# Taking on debt to increase net worth - makeover advice needed



## Globalist (22 Sep 2018)

*Age: *36
*Spouse’s/Partner's age: *36
*
Annual net income from employment or profession: *135,000
*Annual net income of spouse: *<10,000 (ad hoc / part time)
*
Monthly take-home pay: *11,000

*Type of employment: *Private sector in middle east
*
In general are you: *Saving ca. 75,000-80,000 per year
*
Rough estimate of value of home: *n/a
*Amount outstanding on your mortgage: *n/a
*What interest rate are you paying? *n/a
*
Other borrowings – car loans/personal loans etc: *n/a
*
Do you pay off your full credit card balance each month? *n/a
*If not, what is the balance on your credit card? *n/a
*
Savings and investments: *


Self-managed ETF portfolio with a value of 400,000 (adding 6.5k to this every month)
Guaranteed end-of-employment package of 35,000 (adding 8k + per year)
Cash – none to speak of but cash flow from salary is very strong and I could liquidate ETFs any time


*Do you have a pension scheme? *No
*
Do you own any investment or other property? *No
*
Ages of children: *

Two children:

- 2.5

- <1 year old

*Life insurance: *

- Employer scheme: 500,000 against me; 50,000 against spouse
- Private insurance: 400,000 against first death

*Question / Topic I need help with:*
My approach to personal finance has been conservative until now: Save a lot, invest in low cost diversified funds, and avoid consumerism.

Above all, I have been pathologically opposed to debt of any kind, to the extent that I always envisage myself paying cash for everything -- including a house in the future.

Very recently however, I wonder if my aversion to debt is inhibiting the growth of my net worth.

Specifically, I feel I am being left behind in terms of property prices in Ireland. With my cashflow and the dry powder that I have, I could get a mortgage(s) of 300-400k and easily meet and even significantly exceed the repayments. If I add to that the income from renting out the property, it seems a no brainer that I should borrow now while my cash flow is so good, in order to rapidly acquire property.

Now, why am I thinking to acquire property? I know that it is an illiquid, costly investment, especially compared with passive ETF investing. However, when I relocate to Ireland in 6-9 years, my ETF strategy will not be viable there. For better or worse, property is the major vehicle for wealth in Ireland.

In terms of the types of property I'm looking for, I'm on the hunt for my future home (a detached house). I don't mind having tenants in it, either permanently or sporadically, while I'm in the Middle East (so, for the next 6-9 years).

I am also open to / strongly considering purchasing an apartment somewhere in Cork (a city I am very familiar with), with the idea of having this exclusively as a rental income stream for when I repatriate in 6-9 years' time.

I am aware that letting the house (+ apartment) from abroad would be a tiresome and perhaps turbulent experience. I am also aware it would be taxable.

However, as I would not be depending on the rental income while I am in the Middle East, the idea of it lying idle for 30-50% of the time doesn't trouble me, because the longterm objective is to have my home + a rental property fully paid off by the time I relocate to Ireland, at which time I would pay maximum attention to the rental property as a source of regular income.

If I boil it down, I can easily absorb the cost of a mortgage when I am in the middle east. It seems it would be easy and, based on my savings and current income stream, stress-free to pay down the mortgage(s) over the next 3-4 years or so. On the other hand, my cashflow will be greatly diminished when I move back to Ireland, so it seems a once in a lifetime opportunity to acquire these now, rather than later.

The masterplan would be to return to Ireland in 6-9 years with
- family home 100% paid off
- rental property 100% paid off
- a portfolio of stocks and bonds worth ca. 600-700k.

To answer anticipated questions:
- do I know where I will want to live? Yes.
- why not invest in a REIT? I think it would be preferable to have bricks and mortar that would be entirely mine.
- Is my job stable? Yes.
- Is spouse of a similar mindset? Yes.


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## cremeegg (22 Sep 2018)

There is a mismatch between your ambition and your salary. 

You can easily finance a home and an investment property from your savings and the income you expect. If that is what you want you can just do it. Wether you do it now with a mortgage or wait a few years and have a smaller or no mortgage hardly matters. 

If you want to maximize your wealth however you could expand your ambitions.


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## Globalist (22 Sep 2018)

cremeegg said:


> There is a mismatch between your ambition and your salary.
> 
> If you want to maximize your wealth however you could expand your ambitions.



I honestly am not sure what you are envisaging here...could you spell it out with a few concrete examples?


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## Globalist (2 Oct 2018)

Any additional responses would be appreciated.


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## Blackrock1 (2 Oct 2018)

where are you looking to buy a family home and what do you expect to pay for it?


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## Globalist (2 Oct 2018)

Blackrock1 said:


> where are you looking to buy a family home and what do you expect to pay for it?



Either Newbridge or Kildare town areas, but open to Monsterevin as well. I would conceivably pay up to 450k.


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## Blackrock1 (2 Oct 2018)

so whats the plan when you come back to ireland? work locally or dublin? can you see yourself earning a similar gross salary?

you currently have

450k + 75k per annum
EOS 35k + 6k per annum

say you come back in 6 years, that will be 900k + 71k (minimum assuming growth on the investments)

that will probably be only enough to purchase a house an the apartment outright with a little left over, certainly wont leave 6-700k,

What part am i missing?


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## Globalist (2 Oct 2018)

Blackrock1 said:


> so whats the plan when you come back to ireland? work locally or dublin? can you see yourself earning a similar gross salary?
> 
> you currently have
> 
> ...



Salary growth + compounded portfolio growth, with the liklihood that my wife will start earning more money again (between 20-40k per annum) from 2020, along with the probability that we will stay closer to 9 years than 6. 
Also, it's unlikely I'd pay more than 220k for an apartment.


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## Blackrock1 (2 Oct 2018)

id suggest then that you buy both properties now with whatever mortgage you need, paying that off as quickly as you can then build up the equities fund to bring back,

seems the most sensible course?

why do you want a rental property as an investment over funds?


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## Globalist (2 Oct 2018)

I'm not entirely sure that I should invest in a rental property at all. One of the main reasons I can think of, though, is that funds would be less tax efficient when I repatriate, whereas property would provide a steady income stream and be slightly more tax efficient. I might be completely wrong about that, or about the wisdom of investing in a rental property. That's why I'm here


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## Thomas1 (11 Oct 2018)

My advice, stick to what you know and what is easy for you to manage. Becoming an amateur landlord based in the ME with a property in Ireland is a potential disaster waiting to happen. The stress and cost if anything goes wrong isn’t worth the unguaranteed upside.

When you are close (within a year) to coming back to Ireland, start looking at buying a home. Forget the Irish property market in the meantime and enjoy life.


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## elcato (11 Oct 2018)

Thomas1 said:


> Becoming an amateur landlord based in the ME with a property in Ireland is a potential disaster waiting to happen. The stress and cost if anything goes wrong isn’t worth the unguaranteed upside.


Well perhaps not if you employ a professional management company to handle the rental for you. The main problem you have is you don't really know what you might be thinking in a few years time, never mind whether houses will be cheaper or dearer in 9 years time. Why not go half way and buy one or the other now.


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