# equity release



## endao (8 Nov 2006)

my brother has released 50k (equity release) off a property he bought a few years ago. What would be the best investment for the money.
hes looking for ideas and thinking of an overseas property

Thanks


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## extopia (8 Nov 2006)

Ah fair play to the brother for setting free the cash.


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## Foxtrot (8 Nov 2006)

Um, he increased his mortgage at the same time interest rates are rising and wants to purchase more property at the same time many property markets are struggling? No offence, but he's not going to win Investment Genius Of The Year with that strategy. Has he done any research into investing and managing his personal finances? Has he established his short and long term goals? Does he know how much he already owes and how he's going to make those payments if his income stream is reduced or suspended? It sounds like your brother needs to do more reading before he comes close to making a decision.


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## ClubMan (8 Nov 2006)

He is borrowing at probably 4-5% (with no owner occupier mortgage interest tax relief on the top-up since it's not to purchase/renovate his _PPR_) so he has to earn that *net *plus inflation to break even. That could mean a total net return around 8%+ (i.e. about 10% gross) before he is even getting a real return. Does he realise this?


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## Sarsfield (8 Nov 2006)

The first thing that's struck me if I read the OP correctly is that his brother took out this loan before deciding what to do with it?  Does he have the cash at the moment and what's it doing?


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## bacchus (9 Nov 2006)

extopia said:


> Ah fair play to the brother for setting free the cash.


 
Can you please develop your point or was it a joke? 
To me, it looks like he has simply increased his debts...


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## extopia (9 Nov 2006)

I suppose I was attempting to be funny.

The term "equity release" is a euphemism for debt. It amuses me to hear about people "releasing equity" as if they were releasing captive animals into the wild or other such noble-sounding deeds.

That's all. Sorry for being oblique (yet again!)


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## joesoap (9 Nov 2006)

I have just decided to release equity in my home to the value of 120k. I currently have no mortgage. My salary is 60k per year so I can handle the repayments. 
My plan is to invest directly in the stock market by buying a diversification in stocks probably in the Footsie and Iseq. I have been dealing in stocks for about ten years so I understand there will be slumps and I believe I can handle this.

Here is where I need help

What kind of mortgage should I take out, interest only ? and over what time frame. I am forty years old.

How many stocks should I buy and how many industry sectors should I buy into.

Regards
Joesoap


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## extopia (9 Nov 2006)

Too many questions, not enough information about you - your risk tolerance, your other debts, etc.


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## ClubMan (9 Nov 2006)

As I said...


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## Markjbloggs (9 Nov 2006)

ClubMan said:


> He is borrowing at probably 4-5% (with no owner occupier mortgage interest tax relief on the top-up since it's not to purchase/renovate his _PPR_) so he has to earn that *net *plus inflation to break even. That could mean a total net return around 8%+ (i.e. about 10% gross) before he is even getting a real return. Does he realise this?


 
Clubman,

what return on investment would you consider sufficient to justify a home equity release loan for funding?

M


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## ClubMan (9 Nov 2006)

Well you have to at least cover the costs (interest and inflation) first to make it worthwhile. By my reckoning that's about 10% at the moment. Then you probably need a good return to account for the risk that you are taking. Perhaps up to 20% p.a. net all in (i.e. c. 10% real return) especially when deposit rates are in or around 5% these days.


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## Howitzer (9 Nov 2006)

endao said:


> my brother has released 50k (equity release) off a property he bought a few years ago. What would be the best investment for the money.
> hes looking for ideas and thinking of an overseas property


 


joesoap said:


> I have just decided to release equity in my home to the value of 120k. I currently have no mortgage. My salary is 60k per year so I can handle the repayments.
> My plan is to invest directly in the stock market by buying a diversification in stocks probably in the Footsie and Iseq. I have been dealing in stocks for about ten years so I understand there will be slumps and I believe I can handle this.
> 
> Here is where I need help
> ...


 
I believe Homer has already addressed this issue.


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## endao (9 Nov 2006)

He has a house that is being rented out and is covering the mortgage. what he was going to do was buy an appartment in the UK and do the same, but that fell through. So he was looking for some ideas on what else would be good to invest in. I dont think he cares about a return once the rent covers the mortgage for a few years. His plan is to build up a portfolio of houses to rent out.
Thats all i can add to it need to talk to him later (and probably get him to get is own username so he can post questions).
Thanks for the replies.


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## ClubMan (9 Nov 2006)

endao said:


> He has a house that is being rented out and is covering the mortgage. what he was going to do was buy an appartment in the UK and do the same, but that fell through.


Why was he going to concentrate most (all?) of his net worth in a single asset class? Was he aware of the risks?


> I dont think he cares about a return once the rent covers the mortgage for a few years.


 That's a bit of a mindless approach to investing.


> His plan is to build up a portfolio of houses to rent out.


 As above re. the risks of concentrating on a single asset class versus building a diversified portfolio.


> Thats all i can add to it need to talk to him later (and probably get him to get is own username so he can post questions).
> Thanks for the replies.


 Why doesn't he pay an independent, professional advisor to do a proper fact find/financial health check and recommend a range of possible savings/investment options that suit his specific needs to him?


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## hmmm (9 Nov 2006)

It has never been a good idea to borrow to invest in equities. And if you don't believe me believe Warren Buffet.


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## joesoap (9 Nov 2006)

OK but according to The guide to savings and investments it is

[FONT=Verdana, Arial, Helvetica, sans-serif]_*WHEN TO BORROW TO INVEST IN THE STOCKMARKET*_[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]_Your total borrowings, including your mortgage, should be no more than twice your annual salary.
You should be able to borrow at the cheapest rate, i.e. the mortgage rate.
You must be prepared to stay in for the long term. 
You must buy shares directly instead of through a unit-linked fund
You must have experienced the lows of the stockmarket, so that you won't panic if things go wrong._[/FONT]

Joe Soap


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## hmmm (9 Nov 2006)

joesoap said:


> OK but according to The guide to savings and investments it is
> 
> [FONT=Verdana, Arial, Helvetica, sans-serif]_*WHEN TO BORROW TO INVEST IN THE STOCKMARKET*_[/FONT]


It's not gospel, it's just someone's opinion. There was a period of close to 20 years in the 60s and 70s where equities underperformed bonds, although over longer periods equities outperform all other classes. If you're going to borrow to invest, you have to ask yourself whether you could cope with 20 years of equities underperforming.

As a most recent example, if you borrowed to invest in the S&P 500 in 1999 you'd still not have got your money back.


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## ClubMan (9 Nov 2006)

joesoap said:


> OK but according to The guide to savings and investments it is


Bear in mind that that guide is simply the opnion of _Brendan _and whoever happened to review the guide or parts of it.

_Post crossed with previous one._


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## ronaldo (9 Nov 2006)

Would I be correct from a tax point of view when I say that the most efficient way of using borrowed money to invest in the stock market would be if your home was mortgaged enough to use up your full TRS allowance - €2,540 for a single person or €5,080 for a married couple.

This would mean that, for example, if your mortgage was at a level that the interest would match these limits, it may be worth converting it to interest only and investing what would have been your mortgage money into a fund such as Quinn Life.

This means that if your mortgaged at NIB's competitive rate of 3.75% on their new LTV product, it may be worthwhile converting to interest only when your mortgage is at €67,500 for a single person or €135,000 for a married couple.

This means that the interest on the loan is costing 3.75% before TRS is deducted - only 3% after TRS is deducted. Therefore, any return in excess of 3% would be profit.

Clubman:

Maybe I'm wrong but, in this case, I don't think you'd need to factor inflation into it - the reason being that your mortgage balance is not rising with inflation, therefore anything you make over and above the 3% interest your being charged is profit.


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## Wilkes (9 Nov 2006)

Clubman, I follow why he needs to outperform the net cost of borrowing and I'd add a margin of at least 3% pa to compensate for taking risk as a way of setting the hurdle rate to make this work - but why the net cost of borrowing + inflation?

Inflation erodes the real outstanding value of the debt - is it because he has increased the debt therefore he needs the interest rate + inflation. Can you teach me thanks.


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## ClubMan (9 Nov 2006)

ronaldo said:


> This means that the interest on the loan is costing 3.75% before TRS is deducted - only 3% after TRS is deducted. Therefore, any return in excess of 3% would be profit.


Just to clarify you cannot claim _TRS _on any additional equity release/top-up if the money is used for anything other than purchasing or renovating your _PPR_. I'm not clear if what you're talking about assumes the opposite.


> Maybe I'm wrong but, in this case, I don't think you'd need to factor inflation into it - the reason being that your mortgage balance is not rising with inflation, therefore anything you make over and above the 3% interest your being charged is profit.


My figures are just back of the envelope ones and don't represent a detailed analysis of the situation. It could well be that I haven't factored in inflation correctly. But I still reckon that you need a pretty generous return to make this borrow against _PPR _to invest in shares lark worthwhile.


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## PMU (9 Nov 2006)

joesoap said:


> I have just decided to release equity in my home to the value of 120k. I have been dealing in stocks for about ten years so I understand there will be slumps and I believe I can handle this.
> Here is where I need help
> How many stocks should I buy and how many industry sectors should I buy into.
> Regards
> Joesoap


joesoap: If you have been investing in stocks for 10 years why are you asking this question?  You should know the answer from your own experiences.  Has your investment experience to date been successful or less than successful? If less than successful perhaps you should question your strategy.  But if you go this route it would be prudent to pick a few high dividend payers to cover your interest payments, a few trackers to provide stability and, as it's your money, the rest based on your success to date.
Alternatively, invest your savings and match the amount you invest with borrwings in a margin account from a broker.


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## extopia (9 Nov 2006)

To get back to the OP, it seems the potential investor doesn't have any real plan except to "release equity" to reinvest. I believe Clubman's guideline figures are fair enough, especially for a seemingly novice investor.


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