Rental property as a pension

I

Introuble83

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My father aged 61 wants to retire . He has only a minimal pension pot which will not provide him with a material value to live on . He has 250k on deposit account . He is considering purchasing a property in Dublin and renting it out . He wants to use the rental income to live on until the state pension kicks in . As he will have no other income the rental income should be only incur minimal taxes ? He estimates potential income at 1750pm. He has no loans outstanding. Can you advise if this plan seems logical ? I am unsure around the tax position but bear in mind he will no longer be working . Thanks
 
Not sure you would get a property in Dublin for € 250,000 with a net rent of € 21,000 per annum after costs and expenses ie net yield of 8.4%
 
There's alot of costs involved with purchasing property, legal fees, surveys, stamp duty, furniture etc then the stress of having to manage tennents as well as the bureaucracy of having to register and deal with the RTB.
I would be more inclined to withdraw a set sum from the savings for next five years and put the rest in a savings account.
 
What will your father live on if his tenant loses his job and stops paying his rent?

It happens.

If he really wants to retire now he would be better off living on his cash savings until the State pension kicks in.

Mind you, it will be a fairly Spartan existence.
 
jpd said:
Not sure you would get a property in Dublin for € 250,000 with a net rent of € 21,000 per annum after costs and expenses ie net yield of 8.4%
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Saavy99 said:
There's alot of costs involved with purchasing property, legal fees, surveys, stamp duty, furniture etc then the stress of having to manage tennents as well as the bureaucracy of having to register and deal with the RTB.
I would be more inclined to withdraw a set sum from the savings for next five years and put the rest in a savings account.
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Most of the costs are upfront . A letting agency can deal with the tenancy on a monthly fee basis . If he even obtained 1k a month of rent over 5 years it’s 60k. If he sold the property on the 5th year even for what he paid he would net at least 30k profit after all costs incurred . Unless I am missing something? Too optimistic perhaps
 
Sarenco said:
What will your father live on if his tenant loses his job and stops paying his rent?

It happens.

If he really wants to retire now he would be better off living on his cash savings until the State pension kicks in.

Mind you, it will be a fairly Spartan existence.
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I don’t think 250k over 7 years is a spartan existence when you have no borrowings or dependents . What exactly could you spend 700 a week on in these times when you can barely get out of the country
 
There is currently 686 properties on daft in dublin under 250k. Many of those would command rent of 1700pm imo. If tax is low it would be a sound investment imo
 
I think main risk would be if tenant didn't pay. It will be 1-2 years plus money and time to remove them if they stop paying.

He'd need a buffer to cover 1-2 years expenses imo.
 
Introuble83 said:
I don’t think 250k over 7 years is a spartan existence when you have no borrowings or dependents . What exactly could you spend 700 a week on in these times when you can barely get out of the country
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I think he means living on the State pension would be a Spartan existence.
 
whats the likelihood of getting a tenant that doesn't pay and for that length of time? In my experience its very low. I have never had a tenant that did not pay their rent but maybe I am lucky in that regard. I've always vetted tenants and have had good'ns.
 
Sarenco said:
What will your father live on if his tenant loses his job and stops paying his rent?

It happens.

If he really wants to retire now he would be better off living on his cash savings until the State pension kicks in.

Mind you, it will be a fairly Spartan existence.
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This is a good point which he had not cons
SPC100 said:
I think main risk would be if tenant didn't pay. It will be 1-2 years plus money and time to remove them if they stop paying.

He'd need a buffer to cover 1-2 years expenses imo.
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1-2 years to get rid of a tennant? I would just forcefully remove them and deal with the legalities of such actions separately .
 
There's just a risk that he gets a rogue tenant who destroys the place, pays no rent, and takes 2 years to get rid of. It's not a massive risk, but it does happen, and he would have zero income if this happened.

If this is his plan he should get a €200k property outisde Dublin (better yield) and keep €50k to live on as insurance.

A €200k property in a provincial town might have a gross yield of €1600 pcm
 
I wouldn't be rushing into spending this money on property for the next 6 months or so. No one has a crystal ball, but talks of an impending global recession is very real. I would advise you to wait until next spring by which time we will have better handle on how things are panning out.
 
Introuble83 said:
I don’t think 250k over 7 years is a spartan existence when you have no borrowings or dependents . What exactly could you spend 700 a week on in these times when you can barely get out of the country
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I’m pretty sure that Sarenco meant that the parent would draw €13k a year from his cash reserves until his €13k State Pension kicks in.

When is that for a 61 year old, still 66, correct?

So let’s assume 4.5 years x €13k, i.e. €60k.

If he’s hell bent on buying a property, I’d consider holding back, say, 1.5 year’s income to mitigate the risk of a dodgy tenant or fallow period. And then buy somewhere for €230k.

Or instead of buying one property, I’d buy, say, €220k worth of IRES, the Irish residential REIT (i.e. listed property share). It pays a nice dividend, and is more diversified in that you own thousands of properties instead of one. The cash could supplement the dividend income until the State Pension kicks in.
 
jim said:
whats the likelihood of getting a tenant that doesn't pay and for that length of time? In my experience its very low. I have never had a tenant that did not pay their rent but maybe I am lucky in that regard. I've always vetted tenants and have had good'ns.
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Well then that proves that tenants never default, doesn’t it?

I would not want to be completely reliant on one rental income stream from one rental property, particularly at the lower end of the market given that it’s the lower paid who’ve been most impacted by Covid.
 
A slightly more refined approach might be as follows:

- Keep €90k in cash (i.e. €20k per annum x 4.5 years)

- Buy €160k worth of IRES shares, i.e. the Irish Real Estate Investment Trust, which would give your father a tiny share of thousands of Irish residential properties instead of a 100% share of one with all of the hassle that brings

- The dividend income on that would be circa 4%, i.e. €6,400 per year. This would be tax-free for your father. He would use the income to buy more IRES shares as and when it arises over the 4.5 year period. This insulates him somewhat from Irish property market weakness over the next 4.5 years. If prices go up, good. If prices fall, he’s not drawing on the investment and he is in fact buying in at cheaper levels and setting himself up for a recovery

- Then in 4.5 years’ time, his State Pension kicks-in, and he should have €13k from that, together with circa €7,500 of ‘rental income’ from IRES, thus maintaining his €20k a year of income, which would be nice and tax efficient also; that’s assuming that prices in 4.5 years’ time are at today’s levels which is relatively conservative

€13k a year mightn’t be great, but circa €20k give or take would be a lot better. If someone has worked hard all of their life, they deserve a non-Spartan retirement.
 
Gordon Gekko said:
I’m pretty sure that Sarenco meant that the parent would draw €13k a year from his cash reserves until his €13k State Pension kicks in.

When is that for a 61 year old, still 66, correct?

So let’s assume 4.5 years x €13k, i.e. €60k.

If he’s hell bent on buying a property, I’d consider holding back, say, 1.5 year’s income to mitigate the risk of a dodgy tenant or fallow period. And then buy somewhere for €230k.

Or instead of buying one property, I’d buy, say, €220k worth of IRES, the Irish residential REIT (i.e. listed property share). It pays a nice dividend, and is more diversified in that you own thousands of properties instead of one. The cash could supplement the dividend income until the State Pension kicks in.
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That seems very measured advise thanks
 
Gordon Gekko said:
€13k a year mightn’t be great, but circa €20k give or take would be a lot better. If someone has worked hard all of their life, they deserve a non-Spartan retirement.
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I personally wouldn't retire early to live on €20k a year if I had any choice in the matter.

That would be a fairly lean amount to live on, even with no debts or dependants.

I think the OP's father also needs to be careful to ensure that he will have sufficient "stamps" to qualify for the full State (Contributory) Pension when the time comes, bearing in mind that we are due to transition to a total contribution approach in the coming years.
 
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