# Rental property as a pension



## Introuble83 (2 Sep 2020)

My father aged 61 wants to retire . He has only a minimal pension pot which will not provide him with a material value to live on . He has 250k on deposit account . He is considering purchasing a property in Dublin and renting it out . He wants to use the rental income to live on until the state pension kicks in .  As he will have no other income the rental income should be only incur minimal taxes ? He estimates potential income at 1750pm. He has no loans outstanding.  Can you advise if this plan seems logical ?  I am unsure around the tax position but bear in mind he will no longer be working . Thanks


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## jpd (2 Sep 2020)

Not sure you would get a property in Dublin for € 250,000 with a net rent of € 21,000 per annum after costs and expenses  ie net yield of 8.4%


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## Saavy99 (2 Sep 2020)

There's alot of costs involved with purchasing property, legal fees, surveys, stamp duty, furniture etc  then the stress of having to manage tennents as well as the bureaucracy of having to register and deal with the  RTB. 
I would be more inclined to withdraw a set sum from the savings for next five years and put the rest in a savings account.


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## Sarenco (2 Sep 2020)

What will your father live on if his tenant loses his job and stops paying his rent?

It happens.  

If he really wants to retire now he would be better off living on his cash savings until the State pension kicks in.

Mind you, it will be a fairly Spartan existence.


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## Introuble83 (2 Sep 2020)

jpd said:


> Not sure you would get a property in Dublin for € 250,000 with a net rent of € 21,000 per annum after costs and expenses  ie net yield of 8.4%





Saavy99 said:


> There's alot of costs involved with purchasing property, legal fees, surveys, stamp duty, furniture etc  then the stress of having to manage tennents as well as the bureaucracy of having to register and deal with the  RTB.
> I would be more inclined to withdraw a set sum from the savings for next five years and put the rest in a savings account.


Most of the costs are upfront . A letting agency can deal with the tenancy on a monthly fee basis . If he even obtained 1k a month of rent over 5 years it’s 60k. If he sold the property on the 5th year even for what he paid he would net at least 30k profit after all costs incurred . Unless I am missing something? Too optimistic perhaps


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## Introuble83 (2 Sep 2020)

Sarenco said:


> What will your father live on if his tenant loses his job and stops paying his rent?
> 
> It happens.
> 
> ...


I don’t think 250k over 7 years is a spartan existence when you have no borrowings or dependents . What exactly could you spend 700 a week on in these times when you can barely get out of the country


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## jim (3 Sep 2020)

There is currently 686 properties on daft in dublin under 250k. Many of those would command rent of 1700pm imo. If tax is low it would be a sound investment imo


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## SPC100 (3 Sep 2020)

I think main risk would be if tenant didn't pay. It will be 1-2 years plus money and time to remove them if they stop paying.

He'd need a buffer to cover 1-2 years expenses imo.


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## Saavy99 (3 Sep 2020)

Introuble83 said:


> I don’t think 250k over 7 years is a spartan existence when you have no borrowings or dependents . What exactly could you spend 700 a week on in these times when you can barely get out of the country



I think he means living on the State pension would be a Spartan existence.


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## jim (3 Sep 2020)

whats the likelihood of getting a tenant that doesn't pay and for that length of time? In my experience its very low. I have never had a tenant that did not pay their rent but maybe I am lucky in that regard. I've always vetted tenants and have had good'ns.


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## Introuble83 (3 Sep 2020)

Sarenco said:


> What will your father live on if his tenant loses his job and stops paying his rent?
> 
> It happens.
> 
> ...


This is a good point which he had not cons


SPC100 said:


> I think main risk would be if tenant didn't pay. It will be 1-2 years plus money and time to remove them if they stop paying.
> 
> He'd need a buffer to cover 1-2 years expenses imo.


1-2 years to get rid of a tennant? I would just forcefully remove them and deal with the legalities of such actions separately .


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## NoRegretsCoyote (3 Sep 2020)

There's just a risk that he gets a rogue tenant who destroys the place, pays no rent, and takes 2 years to get rid of. It's not a massive risk, but it does happen, and he would have zero income if this happened.

If this is his plan he should get a €200k property outisde Dublin (better yield) and keep €50k to live on as insurance.

A €200k property in a provincial town might have a gross yield of €1600 pcm


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## Saavy99 (3 Sep 2020)

I wouldn't be rushing into spending this money on property for the next 6 months or so. No one has a crystal ball, but talks of an impending global recession is very real. I would advise you to wait until next spring by which time we will have better handle on how things are panning out.


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## Saavy99 (3 Sep 2020)

Introuble83 said:


> 1-2 years to get rid of a tennant? I would just forcefully remove them and deal with the legalities of such actions separately .



The penalties for doing so are very painful and severe.


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## Gordon Gekko (3 Sep 2020)

Introuble83 said:


> I don’t think 250k over 7 years is a spartan existence when you have no borrowings or dependents . What exactly could you spend 700 a week on in these times when you can barely get out of the country



I’m pretty sure that Sarenco meant that the parent would draw €13k a year from his cash reserves until his €13k State Pension kicks in.

When is that for a 61 year old, still 66, correct?

So let’s assume 4.5 years x €13k, i.e. €60k.

If he’s hell bent on buying a property, I’d consider holding back, say, 1.5 year’s income to mitigate the risk of a dodgy tenant or fallow period. And then buy somewhere for €230k.

Or instead of buying one property, I’d buy, say, €220k worth of IRES, the Irish residential REIT (i.e. listed property share). It pays a nice dividend, and is more diversified in that you own thousands of properties instead of one. The cash could supplement the dividend income until the State Pension kicks in.


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## Gordon Gekko (3 Sep 2020)

jim said:


> whats the likelihood of getting a tenant that doesn't pay and for that length of time? In my experience its very low. I have never had a tenant that did not pay their rent but maybe I am lucky in that regard. I've always vetted tenants and have had good'ns.



Well then that proves that tenants never default, doesn’t it?

I would not want to be completely reliant on one rental income stream from one rental property, particularly at the lower end of the market given that it’s the lower paid who’ve been most impacted by Covid.


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## Gordon Gekko (3 Sep 2020)

A slightly more refined approach might be as follows:

- Keep €90k in cash (i.e. €20k per annum x 4.5 years)

- Buy €160k worth of IRES shares, i.e. the Irish Real Estate Investment Trust, which would give your father a tiny share of thousands of Irish residential properties instead of a 100% share of one with all of the hassle that brings

- The dividend income on that would be circa 4%, i.e. €6,400 per year. This would be tax-free for your father. He would use the income to buy more IRES shares as and when it arises over the 4.5 year period. This insulates him somewhat from Irish property market weakness over the next 4.5 years. If prices go up, good. If prices fall, he’s not drawing on the investment and he is in fact buying in at cheaper levels and setting himself up for a recovery

- Then in 4.5 years’ time, his State Pension kicks-in, and he should have €13k from that, together with circa €7,500 of ‘rental income’ from IRES, thus maintaining his €20k a year of income, which would be nice and tax efficient also; that’s assuming that prices in 4.5 years’ time are at today’s levels which is relatively conservative

€13k a year mightn’t be great, but circa €20k give or take would be a lot better. If someone has worked hard all of their life, they deserve a non-Spartan retirement.


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## Introuble83 (3 Sep 2020)

Gordon Gekko said:


> I’m pretty sure that Sarenco meant that the parent would draw €13k a year from his cash reserves until his €13k State Pension kicks in.
> 
> When is that for a 61 year old, still 66, correct?
> 
> ...


That seems very measured advise thanks


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## Laughahalla (3 Sep 2020)

You could buy two apartments in Limerick and lease them to the county council for for 900 to 1k each per month. They will take care of management of tenant and internal repairs.


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## Sarenco (3 Sep 2020)

Gordon Gekko said:


> €13k a year mightn’t be great, but circa €20k give or take would be a lot better. If someone has worked hard all of their life, they deserve a non-Spartan retirement.


I personally wouldn't retire early to live on €20k a year if I had any choice in the matter.

That would be a fairly lean amount to live on, even with no debts or dependants.

I think the OP's father also needs to be careful to ensure that he will have sufficient "stamps" to qualify for the full State (Contributory) Pension when the time comes, bearing in mind that we are due to transition to a total contribution approach in the coming years.


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## moneymakeover (3 Sep 2020)

I don't think the start of retirement is the time to buy property in particular with your life savings.

There are teething issues with rental properties early on.

Also usually makes sense to use "other people's money".

Best thing IMHO is to keep the 250k as liquid asset.

Why is it currently on deposit and not invested?


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## Bronte (3 Sep 2020)

OP how much is your fathers home worth, how big is it and who lives there.


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## Introuble83 (3 Sep 2020)

Bronte said:


> OP how much is your fathers home worth, how big is it and who lives there.


Worth 400k  3 bed semi . Just my parents . They will not sell up or rent out rooms in the house under any circumstances


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## Sarenco (3 Sep 2020)

Introuble83 said:


> Just my parents


Does your mother have a separate source of income or is she dependant on your father's income?

Also, is it a genuine case of your father "wanting" (as opposed to "needing") to retire?

I hope you don't think I'm being overly nosey - I'm just trying to get a sense of what level of income your parents require for a comfortable retirement.


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## Saavy99 (3 Sep 2020)

Introuble83 said:


> Worth 400k  3 bed semi . Just my parents . They will not sell up or rent out rooms in the house under any circumstances



With 250k in cash savings, they be mad to sell anyway and few older people would want lodgers in their home.


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## Introuble83 (3 Sep 2020)

Sarenco said:


> Does your mother have a separate source of income or is she dependant on your father's income?
> 
> Also, is it a genuine case of your father "wanting" (as opposed to "needing") to retire?
> 
> I hope you don't think I'm being overly nosey - I'm just trying to get a sense of what level of income your parents require for a comfortable retirement.


My mother is on illness benefit due to a medical condition . I am not exactly sure how much value around 200 a week I think 

He wants to retire . He could physically work another few years but works in construction the last 40 years and is feeling a bit tired at this point


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## Introuble83 (3 Sep 2020)

moneymakeover said:


> I don't think the start of retirement is the time to buy property in particular with your life savings.
> 
> There are teething issues with rental properties early on.
> 
> ...


He would have little knowledge of investments and is very prudent. I think he is happy to know the money is safe and has little interest in making a profit. He just wants enough income to live on .


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## Saavy99 (3 Sep 2020)

Introuble83 said:


> My mother is on illness benefit due to a medical condition . I am not exactly sure how much value around 200 a week I think
> 
> He wants to retire . He could physically work another few years but works in construction the last 40 years and is feeling a bit tired at this point



Your father could draw unemployment benefit for 9 months, though I think he may be penalised for first 9 weeks if he leaves his job voluntarily, however, this this might be waived if he can show the work was wearing him out and he's willing to look for an easier employment position. Also after age 62, he will not be expected to engage with the work activation process, rather he will be allowed to sign on once a year in order to keep his  prsi contributions up todate until he reaches state pension age at 66.


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## NoRegretsCoyote (4 Sep 2020)

Saavy99 said:


> Your father could draw unemployment benefit for 9 months, though I think he may be penalised for first 9 weeks if he leaves his job voluntarily, however, this this might be waived if he can show the work was wearing him out and he's willing to look for an easier employment position. Also after age 62, he will not be expected to engage with the work activation process, rather he will be allowed to sign on once a year in order to keep his  prsi contributions up todate until he reaches state pension age at 66.



Yes but after 9 months he goes on unemployment assistance until 66.

Having his wealth in cash savings is not good in these circumstances. The calculations are complex but I think he would not get anything at all. Am open to correction on this.


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## Qwerty22 (4 Sep 2020)

Gordon Gekko said:


> - Buy €160k worth of IRES shares, i.e. the Irish Real Estate Investment Trust, which would give your father a tiny share of thousands of Irish residential properties instead of a 100% share of one with all of the hassle that brings
> 
> - The dividend income on that would be circa 4%, i.e. €6,400 per year. This would be tax-free for your father.



Can you explain why is this dividend income tax-free?


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## Saavy99 (4 Sep 2020)

Qwerty22 said:


> Can you explain why is this dividend income tax-free?


Presumably he won't have any other income...


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## Gordon Gekko (4 Sep 2020)

Qwerty22 said:


> Can you explain why is this dividend income tax-free?



Because of the income level of the individual


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## Saavy99 (4 Sep 2020)

NoRegretsCoyote said:


> Yes but after 9 months he goes on unemployment assistance until 66.
> 
> Having his wealth in cash savings is not good in these circumstances. The calculations are complex but I think he would not get anything at all. Am open to correction on this.



Doubtful but at least by signing on yearly he keeps his prsi contribution up to date.


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## NoRegretsCoyote (4 Sep 2020)

Saavy99 said:


> Doubtful but at least by signing on yearly he keeps his prsi contribution up to date.


What is doubtful?


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## Saavy99 (4 Sep 2020)

NoRegretsCoyote said:


> What is doubtful?


 That he would get anything on means tested unemployment assistance after 9 months.


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## Gordon Gekko (4 Sep 2020)

Sarenco said:


> I personally wouldn't retire early to live on €20k a year if I had any choice in the matter.
> 
> That would be a fairly lean amount to live on, even with no debts or dependants



But you and I have expensive tastes Sarenco!

It’s not that bad, €1,700 odd a month with no accommodation costs.

Wouldn’t be my cup of tea but plenty of people would jump at it.


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## fayf (4 Sep 2020)

It really depends on what you are used to, and your expectations for the future, and how financially you structure things.

Assuming no rent or mortgage, or any other loans, and no dependant financial constraints, kids college funds put away seperately, and a nice sized savings pot to cover any big ticket items like a new car, big holidays, i don’t see how say a couple (Granted different for a sole person)can live on 40 k a year between them on an ARF drawdown, very little tax, about 8.5 % on 40k for a couple, and the included 4%prsi stops at 65, which effectively halves the overall taxes being paid, so reduces to about 4.50 %.

Getting your ongoing bills down, is very important. Review everything.
if a couple, perhaps considering reducing to sharing one car, all this helps, make it a lot easier. You have to be realistic to make it work, and make some hard decisions, if so, its very doable.


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## Feemar5 (4 Sep 2020)

With so much talk about landlords not being allowed to sell their property with vacant possession I wouldn't be in any rush to get into the rental market.    I feel most tenants are good but you can always get someone who will not pay and it takes ages to evict them.   A letting agency will take a percentage  and there are other costs such as insurance, PRTB fees, LPT and maintenance .    As  Sarenco pointed out it is very important to have sufficient contributions for the State Pension.    I would advise him to think seriously about retiring at 61 - if he has other interests and hobbies it might be fine but he may soon get bored .


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## LDFerguson (6 Sep 2020)

Depending on the type of pension plan he has, he (and/or his employer) may be able to make a last-minute contribution to it before he retires, avail of full tax relief at his highest rate and then withdraw it all as a lump sum immediately after he retires, tax-free.  This doesn't work in everyone's circumstances, but it's worth asking his broker to establish if it applies in his. 

I would be reluctant to recommend that your father invests the bulk of his life savings in a single asset in a single asset class on a small island.  If he's worked 40 years in construction, then my guess is that he would feel comfortable investing in something that he understands.  But remind him that he's lived through several examples of how things can change dramatically in a short space of time, in ways that nobody really predicts.  At one time, shares in the pillar Irish banks were considered to be literally as safe as houses.  It was unthinkable that anything bad could happen to an investment in them.  Until it did.  More recently, look at the dramatic changes that have been brought about by Covid-19 and are still unfolding.  When I was growing up, if anyone had suggested that owning a pub in a busy Irish town town would be anything but a thriving business for life, they'd have been laughed at.  Now look.  My point is that no single investment should be thought of as a suitable home for all of one's life savings, no matter how attractive that investment might seem now.  Things can happen that you wouldn't think possible today.  Split it up - diversify.


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## Introuble83 (6 Sep 2020)

LDFerguson said:


> Depending on the type of pension plan he has, he (and/or his employer) may be able to make a last-minute contribution to it before he retires, avail of full tax relief at his highest rate and then withdraw it all as a lump sum immediately after he retires, tax-free.  This doesn't work in everyone's circumstances, but it's worth asking his broker to establish if it applies in his.
> 
> I would be reluctant to recommend that your father invests the bulk of his life savings in a single asset in a single asset class on a small island.  If he's worked 40 years in construction, then my guess is that he would feel comfortable investing in something that he understands.  But remind him that he's lived through several examples of how things can change dramatically in a short space of time, in ways that nobody really predicts.  At one time, shares in the pillar Irish banks were considered to be literally as safe as houses.  It was unthinkable that anything bad could happen to an investment in them.  Until it did.  More recently, look at the dramatic changes that have been brought about by Covid-19 and are still unfolding.  When I was growing up, if anyone had suggested that owning a pub in a busy Irish town town would be anything but a thriving business for life, they'd have been laughed at.  Now look.  My point is that no single investment should be thought of as a suitable home for all of one's life savings, no matter how attractive that investment might seem now.  Things can happen that you wouldn't think possible today.  Split it up - diversify.


Thank you very much for the information it’s much appreciated


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