go on forever. Lots of multinationals are suffering from declining profits and falling share prices.
 
Hi Gordon,

Your posts are usually great so forgive the audacity of this question. I have a recollection that you are an "all-in" equities man in terms of pension investment, etc. Presumably, this is based on the premise that in the medium to long haul, share prices will rise (.....on account of rising profits). Accordingly, I was a little surprised by the more cautionary position of the above post. Is this fair?
 
There's a big difference between investing in equities with your savings and the RSU's which are given to staff as part of their compensation package. Share price goes down, so does your compensation package.
 
Hi.

Yes, on a globally diversified basis, rather than in one company.

And the risk gets amplified when it’s the company you work for. If it gets into trouble, you’re potentially losing wealth in the form of shares plus income in terms of your salary etc.

It’s why the advice is usually to encash RSUs as soon as you can.

The future is in all likelihood bright for the market in general over the longer term but for any single company, who knows?
 
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People with a mortgage should not invest directly in shares, even in a diversified portfolio of shares.

They are, in effect, borrowing money at the mortgage rate to buy shares. This requires the after-tax and after-charges performance of these shares to exceed the cost of borrowing. It may well do so, but the downsides in terms of risk, way exceed the potential upsides.

And it's even more important that people with a mortgage should not invest in a portfolio comprised of only one share, which is what the OP is doing.

And it's even more important again that someone with €900k of debt should not be investing in shares.

Brendan
 
You know I continue to disagree with this. While there is no harm in reducing your borrowings, people overpaying their 30 year mortgage may reduce that term to 20 years. In those two decades of debt (not all debt is bad), they will have other cashflow needs that investments can be used to fund.

I also disagree that the risks of investing in a global index over a prolonged period outweigh the benefits.

In relation to the OP, he gets his salary and his wealth from the same company. He also has a clear need for that money now, which is reason enough to cash in his position.


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