# Decision Time...



## Rboydd (30 Nov 2016)

Hi there, I would appreciate candid feedback please.

As laid out below we have exposure to the residential investment market but have been in the business for a lot of years and have full occupancy rates for 10+ years.  Although we have weathered the 2008 crash, we have concerns about Brexit and the possible lowering of US corporation tax rates and the resulting impact on well paid Irish jobs... and the possible fallout. Additionally, its getting more difficult to get a return for the significant work invovled with the responsbilities of being a landlord.

With all the additional non deductable levies imposed coupled with an increased tax exposure, we are considering selling up.  We would like to be financially independent and to get to a position where we can serious consider early retirement.  Thoughts very much appreciated.

Age: 49
Spouse’s/Partner's age: 45

Annual gross income from employment or profession: 148,000 (plus bonus 15-25k)
Annual gross income of spouse:0

Monthly take-home pay pre bonus 6,800 (nett)
Annual bonus pre tax: ~20K
DISB : 4 x annual salary

Monthly expenses: 
Mortgage: 1,250 k incl protection
Childcare: 0
Car finance: 450
On top living expenses / general spend:4,000 
Savings – Between 1,000 and 1,500 per month

Type of employment: Private Sector

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

*Saving about 1,000 - 1,500 per month *

Rough estimate of value of home*: 600,000*
Amount outstanding on your mortgage: *190,000 with 18 years remaining*
*What interest rate are you paying? 3.5%*

Other borrowings – car loans/personal loans etc.: 450 per month on spouse's car (12K remaining over 2.5 years)

Do you pay off your full credit card balance each month?* No. Approx balance each month is 1,000*

Pension Scheme: DB with 15 years paid in (pot worth approx 560,000 currently projecting 28,000 per year upon retirement, excluding state pension)

Savings and investments: 
This is where it gets a little complicated so please bear with me:
Cash in bank: 25,000

We currently have a number of residential investment properties and a holiday home:
Property 1: 
Value: 350,000
Mortgage: 220,000 @ 3.8%
Term Remaining: 16 Years
Monthly Repayment: 1,550
Monthly Rent: 1,250
Capital Gain Exposure: 40,000

Property 2:
Value: 220,000
Mortgage: 22,000 @ 1.3%
Term Remaining: 3.5 Years
Monthly Repayment: 640
Monthly Rent: 850
Capital Gain Exposure: 30,000

Property 3:
Value: 210,000
Mortgage 102,000 @ 1,3%
Term Remaining: 13 Years
Monthly Repayment: 750
Monthly Rent: 790
Capital Gain Exposure: 0

Property 4:
Value: 105,000
Mortgage: 48,000 @5.5%
Term Remaining: 18 Years
Monthly Repayment: 330
Monthly Rent: 850
Capital Gain Exposure: 5,000

Property 5:
Value: 90,000
Mortgage: 47,000 @5.5%
Term Remaining: 17 Years
Monthly Repayment: 330
Monthly Rent: 800
Capital Gain Exposure: 0

Property 6: Holiday Home in Spain
Value: 180,000
Mortgage: 0
Monthly Repayment: 0
Monthly Rent: 0
Capital Gain Exposure: 0

Do you own any investment or other property? - See above

Ages of children: One son aged 9

Life insurance: Yes, completely covered on all bank borrowings.


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## Bronte (1 Dec 2016)

I don't understand why you don't pay your CC on time?  I'd hardly call it breakeven if you save between 1K and 1.5K a month.

Is there interest on the car loan?

I think you're too young to retire. What age do you want to be to retire and what do you want to do?

*Investment Properties*

On the 5 investment properties, you have significant equity.  But I'd say you are probably paying tax of near 50% on them. (I expect Burgess will do his excel table on which are performing or not so I'll leave that)

*Equity*

3 of them are 50% equity to debt. 1 is practically debt free and the remaining one is 1/3 positive equity.  Can't see any problems arising on figures like that.

*Interest rates*

Property 2 & 3 seem to be trackers?  1.3% is very low.

Property 4 7 5 have a high interest rate at 5.5% each, but, the repayments are low when you take into account the rents.

Property 1, more mortgage than rent, a high interest rate of 3.8%.  Also teh one with only 1/3 equity.  Might be an idea to pay this one off quicker.

You should also look at remortgaging to see if you can get a better deal. You have a portfolio of 5 properties, with good rent role and with a good job and plenty of equity.

You specifically mentioned Brexit etc.  I'd think about fixing mortgage rates on the expensive ones.  Then you don't care about that.

*Rents versus Mortgage*

1250 + 850 + 790 + 850 +800 = 4540

Mortgages 1550+ 640 +750+330 +330 =3600

That looks fine to me.

*Holiday Home*

How much does the holiday home cost you annually.  And how much do you use it.

*Selling*

If you do sell, and I'm a landlord too, so I totally get your points on being a landlord, I'm looking for the holy grail of what to do with the cash realised instead of being invested in property.


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## Gerry Canning (1 Dec 2016)

Rboydd.

On the language you use {weathered} + {brexit} concerns , I get the sense you might be tired of landlordism ?

If so , do the sums , cash out ,stand back for a few months  and then see what you both want to do.
There are more things than landlordism you can do..


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## noproblem (1 Dec 2016)

Your actual savings are very low at €25k for someone who's saving between €1 to €1.5 k per mth. Why the big balance on your credit card?


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## cremeegg (1 Dec 2016)

Bronte said:


> ...I'm a landlord too, so I totally get your points on being a landlord, I'm looking for the holy grail of what to do with the cash realised instead of being invested in property.



+1

Please Bronte come back here and let us know if you find it. Better yet pm me, probably spoil it if everyone knew.


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## cremeegg (1 Dec 2016)

Property 6, doesn't come into it from a financial point of view, it costs you €6,660 in interest costs, plus whatever other costs there are, less what you would spend on a holiday if you didn't own it. If you like it that much keep it, if you don't sell it. Not really a financial decision.


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## Sarenco (1 Dec 2016)

Hi Rboydd

It obviously doesn't have to be all or nothing and I think you should consider each individual property on its own merits.

If it was me, I would definitely sell Property 1 (poor yield, relatively expensive finance) and apply the net proceeds to clear the outstanding car loan, credit card balance and the expensive mortgage loans on Property 4 & 5 (which I would retain - they are producing a terrific yield).

I would also be inclined to sell Property 2 & 3 (poor yields but with reasonable finance costs) and use the net proceeds to pay off the PDH mortgage and I would personally invest the balance in a mix of investment trusts and savings certs.  However, that's a closer call and is partly down to a view that your investment portfolio is not really adequately diversified across the different asset classes.

As Cremeegg says Property 6 is not really investment at all - it's a consumption item.  Whether you retain it or not really comes down to what value you place on the utility of having a holiday home versus your desire to be financially independent.

Hope that helps.


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## Rboydd (1 Dec 2016)

Bronte said:


> I don't understand why you don't pay your CC on time?  I'd hardly call it breakeven if you save between 1K and 1.5K a month.
> 
> Is there interest on the car loan?
> 
> ...




***
Thank you for taking the time to review in such detail: Yes, you are correct; very little tax shelter remaining, and significant additional tax paid in recent years re rental income.  Properties 1, 2, 3 are all on tracker, ECB + 0.8%.  Properties 4 & 5 were purchased for the yield rather than any cap appreciation and are performing well.
Property 1 is the first one that makes sense to sell... the CGT is painful though.

The annual cost of running the holiday home is factored into our monthly expenses/general spend of 4,000 per year.  It has been used extensively for 10 years but will think of selling that in 2018.


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## Sarenco (1 Dec 2016)

Rboydd said:


> Properties 1, 2, 3 are all on tracker, ECB + 0.8%.



That can't be right - the ECB refi rate is currently 0%.


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## Rboydd (1 Dec 2016)

Gerry Canning said:


> Rboydd.
> 
> On the language you use {weathered} + {brexit} concerns , I get the sense you might be tired of landlordism ?
> 
> ...


****

Yes, landlordism is very time consuming and expensive.  It is a business for us and we run it as such, so can't complain.  The real concern here is the various proposed legislative changes that are being muted that further vilify responsible tax compliant landlords.  I think its time to exit the business completely.


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## Rboydd (1 Dec 2016)

Sarenco said:


> That can't be right - the ECB refi rate is currently 0%.



Just double checked bank statement.... you are correct, now down to 0.8%... Great !  When I had originally gone through detailed analysis last year it was totalling 1.3%... that number had stuck in my head.


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## Dan Murray (1 Dec 2016)

Rboydd said:


> ****
> 
> ....The real concern here is the various proposed legislative changes that are being muted that further vilify responsible tax compliant landlords.  I think its time to exit the business completely.



Hi Rboydd,

Welcome to AAM. If you get a chance, would you mind listing the various proposed changes please? I suspect your views would be of interest to many.


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## Sarenco (1 Dec 2016)

Rboydd said:


> Just double checked bank statement.... you are correct, now down to 0.8%... Great !  When I had originally gone through detailed analysis last year it was totalling 1.3%... that number had stuck in my head.



Thanks. 

That 0.5% difference, while obviously small, is probably enough to make the retain/sell decision for Property 2 & 3 an even closer call.  If you did decide to retain these rentals and sold Property 1 (which looks like a pretty clear cut decision to me notwithstanding the resulting CGT liability) then you would probably be better off using the proceeds to pay off the mortgage on the PDH ahead of paying off the mortgages on Property 4 & 5 (as 80% of the interest on those loans will be tax deductible next year).

Obviously this is all moot if you plan on liquidating the entire portfolio!


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## Rboydd (1 Dec 2016)

noproblem said:


> Your actual savings are very low at €25k for someone who's saving between €1 to €1.5 k per mth. Why the big balance on your credit card?



I know, you're right, its simply (costly) laziness on my part.  New year resolution coming up. !  Thanks


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## Rboydd (1 Dec 2016)

Dan Murray said:


> Hi Rboydd,
> 
> Welcome to AAM. If you get a chance, would you mind listing the various proposed changes please? I suspect your views would be of interest to many.



***
Some proposals that have been discussed in the media are:
Non corporate landlords holding more than 3 residential properties to be VAT registered.  This would require a VAT return on a bi-monthly basis in addition to annualised returns.
NCT type system to be introduced based on an annual inspection.  No cert = no tenancy.
Rent levels to be directly linked to inflation---> downward inflation = downward rent reviews. - No reference however to additional landlord costs being introduced which would mean these costs could not be passed on by way of rent.
An undisclosed series of measures to actively counter and pursue perceived landlord discrimination against social welfare schemes.  

I understand from media commentary that these proposals (and others) are being presented to an oireachtas committee.


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## cremeegg (1 Dec 2016)

Have you any sources for that.

here are some. I dont see any reference to vat.



https://www.oireachtas.ie/documents/bills28/bills/2016/9216/b9216s.pdf

http://www.constructionireland.ie/c...sf-introduces-secure-rents-and-tenancies-bill


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## Rboydd (2 Dec 2016)

cremeegg said:


> Have you any sources for that.
> 
> here are some. I dont see any reference to vat.




The reference to a proposed requirement re VAT registration for landlords holding 3 or more properties was mentioned during an interview with Lorcan Sirr on Newstalk radio earlier this year.


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