# 50 income poor asset ok. Expenses Looming



## cremeegg

Age: *48*
Spouse’s/Partner's age: *51*

Annual gross income from employment or profession:* €45,000*
Annual gross income of spouse:*None*

Monthly take-home pay *€3,750 *

Type of employment:  *Self-employed *

In general are you:
(a) spending more than you earn, or
(b) saving?

*Spending a little more than we earn.*

Rough estimate of value of home *€260,000*
Amount outstanding on your mortgage: *€170,000*
What interest rate are you paying? 
*ECB plus 1.15% (€10,344 pa)*

Other borrowings – car loans/personal loans etc. 
*€9,000 UB unsecured 3.5%*

Do you pay off your full credit card balance each month?* Yes*
If not, what is the balance on your credit card? 

Savings and investments:
*Deposit ac €190,000
Short term deposit €20,000*

Do you have a pension scheme? 
*PRSA €114,000 no contributions currently*

Do you own any investment or other property? 

*BLT 1* 
Value €125,000 
Mortgage None
Rent €9,000 pa

*BLT 2*
Value €160,000
Mortgage €200k ECB + 0.75% IO for 18 more years (€2,000 pa)
Rent €8,400

*BLT 3*
Value €95,000
Mortgage €208k ECB + 0.75% IO for 18 more years (€2,079 pa)
Rent €8,400

*BLT 4*
Value €170,000
Mortgage €175,000 ECB + 1.15% Cap & Int (€13,944 pa)
Rent €15,000 pa

Ages of children: *16,14,12,9*

Life insurance:*Sufficient to clear mortgages*


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

Mostly I am looking for perspective on my situation, I worry that as I am getting older my earning power is not going to improve. My kids are coming to the going to college stage. At present we are spending above our earnings, including BLT profits. 

Specifically advice about how I should use the cash savings. As you will see from other threads I don't believe that investing in more property is the way to go, but I am not familiar with anything else.

Any suggestions welcome.


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## mandelbrot

Since you're asking for perspective: I went to look at your recent posts to see what other threads you were talking about and I saw this post from a couple of weeks back -



cremeegg said:


> I claim the full civil service rate for lunch every day. It may not be in accordance with the letter of the law but I defy any civil servant to point this out.



So you probably have an as yet unquantified tax bill building up for yourself as well if you're playing fast and loose with your self-employed expenses...


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## Billo

"As you will see from other threads I don't believe that investing in more property is the way to go,"

And in Feb :


http://www.askaboutmoney.com/showthread.php?t=185648 

Confusing.


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## so-crates

You have a sizeable amount of savings despite several property investments so clearly you have been doing something right. I think what you need to do is really planning. As you say you are at a point where you are looking at your children possibly starting third level education so you would probably not want to tie up all your cash in illiquid assets or potentially volatile short term equities but at the same time you are probably not making much in cash savings and they attract DIRT and PRSI. I think you need to start thinking in in terms of what your short, medium and long-term goals are. Set them all down on paper and attempt a costing on them, you might have a clearer idea of what you need.
Also if you are currently spending more than you are earning you will bleed yourself dry so perhaps you need to look at why. Is it a short term bump or a long term trend? Is there any way to rebalance your expenditure and income?


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## cremeegg

mandelbrot said:


> Since you're asking for perspective: I went to look at your recent posts to see what other threads you were talking about and I saw this post from a couple of weeks back -
> 
> 
> 
> So you probably have an as yet unquantified tax bill building up for yourself as well if you're playing fast and loose with your self-employed expenses...



As a self employed person you are supposed to have receipts for all expenditure.

In practice this can be difficult or impractical for small one off items, like lunch. I often don't even get a receipt unless I specifically ask, and when I do I have to keep this in my pocket, until I can file it.

I have taken the view that this is impractical and charged reasonable amounts based on the civil service rate.

A Revenue audit 2 years ago raised no objection.

Conversely for diesel expenses, which I get a monthly account in the post the Revenue inspector disallowed 20%, despite my having full documentation.

In my experience Revenue are happy to accept expenses which are reasonable in their view.


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## cremeegg

Billo said:


> "As you will see from other threads I don't believe that investing in more property is the way to go,"
> 
> And in Feb :
> 
> 
> http://www.askaboutmoney.com/showthread.php?t=185648
> 
> Confusing.



Ah yes the holiday home in Croatia! A man can dream

I have explored the idea of property investing more thoroughly in this thread. 

http://www.askaboutmoney.com/showthread.php?t=184415

And as a result of the thinking outlined there moved away from the idea.


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## cremeegg

Thanks Socrates for the comments



so-crates said:


> You have a sizeable amount of savings despite several property investments so clearly you have been doing something right. I think what you need to do is really planning. As you say you are at a point where you are looking at your children possibly starting third level education so you would probably not want to tie up all your cash in illiquid assets or potentially volatile short term equities but at the same time you are probably not making much in cash savings and they attract DIRT and PRSI. I think you need to start thinking in in terms of what your short, medium and long-term goals are. Set them all down on paper and attempt a costing on them, you might have a clearer idea of what you need.



This is probably the main issue for me, should I sell the mortgage free BLT and how should I invest the proceeds. 



so-crates said:


> Also if you are currently spending more than you are earning you will bleed yourself dry so perhaps you need to look at why. Is it a short term bump or a long term trend? Is there any way to rebalance your expenditure and income?



Unfortunately it seems to be a long term trend. In the past we had a higher income and got used to a certain standard of living. While we certainly have cut back and looked for better value we have not cut to the bone. It is hard to say no holiday this year when you have the cash to pay for it.


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## maturin

> Any suggestions welcome. 

you are borrowing 9,000 at 3.5% while you have large sums on deposit which are likely to be earning much less than 3.5% (and you must pay DIRT). So, I'd consider repaying that loan, using money from your deposit account, if there are no early repayment penalties.

The college expenses are likely to be major. I agree with So-crates that you should try to cost these and estimate your expenses for each year starting in about 2 years (when the eldest is 18) and continuing until the youngest is about 22.

Your 210,000 on deposit is likely to be at a low interest rate and after DIRT and inflation, you're probably not really earning anything.
I guess that you'll want to keep some of this on deposit though as an emergency fund.

Would you consider using some of that cash to repay some of the BLT4 mortgage (which is at the most expensive rate of all your mortgages)?
If you repaid half the mortgage, you would save approx 7,000 in repayments per annum. This assumes that there is no penalty for early repayment. 

Would it make sense to make some contributions to the PRSA (again using the cash which is now on deposit)? You'd get the tax relief and even say 5,000 per annum would add up over the next 15-20 years.

You ask whether you should sell BLT1. If you sold it and put the proceeds towards BLT4, you would save about 10,000 per annum in repayments on the BLT mortgage. But BLT1 has a yield of 7%, so maybe using some of the deposit cash would be a better option.


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## mandelbrot

cremeegg said:


> As a self employed person you are supposed to have receipts for all expenditure.
> 
> In practice this can be difficult or impractical for small one off items, like lunch. I often don't even get a receipt unless I specifically ask, and when I do I have to keep this in my pocket, until I can file it.
> 
> I have taken the view that this is impractical and charged reasonable amounts based on the civil service rate.
> 
> A Revenue audit 2 years ago raised no objection.
> 
> Conversely for diesel expenses, which I get a monthly account in the post the Revenue inspector disallowed 20%, despite my having full documentation.
> 
> In my experience Revenue are happy to accept expenses which are reasonable in their view.



Based on your current thread about your car / travel, I'd say you encountered an inexperienced or just plain not very good auditor who didnt know what they were at - [broken link removed].

(Sorry if I'm dragging your thread off topic!)


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## Bronte

Very interesting thread Cremeeg.

Totally get your dreams on Croatia. You were just mulling over ideas and options. 

Really lucky to have been audited, to me that means you've now got confirmation from revenue that you are running a tight ship, so if you continue you should never have a problem. How did the revenue guy come to the 20% decision on diesel?

*College*

How much is this going to cost you? Any chance one of those properties are in a location where the kids will go to college?

*Rentals*

*BLT 1* 
Value €125,000 
Mortgage None
Rent €9,000 pa

*BLT 2*
Value €160,000
Mortgage €200k ECB + 0.75% IO for 18 more years (€2,000 pa)
Rent €8,400

*BLT 3*
Value €95,000
Mortgage €208k ECB + 0.75% IO for 18 more years (€2,079 pa)
Rent €8,400

*BLT 4*
Value €170,000
Mortgage €175,000 ECB + 1.15% Cap & Int (€13,944 pa)
Rent €15,000 pa

Income 9000 + 8400 + 8400 + 15000 = 40 800
Interest 2000 + 2079 + 3500 (guess) = 7579 X 75% = 5684
Repairs?
Property tax? - debatable whether tax deductable or not

Let's say 6K interest, 4 K repairs, 2 K other, and there must be some voids and other costs. So a rental income of 40K less expenses, profits of maybe 25K/20K? But you'll only get 50% of that after tax and prsi. So you're maybe clearing 10K as extra income.

What's the term on the BTL 4?

What is the game plan in relation to the 2 interest only properties. Not a fan personally of IO. Don't see the logic. In 18 years, you have to pay them back. Would it be better to use the rental income profits to pay down capital now. You will be 66 and 69 when these mortgages have to be paid down. At that stage you will be presumable 'retired.' 

*Values of BTL's*

Currently 550K 

Mortgages 583

NE of 33

But this NE doesn't apply to BTL 1, nor really to BTL 4, but BTL 4 doesn't matter as there are capital repayments. 

Problem is the two BTL's with no capital payments. 

What happens if we are in a Japan scenario, I'm not discussing house prices, but one has to consider all options, what if in year 18 property prices mean you don't even have enough to repay those loans from selling at that time. Would like to be in a scenario where the bank comes looking at your assets and you lose an income producing stream. 

*Retirement*

What are you going to live on in retirement. 

Are you entitled to state pension, is your partner? How much will your pension pot pay out?

*Home*

Don't see any problem with this, payments are low, very low for a decent house for 6 people.   Eventually you will own it.


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## mandelbrot

Bronte said:


> Really lucky to have been audited, to me that means you've now got confirmation from revenue that you are running a tight ship, so if you continue you should never have a problem. How did the revenue guy come to the 20% decision on diesel?



It's in no way confirmation that everything is ok - it may well mean the period already audited isn't revisited, but it gives no assurance on a particular issue in the event of a future audit.


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## Brendan Burgess

|Total|Home|BTL1|BTL2|BTL3|BTL4
Value|€810k|€260k|€125k|€160k|€95k|€170k
Mortgage|€753k|170k|0|€200k|€208k|€175k
Interest||1.15%||1%|1%|1.4%
Annual interest||€2k||€2k|€2k|€2k
Rent|||€9k|€8k|€8k|€15k*Savings:  €210k

*These are very profitable investments due to the low cost trackers 

Total Rent: €40k
Total interest: €6k
Profit before costs and tax: €34k 

*Paying off the car loan seems clear 
*It doesn't make any sense to be paying 3.5% while you have money on deposit.  Assuming that there are no early repayment penalties, pay this off. 

*Your three mortgaged buy to let properties 
*These are extremely profitable due to the low cost trackers and should not be sold.

Buy to let 4 is very profitable.  I presume you understand this? Paying this off is terrible advice.  Cash flow is not a relevant consideration for you. It has been suggested to pay this off to improve you cash flow! Why pay it up front, when you can pay it over 20 years? 

*Your mortgage free buy to let is earning a good yield 
*You are getting a pre cost yield of 7% on this. That is pretty good and, in isolation,  seems worth holding onto.  But I will come back to this later when looking at your overall portfolio.

*You should be maxing your pension contributions 
*With around €70k of taxable income, you should be making the maximimum pension contributions to the point where you are no longer paying 41% tax.  You should not be paying pension contributions at the rate where you get only 20% tax relief on them. 

*After maxing your pension, you should keep your assets available to take advantage of any deals on tracker mortgages 
*You should make sure that your deposits are easily accessible. If a lender offers a good deal to pay off the trackers early, you want to be able to avail of it. 

I assume BTL2 and BTL3 are BoSI mortgages. There is a fair chance that you will get a deal on these at some stage in the future. 

*What risks  do you need to guard against? 
*Interest rate rises. With net borrowings of €550k a 2% rise would cost you around €10k a year.  You can handle this.  If it happens, you might need to reassess your strategy.

Rents falling and or a sustained fall in property prices.  With €810k in property, you are probably overexposed to it. By selling the BTL1, you will reduce this risk somewhat.  Even if you think that property prices and rents are going to rise, you should still sell BTL 1, as you will still have almost €700k invested in property after the sale and so will benefit strongly from any increase in property prices 

Bank or state default. I continue to think that it's too risky to have substantial sums on deposits in banks and the state.  The risk of anything happening might be small, but the impact would be big.  You should not have money on deposit. 

*What is the CGT position if you sell BTL 1? 
*If you have a CGT liability, it might be worth holding onto it, as you presumably have unrealised CGT losses on some of the other properties. 



*So what should you do with your savings? 
*You should buy around 5 blue chip shares directly with your cash. This way it's accessible if you need it to make a pension contribution or to avail of a deal on the tracker mortgages. 

By owing them directly, you will be able to engage in a bit of CGT planning i.e. setting losses in the shares against profits in the property or vice-versa. If you buy an ETF, you may not be able to set losses in one against gains on the other.


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## Brendan Burgess

*Overall perspective 

*You are in a very good position and should not be unduly worried about your reduced earning power. 
You have a gross income of €75k a year. 

You may well find that you will be running down your assets over the next few years due to the costs of education. You have €200k cash and €175k of a mortgage free investment property available to fund that. So you do not need to worry. 

When you  hit 65, your  employed income will probably drop away, but your kids will probably be no longer dependent on you at that stage. You will have assets a good income and a pension pot.



> In the past we had a higher income and got used to a certain standard of  living. While we certainly have cut back and looked for better value we  have not cut to the bone. It is hard to say no holiday this year when  you have the cash to pay for it.



You can't afford to buy a property for cash in Croatia, but you can comfortably afford to go on holidays.  You do not need to go mad but you do not need to cut to the bone either.


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## Brendan Burgess

> What is the game plan in relation to the 2 interest only properties. Not  a fan personally of IO. Don't see the logic. In 18 years, you have to  pay them back. Would it be better to use the rental income profits to  pay down capital now. You will be 66 and 69 when these mortgages have to  be paid down. At that stage you will be presumable 'retired.'


On investment properties, Interest only is fine, generally. 

It's particularly fine, if the interest rates are 1%.  

If I can borrow at 4% to get a return on 8%, that is good investment. 

There is a risk of a long-term sustained fall in property prices. But the solution to that is not to pay off your cheap loans, it's to reduce your exposure to property. You can do this by selling of BTL 1. 

Don't forget, that you are contractually committed to monthly capital repayments on your home and BTL 4 anyway, so in 15 years, you will have paid down these mortgages to close to zero. 

There would have to be a massive triple whammy to justify selling off your other BTLs and repaying the trackers 


A sustained fall in property prices over the next 15 years from the _current _level
A significant fall in rental income
A significant rise in interest rates
This could happen, but the probability of a profitable outcome is far higher and easily justifies the risks 



A volatile property market with prices higher in 15 years time than they are now
A rise in rental income
Interest rates will rise by around  2% or 3%


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## Bronte

Would he not be better repaying the capital in order to have the properties guaranteed to be paid down so that on retirement he has an income stream or the option to sell?

Agree that the triple whammy is unlikely, but we do live in a strange financial crisis at the moment. Political problems like Ukraine too.



Brendan Burgess said:


> If I can borrow at 4% to get a return on 8%, that is good investment.


 

What do you mean by this bit?

Cremeeg it will be very interesting to see what you think?


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## Brendan Burgess

Bronte said:


> Would he not be better repaying the capital in order to have the properties guaranteed to be paid down so that on retirement he has an income stream or the option to sell?



No. 

If you can borrow money for less than you can earn on interest, then you should not repay those loans. 

The Mr Egg is repaying his overall borrowings anyway, so on retirement, he will owe a lot less than his assets. 

Where does he get the money to repay the capital?  If he takes it from his deposit accounts , he is not changing his overall net borrowing.  Should he cut down his expenditure furhter? I don't think so. He is well off and should enjoy his wealth and income.


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## 44brendan

Excellent response BB! Good advice to Cremeegg. Given the low rate and good return on the BTL's, it would be a foolish decision to part with them, unless given a very attractive deal from the lender or if cash-flow (not earnings) was an issue. Too many responses focussed on earnings rather than cash-flow.


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## cremeegg

Thanks Bronte for the comments.



Bronte said:


> *College*
> 
> How much is this going to cost you?



€10,000 per child per year. Thats 4 years 4 children €160,000. Thats just my best guess. Might not be enough if they ended up in Dublin. Does anyone know if this is realistic?





Bronte said:


> Any chance one of those properties are in a location where the kids will go to college?



BTL 1 or  3 might be suitable




Bronte said:


> So you're maybe clearing 10K as extra income.



Yes that is about right



Bronte said:


> What's the term on the BTL 4?



14 years remaining



Bronte said:


> What is the game plan in relation to the 2 interest only properties.
> 
> What happens if we are in a Japan scenario, I'm not discussing house prices, but one has to consider all options, what if in year 18 property prices mean you don't even have enough to repay those loans from selling at that time. Would like to be in a scenario where the bank comes looking at your assets and you lose an income producing stream.



This is one of my main issues. I suppose at present there is no plan except wait 18 years and see. On balance I think that is better than selling them now, also taking on Brendan's points below.




Bronte said:


> *Retirement*
> 
> What are you going to live on in retirement.
> 
> Are you entitled to state pension, is your partner? How much will your pension pot pay out?



This is the single biggest issue. As a self employed person I pay PRSI Class S and my wife pays the same on the rental income. I believe that this entitles us both to a contributory pension.

I know you raised this issue before on this thread

http://www.askaboutmoney.com/showthread.php?t=156335&highlight=prsi&page=2

I don't know how to get certainty. I asked a professional pensions advisor and the said they didn't know but would get back to me. 2 days later they produced a printout from Citizens Information. It is hardly conclusive.

Thanks Brendan and Brendan for your comments I will read them fully later.


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## cremeegg

Thanks Brendan for a very comprehensive reply



Brendan Burgess said:


> *Paying off the car loan seems clear*


*

Yes I should do that.



Brendan Burgess said:



Your three mortgaged buy to let properties 
These are extremely profitable due to the low cost trackers and should not be sold. Buy to let 4 is very profitable.
		
Click to expand...


Agreed. I am concerned that I will have to pay €408K when I am nearly 70 but on the whole I agree it is best to keep these.




Brendan Burgess said:



You should be maxing your pension contributions 

Click to expand...



Do you recommend this even though I will effectively using savings to make the pension contributions?




Brendan Burgess said:



			I assume BTL2 and BTL3 are BoSI mortgages. There is a fair chance that you will get a deal on these at some stage in the future.
		
Click to expand...


Yes BSOI. I will basically forget about these unless or until they make some such offer and I can consider that then.



Brendan Burgess said:



What risks  do you need to guard against? 
Interest rate rises. With net borrowings of €550k a 2% rise would cost you around €10k a year.  You can handle this.  If it happens, you might need to reassess your strategy.

Rents falling and or a sustained fall in property prices.  With €810k in property, you are probably overexposed to it. By selling the BTL1, you will reduce this risk somewhat.  Even if you think that property prices and rents are going to rise, you should still sell BTL 1, as you will still have almost €700k invested in property after the sale and so will benefit strongly from any increase in property prices
		
Click to expand...


Rising interest rates are most likely in the context of rising inflation, which would benefit me so I am somewhat relaxed about that. I don't see my home as a simple property investment. It provides me with accommodation that would cost about €10k to rent with the added intangible benefit of being home. That is important to me 



Brendan Burgess said:



			Bank or state default.
		
Click to expand...


This is a good point. I have some of the money on deposit outside the country ever since this thread

http://www.askaboutmoney.com/showthread.php?t=144245



Brendan Burgess said:



What is the CGT position if you sell BTL 1? 

Click to expand...



Any gain or loss would be very small. It would sell today for almost exactly the purchase price.




Brendan Burgess said:



So what should you do with your savings? 
You should buy around 5 blue chip shares directly with your cash.
		
Click to expand...


I think that I am going to do this, although there will be many more posts looking for advice in the investment thread first.


BLT 1 

I am not convinced that I should sell this

Part of my reluctance is that I don't know what would I do with the money, buy more shares?  I am not comfortable with that yet.

In Summary 

Pay off €9k loan
Keep mortgaged BLTs
Consider contributing to pension
Investigate state pension
Consider selling BLT 1
Develop the idea of buying 5 blue chip shares*


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## Brendan Burgess

> Originally Posted by *Brendan Burgess* http://www.askaboutmoney.com/showthread.php?p=1380897#post1380897
> _*You should be maxing your pension contributions *_*
> Do you recommend this even though I will effectively using savings to make the pension contributions?*


*

Money is money.  You get tax relief on it up to a certain percentage of your salary. 

You are just moving money from a Deposit Account into a pension fund and getting tax relief on the way in.  It seems clear to me.*


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## Bronte

cremeegg said:


> I don't know how to get certainty. I asked a professional pensions advisor and the said they didn't know but would get back to me. 2 days later they produced a printout from Citizens Information. It is hardly conclusive.


 
Shocking, did you pay that person?

You really must find out if it is correct.  How about posting that question on it's own in the social welfare threads, then you will attract someone in that area who may know the answer.  

 A state contributory pension would be really important.  Because it means that you are entitled to that no matter how wealthy you are.  

Another option is to send a letter to the Pensions office in Sligo/Donegal, ask them do you have enough contributions, can you buy contributions, etc


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## Bronte

Brendan Burgess said:


> Money is money. You get tax relief on it up to a certain percentage of your salary.
> 
> You are just moving money from a Deposit Account into a pension fund and getting tax relief on the way in. It seems clear to me.


 
Creemegg we are all agreed I think that the money on deposit is wasted. Just sitting there making zero and losing due to inflations. So you've 3 options so far:

1. Put it into your pension
2. Pay off some of your mortgages
3. Buy 5 blue chip shares

For the pension option, which I wouldn't understand, one would need to have calculations to see how it works before making a decision. But I do agree totally that a pension is a really good idea. 

For the mortgages, Burgess and others think this is not a good idea as the money is so cheap, you'll have equity in one property and eventually in 3 properties, seems logical enough

In relation to the shares, I note that Michael Smurfit lost out all his pension on these.

You have to spend some cash now on:

1. Car loan
2. New car (from other thread)

You have to keep some for:
1. Emergency fund
2. Low amount in a good savings product
3. Enough for year 1, or year 1 to 3 of college expenses

Might be an idea to do a table for the college expenses so that you know per year how much you will need.

Your single biggest expenditure will be the college fees, but it's not a worry because

a) you have it in cash
b) you have it in one house which is fully owned

Your most important other money problem is how to fund retirement

a) state pension X 2
b) private pension
c) rental income
d) shares


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## mandelbrot

Bronte said:


> Shocking, did you pay that person?
> 
> You really must find out if it is correct. How about posting that question on it's own in the social welfare threads, then you will attract someone in that area who may know the answer.
> 
> A state contributory pension would be really important. Because it means that you are entitled to that no matter how wealthy you are.
> 
> Another option is to send a letter to the Pensions office in Sligo/Donegal, ask them do you have enough contributions, can you buy contributions, etc


 
What's the question?

If a person is self employed and pays an S-class contribution of at least the minimum amount (used to be €253 but I think it has increased to c.€500) then they have 52 reckonable contributions for that year for pension calculation purposes.

I've just recently requested my Dad's contribution record so as to see what his entitlement will be, he's been a proprietary director since the late 80's, paying class S, and has his 52 contributions for each year.


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## T McGibney

Bronte said:


> Shocking, did you pay that person?



Why is it shocking? There's nothing wrong with a professional admitting they don't know an answer to a particular query. Problems arise when professionals pretend they know, but actually don't. Nor is there is anything wrong with a professional referencing an open source like Citizens Information to resolve a query. I, in common with every other accountant in Ireland, access revenue.ie on an almost hourly basis.


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## Brendan Burgess

T McGibney said:


> Problems arise when professionals pretend they know, but actually don't. .



Agree fully.  I don't know if accountants are the best to advise on pension entitlements.


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## Jim2007

Bronte said:


> Creemegg we are all agreed I think that the money on deposit is wasted.



Certainly not!  Without these savings the OP would appear to have no 'rainy day fund'.  The amount represents about six months income for the OP and as a self-employed person with a family to support, it would be very fool hearty to lock that up in anything other than perhaps some time deposits or similar products.


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## Brendan Burgess

Hi Jim 

I presume you are referring to the €20,000 and not the €190,000. 



> Savings and investments:
> *Deposit ac €190,000
> Short term deposit €20,000*



I think it's risky and wasteful to have the €190,000 on deposit. 

It's a matter of taste how much one should have as a rainy day fund.


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## Bronte

T McGibney said:


> Why is it shocking? There's nothing wrong with a professional admitting they don't know an answer to a particular query. Problems arise when professionals pretend they know, but actually don't. Nor is there is anything wrong with a professional referencing an open source like Citizens Information to resolve a query. I, in common with every other accountant in Ireland, access revenue.ie on an almost hourly basis.


 
Don't you think a person who purports to be an expert on pensions would know practially everything there is to know about state pensions?  It isn't a complex person.  If you have a person come to you to be assessed in relation to their pension needs the first thing they need to consider is your entitlement to a state pension.  

Accessing the revenue website is a whole different matter to citizens advice bureau.  Revenue even has a dedicated section and briefings for professionals such as accountants.  

A pension expert should be able to know Creemaag's situation easily.  In any case it appears citizens advice website  was inconclusive, ie neither Creemagaag nor the pension expert were any the wiser after reading it.  

On the other hand if it were a very complicated, little used, or unknown query I wouldn't expect the professional to know the answer off hand, but I would certainly hope they would know where to get the right answer from.


----------



## Bronte

Jim2007 said:


> Certainly not! Without these savings the OP would appear to have no 'rainy day fund'. The amount represents about six months income for the OP and as a self-employed person with a family to support, it would be very fool hearty to lock that up in anything other than perhaps some time deposits or similar products.


 
I understand Jim that you are somewhat knowledgeable on shares etc. Do you think that Creemaag should keep his money on deposit or should he invest in 5 blue chip shares. Is it a good idea or not?  And if you keep your money that way it is basically just as easily accessible as if it were on deposit.


----------



## Bronte

Brendan Burgess said:


> Agree fully. I don't know if accountants are the best to advise on pension entitlements.


 
He never said accountant, he said pensions advisor, is that not something totally different?


----------



## Bronte

mandelbrot said:


> What's the question?
> 
> If a person is self employed and pays an S-class contribution of at least the minimum amount  then they have 52 reckonable contributions for that year for pension calculation purposes.
> 
> .


 
Do landlords pay class S contribution?  Are they considered self employed.  It's clear that Creemaag is self employed, and that he is also a landlord.  On rental income there is some class of PRSI, does that give one any entitlements?


----------



## Brendan Burgess

Bronte said:


> He never said accountant, he said pensions advisor, is that not something totally different?



Sorrry, I had missed that. For some reason I had thought he had gone to an accountant. 

You are right.  A pensions advisor should know the qualifying conditions for a state pension.


----------



## mandelbrot

Bronte said:


> Do landlords pay class S contribution?  Are they considered self employed.  It's clear that Creemaag is self employed, and that he is also a landlord.  On rental income there is some class of PRSI, does that give one any entitlements?



Yes it's all class S - the source of the income is irrelevant, social welfare have no means to even know in respect of what type of income a particular PRSI contribution was collected, all they know is that Revenue tell them Joe Bloggs has paid X amount of PRSI at class S.


----------



## WindUp

Brendan Burgess said:


> Sorrry, I had missed that. For some reason I had thought he had gone to an accountant.
> 
> You are right. A pensions advisor should know the qualifying conditions for a state pension.


 
He might know them now - but he cannot predict what the pensionable age will be in 10 years or what other changes might be made .


----------



## cremeegg

Thanks again for all the suggestions.

I am advised to sell BLT 1 and in principle I accept this advise. However first I need to find a better use for the €190,000 on deposit.

Brendan suggests that I buy 5 blue chip shares.

How would I choose what 5.

What type of decision process is needed to choose 5.

Or I suppose in principle if markets are efficient it should not matter what 5, and there is no choosing involved.

I do have some other points I would like to probe on this but no time for now.


----------



## Brendan Burgess

It would probably be better to start a new thread on this in the Investments Forum, if it's not covered by a Key Post.


----------



## cremeegg

Just to address that issue of the financial advisor who did not know if I was entitled to a contributory state pension.

For most self employed people the state pension will be either the largest, or a large, part of their retirement income. For a couple the state pension is at the level of an annuity that would cost over €800,000. 

Certainly the advisor did act responsibly in doing some research when they didn't know the answer, however I can't help feeling that the reason they didn't know in the first place is that there is no money in being an expert on the state pension.

Financial advisors are like shopkeepers, they have a stock of products they are trying to sell. There is nothing wrong with that but the term financial advisor is misleading


----------



## goingforgold

cremeegg said:


> . For a couple the state pension is at the level of an annuity that would cost over €800,000.


 
Not an expert but the above seems somewhat excessive. If you take current annuity rates then a €150k pension lump sum should give you an annual pension of c. €7.5k per annum. The state pension is €12k per annum so c.€240k pension lump sum should buy you the equivalent amount per annum. 

So a couple would be c.€480k...am i missing something? My figures are based on a level payment pension, with minimum guarantee period which is equivalent to state pension terms.


----------



## Laramie

Do you actually need to do anything at all....for the moment. You seem like an active person who has to occupy himself doing something "financial". Are you getting a little bored at the moment and need to be doing something else financial. At one stage everyone thought that bank shares were blue chip shares and look at them now, so thread carefully here. Maybe have the annual holiday with the children while they are still with you. Mine have gone and are all doing well for themselves but you can look back on the holiday.


----------



## Bronte

goingforgold said:


> Not an expert but the above seems somewhat excessive. If you take current annuity rates then a €150k pension lump sum should give you an annual pension of c. €7.5k per annum. The state pension is €12k per annum so c.€240k pension lump sum should buy you the equivalent amount per annum.
> 
> .


 
So an annuity is returning 5%.  But you risk losing the capital.  To get around 12K per annum you'd need to put in capital of nearly 250K.  By two people that's 500K, giving one 25K return.


----------



## Bronte

cashier said:


> , the registration fees currently are about 3000 euro then you have accommodation, heat electric, books, food, social money, travel, clothes, you looking at least 200 euro per week while they are in college and no doubt as the years pass prices will continue to increase.


 
Does that then make the total cost 3000 + 200 X 40 weeks = 8000, total 11K?


----------



## mandelbrot

Bronte said:


> Does that then make the total cost 3000 + 200 X 40 weeks = 8000, total 11K?



But this isn't the incremental cost of sending these kids to college. I.e. they're already (I assume) incurring costs of feeding, clothing, entertaining them. And if after the leaving cert they are sitting at home unemployed, they still need to be fed, clothed etc...

Surely it's only the incremental cost, ie college versus sitting at home (unless they're very lucky and get paid work), that's relevant...


----------



## Bronte

mandelbrot said:


> Surely it's only the incremental cost, ie college versus sitting at home (unless they're very lucky and get paid work), that's relevant...


 
That's a very good point.  So clothing would be no change.  But rent, fees, esb, gas, travel would be extra.  But so too would food, its a lot move expensive for one to feed onself, than it is for a family to add an extra dinner to the cooking pot.


----------



## cremeegg

goingforgold said:


> Not an expert but the above seems somewhat excessive. If you take current annuity rates then a €150k pension lump sum should give you an annual pension of c. €7.5k per annum. The state pension is €12k per annum so c.€240k pension lump sum should buy you the equivalent amount per annum.
> 
> So a couple would be c.€480k...am i missing something? My figures are based on a level payment pension, with minimum guarantee period which is equivalent to state pension terms.



I took the view that the state pension is an increasing one rather than a level payment. I know that it has not increased in recent years. 

Nevertheless, if we suffered a bout of inflation, someone on a level payment annuity would be in trouble, whereas I would expect the state pension to get some increase.

Pensioners after all are voters. Also I believe that the pension has increased considerably over the last 10 years.


----------



## cremeegg

Laramie said:


> Do you actually need to do anything at all....for the moment. You seem like an active person who has to occupy himself doing something "financial". Are you getting a little bored at the moment and need to be doing something else financial. At one stage everyone thought that bank shares were blue chip shares and look at them now, so thread carefully here. Maybe have the annual holiday with the children while they are still with you. Mine have gone and are all doing well for themselves but you can look back on the holiday.



There is a lot of insight and sound advice in this. Thank you.


----------



## cremeegg

mandelbrot said:


> And if after the leaving cert they are sitting at home unemployed, they still need to be fed, clothed etc...



I see this happening in a lot of families, after school and even after college. I think it must be devastating. 



mandelbrot said:


> Surely it's only the incremental cost, ie college versus sitting at home (unless they're very lucky and get paid work), that's relevant...



Thats true, but as Bronte points out  "its a lot move expensive for one to feed onself, than it is for a family to add an extra dinner to the cooking pot."

I still think €10k is a reasonable figure. they can entertain themselves during the summer.


----------



## Bronte

cremeegg said:


> they can entertain themselves during the summer.


 
You mean get a job ! Preferable abroad !


----------



## goingforgold

Bronte said:


> So an annuity is returning 5%. But you risk losing the capital. To get around 12K per annum you'd need to put in capital of nearly 250K. By two people that's 500K, giving one 25K return.


 
Thanks Bornte...so are you agreeing with my analysis (ie our figures are pretty much the same)? 

I'm a little confused by the following "you risk losing the capital"...is the capital no longer an issue once annuity is purchased?


----------



## 44brendan

By purchasing an annuity you are relinquishing any ownership of the capital sum.


----------



## Jim2007

Laramie said:


> At one stage everyone thought that bank shares were blue chip shares and look at them now, so thread carefully here.



Well the thing is that Blue Chips do fail from time to time and you do need to understand what you are doing when you say pick five as someone else suggested...  That is why a large caps ETF is probably a better option for most people.

The other think is that the UK/Ireland is the only place I've heard of banks being considered as solid blue chip stocks...  In fact there is a general aversion in middle Europe to having say more than 12% - 15% of one's portfolio invested in the financial sector.  And with good reason, they are very complex business models, even for the pros to get their heads around.


----------



## cremeegg

Seven years ago I posted the question at the start of this thread, I am back with an update and again looking for  perspective and I have a specific question.

Reading over the thread I am struck by the excellent advice I received and the thought people put into their replies, it settled me at a time when I was feeling exposed, and I was and am grateful for that.

I repost the orignial question below with details *updated in bold.* All the properties referred to are the same properties as in the original post with one exception noted.


----------



## cremeegg

Age: 48 *55*
Spouse’s/Partner's age: 51 *58*

Annual gross income from employment or profession: €45,000* €40,000*
Annual gross income of spouse:None *No Change*

Monthly take-home pay €3,750 *€2,900*

Type of employment:  Self-employed *Public Sector PT Temp €35k Self Emp €5k*

In general are you:
(a) spending more than you earn, or
(b) saving?

Spending a little more than we earn.  *No Change*

Rough estimate of value of home €260,000 *€400,000*
Amount outstanding on your mortgage: €170,000* €103,000*
What interest rate are you paying?
ECB plus 1.15% (€10,344 pa)  *No Change*

Other borrowings – car loans/personal loans etc.
€9,000 UB unsecured 3.5%  *€25,000 at 6.5%*

Do you pay off your full credit card balance each month? Yes *No Change*
If not, what is the balance on your credit card? Nil *No Change*

Savings and investments:
Deposit ac €190,000 *€26,000*
Short term deposit €20,000* €5k*

Do you have a pension scheme?
PRSA €114,000 no contributions currently *€150,000*

Do you own any investment or other property?

BLT 1
Value €125,000  *€250,000*
Mortgage None
Rent €9,000 pa *€20,000
Unrealised Capital Gain €120k*

BLT 2
Value €160,000 *€250,000*
Mortgage €200k ECB + 0.75% IO for 18 more years (€2,000 pa) *11 years remaining then capital payable*
Rent €8,400 *€10,800
Unrealised Capital Gain €100k*

BLT 3
Value €95,000 *€170,000*
Mortgage €208k ECB + 0.75% IO for 18 more years (€2,079 pa) *11 years remaining  then capital payable*
Rent €8,400 *€10,800
Unrealised Capital Loss €70k*

BLT 4
Value €170,000 *€300,000*
Mortgage €175,000 ECB + 1.15% Cap & Int (€13,944 pa)* Bal €101,000 8 years remaining*
Rent €15,000 pa* €33,600
Unrealised Capital Gain €120k

BLT 5 Purchased shortly after the above thread was active.
Value  €170,000
Cost €90,000
Mortgage None
Rent  €14,600 pa
Unrealised Capital Gain €80k*

Ages of children: 16,14,12,9  *now* *23, 21,18, 16*

Life insurance:Sufficient to clear mortgages* €300,000 both lives insured

Update re circumstances.* *Shock horror I got older, and despite what I said in the original post this came as a shock. 

I wound down my self-employed income and took up public sector work. This is going well and although currently I have a temporary part time contract I hope to have a permanent contract in the next year or so. The earnings will start off around €35k and increase slowly from there.

I did not sell BLT 1 in fact I used the cash I had to buy BLT 5, I also changed two cars. So of the €210 I had in cash I invested €90k spent €30k on cars and spent €60k on general living. One car should be fine for another 5 years, the other may need to be replaced in the next year or so.

The €25k loan was to refurbish BTL 4. I could have used savings, but then I would have no buffer.*

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

Mostly I am looking for perspective on my situation, *No change

I would like to unlock some of my assets maybe go on safari, buy a campervan, even the holiday home in Croatia mentioned 7 years ago (although Leper has convinced me not that) while we are still young enough to enjoy it.*

Any suggestions welcome.


----------



## fungie20

I must be showing my relative young age but a couple with 4 children, 1 modest income, a family home and 5 BTL properties; that's wild!!


----------



## goingforgold

Your net worth exc. pensions went from C. 300k 7 years ago to c. 930k now... That's down to very major property price increases in that time period... So seriously well done. We don't talk about future property prices here, but certainly risks you took in the not so distant past have rewarded you very generously.
So my advice is to buy that camper van or whatever because you can absolutely afford to do so and what is life about at the end of the day... Liquidise one of your buy to let's to do this if necessary, the least profitable one ideally.


----------



## Nordkapp

I would liquidate BLT 2 and 3 and offset the loss against the gain, are you sure CG on BLT is €100k given value is €250k but mortgage was €200k?


----------



## Gordon Gekko

goingforgold said:


> Your net worth exc. pensions went from C. 300k 7 years ago to c. 930k now... That's down to very major property price increases in that time period... So seriously well done



I wouldn’t go as far to say “well done”. Cremeegg was reckless and doubled-down. The bet paid off, to a degree. But now’s the time to de-risk. Is there a plan to deal with the ‘interest only’ periods ending? What happens if prices fall? Why the need for new cars? Why the expensive borrowings at 6.5%?

Some of those properties should be sold to de-risk would be my tuppence.

Cremeegg, do you have full State Pension entitlement?

The yield on BTL 2 is pretty poor at just over 4%.

The yields on the rest of them look pretty good.


----------



## goingforgold

Gordon Gekko said:


> I wouldn’t go as far to say “well done”. Cremeegg was reckless and doubled-down. The bet paid off, to a degree. But now’s the time to de-risk. Is there a plan to deal with the ‘interest only’ periods ending? What happens if prices fall? Why the need for new cars? Why the expensive borrowings at 6.5%?
> 
> Some of those properties should be sold to de-risk would be my tuppence.
> 
> Cremeegg, do you have full State Pension entitlement?
> 
> The yield on BTL 2 is pretty poor at just over 4%.
> 
> The yields on the rest of them look pretty good.


Completely disagree... Speculate to accumulate comes to mind. But without getting into cliches I think it's fair to say that 'bet'  paid off far more than 'to a degree'. I get there was a certain degree of luck but at the end of the day they are far, far wealthier than what they would be if they hadn't speculated in property... So that deserves credit no matter how we look at it. It's a timing thing and it paid off for OP. If he had invested in the stock market and got these returns would he have been 'reckless'?  Markets fluctuate just like property but certain people do well out of it. That often requires some skill as well as luck hence why I give the credit to OP. It can be argued that OP was too heavily invested in property... But hey, it paid off, hugely so!
And final point on this, which I found very interesting actually, was that even when these properties were in negative equity there were some very knowledgeable posters telling OP to keep the properties as they were profitable. They were spot on with this advice. And obviously since then they have become extremely profitable from a capital appreciation perspective.


----------



## Gordon Gekko

Goingforgold,

Cremeegg is invested in a single asset class in a single geography with borrowings layered-on. There’s some negative equity thrown-in, plus some repayments due to revert to interest plus capital.

The bet paid off but now’s the time to de-risk.

I view cremeegg’s position as precarious.


----------



## Baby boomer

Kudos, sir, you've done well!  Fortune favours the brave and your bravery was well rewarded.  That's some tasty rent roll you've got there - 90k odd on property valued at 750k.  That's a cash cow investment and, as I see it, you've no need to liquidate to cash - you won't get better.  

The loan at 6.5% raises an eyebrow, I must say.  I fully understand the requirement for a buffer but it's costing you!  Your call...

You should now be looking at tax efficiency, pension planning and even passing some wealth on to the next generation.  You are exposed to a considerable whack of tax at the 40% (plus extras) scalping rate.  That's a horrible waste and you should try to minimise this as far as (reasonably) possible.    Maximize your personal pension contributions for a start, that's a no-brainer.  Perhaps incorporate your self employed business and make employer contributions too.  Not sure if you can buy extra years in the public service single scheme but check it out.  Then have a look at EIIS investment.  You could put in, say, 10 to 20k pa, get full tax relief, and after five years, it becomes self-financing gross, and cash positive net.  

Then there's the kids.  Try to encourage and incentivise them to invest wisely!


----------



## goingforgold

We can argue the point all night Gordon but fact of matter is that OP through his investment choices has to date done incredibly well. Look at his income and look at his wealth. That's down to his investment choices and would not have been possible had he squirreled away a few quid in a deposit account. Would he have done better had he diversified into stocks, gold etc. I doubt it tbh... So all I'm saying is that his investment paid off handsomely and credit where it's due. People generate wealth in different ways, some are property tycoons, other stock market investors etc. Others just work hard at their careers and generate huge incomes. But point is that if they make it then credit where it's due. Cremeegg made it  through property and to date it has paid off... What he does in the future is a very different thing... But as a side note, in general I'd agree with you that it's better to diversify. Absolutely agree with that. But for Cremeegg, great that he didn't it seems.


----------



## Baby boomer

With respect I suggest that those who are advocating that Cremeegg should diversify are missing the point.  If the entire property portfolio was owned outright, that would be absolutely the correct strategy.  But it isn't.  BTL 1 and 5 are owned outright and there's a reasonable argument to sell and possibly switch into a diversified equity portfolio or ETF.  
But BTL 2, 3 and 4 are leveraged so it's the bank's money doing the heavy lifting while you, ahem, creme off the profits.  Basically, you've got nearly 600k of the bank's money working for YOU.  And better still, you're renting that money at an absurdly low interest rate.  The going rate for BTL mortgages with your LTV is 5% or so.    You have it for less than 1% averaged over the three mortgaged properties.  You would be mad to let that go.

If you want to cash in, buy all means sell BTL 1 or 5 and have a bit of fun.   But your mortgages are the gift that keeps on giving, a historical anomaly that won't be repeated.  We will probably never again see sub 1% IO trackers in our lifetime.  Keep her trucking!


----------



## Gordon Gekko

Because property prices only go up and there are only good tenants out there who always pay their rent.

A single asset class in a single geography with leverage and minimal other income or savings to mop up any issues...what could go wrong?


----------



## cremeegg

fungie20 said:


> I must be showing my relative young age but a couple with 4 children, 1 modest income, a family home and 5 BTL properties; that's wild!!


Full disclosure. We lived in London in our 30s and we both had very well paid jobs. We moved to Ireland at a very advantageous time.


----------



## NoRegretsCoyote

@cremeegg 

Is your wife playing Class S PRSI on the rental income? This will help her qualify for a contributory state pension.

Otherwise I haven't looked at the numbers in detail but I would sell one of the mortgage-free BLTs and take advantage of tax relieved pension contributions. As you get older you will want your wealth stress free, and a five-property portfolio is not that.

Borrowing at 6.5% makes no sense either.


----------



## Purple

cremeegg said:


> Full disclosure. We lived in London in our 30s and we both had very well paid jobs. We moved to Ireland at a very advantageous time.


Firstly, well done.
Secondly, that opportunity to earn big bucks isn't going to come around again. You are getting older so you should be slowly de-risking as you have less time to recover from negative events. I've no specific advice as I think you are best placed to make specific decisions but I'd frame those decisions in the broader context of de-risking. You could be mortgage free and still have a good investment income. Sometimes a comfortable easy life is the best option.


----------



## Bronte

I *knew* you'd buy another property.   I'm trying to do the very same.  

As you know there is a massive anti property investment vibe on many property investment threads and you've consistently proven the opposite. From the day we bought our first home I turned it into a money making exercise.


----------



## Bronte

cremeegg said:


> Rough estimate of value of home €260,000 *€400,000*
> Amount outstanding on your mortgage: €170,000* €103,000*
> What interest rate are you paying?
> ECB plus 1.15% (€10,344 pa)  *No Change*
> 
> 
> BLT 1
> Value €125,000  *€250,000*
> Mortgage None
> Rent €9,000 pa *€20,000
> Unrealised Capital Gain €120k*
> 
> BLT 2
> Value €160,000 *€250,000*
> Mortgage €200k ECB + 0.75% IO for 18 more years (€2,000 pa) *11 years remaining then capital payable*
> Rent €8,400 *€10,800
> Unrealised Capital Gain €100k*
> 
> BLT 3
> Value €95,000 *€170,000*
> Mortgage €208k ECB + 0.75% IO for 18 more years (€2,079 pa) *11 years remaining  then capital payable*
> Rent €8,400 *€10,800
> Unrealised Capital Loss €70k*
> 
> BLT 4
> Value €170,000 *€300,000*
> Mortgage €175,000 ECB + 1.15% Cap & Int (€13,944 pa)* Bal €101,000 8 years remaining*
> Rent €15,000 pa* €33,600
> Unrealised Capital Gain €120k
> 
> BLT 5 Purchased shortly after the above thread was active.
> Value  €170,000
> Cost €90,000
> Mortgage None
> Rent  €14,600 pa
> Unrealised Capital Gain €80k*
> 
> 
> 
> 
> 
> 
> 
> Any suggestions welcome.


*Questions*
How much did college cost
When does employment income end
Have you made sure you both will get the full state contributory pension
How much are you getting from the 90K rent roll
When will the home loan end, is this your forever home
Would need the figures for each property as regards expenses and tax. 

*Summary*

Home: 400K,   BTL1 250K    BTL2 250K     BTL 3 170K     BTL 4 300K   BTL 5 170K = 1,540,000
Loans: 103K,       zero,                200K,         208K,             175K          zero = 686,000
Return:                 8%                   4%              6%                11%            8.5%

Problem is the two mortgages of 408K on interest only. What is your plan for them?  They are also the two with the lowest return.  If you sold 3 now, you'd have a CGT loss to offset against a CGT gain when selling 2.  You'd lose income of 21K (you can figure out the real figure based on expenses and tax).  The question is whether you should do that now or in 8 years.  You really need to think about that - because as you very well know what goes up can come down.   And you don't want that to happen when the loans are called in. 

- Home is fine as it is being paid off.
- BTL 1 has a good return and no mortgage
- BTL 2 has the lowest return, and is IO
- BTL 3 is IO, and the second lowest return
- BTL 4 has a fantastic return and is being paid off
- BTL 5 (good buy there, presumably based on you vast experience.  You've taken your savings, invested very wisely and it has a great return - this is for the benefit of other would be landlords who lurk here and sometimes here advice not to rent)

*Comment*

Leper was right.  But you should go on Safari, you never get the time back.  Do it now while you still can, while you can afford it, and while your kids are free, this will all change faster than you realise.


----------



## Bronte

Gordon Gekko said:


> Because property prices only go up and there are only good tenants out there who always pay their rent.
> 
> A single asset class in a single geography with leverage and minimal other income or savings to mop up any issues...what could go wrong?


With respect Creme Egg has been a landlord for years so he knows all about good and bad tenants.  He's also seen property collapse and rise.  So he also knows that propety does not always rise but that it doesn't matter if you don't have to pay back loans.  Once your rent is covering everything and you're getting a good return there is no problem.  As regards, geography, as a person living abroad who manages Irish property I'm glad I only have property in one country.  Knowing your market, the rules all in English, being able to keep up with Irish tax laws is the right way to go instead of taking risks of the unknown in Croatia - (Bulgaria, Spain and Dubai - we had all those horror stories on here over the years)


----------



## Gordon Gekko

With respect Bronte, you mention selling Property 3 but don’t mention the fact that there’s €38,000 of negative equity to be dealt with. Cremeegg doesn’t have the cash to deal with that and in fact has expensive non-mortgage debt.

I’m delighted for Cremeegg, but let’s not mislead other people and bang the drum that buying a single asset class in a single geography with leverage is a sensible strategy.

Picking up pennies in front of a steamroller can be quite profitable too if you time it right.


----------



## NoRegretsCoyote

Gordon Gekko said:


> Picking up pennies in front of a steamroller


That's not a good analogy. OP has scale, seems to be able to deal with tenants and repairs directly which keeps down costs. There are some good gross yields as it's more than likely apartments in non-prime locations. This is the model of how to make money as a landlord.

This business model would not stack up if the properties were in Ballsbridge and managed by an agent, but I suspect they're not.

Otherwise I agree he's had a run of good luck and it's time to de-risk.


----------



## Gordon Gekko

NoRegretsCoyote said:


> That's not a good analogy. OP has scale, seems to be able to deal with tenants and repairs directly which keeps down costs. There are some good gross yields as it's more than likely apartments in non-prime locations. This is the model of how to make money as a landlord.
> 
> This business model would not stack up if the properties were in Ballsbridge and managed by an agent, but I suspect they're not.
> 
> Otherwise I agree he's had a run of good luck and it's time to de-risk.



Which is my entire point!

It worked out, great, but it could quite easily not have worked out.

The yield on these assets probably reflects the risk. And there are borrowings in there.

This was/is high risk activity.


----------



## NoRegretsCoyote

Gordon Gekko said:


> It worked out, great, but it could quite easily not have worked out.



There is a strain of thought on AAM that no one should ever be a residential landlord. I know all the downsides and arguments why.

But I think there is point where the return justifies the risk, and the OP is in that space. Especially with the cheap funding.


----------



## Bronte

Gordon Gekko said:


> With respect Bronte, you mention selling Property 3 but don’t mention the fact that there’s €38,000 of negative equity to be dealt with. Cremeegg doesn’t have the cash to deal with that and in fact has expensive non-mortgage debt.
> 
> I’m delighted for Cremeegg, but let’s not mislead other people and bang the drum that buying a single asset class in a single geography with leverage is a sensible strategy.
> 
> Picking up pennies in front of a steamroller can be quite profitable too if you time it right.


But I said sell both leaving a positive 12K.  I don't see an issue with the NE on No 3, if the bank allows him to sell they will presumably give him the time to sell property 2.  Or he can borrow the NE. But he needs to time it so the NE is sold first to avail of the CGT loss.  (I didn't do the calculation on the worth of that)

A person on income of 45K with rental roll of 90K and mortgages nearing end with current values of 1.5 million owing 700K is not in a bad position.

I'm not misleading anybody.   I've made money on property and I think Creme Egg has made excellent decisios which is why he's worth so much today.  So I think his strategy is very sensible indeed.  Tell me which 5 blue chips would you have advised him to buy in 2014 that would have resulted in him now being in the position he's in. 

Also you'd swear 6.5% was actually expensive.  When people have overdrafts at 20% plus or credit card debt.  He's paying less than 2K for that annually. That's pennies.


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## Sarenco

Bronte said:


> But he needs to time it so the NE is sold first to avail of the CGT loss


Exactly but Cremeegg doesn't have the cash to make up the shortfall on the mortgage and hence the problem.

Personally, I would sell one of the un-mortgaged rentals, plus both BTLs on the IO mortgages (making sure to sell the property with the capital loss first).  I would then use any remaining equity (having paid the CGT) to clear the car loan and the mortgage on the PPR.


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## Bronte

Home loan is costing him less than 3K annually.  What's the benefit of paying that off, when he's paying it off anyway.  

He'd lose 41K of income if he sold properties 1, 2 & 3.  Without full figures including tax on rentals it's hard to calculate properly.


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## Sarenco

@Bronte

I agree with other posters that @cremeegg has had a good run of luck and now it's time to de-risk.

I have simply suggested what I think is the most efficient way of achieving that result.


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## Gordon Gekko

Sarenco said:


> Exactly but Cremeegg doesn't have the cash to make up the shortfall on the mortgage and hence the problem.
> 
> Personally, I would sell one of the un-mortgaged rentals, plus both BTLs on the IO mortgages (making sure to sell the property with the capital loss first).  I would then use any remaining equity (having paid the CGT) to clear the car loan and the mortgage on the PPR.



I agree with this analysis.


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## meepman

Some of those properties have doubled in value in 7 years.   Can't see that happening in the next 7 years.  Peaks and troughs, you get lucky or unlucky. If unlucky, can get stuck in that cycle. Almost like a sinewave.
This sounds similar to back in celtic tiger times and we all know what happened then.

I'd sell up before times get bad.


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## moneymakeover

Not really meepman

There just been huge injection of money into the system both Europe and USA

Assets will increase in price


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## Bronte

meepman said:


> Some of those properties have doubled in value in 7 years.   Can't see that happening in the next 7 years.  Peaks and troughs, you get lucky or unlucky. If unlucky, can get stuck in that cycle. Almost like a sinewave.
> This sounds similar to back in celtic tiger times and we all know what happened then.
> 
> I'd sell up before times get bad.


Creme Egg came through the Celtic tiger, up and crash didn’t he. He knows what crashes are. If he encounters another crash so what, for him. He’s also older than that, so has seen a lot including actual massive interest rates which makes 6.5% nothing. Particularly in real terms.


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## Baby boomer

Perhaps if we look at this another way....

Imagine a bank announcing today that it was offering IO mortgages for BTL property at ECB + 1%.  It would be inundated and the advice here and elsewhere would be to fill your boots while it lasted.  Holding three such mortgages is a little goldmine. 

Don't give it up, Cremeegg!


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## cremeegg

Thanks for the replies. 

As regards the different opinions about how risky my strategy was, all I will say is that the big risk in property investment (as a residential landlord rather than a speculator) is not having the cashflow to meet your repayments. I owned 4 of the 5 BTLs (can't believe I wrote BLT, must have been hungry) in 2006 when they were worth as much as they are now. When the value fell that made no practical difference, except I was able to buy BTL5 cheaply. Obviously the rents were weak in 2008 for a few years, that reduced my return obviously.


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## cremeegg

Baby boomer said:


> Basically, you've got nearly 600k of the* bank's money *working for YOU.  And better still, you're renting that money at an absurdly low interest rate.  The going rate for BTL mortgages with your LTV is 5% or so.    You have it for less than 1% averaged over the three mortgaged properties.


This is why I will not be selling the leveraged properties. 

I was lucky to have the opportunity to refinance everything on good tracker rates, I had the sense to know a good opportunity when I saw it.


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## cremeegg

Thanks Bronte for your input.


Bronte said:


> *Questions*
> How much did college cost
> When does employment income end
> Have you made sure you both will get the full state contributory pension
> How much are you getting from the 90K rent roll
> When will the home loan end, is this your forever home
> Would need the figures for each property as regards expenses and tax.



I have not kept accounts but I would say that the cost of college was about the €10K, that includes accommodation outside of Dublin.

I intend/hope to stop work when my youngest becomes independent about 6 years. I will then be in my early 60s so have the option to continue for a few more years.

We have each paid class S PRSI on the rental income for 20 years so I believe that we will qualify. I would be glad if anyone has any experience on this.

The expenses are not huge insurance bins, some repairs, Tax is by far the biggest take from the income.

The home loan ends in 7 years. I am at the stage where thoughts of a 'forever' home are turning to 'downsizing for retirement'. The possibility exists of selling the home and living in BTL1 at some stage in the future.

The expenses on each property are probably less than €1,500 per annum. Having just renovated one, they are all in a good state of repair. There are no particular expenses involved with any. Tax is at 50%


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## Bronte

The question about college was for my own information !!

You should contact the PRSI people in Donegal or Sligo, I forget which and get them to send you a copy of your PRSI records for both you and your wife, they are lovely to deal with and can give you advice on how or if it is possible to buy back years.

What's you aim on the two IO loans?  You don't want to be in a situation of being forced to sell if the market should tank, timing could catch you out.  But having said that you've enough equity in the other properties.

90 - 7500 = 82,500
No mortgage on BTL 1
BTL 2 1500 (is 100% deductable now I think)
BTL 3 1560  (is 100% deductable now I think)
BTL 4 14K, interest 2K @100%
BTL 5 zero

Rent 90 less expenses 7500 less mortgages = 65K
But tax must be 82500 - (1500+1560+2000) = 77440 @ 50% = 38K to revenue. Yikes. Thank goodness I'm non resident.  But you're pulling in 27K. (very rough figures).  Also you're paying off BTL 4 and putting up 2 prsi stamps.


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## SPC100

For some reason, I always though cremeegg was female.

Askaboutmoney is always very conservative in advice. They don't want anyone to go broke. But as we know more risk means more potential reward. But it also mean more people go broke. That said, you only have to get rich one, and then stay rich.

Having a plan for dealing with the IO mortgages which fall due in 8 and then 11 years is the key thing here imo / deciding till what age you want to remain a landlord. If property prices fall dramatically again around that time, and if you are unable to remortgage, you could end up in a hard place / forced sales etc.,

I'd second the suggestions for building up some investment wealth outside of Irish property, and also using pension tax relief.

To your question of unlocking some money, clearly, it looks like you have to sell something to do that.

If you sell any with the cheap financing you give up ten years of leveraged income, you have to weight that against the CGT savings.


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## Bronte

cremeegg said:


> Thanks Bronte for your input.


It's always good to get a second opinion.  You will own the home in 7 years, and you can sell that to pay off BTL 2 & 3 leaving you rental income from 4 properties when you move into BTL 1.  I think you need to seriously think about timing, to buffer that can you save more.  I'm guessing you can when your youngest is finished in 6 years.


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## moneymakeover

What are your own thoughts/plans cremeegg?

You thinking of selling anything?


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## moneymakeover

I suppose I'm just wondering what your plans are for retirement and if you would have much debt on retirement or just sell properties which are mortgaged at that stage eg in 10 15 years time


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