# Stay the Course or Adjust?



## Slippers (19 May 2019)

*Age:* 37 (nearing 38 though).


*Spouse’s/Partner's age:* NA

* Annual gross income from employment or profession:* 74,000.
* Annual gross income of spouse:* NA.

* Monthly take-home pay:* 2100 (after Pension (20%) & ESPP (15%)).

*Additional monthly Income:* 1160 from rent a room.

*Type of employment:* Private Sector. 

* In general are you:* Saving. At this time approximately 13,000 per annum.  I cash my ESPP as soon as I get them to avoid capital gains.  I do pay the income tax due.

* Rough estimate of value of home:* 230,000. 
* Amount outstanding on your mortgage:* 88,000, 8 years left having reduced the term by 3 years pre 2011.
* What interest rate are you paying?* 0.75% tracker.

* Other borrowings:* None.

* Do you pay off your full credit card balance each month?*  Yes.

* Savings and investments:* 90,000 in cash and approximately 50,000 in unvested shares (value calculated after tax).  It will take 4 years for shares to fully vest.  In 4 years, they could be worth more or they could be worth less.

* Do you have a pension scheme?* Yes, approximately 115,000.  My monthly contribution is 20% and employers is 5%

* Do you own any investment or other property?* No 

* Ages of children:* NA

* Life insurance:* Personal life insurance and my company offer death in service pay out of 4 times my salary 


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

I realize that I am financially in a very solid position.  I could pay off my mortgage tomorrow but I do not want to do that as I will never get money that cheap again.  The quarterly interest charged to my mortgage account is very small.

My long term plan (3 – 5 years) is to buy my final house.  Ideally I would like to keep my current house as this could be of value come retirement.  I am making max contributions to my pension fund but there is always a chance that this may not be enough come retirement.  I won’t be able to keep paying the max amount until I retire and I am sure there will be future recession(s) that will impact its value.

My question is, do I stay the course? Keep it simple, keep building a cash pile and put the cash towards my final house to minimise the mortgage needed to purchase it.  My current cash amount is with a main bank and earning tiny interest.  I have looked at others but their AER is just as small.  It has taken a long time to save that amount.  I am risk adverse but at the same time I don’t want wealth eroded due to being overly prudent.  Any views greatly appreciated.


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## luckystar (19 May 2019)

How much do you think your 'final house' might cost?


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## Sarenco (19 May 2019)

Your current strategy looks pretty solid to me - I don’t see any reason to change course.

It’s wise to keep your savings in cash if you’re planning on moving home in a few years.


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## Slippers (19 May 2019)

The most I would be comfortable going to is 500,000.


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## moneymakeover (19 May 2019)

Sounds like you will have to sell existing home because I think you can only borrow 3.5 times salary

Say 80k salary

borrow 280k

Say 180k equity after sell ppr

Gives 460k

Close enough to the 500k you mentioned.

And continue maxing your pension contributions


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## Brendan Burgess (19 May 2019)

Slippers said:


> My long term plan (3 – 5 years) is to buy my final house.



You have €140k in equity 
You have €140k in cash and shares
Total €280k 

Mortgage required if you sell your home: €220k - 3 times current income. 

It seems very unlikely that you will be able to buy a home for €500k and keep your existing property. 

So you should take a break from the pension contributions until you have traded up.  Only contribute what is required to get your employer's maximum contribution.  Cash will be king when you buy your house. It might bring you into a lower LTV bracket and so reduce the rate on your entire loan.   It might even be enough to allow you to keep your existing home. But it still seems unlikely.

You should consider investing the €90k cash in the stock market. 

Let's say that the stock market crashes by 50%. You will then have €45k less money towards your deposit.  That will either delay you from trading up or will mean that you need to borrow more.

On the other hand, the stock market could rise by 50% which means that you might be able to trade up earlier or borrow less.  It might even allow you to hold onto your existing home as an investment. 

That is a risk worth taking if you are not planning to trade up for at least three years. 

When you are about a year away from buying, you should convert to cash. 

The downside of this is that you already have €40k invested in one company. That is a very concentrated investment.  It might be worth zero when you go to buy your house. 

So maybe work out the minimum you need to trade up and keep that in cash? 

If you don't buy shares, you should _consider _paying off your mortgage.  
In four years, you will have €40k left on it with 4 years to go. Depending on your lender, you will be able to transfer that to your new home. But so what? You will be paying a rate of ECB +1.75%.   So probably a saving of 1% a year on an average balance of c.€20,000. In other words, your tracker will be worth around €200 a year to you.  You would have to borrow the rest of the money from your existing lender to keep your tracker, and it's likely that some other lender will be cheaper, so you will probably give up your tracker then anyway.

Paying off €88k @.75% saves you about €700 this year and a bit less next year.


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## Slippers (19 May 2019)

Thanks for the replies.  Just to give some more detail.

Assuming nothing changes and all goes according to plan (wearing my naive hat) this is potentially how things could look in 5 years.

Further Cash Saved         65,000
Current Cash                   90,000
Shares vested                 50,000

Total Cash                     205,000


Mortgage owed                33,000


I don't think I would have the nerve to invest all my current cash (90k) in shares.  However possibly I should consider investing some with the goal of being able to reduce/clear the outstanding 33,000 mortgage in 5 years.

The 500,000 is aspirational, reality is that 400,000 to 450,000 is more realistic.  In 5 years I view that It would be a real shame to sell my current house (an asset > 200k) to raise a needed amount of equity that is on par with the cost of a new car, albeit a very nice new car.


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## Brendan Burgess (19 May 2019)

Slippers said:


> It would be a real shame to sell my current house (an asset > 200k) to raise a needed amount of equity that is on par with the cost of a new car,



This is a weird way of looking at it.

Brendan


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## Sarenco (19 May 2019)

Whether you can or should retain your current home as a rental when you trade up is something you can assess at the time.  It may well make financial sense to cash out the equity so you can take out a lower mortgage on your new home -
https://www.askaboutmoney.com/threads/keep-apartment-as-rental-or-move-tracker.203907/

In the meantime, I think you should keep your savings in cash.  I think you would be nuts to invest your  deposit in stocks for such a short period of time - risk of losing money is way too high.

I also think you would be nuts not to keep maximising your tax-relieved pension contributions during this period.  Why forego such a valuable relief if you don't need to?


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## Brendan Burgess (20 May 2019)

Sarenco said:


> I think you would be nuts to invest your deposit in stocks for such a short period of time - risk of losing money is way too high.



Hi Sarenco 

This is a common attitude but I think it's a mistake.  The risk of losing money is high, but is lower than the potential gain, which makes it a risk worth taking.  If the risk was such that it prevented him from trading up, then it would not be worth taking. 

Your approach would be correct if he were a first time buyer who has just scraped together the 10% deposit required.  Any loss would prevent such a person getting on the housing ladder.  But the OP in this case is different. 



Sarenco said:


> I also think you would be nuts not to keep maximising your tax-relieved pension contributions during this period. Why forego such a valuable relief if you don't need to?



Because any extra cash saved will give him more flexibility when buying a house. He is 38 so if he takes a three year break, he will have 24 years of contributions left instead of 27.  When he has traded up and sorted out his mortgage, he can resume contributions. In two years, he will be 40 and will be able to up his contributions to 25% of his salary. 

Brendan


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## misemoi (20 May 2019)

Out of curiosity, why are you considering trading up?  Is your final home in a particular location or is it bigger/newer etc?  Why not just stay where you are? BTW well done on utilizing the rent a room scheme so well.  Looking at it in retrospect, it's an amazing way to earn tax free income.


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## Slippers (20 May 2019)

misemoi said:


> Out of curiosity, why are you considering trading up?  Is your final home in a particular location or is it bigger/newer etc?  Why not just stay where you are?



My current house suits my needs/lifestyle right now.  As I move towards my late forties and beyond I know how I will want to spend my evenings and weekends.  A different pace from now.  The potential final house will be a countryside setting within 1 to 2 miles of a town and within 30 minutes drive of a primary rail line.  A simple, clean cut house with a garden.  No McMansion that will likely be difficult to maintain when I am in my 70's.  My current house is city based.

I can certainly understand the logic of selling in 5 years, releasing the equity and having a smaller mortgage to repay.  However my primary driver in working towards keeping my current house is pension/retirement.

I feel there are no guarantees with pensions, having one is the right thing to do but keeping my current house gives wiggle room in my retirement years should my pension not deliver as needed.


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## Brendan Burgess (20 May 2019)

Slippers said:


> However my primary driver in working towards keeping my current house is pension/retirement.



I fully understand the uncertainty over pensions.  You won't be retiring for 27 years. 

But it's still the best way to save for the long-term. 

So your priorities now should be: 

1) Trade up to the house you want to live in.
2) Max your contributions (and don't forget they rise to 25% and up to 40% of salary) 

Keeping your existing home is a distant no 3). 

Don't forget that there is nothing to stop you buying an investment property after you have sorted out your trade-up and your pension contributions. 

By the way, have you an unrealised gain on your current home?  If you still have that when you are trading up, it's another argument for selling as the gain will be fully exempt from CGT.

On the other hand, if your house is worth a lot less than you paid for it, then that might be _a factor_ in keeping it at least until it's back to the price you paid for it.

Brendan


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## elcato (20 May 2019)

Slippers said:


> The potential final house will be a countryside setting within 1 to 2 miles of a town and within 30 minutes drive of a primary rail line. A simple, clean cut house with a garden. No McMansion that will likely be difficult to maintain when I am in my 70's. My current house is city based.


This would suggest that the OP does not need to pay 500k for the final house (in today's market conditions)


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## DeeKie (11 Jun 2019)

elcato said:


> This would suggest that the OP does not need to pay 500k for the final house (in today's market conditions)


 in Kildare/Meath etc a house with a decent garden would require this amount.


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## Slippers (1 Feb 2021)

As others have provided updates in recent weeks I thought I would so the same.  Interested to hear views on my plans to trade up (hopefully) in the next 2 years.


*Age:* 39

*Spouse’s/Partner's age:* NA

*Annual gross income from employment or profession:* 75,000.
*Annual gross income of spouse:* NA.

*Monthly take-home pay:* 2345 (after Pension (20%) & ESPP (15%)).

*Additional monthly Income:* 580 from rent a room.

*Type of employment:* Private Sector.

*In general are you:* Saving. At this time approximately 24,000 per annum. I cash my ESPP as soon as I get them to avoid capital gains. I do pay the income tax due.

*Rough estimate of value of home:* 250,000.
*Amount outstanding on your mortgage:* 44,000, 6 years left having reduced the term by 3 years pre 2011.
*What interest rate are you paying?* 0.75% tracker.

*Other borrowings:* None.

*Do you pay off your full credit card balance each month?* Yes.

*Savings and investments:* 90,000 in cash and approximately 85,000 in unvested shares (value calculated after tax). It will take 2 years for shares to fully vest. In 2 years, they could be worth more or they could be worth less.

*Do you have a pension scheme?* Yes, approximately 175,000. My monthly contribution is 20% and employers is 6%

*Do you own any investment or other property?* No

*Ages of children:* NA

*Life insurance:* Personal life insurance and my company offer death in service pay out of 4 times my salary

*Notable financial call outs:*
-Thankfully my job/sector has not been hugely impacted by COVID/Brexit.
-I continue to contribute 20% to pension, and will increase to 25% once I turn 40.
-Due to lockdown I have been able to increase how much I can save.
-Due to COVID, 1 of 2 lodgers returned home and I decided not to backfill during COVID. 1 lodger remains in my home paying 580 pm.
-Last year, I reduced my mortgage balance by 30k.

*What specific question do you have or what issues are of concern to you?*
The desire to trade up within the next 2 years is my target. I have identified a house (countryside but near a town) that potentially will cost 400k to buy. Whilst you could live comfortably in it, it does need to be renovated to future proof it. Sky's the limit on how much one can spend on a renovation, but I suspect 250k => 270k is what is required to do this property right.

Having given thought as to how I might get there this is what I am thinking, appreciate feedback.

-Do not make anymore out of cycle mortgage payments. Continue to build a cash pile over the next 2 years. Possibly, with some luck, cash pile once shares are sold will be approximately 220k. Using this 220k plus a mortgage of 180k buy the 400k house.

-Sell my current house, which will leave me with approximately 210 => 220k cash once mortgage and admin associated with that house is covered.

-Put the 210 => 220k towards renovating the house.


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## Bronte (1 Feb 2021)

So now you've gone from 400K to 500K to near 700K.  Sounds like an awful lot of money for a house for one person.


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## Slippers (1 Feb 2021)

Bronte said:


> So now you've gone from 400K to 500K to near 700K.  Sounds like an awful lot of money for a house for one person.



I see the point you are making, however to change in price does not necessarily mean a bigger house.

The house is a nice property and in a great location. That does add a premium. I could try to keep the renovation to 100k but one must remember the building regs that came into play late 2019. Renovations done correctly and incorporating the right green tech are unfortunately not cheap.


If I do buy this house, hopefully I over estimated renovation cost.


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## _OkGo_ (1 Feb 2021)

The only problem with your strategy is the cost of the house you have identified. €400k in the countryside should buy you a very nice home (in most parts of the country) but if it needs €250k worth of renovation then it can't be worth €400k. 250k of work goes way beyond any cosmetic or functional changes, that is full structural changes that you are making. If €650k is the figure you are happy to spend then you would be far better off buying a site and building if at all possible or increasing your budget to buy a property that suits your needs.

One other thing to consider, will you continue to use rent-a-room if you move? You are in a very healthy position now but there would be a big swing in your finances if you lose €7/14k of net income from rent a room and have a ~€200k mortgage


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## Slippers (1 Feb 2021)

Figures are back of napkin stuff at the moment, certainly not definite numbers.  

To flag, the possible house in question is the family home. The estimated 400k is possibly what I would need to bring to the table to buy out siblings. If I did purchase and if I did renovate, it would be beyond cosmetic changes. The cost of renovation would losely equate to my original share of the family home. That means i am saying the family home currently has a 600k market value. I don't view it is worth more than that, potentially it is worth less.

On the rent a room situation. I would seriously consider continuing it in this house, however, I don't wish to factor into finances and then need to be reliant on it.


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## PebbleBeach2020 (1 Feb 2021)

My opinion, you are in a great position now and you are proposing to give it all up and your plan 18 months ago for something really not practical. 

A single person in a house worth 600k needing 250-270k renovations. Seriously?

Do you need this house or is it sentimental feelings to buy the house? If it is, then that's swaying yr judgement. Only you can decide if it's worth that but as an outsider I have to say this is madness.

What about retiring earlier instead? As an alternative to this proposal. Think about your quality of life. I don't think a single man needs such a house. You'd be better with a house as an investment to provide an income or fallback in years to come and still get a nice house in a good location. I can't believe that you couldn't find a suitable house ticking your boxes for 400-450k max. It shouldn't be 850-875k.


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## DeeKie (2 Feb 2021)

I would concur with other posters on the new house plans.


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## Clamball (2 Feb 2021)

If you and your siblings are due to inherit a house worth €600K is there any other inheritance due?   Has it been valued, if you say substantial work is required maybe it is not worth €600K at all.  Only pay market value 

I can see the appeal of wanting to live in the family home in an area you are familiar with, with probably friends and neighbours in a network already.

If you purchase you will have a mortgage you can service, no savings or wealth left because you have put it into the house, and a job with strong pension contribution.  If this is of value to you then go ahead.

What others are saying is that for less money you could get a similar or better new build and still have savings etc that you could use in the future if you decided to say retire a few years early etc.


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## _OkGo_ (2 Feb 2021)

Slippers said:


> To flag, the possible house in question is the family home. The estimated 400k is possibly what I would need to bring to the table to buy out siblings.



Ok that makes more sense. Just make sure that you add up your numbers correctly. I know it is easy to justify the 'renovation costs roughly equals my share' but if you already own 1/3 of this property, then your investment is 200k(your share) + 400k (buyout siblings) + 250k(renovations) so you will have €850k of your own money invested in this property

So I'm assuming 3 siblings with €200k each. It obviously has sentimental value and that will factor into your decision but if you sold it, you would have an additional €200k to add to your €175k cash. Within 2 years that will comfortably be above €400k of available funds while still have >€200k of equity in your current PPR. IMO, this gives you far more options, you could:

Consider buying a €600-650k property outright (sell PPR) with no renovation costs
Keep PPR as rental and borrow €200k on new PPR. Should be very comfortable to do for you and profitable
Or try to build. You are from the area so your chances of getting planning should improve. I'm completely ignoring the time/cost/difficulty of getting planning permission which is not in any way trivial but it is money better spent for you than trying to do a deep renovation of an existing property. Something worth at least doing a little research into.



Slippers said:


> On the rent a room situation. I would seriously consider continuing it in this house, however, I don't wish to factor into finances and then need to be reliant on it.



That is the an excellent approach, don't rely on it but plan to continue using it.

It should be said that you are in a very healthy position at 39 with healthy pension pot, strong savings record and a lot of equity in current (and potentially future) property


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## NoRegretsCoyote (2 Feb 2021)

Slippers said:


> That means i am saying the family home currently has a 600k market value.



So you would be spending €400k to buy out two siblings, then sinking in €250k of your own money to renovate?

€850k is a LOT of money for a house that's only:



Slippers said:


> within 1 to 2 miles of a town and within 30 minutes drive of a primary rail line



You have your heart set on this house, but it is it really best suited to your own needs?


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## Slippers (2 Feb 2021)

Thanks all, playing devils advocate has been very helpful.  

I certainly don't wish for a significant financial action do be driven by emotion. Whether my back of the napkin figures are roughly correct, or over estimated, I will be giving this deeper thought.

Fortunately at this time, a decision does not need to be made today or tomorrow.


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## Slippers (12 Jul 2022)

Hi,

Just posting to get some ideas, and start the right thought process for myself. The driver in posting is that I am getting a bit browned off with work. It may pass but I can only sustain the nonsense for a few more years should it not.

I am looking at my cash and I am wondering what investment options might be available now, which would reduce my reliance on the corporate world in the next 3 to 5 years?  I have previously posted my financial details in this thread should it be of interest to anyone - https://www.askaboutmoney.com/threads/stay-the-course-or-adjust.212882/

I have ambitions of trading up but it is not a must do right now. The cost of housing and everything associated with it has dampened my enthusiasm. Thankfully, through effort and luck, my financial position has strengthened since this post.

A quick review of my current finances at 40 years of age are:

25K mortgage with a 0.75% tracker rate on a home worth approximately 300k;
190K in savings (cash and prizebonds);
~25K (nett) in shares;
Saving 2k a month (cash);
Maximising my pension contributions;
No debt outside of my mortgage.

In my head I am thinking 100k is a good investment sum to do something with. Holding back the remainder gives notable flexibility in handling future opportunities or setbacks.

Appreciate any input. Note, input does not need to be perfect, guaranteed, or final. Primary objective of this post is to broaden my awareness of possible intelligent moves (investments).


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