# What to do with 40 grand?



## txirimiri (7 Mar 2010)

Age: 36
Spouse age: 40

Income: 75 k
Spouse: 70 k

Type of employment: public sector and private sector employee

Save more than we spend

Value home: 500 k
Mortgage: 320 k
Interest rate: ECB + 0.6% (tracker), 18 years to run

No borrowings, pay off credit card each month (at least I do, can't vouch for spouse!)

Savings: 80k approx

Pension: yes

No other property or investment (unless almost worthless BoI shares count!)

Children: 4 and 2, might have one more go ( - :

Life insurance: Mortage protection insurance, spouse has life policy

Question: 
Have been saving hard for the last 4 - 5 years with the intention of either moving up the property ladder, one of us staying at home with the munchkins for a year or two or starting a business. For variois reasons, we may not end up doing any of these things and will almost definitely not move. Want to leave 15k alone as a rainy day fund and put 25k into house (which won't add any value but will reduce energy costs and make it a more comfy and pleasant family home).

Question is what to do with the other 40 grand. Options are

1. Pay lump sum off mortgage capital

2. Buy an investment property 

3. Leave it where it is (on deposit at 3.1%)

Other options are (but these obviously are more personal decisions)

4. Subsidise move to part time work for one of us, if poss

5. Subsidise one of us to start own business if poss

Any views on options 1 - 3? Childcare is a huge cost for us at the minute which will obviously reduce as time goes by and the munchkins go to school and mortgage repayments are still pretty high (6 years into the mortgage) but do-able.


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## z107 (7 Mar 2010)

Pay it off the mortgage.
I believe you'd be crazy to start a business right now, and give up such high paying jobs.


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## twofor1 (7 Mar 2010)

I would leave the €40K where it is, even after DIRT you are getting 2.3%, your mortgage rate is only 1.6%


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## salvidor (7 Mar 2010)

twofor1 said:


> I would leave the €40K where it is, even after DIRT you are getting 2.3%, your mortgage rate is only 1.6%



+1

Not to mention possible TRS.

I dont think its a terrible time to start a business, although I  agree with the high costs, but it all depends.

Staying home with the kids is a personal descion, but are in the greay position to be able to consider it.


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## jack2009 (7 Mar 2010)

starting a business and trying to have more time for the family is a great idea but oddly course its a risk. But definitely worth considering. It all depends on what your business idea is and how can you approach it in such a way to minimise risk esp. Since you both have good jobs!


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## Steve D (7 Mar 2010)

You could have a good party with that and invite us all!


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## JoeB (7 Mar 2010)

or buy some gold, in case of a Euro collaspe, and a return to a Irish punt. 

But the party is a good idea too.


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## txirimiri (7 Mar 2010)

Thanks for the feedback (what do you guys normally drink at parties - Bollinger Grand Cru?!). Interesting no one went for the invest property idea. 

My thinking re paying off mortgage is that we don't really need to reduce the term (its not that long) nor the repayments (which are manageable with such a good rate and don't forsee interest rates rising massively over the next 1 - 3 years). The times we need money are now (mainly because of childcare and other child related costs and mortgage) and in retirement (my pension is secure enough but its inevitable that public sector pensions will be cut away at over the next 30 yrs and my spouse's is not great). Paying off the mortgage early it seems to me would give us money when we don't particularly need it (i.e. in 13 - 15 years time when we have lower childcare costs and are hopefully earning at least what we are now in real terms).

Hence the idea of the investment property - if we could get a mortgage of say 65 - 70%, we should I think be able to break even for the next 10 or so years but in 20  - 25 years when retirement is looming, we have an asset with no mortgage which would be generating an income stream. Of course, it depends on getting a good value property and a type that should have good long term rental potential. As property prices are banned as a topic, guess its hard to tease that out on this forum.

Leaving it where it is is fine for now, but ultimately a bit of a waste? I feel we should invest it in something or use it to otherwise improve our lives (better work life balance) in the next year or so, otherwise why did we bother to make sacrifices to save it?

What I would really like to do is see if we can merge some element of improved life balance with starting a business, but its the most risky and spouse is blowing hot and cold on that one! I feel it might be a good time to do it - during the Tiger days we had some ideas but in retrospect they were all based on luxury/consumer sectors that we had a personal interest in but that would have been unrealistic in present climate. Currently thinking much more cold headedly


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## twofor1 (7 Mar 2010)

txirimiri said:


> Hence the idea of the investment property - if we could get a mortgage of say 65 - 70%, we should I think be able to break even for the next 10 or so years but in 20  - 25 years when retirement is looming, we have an asset with no mortgage which would be generating an income stream. Of course, it depends on getting a good value property and a type that should have good long term rental potential. As property prices are banned as a topic, guess its hard to tease that out on this forum.



   Are you sure you would break even for ten years on a 65/70% investment mortgage?

  With falling rents together with only 75% interest relief, legal fees and stamp duty on the purchase, NPPR charges, PRTB fees, insurance, maintenance, letting agents, not to mention oversupply of rental properties leading to longer vacant periods between lettings, you would be doing well to break even.

  It can also be time consuming and stressful, For a couple who both work and have a young family this will not improve your life balance,


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## z107 (7 Mar 2010)

I think you'd be insane to give up a €70k public sector job to start a business right now.  There are huge disadvantages to setting up a company in Ireland:
 - You'll lose your PAYE tax credits
 - You'll become a S class prsi person. If it doesn't work out - you're pretty much on your own.
 - Compliance can be a nightmare
 - Huge risk. This is especially so if you aren't even sure what you want to do. Do you have any prior experience in setting up a business? Most businesses fail in their first year.
 - Kiss goodbye to any spare time you used to have. (although YMMV)


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## txirimiri (7 Mar 2010)

Twoforone, you make very good points on the costs of an investment property - had factored in most of them, but not all. The hassle I know about, as have rented out a property before (my previous home before it was sold). Had lots of hassle including dealings with the wonderful PRTB, so learnt a lot and think I would have a good sense of what the potential pitfalls are. Still, very much take your point that even with a 65% LTV, things could be pretty tight. Again, will have to see what happens in the residential property market - perhaps aiming for a 60% LTV would be more realistic if that becomes achievable price wise.

Umop, wouldn't give up my job straight out to start the business. The idea would be that if I took career break or if I could get part time (looking unlikely) to mainly be with the kids, I would spend 1 - 2 days a week researching it in more depth (already have a fair amount of research done) and putting in some initial spadework. We would then reassess after 6 - 12 months, with a view to spouse ultimately running it full time if it seems viable. The idea is based on providing a service to businesses relating to complying with legislation that will probably be in force in Ireland in 2011/2012. My assessment is that the idea is a very good one and there is money to be made - the question is whether we have the requisite skills and experience to make a success of it in comparison to the other players and potential players in the market.


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## hiagain (8 Mar 2010)

What kind of positions are you in as regards old age?  I'd maybe look at pensions and so on.  If you are all set there, I see no reason to look at an investment property.

Personally speaking I would go for the reduced working hours.  That's what both my partner and I have chosen, at a cost to our long term financial position, as I feel that children need the time when they are young.  But as you say, that's a personal choice.


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## txirimiri (8 Mar 2010)

Hiagain. I have a public service pension post 95 but I am under no illusions that when I retire in 30 years time, it will be worth anything like what an equivalent person retiring today would get. The govt simplt can't afford it. My spouse's is private sector and has performed dismally in the last 15 years. It is probably worth less than 20% of the money that he and his employer have invested in it in that time! I have no faith to be honest in the pensions industry - would rather make my own investment judgements and own investment mistakes if it comes to it than pay someone else significant fees and investment to invest my hard earned money poorly!Hence the idea of the investment property.

Reduced working hours are definitely high on the priority list but looks like part time is not going to be an option anymore where I work so it is either career break or full time, which is a bigger decision. Especially since 2 colleagues who took year long career breaks in summer and November 2008 respectively have still not been accepted back (you can now be waiting up to 12 months to be accepted back after a break without any income) and have been told its likely they will be redeployed to another Dept, in one case 35 km from where they previously were based, to jobs which have nothing to do with their skill set, interests or experience!


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## treasure (10 Mar 2010)

If you want to invest in property I would suggest Germany.  You can get 5 - 6 % return on your money, the tenants are responsible for all upkeep, people usually rent longterm and the management company my family deals with is excellent - never any problems and everything works like clock work.  You could buy a few apartments in a block for €100k but should see it as a longterm investment for the income, as property prices haven't jumped in prices like in Ireland in the boom times. If you want their name (it's an Irish man married to a German lady) PM me.  I have no personal connection with them but if you want to talk to someone about it I can put you in touch.


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