# IT article Pension investment in property



## cremeegg (9 Apr 2018)

The Irish Times has an article about investing in property through your pension.

Although I am always wary of anything suggested in the newspaper, this seems like a good idea. Are there any pitfalls I should be aware of.

Specifically any pitfalls on the pension side. I feel more confident in my knowledge of property investing.

After a bad experience in a structured product, I am slow to get into something I do not understand. But this seems too good to be true. !!

link to article
https://www.irishtimes.com/business...ith-no-tax-no-tax-returns-no-hassle-1.3444486


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## newtothis (9 Apr 2018)

cremeegg said:


> Although I am always wary of anything suggested in the newspaper, this seems like a good idea.



Especially wary of one that benefits the more property is hyped.......


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## Gordon Gekko (9 Apr 2018)

The article in question was a disgrace...a completely unbalanced puff-piece.


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## Steven Barrett (9 Apr 2018)

cremeegg said:


> The Irish Times has an article about investing in property through your pension.
> 
> Although I am always wary of anything suggested in the newspaper, this seems like a good idea. Are there any pitfalls I should be aware of.
> 
> ...



You are taxed on the proceeds when you take it out of your pension. 

It is no different to any other pension. Shares and property funds all accumulate tax free with no tax on dividends and the asset can be sold without capital gains tax. Having one investment property instead of a number of large commercial buildings in a property fund is no different. 

And remember, the property isn't yours, it's your pension funds. The transaction has to be at arms length and you can't be involved in the management of it. 

You need liquidity too as part of the pension set up. You can borrow 50% of the value but need 10% of the mortgage amount in cash. You also need close of €30,000 in fees for fit out, legal fees (your solicitor, the pensioneer trustees and the mortgage lenders), stamp duty etc. 

It's suitable if you have a decent pension pot and it forms part of your overall retirement plan. I get a lot of calls from people looking to buy an apartment in Carlow with 2/3 others (no offence to Carlow). That's honestly more hassle than it's worth. 

Steven
www.bluewaterfp.ie


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## Steven Barrett (9 Apr 2018)

Gordon Gekko said:


> The article in question was a disgrace...a completely unbalanced puff-piece.



I've dealt with the fall out of the last time people were buying properties through their pensions. Shortfall in rental income to cover the repayments. Recession happened, no spare cash to make pension contributions to make up shortfall...property in arrears. As usual, people fight tooth and nail to hang onto a property they can't afford even though they can hand back the keys and walk away. 

Certainly not suitable to members of occupational pension schemes where any self directed pension will be by a PRSA AVC. 


Steven
www.bluewaterfp.ie


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## Brendan Burgess (9 Apr 2018)

I can't read the article as it's subscribers only. 

A lot of people who don't have a pension point at a property and say "My investment property is my pension." 

That is terrible and I point out to them that they could have bought the investment property through their pension fund. 

I know people whose pension funds have been wiped out by highly leveraged property investments. 

If you have a pension fund with €1m in it and want to invest some of it in a property, that is fine. But borrowing money in a pension fund to buy one property is crazy. 

Brendan


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## Gordon Gekko (9 Apr 2018)

It was reckless in the extreme. Why in God’s name should investors take concentrated punts on Irish property through their pension funds? A single asset class in a single geography; madness. The article should have had “Advertorial” in bold writing across the top.


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## Steven Barrett (9 Apr 2018)

Gordon Gekko said:


> It was reckless in the extreme. Why in God’s name should investors take concentrated punts on Irish property through their pension funds? A single asset class in a single geography; madness. The article should have had “Advertorial” in bold writing across the top.



I never understand it. The life companies can buy loads of commercial properties and have lots of liquidity, no repayments. Why is owning a 1 bed in Cavan better than that? 

Same with people investing in Irish banks! If I was going to invest in one bank, I'd be investing in something like Goldman Sachs, not a small cap company like Bank of Ireland or AIB. 


Steven
www.bluewaterfp.ie


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## Gordon Gekko (9 Apr 2018)

Brendan Burgess said:


> I can't read the article as it's subscribers only.
> 
> A lot of people who don't have a pension point at a property and say "My investment property is my pension."
> 
> ...



Hi Brendan,

With the advent of REITs and other means of investing in a liquid diversified manner, I just don’t see why people would go down this route.

If someone has a strong view on little old Ireland, by all means layer in some liquid options such as IRes, Green, and/or Hibernian, but otherwise my sense is that they should look at liquid globally diversified property solutions.

And I’m not convinced that the average punter should be making big asset allocation calls like this on their own.

It’s a road to disaster based on what I’ve seen over the years.

Gordon


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## Gordon Gekko (9 Apr 2018)

“It’s as bullet-proof a solution as exists...” WOW

“It’s as close to perfect for an ARF as exists...” WOW x 2

“You’re not going to be able to self-direct if you work for a large employer...” WRONG

“the funds to fix things will come out of your pension fund too so there can be savings on this end too...” IRRELEVANT (REPAIRS & MAINTENANCE ARE TAX DEDUCTIBLE IN ANY EVENT)

“Instead of buying one property, you may be in a position to buy two...” WOW x 3


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## cremeegg (9 Apr 2018)

SBarrett said:


> You need liquidity too as part of the pension set up. You can borrow 50% of the value but need 10% of the mortgage amount in cash. You also need close of €30,000 in fees for fit out, legal fees (your solicitor, the pensioneer trustees and the mortgage lenders), stamp duty etc.



What is involved here in the €30k.

By fit out if you mean fit out of the property, thats no different than a fit out that may be needed for any property investment. Or is there something involved specifically because of the pension structure.

I presume the solicitor, and the pensioneer trustees and the mortgage lenders fees are the same for any self directed pension, irrespective of the asset invested in.

What size of pension pot is usually considered large enough to justify these fees.



SBarrett said:


> It's suitable if you have a decent pension pot and it forms part of your overall retirement plan. I get a lot of calls from people looking to buy an apartment in Carlow with 2/3 others (no offence to Carlow). That's honestly more hassle than it's worth.
> 
> Steven
> www.bluewaterfp.ie



In not looking at Carlow, or an apartment. I have outlined the prospective property on this thread. https://www.askaboutmoney.com/threa...y-mortgages-for-investment-properties.207871/ on post number 3


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## elacsaplau (9 Apr 2018)

SBarrett said:


> ....you can't be involved in the management of it.



OK Steven - I take it you're not a fan!

A few points:

1. I'm struggling to understand your €30k reference and

2. The bit quoted is flat wrong


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## moneymakeover (10 Apr 2018)

Goldman Sachs PE 28
Bank Ireland PE 12

Which is overvalued



SBarrett said:


> Same with people investing in Irish banks! If I was going to invest in one bank, I'd be investing in something like Goldman Sachs, not a small cap company like Bank of Ireland or AIB.
> 
> 
> Steven
> www.bluewaterfp.ie


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## Steven Barrett (10 Apr 2018)

cremeegg said:


> What is involved here in the €30k.
> 
> By fit out if you mean fit out of the property, thats no different than a fit out that may be needed for any property investment. Or is there something involved specifically because of the pension structure.
> 
> ...



I'm only outlining the costs that are required. People think they just need the deposit but the pension has to be set up and the funds in place to pay for fees. But you are correct, fit out fees would need to be paid anyway. 

If you buy the property yourself, you just pay your own solicitors fees. If you do it through a pension, you also pay the pensioneer trustees solicitor's fees and the bank's if you are getting a loan. And the financial advisors too as they will coordinate the whole thing. Solicitor fees wouldn't be involved if purchasing other assets. 

Steven
www.bluewaterfp.ie


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## Steven Barrett (10 Apr 2018)

elacsaplau said:


> OK Steven - I take it you're not a fan!
> 
> A few points:
> 
> ...



*Example of purchase of property*
Purchase Price €215,000
Loan Value €107,500
Term 15 years
Interest rate
- Capital & Interest 5.45% - €871 repayments
- Interest Only 5.59% - €500 repayments
Rental Income €1,700 a month

*Costs*
50% of Purchase price €107,500
Stamp Duty €2,150
Fit Out €3,500
Estate Agent Costs €900
ITC Legal Fees €1,984
Dilosk Legal Fees €2,000
Conveyancy Fees €2,050
Dilosk Application Fee €538
Bluewater Fee €2,500
Insurance €395
10% Liquidity €10,750
Total €134,267


I have no problem with the purchase of property if you have a big enough pension so it is a diversified part of your overall retirement fund. It is not a good idea though to put all your eggs in one basket. I would never tell a client to just buy one share, so I would never tell them to just buy one property and that's it. In these cases, the people tend to just about be able to afford a property and so look at the cheapest one available. They let the excitement of owning a property through their pension fog their judgement. Have a diversified portfolio and don't borrow in your pension (15 years is a long time to have to make pension contributions). 


Steven
www.bluewaterfp.ie


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## Gordon Gekko (10 Apr 2018)

I have a major issue with people who already have a massive exposure to Irish property in the form of their home layering in more exposure to a single asset class within a tiny geography.


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## Brendan Burgess (10 Apr 2018)

Gordon Gekko said:


> I have a major issue with people who already have a massive exposure to Irish property in the form of their home layering in more exposure to a single asset class within a tiny geography.



Agree fully. And this applies to whether that other property is bought through a pension fund or directly. 

But it doubly applies if the person is borrowing to buy the property and the very high mortgage rates being charged in Ireland.

Brendan


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## Dardania (10 Apr 2018)

Is there a preclusion against buying property abroad under this approach?

Could I for example buy a holiday home somewhere, get it managed locally, and have 8 weeks of the year to use it?


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## Steven Barrett (10 Apr 2018)

Dardania said:


> Is there a preclusion against buying property abroad under this approach?
> 
> Could I for example buy a holiday home somewhere, get it managed locally, and have *8 weeks of the year to use it*?



Strictly not allowed. It can't be used for personal use, rented to family members or to your business. 

Holiday homes are usually excluded for that reason. Also quite difficult to manage with a weekly/ 2 weekly turnover of tenant (which will be costly anyway with more cleaning, greater chances of damage, large periods of being unoccupied). 

Steven
www.bluewaterfp.ie


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## Gordon Gekko (10 Apr 2018)

Brendan Burgess said:


> Agree fully. And this applies to whether that other property is bought through a pension fund or directly.
> 
> But it doubly applies if the person is borrowing to buy the property and the very high mortgage rates being charged in Ireland.
> 
> Brendan



It should be noted that Dilosk’s rates are circa 5.5%!

There was so much wrong with that article...reckless journalism...in effect an advertorial.


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## elacsaplau (10 Apr 2018)

elacsaplau said:


> OK Steven - I take it you're not a fan!
> 
> A few points:
> 
> ...



I think the IT article is poor but challenging misinformation by providing misinformation is not convincing.

When corrected, you have not acknowledged that your statement about being unable to self-manage is incorrect, and



SBarrett said:


> You need liquidity too as part of the pension set up. You can borrow 50% of the value but need 10% of the mortgage amount in cash. You *also* need close of €30,000 in fees for fit out, legal fees (your solicitor, the pensioneer trustees and the mortgage lenders), stamp duty etc.



It seems that the €30,000 refers to:

Stamp Duty €2,150
Fit Out €3,500
Estate Agent Costs €900
ITC Legal Fees €1,984
Dilosk Legal Fees €2,000
Conveyancy Fees €2,050
Dilosk Application Fee €538
Bluewater Fee €2,500
Insurance €395

This totals €16,017 - a long way shy of €30,000 - and includes some dubious entries like estate agent costs and insurance (which is more like an on-going cost).


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## cremeegg (10 Apr 2018)

I am very appreciative of the comments, as this is something I am seriously looking at.




SBarrett said:


> *Example of purchase of property*
> Purchase Price €215,000
> Loan Value €107,500
> Term 15 years
> ...



Thank you for outlining the professional fees involved in the set up, are any of these other than the estate agent and the insurance recurring.

What is the 10% liquidity referring to, is there a requirement that the pension fund have a further 10% available in a liquid investment.

So the investment is €134k (give or take, I am especially unclear on the 10% liquidity)

Income €1,700 per month
Costs
Interest €500
Repairs €100
Ins & RTB €40
Management fee €100

Monthly Profit €960
Annual Profit €11,520

% Profit "after Tax" (that's profit, not yield) 8.6%


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## Gordon Gekko (10 Apr 2018)

Hi cremeegg,

Why wouldn’t you look at an international REIT portfolio?

Liquid and diversified.

Gordon


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## cremeegg (10 Apr 2018)

SBarrett said:


> The transaction has to be at arms length and you can't be involved in the management of it.





elacsaplau said:


> 2. The bit quoted is flat wrong



Can I choose the property my self.

Can I decide if I want to put in new windows myself.

Can I select the tenants myself.

Can I set the rent myself.


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## cremeegg (10 Apr 2018)

Gordon Gekko said:


> Hi cremeegg,
> 
> Why wouldn’t you look at an international REIT portfolio?
> 
> ...



Because I think that there can be inefficiencies in the property market which someone who understands property can exploit. These arise because prices in residential property are set in large part by would-be owner occupiers. In 2006 residential property was very overpriced in terms of yield. Today it is very underpriced, at least before tax is considered.

I think that any benefits arising from exploiting these inefficiencies in a REIT are more likely to go to management than investors.


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## Gordon Gekko (10 Apr 2018)

My own view is that most of us are already long Irish property and should diversify in terms of geography and asset class.

The Irish model seems to be “buy your home and then buy more Irish property”. I prefer the UK approach which is to buy one’s home, then build tax-efficient globally diversified investment portfolios through pension funds and ISAs; then and only then do they look at layering in some additional real property.


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## cremeegg (10 Apr 2018)

I have 3 points of contention with this.

My home provides accommodation for myself and my family, its financial value is irrelevant. It has in fact probably almost doubled in value over the last 7 years, that was no benefit to me, just as the preceding fall in value was no disbenefit.



Gordon Gekko said:


> then build tax-efficient globally diversified investment portfolios through pension funds and ISAs



Leverage is not generally available for this.

If I can borrow at 5.5% for a return of 8.5%. That seems like a compelling opportunity.

Unstated in your post is an assumption about risk. If the investment horizon is very long term, ideally multigenerational, risk of short term price changes is less important.


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## Steven Barrett (11 Apr 2018)

elacsaplau said:


> I think the IT article is poor but challenging misinformation by providing misinformation is not convincing.
> 
> When corrected, you have not acknowledged that your statement about being unable to self-manage is incorrect, and
> 
> ...




You are not allowed to manage the property yourself. You have to use an agent to manage the rental income, fix the blocked toilet etc. 

Poor use of language on the set up costs, you need to have a fund of c. €30,000 to cover fees and a liquidity fund. 


Steven 
www.bluewaterfp.ie


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## Steven Barrett (11 Apr 2018)

cremeegg said:


> Can I choose the property my self.
> 
> Can I decide if I want to put in new windows myself.
> 
> ...



Yes, you can do all of those things. It is the day to day management of the property that you cannot do. You have to use an agent to deal with these things.


Steven
www.bluewaterfp.ie


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## elacsaplau (11 Apr 2018)

SBarrett said:


> Yes, you can do all of those things. It is the day to day management of the property that you cannot do. You have to use an agent to deal with these things.



Steven

You are confusing typical industry practice with revenue requirements. Not all providers require external management. It's just easier/less hassle for them!

See the FAQ in Paul Ryan's site. Also - see the relevant section of the revenue manual.


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## RedOnion (11 Apr 2018)

To remove (or add to) contradiction between posters, I think a clarification is needed.

Most people who but a property through their pension use leverage to do so.

Currently there is only 1 lender who will lend to pension funds for this purpose: Dilosk.
That lender in turn will only deal with 2 pension trustees: ITC or Davy. These trustees will insist on having a property manager in place.

For those who don't need to borrow, there are other options available.


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## Gordon Gekko (11 Apr 2018)

One can also buy REITs that themselves deploy leverage (subject to prudent maximums). I prefer the idea of buying a basket of European and Global REITs which has (say) 30% gearing at 1.5% rather than buying a 2 bed apartment in Inchicore financed at 5.5%.


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## elacsaplau (11 Apr 2018)

As ever, RedOnion knows his onions and speaketh the truth. All I was doing was pointing out that it is not good to undermine the information of the IT article with misinformation.


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## RedOnion (11 Apr 2018)

My own opinion: for someone who wants to invest in a specific property in any case as part of a pension pot, it is a very good idea to use a pension vehicle to do so.

To echo the point made by @SBarrett re apartments in Carlow, it's similar to what happened with Section 23 properties in less desirable locations. The tax advantages shouldn't be driving the decision to invest in property - these are available within a pension vehicle regardless of the asset class being invested in.

The requirements to have adequate liquidity within the pension fund along with the low LTVs required (lending is on a non-recourse basis) might make it a stretch, or at least prevent a diversified portfolio, for most people.


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## cremeegg (11 Apr 2018)

elacsaplau said:


> Steven
> 
> You are confusing typical industry practice with revenue requirements. Not all providers require external management. It's just easier/less hassle for them!
> 
> See the FAQ in Paul Ryan's site. Also - see the relevant section of the revenue manual.



Have you links to these, please.


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## cremeegg (11 Apr 2018)

Gordon Gekko said:


> One can also buy REITs that themselves deploy leverage (subject to prudent maximums). I prefer the idea of buying a basket of European and Global REITs which has (say) 30% gearing at 1.5% rather than buying a 2 bed apartment in Inchicore financed at 5.5%.



I have been thinking further about the REIT.

It is a share, so it is priced like a share. If it has good prospects, good management, access to low cost finance etc, exposure to the thriving Irish property market, or overexposure to the overextended Irish property market, all this is reflected in the price. A REIT is a share, not a property investment. The underlying activity of the business is less important.


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## cremeegg (11 Apr 2018)

Thanks again to all contributors, some great info here. Especially RedOnion for throwing light on the management situation, you certainly removed some contradictions.



SBarrett said:


> You are not allowed to manage the property yourself. You have to use an agent to manage the rental income, fix the blocked toilet etc.
> 
> Poor use of language on the set up costs, you need to have a fund of c. €30,000 to cover fees and a liquidity fund.
> 
> ...



Steven,

Can you please explain a little more on this liquidity requirement.

Thanks


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## elliej (4 May 2018)

Hello Thank you very much for all of the information on this very helpful thread. We are thinking of investing in a house using a Personal Retirement Bond using proceeds of pension from my last full time employment and joint cash. My husband is post retirement age. Does anyone know whether my pension fund could co-own either with (a) husband in sole capacity or (b) myself and husband jointly? Or would the investment have to be held entirely by pension assets? Current plan is to move there in the future and will rent in interim. Thank you again


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## Gordon Gekko (4 May 2018)

You can’t move there or buy it back if you purchase it through a pension structure.


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## LDFerguson (5 May 2018)

elliej said:


> Does anyone know whether my pension fund could co-own either with (a) husband in sole capacity or (b) myself and husband jointly?



Neither option is allowed.


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## elliej (8 May 2018)

Thanks very much Gordon and LD for coming back to me. Boo hoo but very useful to know. Thanks again


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