Financial strategy for returning expat

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Curly Wurly

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Age: 43
Spouse’s Age: 43
Children: Ages 9 and 7

Value of Home: EUR 430,000
Amount owed on home: 0
Other borrowings / debts: 0
Savings: EUR 670,000

Insurance: Term life insurance / permanent disability policy ending in 2022 worth EUR 400,000

Gross Income from Work: EUR 50,000
Spouse’s Gross Income: 0

My family and I are moving back to Ireland after spending more than 12 years in the Middle East.
We come back to a fully paid for family home and we have saved EUR 670,000 in cash.

We are not sure what to do with this money, but our current idea is as follows:
  1. Buy two rental apartments (in the Dublin commuter zone along the M7, as this is close to our home) @ approx. EUR 190k each = EUR 380,000
  2. Relocation and setup costs (cars, furniture, etc.) = EUR 45,000
  3. Set aside money for university = EUR 80,000
  4. Pension contribution invested in self-administered passive fund: EUR 150,000
  5. Emergency Fund: EUR 15,000
Not sure if points 1 and 4 make sense. The idea of the rental properties is to have additional income to supplement salary earnings and have an income stream during retirement.

Is this a good idea? Is the idea to buy two apartments overkill, or about right? Or should we rather invest more money into our private pension? Or, should we invest more into a diverse spread of self-managed stock picks (approx. 50 companies, multi-sector) rather than lock it away into a pension and rental properties?

I need help with finding the best approach, the primary goal being to not rely wholly on salaries and guarantee some sort of income when retired.
 
First things first - good for you & your family.:) Hat's off for being in such good financial shape.

  1. It's a personal preference but I would avoid getting into rental property in Ireland. In my observation of the news & related threads on here & boards.ie it's more hassle than it's worth. Remember your time is very valuable & could be perhaps put to better use earning in your field of expertise rather than spending it managing 2 rental properties that are subject to all sorts of government controls & potentially troublesome tenants. - not for me. Same goes for the funds you intend to use to purchase the properties.
  2. fair enough.
  3. Don't leave this in cash, invest it put it to work. As of the moment, you're children will not have to pay full uni fees if they study in Ireland. 80,000 sounds like a lot but if you put it to work & it's growing & you don't spend it on Uni then no harm done.
  4. You should probably max out your pension contributions.
  5. sounds reasonable.

You mention 670k in savings, is this in cash or is it part in investments? I ask this because if it is in any kind of investment & you cash out & realize a profit during a year in which you are tax resident in Ireland then you are liable to CGT. Perhaps you can realize the profits from any investment before you become tax resident in Ireland.

Your house is fully paid off so you've got a ton of equity sitting there, would you consider mortgaging it & putting the funds from the released equity to work?
 
Hi Horatio

You mention 670k in savings, is this in cash or is it part in investments? I ask this because if it is in any kind of investment & you cash out & realize a profit during a year in which you are tax resident in Ireland then you are liable to CGT. Perhaps you can realize the profits from any investment before you become tax resident in Ireland.
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Yes the plan is to have this in cash prior to becoming tax resident.

Your house is fully paid off so you've got a ton of equity sitting there, would you consider mortgaging it & putting the funds from the released equity to work?
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I don't quite understand what this entails. I bought the house for cash and have never had a mortgage and don't know much about them. Are you suggesting I go to the bank and ask them to lend me 430,000 against the value of my house so that I can do whatever I like with the money? If yes, I wouldn't be keen on that at all. I am trying to avoid debt and financial obligations.

Don't leave this in cash, invest it put it to work. As of the moment, you're children will not have to pay full uni fees if they study in Ireland. 80,000 sounds like a lot but if you put it to work & it's growing & you don't spend it on Uni then no harm done.
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Excluding fees (which are small), I think accommodation alone will cost 6500 per child per academic year for three years (think campus accommodation). That comes to 39,000. Then you have registration fees, livings costs etc, for two kids for three years.
 
Firstly well done on what you have achieved to date.

1. On rental properties, don't rush into this, renting can be problematic. I would not invest in a rental property unless I knew the location and area well and I was residing within reasonable distance from the property. I would want to be getting a decent yield >7% to consider this as an investment proposition.

2.Relocation will easily cost you this amount

3. I would say put aside this amount at a minimum, if both go to college and decide to do postgrad courses its not enough. Factor in €10K per annum per child for undergrad and include a further €20K per annum for post grad. This is not accounting for inflation or where the whole fee structure will be at when the time comes.

4. Max out on the pension contributions as previous posters advise, most tax efficient way to earn a return on your funds.

5. Emergency funds seems small but we have no idea of your lifestyle, circumstances etc to be able to give an informed view.

For the balance you need to provide us with a more detailed financial profile of your family unit. What is your appetite for risk?
 
For the balance you need to provide us with a more detailed financial profile of your family unit. What is your appetite for risk?
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Tell me your questions and I'll give you my answers :)

In terms of risk, I am very familiar and comfortable with investing in index funds (S&P 500, developed Europe etc). I've seen my funds rise and fall and I tend to buy more when the market dips. Stocks are my preferred asset, ahead of property.

I am allergic to debt of any sort and one of my goals would be to ensure I don't have to borrow money for anything ever again.

When you say I should max my pension contributions, do you mean from my salary (I'll do this, that's a given), or do you mean I should invest several hundred thousand euros of my cash into a pension too? I'm fine with this, but I'd hate to not be able to access my own money for potentially years, in case I needed some of it. This is the main reason for considering the rental property. It would at the very least generate a monthly income and I would be paying for the apartment(s) with cash.

If it were just as effective, I would have no qualms about not investing in property and rather putting the whole lot into the stock market. But I have heard that tax is the killer in Ireland for stock investing.
Again stocks are my preferred asset class but not if the tax burden of stock ownership in Ireland is more complex and expensive than rental properties. I am ignorant on the topic of what is most tax efficient as I've been out of Ireland for so long.
 
Curly Wurly said:
When you say I should max my pension contributions, do you mean from my salary (I'll do this, that's a given), or do you mean I should invest several hundred thousand euros of my cash into a pension too? I'm fine with this, but I'd hate to not be able to access my own money for potentially years, in case I needed some of it. This is the main reason for considering the rental property. It would at the very least generate a monthly income and I would be paying for the apartment(s) with cash.
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Your likely pension contribution (for tax relief) will be 25% of 50000 - 12500 p.a. This wont make a dent in your assets. You'll need to consider after tax investment. You mention index fund investing, pay attention to the gross roll-up taxation of UCITS ETFs in Ireland. Spolier: its not ideal! Rory Gillen has a note on it; https://www.gillenmarkets.com/featured_articles/tax-issues-for-irish-residents.cfm
 
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