# What to do with buy to let



## hikicker (11 May 2015)

Age: *38*
Spouse’s/Partner's age: 34

Annual gross income from employment or profession: €120k
Annual gross income of spouse: €45k

Monthly take-home pay: €9000 (total)

Type of employment: e.g. Civil Servant, self-employed: Company owner/director

In general are you:
(a) spending more than you earn, or
(b) saving?
Saving/investing €1500 per month

Rough estimate of value of home: €260k
Amount outstanding on your mortgage:€290k 
*What interest rate are you paying? *0.95 above ECB (Tracker) €880 per month

Other borrowings – car loans/personal loans etc: No

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: €20k in 7 day access deposit account
€10k in various stocks. Company equity (don't intend to sell company until very long time)
Do you have a pension scheme? Yes presently €75k with monthly €2000 contributions paid via company

Do you own any investment or other property? Yes (2)
Rough estimate of value of property: €220k
Amount outstanding on your mortgage:€238k

Rough estimate of value of property: €200k
Amount outstanding on your mortgage:€140k

*What interest rate are you paying? *Property1: 5.15 KBC, €1790 per month 16.5 years remaining. Rent €1000 per month. Currently overpaying this mortgage by €2150 per month. Property2: 5.35 AIB, €860 per month 24.5 years remaining. Rent €1000 per month. (Both based in Dublin with long term tenants)

Ages of children: 6 and 2

Life insurance: yes (1.2 million policy)


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

I'm overpaying one of the mortgages on my investment property that is in negative equity and not self financing as the rent is low. (Was originally PPR but topped up mortgage for company start-up and deposit for house a long time ago). Im debating whether to A) keep up the overpayments and sell this once Im out of negative equity, B) continue overpaying which will see the mortgage cleared in approx 5 years or C) extend the mortgage by five years which would reduce the  monthly payments to €1500. My medium/long term objective is to create some passive income from a broad range of assets.Im also conscious of the tax implications of having a mortgage free investment property. (I cant sell the other property as it is complicated however it is washing its face so Im happy out with that one). Any of your opinions/advise would be welcomed.*
*Previously posted this but my situation has changed slightly since then: http://www.askaboutmoney.com/threads/to-overpay-or-not.188291/*


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## Brendan Burgess (11 May 2015)

It seems clear to me that you should simplify your life and your finances. 

Sell the investment property and pay off the mortgage.  It's not very profitable. It could become a distraction for you and you can make a better return on your time in your business.  If you want to trade up your home at some stage, having lower borrowings and commitments will be beneficial. 

After the sale, you will still have €460k of property and €430k of loans.  So you still have a sufficient exposure to property. 

While you have a good disposable income, lash the money into the pension fund, unless you are planning to trade up, in which case, you should probably pay yourself a salary, and invest your net savings in a portfolio of 5 to 10 shares. (Your business, your home and your property give you good diversification already). 

Brendan


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## hikicker (11 May 2015)

Thanks Brendan, unfortunately I'm in negative equity on that property to the tune of approx €20k plus a bit of cgt. Do you suggest clearing the balance now using savings or continuing to overpay the mortgage monthly until it is out of negative equity?


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## Brendan Burgess (12 May 2015)

Yes, use your savings now to clear your mortgage. It will take a few months, so hold back on the pension contributions to build up a bit more savings.   

Brendan


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## Bronte (12 May 2015)

Have you done the CGT calculation on Investment 1

I presume you are only claiming the 75% on the mortgage of Investment 1 that applies to it as an investment and not the total of the current mortage/top ups.

I presume you are claiming those loans against business taxes.

Re advice on your pension, you need to ask an expert, we have had debates on here.  I don't trust governements so don't like tying money up where they can suddently decide 30 years after you saving away that it's ripe for picking (as Noonan did there a few years ago)

Before selling anything, think about capital appreciation, which we are not allowed to discuss.  Also think about the fact there has been zero solutions to the housing crisis, which is getting worse, not better (see rent reports yesterday) and what a government might do there.  Like dropping CGT to get the market moving.

Have you thought about paying a financial advisor, might be worth it, if you get a good one.  Give you maybe an different viewpoint.  There are a few on here.

I don't like that Investment 1 is not washing it's face.  Not good if something happened your company.

That is not the same with the home as your mortage there is about what one woudl have to rent for.  In addition it's a really cheap tracker, so nothing to do there and soon you'll be out of NE. 

You didn't mention children.  Savings for education ?


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## hikicker (12 May 2015)

Thanks Bronte. Yes I would have a small CGT liability as I originally paid €175k for it, it was my PPR for a few years so it would work out at around €7k if I sold now (That includes the PPR years grace and pro rata calculations). RE: Children/Education, I'm putting €1500 away each month into stocks as a medium term investment, company is also very well established now and is doing really well with very good reserves (€400k) so it is highly unlikely that it will fail going forward. I'm in a good position overall and very lucky, I just find this particular property a bit of a bugbear, in particular the high rate of interest Im paying on it. Trying to weigh up the advantages of overpaying the mortgage vs investing more, don't really like the idea of disposing of an asset (Albeit a non performing one) as if I continue to overpay it would be mortgage free in 5 years which would result in the rental income covering private school fees etc.

I also agree with you regarding the pension, I find that the (temporary!!) 0.6, 0.15, 0.75%! levy is an absolute scandal however we as a country make more noise about paying for water unfortunately. Also the €2 million cap is a concern for me which is another reason I'd like to have keep the buy to lets as a separate income when I'm retiring.


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## Bronte (12 May 2015)

Your NE on Investment 1 is 18K.  About the overpayment - I presume you mean you are overpaying by a couple of hundred ?  But you could easily use your savings to wipe the NE.  In addition you have 1500 free monthly.  You'd be better off getting rid of it as the return is useless.  I hear what you are saying about having a rental income stream in the future.  In addition to your pension.  But you can do that by buying something in the future that gives a better return - the government are already encouraging this - inner cities in particular, something about older houses.  I expect something more as they get increasingly more desparate.  Threshold were on the radio yesterday and thinks are looking worse and worse in the rental sector.

I agree, water is a red herring.  Wait until people get real water bills for usage, they will faint !

Your Irish bricks and mortar heart is keeping you from selling.


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## Brendan Burgess (12 May 2015)

hikicker said:


> RE: Children/Education, I'm putting €1500 away each month into stocks as a medium term investment,



Not a good idea while you have a mortgage at 5.15%.

You should sell the property, but if you decide to keep it, then use all your savings to pay down the mortgage as quickly as possible.  You should not be borrowing at 5.15% to invest in stocks, which is what you are doing in effect. When you get the mortgage down to 80% LTV start looking for a lower mortgage rate.

Selling the property and investing your surplus funds in equities is the best, and most flexible, long term financial plan. 

I don't like the idea of having €400k in reserves in the company. It seems very tax inefficient. Get as much out as possible and into your own name.  If you had taxable profits last year, create a taxable loss this year through pension contributions or a high salary to recover the CT paid.   Of course, take tax advice on this. 

Brendan


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## hikicker (12 May 2015)

Bronte said:


> Your NE on Investment 1 is 18K.  About the overpayment - I presume you mean you are overpaying by a couple of hundred ?



No I'm overpaying by €2150. total payment approx €4k



Brendan Burgess said:


> Not a good idea while you have a mortgage at 5.15%.
> 
> You should sell the property, but if you decide to keep it, then use all your savings to pay down the mortgage as quickly as possible.  You should not be borrowing at 5.15% to invest in stocks, which is what you are doing in effect. When you get the mortgage down to 80% LTV start looking for a lower mortgage rate.
> 
> ...



Thanks Brendan, you've simplified it somewhat.


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## hikicker (12 May 2015)

Just to add, company year end is coming up in a couple of months, expect to  make a nett profit of circa €100k, had planned to put €50k into pension and take €20k gross out as bonus (unfortunately will only see about €8.5k after tax). I have the option of taking it all out as pay and throwing a lump off the property but that would only be around €30k after tax which is another bugbear


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## Bronte (12 May 2015)

You definitely need a financial advisor to figure out how to structure your company income.  Ask an expert and post it on here to double check. 

You'll be out of NE in 8 months on Investment 1.  If you really want property, nothing stopping you buying something with a better return.


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## hikicker (12 May 2015)

Have done, they said putting most of company profits into pension is the most tax efficient however unfortunately that doesn't help me in the short/medium term.


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## Brendan Burgess (12 May 2015)

hikicker said:


> putting most of company profits into pension is the most tax efficient



I just don't think that is correct anymore.  If you could put unlimited amounts into your pension fund, then it might be correct.

But you can take it out now subject to tax and pay off expensive borrowings.

You can stuff the pension fund later.

Brendan


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## hikicker (12 May 2015)

Thanks again lads, according to my accountant there are no limits to what I can put into my pension as it is an executive retirement plan/fund. That said I think the best course of action as you suggest is to take the tax hit and take the profits via salary/bonus and throw it off investment property one and then put it up for sale.


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## Brendan Burgess (12 May 2015)

hikicker said:


> according to my accountant there are no limits to what I can put into my pension as it is an executive retirement plan/fund.



I don't think that is correct. Is there not a maximum fund size above which further contributions are not tax efficient? 

Brendan


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## Sarenco (12 May 2015)

While I'm open to correction here, my understanding is that there are relatively complicated rules regarding the maximum amount that can be contributed to an executive pension scheme but contributions can certainly be higher than the maximum (tax-relieved) contributions that can be made to a personal pension/PRSA.  The current €2 million SFT applies in any event.

As an aside, the lifetime pension allowance was recently reduced to £1 million in the UK, which is a good example of the unavoidable political risk relating to pensions that Bronte references above.


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## hikicker (12 May 2015)

[QUOTE="

As an aside, the lifetime pension allowance was recently reduced to £1 million in the UK, which is a good example of the unavoidable political risk relating to pensions that Bronte references above.[/QUOTE]

This is something that infuriates me. We are at the whim of every government regarding this and the voice of the lefties will never go against it. I see it only applies to private sector pensions too, how much of a fund would be required to pay Cowen & co their €100k plus pensions?? much more than €2 million I tell you. And the bafoon hasn't even reached retirement age yet is getting paid it now, should be done for treason....


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## Fella (12 May 2015)

Yes its one of the main reasons I don't pay into a pension myself , i'm in my 30's also who knows what government be in and what % of the pot they will take , although same could be said for savings in bank with DIRT rate so high or CGT/ exit tax on Shares/Funds , it's hard to know what to do with money in this country, I think best advice is pay off mortgages or whatever you have thats costing you high interest rates before saving at tiny interest rates.


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