# Asset rich and cash poor.



## OxOxO (5 Jun 2004)

My home is valued at circa €2 million with a €10k mortgage outstanding. I am 52 years of age and retired P.A.Y.E. worker. I cannot borrow against the property as I have no repayment capacity. I would like to free up some of the equity to maybe start a small business or maybe purchase a smaller property to live in and rent out my present one. Any advice?


----------



## Nicky (5 Jun 2004)

*to set up a small bussines*

Hello OxOxO,

  How many rooms does your house have and where is 
  your house's location? I have some idea to set up a 
  small bussines. If you intresed in it, please email me 
  on cactus03@online.ie and I will try to share my idea 
  with you.

  Kind Regards

  Nicky


----------



## Brendan Burgess (6 Jun 2004)

*Re: to set up a small bussines*

Hi oXo

I would be very careful about borrowing money if you have no repayment capacity. Are on social welfare? Have  you no prospect of working? 

I will assume that you have no prospect of an earned income. With a €2m home, you are too exposed to one asset class, i.e. property. And particularly a property which generates no income. If you borrow €500k to buy a property to live in, then you would be only increasing your exposure to property. This is just not advisable.

You should consider selling your home. You should use the proceeds to invest in a business or to invest in the stockmarket. This would be preferable to investing in property as you will have a property investment in your home. 

Even if you can borrow against your home, you shouldn't do so. You will get no tax relief on the interest payments on the mortgage whereas the rental income will be subject to tax. As you don't have any other income, this might not matter.

Bear in mind that your home is excluded in calculating any means tested benefits. If you sell your home and end up with €1m cash, you won't get any non-contributory social welfare. 

Brendan


----------



## oilean (6 Jun 2004)

*Re: to set up a small bussines*

The good or bad news about your situation is that you are far from alone

There are many people who have found themselves sitting/living in a massive asset which in reality is not
(It does not put cash in your pocket)

I am sure there are many people on AAM who will tell you to invest in property and as many to invest in the stock market

It all depends on what you what to receive from your efforts

Do you want to find a build a business with the possibility of making a lot of money or to fulfill your time?
If you are to invest in the stock market are you willing to spend the time learning about good/bad companies to invest in?
If you were to buy property do you want to become a loanlord, possibly earn a steady income or for capital appreciation?
As Brendan stated you could consider moving home to obtain cash

These are a number of financial issues to be considered but most importantly
Personal decisions on what direction you would like to go in, are the most important
Decide on these and get AAM and professional advice for the rest

You are in very enviable position, after all you are a millionaire

I hope this mesage does not come off preachy, if it does it is not meant in that way


----------



## chasingaimless (10 Jun 2004)

*Reversion*

There are a couple of companies in the early stages of setting up reversionary property investment businesses in Ireland. This might suit your needs if they are interested in acquiring your property.

Your house is sold at a rate discounted on the basis that you may live there cost free until you die or move. At that stage the house reverts to the buyer. The price you get is based on actuarial estimates of your life expectancy and the current property value.


----------



## oilean (10 Jun 2004)

*Reversion*

These can be a good way of releasing equity in your home, if you need cash
They avoid you having to move and the associated costs(incl stamp duty)

One of the main pitfalls is that a lot of people who are in this position, little cashflow, tend to be people who are receiving non-contributory social welfare payments
(e.g. non-contributiory pensions)

These are of course means tested

Therefore a lot of people who have been advised to avail of these recently have found they have lost their pensions

I think some of the providers have not fully explained or understood some of their clients needs / circumstances


----------



## Maxine RIP (11 Jun 2004)

*Releasing equity*

Did you not see what happened to poor maxine and Emily Bishop in Coronation St. when they went down this avenue.....!!!!!!!!!

Sorry not a very helpful comment but might lift the spirits for a few seconds!!!


----------



## Bongo (11 Jun 2004)

*Obvious*

OxOxo,  I fear tha tthe reversion option is not for you, you are too young!  

But as has already been stated you are in an enviable position.

Try a bit of lateral thinking.  Imagine that you hadn't a bean to your name and no home or assets, living in a box.  Then you win €2M on the lotto.  What would you do with it?  I feel sure you wouldn't lash the whole lot on a home.  You'd probably spend €1M on a home, and live quite comfortably on the other million.

The point I am making is that assets are reasonably interchangeable, albeit incurring costs - it is your decision if you keep everything you have locked up in your home.   Sell it, believe me it is not too much hardship living in a €1M home.


----------



## Guest (11 Jun 2004)

Perhaps it's blindingly obvious but nobody seems to have mentioned the possibility of simply trading down to a cheaper home and using the (CGT) tax free gain to fund your future plans. Or maybe this was implicit in Brendan's post above?


----------



## Spacer (12 Jun 2004)

*..*

Not sure whether the CGT issue was that explicit but this idea seems the most eminently practical  of all suggested.


----------



## Brendan Burgess (13 Jun 2004)

*Re: ..*



> Try a bit of lateral thinking. Imagine that you hadn't a bean to your name and no home or assets, living in a box. Then you win €2M on the lotto. What would you do with it? I feel sure you wouldn't lash the whole lot on a home. You'd probably spend €1M on a home, and live quite comfortably on the other million.



Bongo - a great way of showing why OxO should sell his house and trade down.

I use a similar story when people ask whether they should invest a lump sum or pay it off their mortgage. I ask if they had a lower mortgage, would they increase it to invest? The answer is always no.

Brendan


----------



## oilean (13 Jun 2004)

*stamp duty*

Everyone is stating sell up and keep proceeds tax free

if OxO does sell up and purchase another home for €1million, there is a whole lot of stamp duty to be paid
(€90,000 if it is not a new build)

€90,000 makes €1million not tax free but effectively taxable at 9%

It depends on what OxO feels comfortable doing
Moving a family just to trade down, try explaining that one to the wife and kids
(not to sound sexist but most men would sleep in a hammock if it had a roof, the rest of the family that is a different story)

OxO has plenty of options open but again I say personal decisions  on how to spend the next 10-30 years be made first
Then the financial situation to suit these next


----------



## OxOxO (14 Jun 2004)

*Life has a way of humbling you.*

I did like Bongo's reply the best. It made absolute sense.
Yes, I could buy a very nice house in Dublin for €1m, although looking at the auction results a lot of houses are selling for close to this price. I absolutely hate the idea of handing over €90k to the taxman. The house I am presently living in, is my 3rd. upward movement if you know what I mean. Now I start the downward movement. Should I do it in stages or should I make one large downward movement. For example, purchase a two bed apartment. This could leave money for a similar property in a warm country, which would be useful for my wifes medical condition. I could also help out the adult children with some money gifts. Ideally I would like an involvement with some work, preferably part time, perhaps as an investor with part time work. I am in a very lucky position financially but in other ways I am not so lucky.


----------



## purple (14 Jun 2004)

*CGT*

There is no CGT on your principal place of residence.
If you choose to rent it out there will be CGT on any increase in it's value from the date you rent it onward but at the moment there is none. 
You can also gift money to children tax free (I think it's up to 450K but I am open to correction on that).
Do watch out for how a big fat bank balance will affect any non contributory welfare payments.


----------



## oilean (15 Jun 2004)

*Downard movement*

If you have decided on making a downward movement

Each time you move there would be solicitors fees. estate agents and substantial stamp duty to pay on completion on each of the contracts

Therefore you probably should go for a house/apartment that will suit your needs both now and long term

Non-contributory welfare payments need to be considered,
as if it is a non-con pension you can trade down but if there is a excess of  greater than 190k, your pension will be effected
(not certain about other entitlements)

Even if you were to gift money to children this will be considered by Social Welfare as being optional and can count against entitlements

If you were looking at a part-time investment, you could look at a franchise (eg a sandwhich shop) 
or even a taxi or something along those lines if not a franchise
Do you want to become an employer?

Property could give a return of 4-6% depeding on the property and also might produce a part-time job
Large pre63 properties can give very good returns but can need looking after
Some people do enjoy this type of work 

Personally, I see the value of property, 
It is there in front of you
You can get a structural survey before purchasing
There is no complicated issues which require studying
You can pick up the Herald and see what rent or sales price you could expect

I know I am going to get slated by someone who will explain that the stock market is simple, maybe it is?


----------



## little white cloud (29 Jun 2004)

*Easy street*

I have to say this is an enviable problem to have!

It must be a biggish house (and obviously in a good location) if it's worth two million. You could get a lodger and receive up to 7,000 euro a year TAX FREE in the Rent a Room Scheme.

I'm assuming any house worth 2 million is large AND in a good location - all the requisites for easy letting.
That might improve your cash flow while retaining the asset.

But I would sell it and trade down - you will still be living in a pleasant home even at 500,000 euro. And with that much profit to hell with the stamp duty!

Either way you have a decision rather than a terrible difficulty to face IMHO.


----------

