Getting ready for the future now

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Calypso

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Personal details
Your age: 41
Your spouse's age: 39
Number and age of children: 3 (14, 12 & 5)

Income and expenditure
Annual gross income from employment or profession: 51k (plus annual bonus of 10% put into company shares)
Annual gross income of spouse/partner: 25k – works part time
Monthly take-home pay: 4,200 after tax (plus 1400 rent from investment property & 420 children’s allowance, total 6020)
Type of employment – Both private sector company employees

Expenditure pattern
In general we are making ends meet. Have a little to save some months but go to our buffer other months if something unexpected comes up.

Summary of Assets and Liabilities
Family home value: 500k
Mortgage on family home: 18,400 (ends on 01/04/2027)
Net equity: 480k

Type of mortgage: 2.35% fixed with AIB until 01/05/2025
Cash: 12,800
Pension fund: 24k
Company shares : 6k (with another around 5k due in April)
Buy to Let Property value: 400k
Buy to let Mortgage: 38,080 (due to end on 03/07/2028)

Family home mortgage information
Lender: AIB
Interest rate: 2.35 fixed but fixed rate due to end on 13/04/2025
Remaining term: Until 01/04/2027 so 26 months
Monthly repayment: 730

Other borrowings – car loans/personal loans etc
No other loans but we do have a credit card which we always clear each month.

Pension information
Value of pension fund: 24k

Only started this two years ago but am currently putting in 1k a month to start catching up. Prior to this, we were putting extra funds into mortgage and have reduced a 30 year mortgage on PPR down to 16 years.

Buy to let properties
Value: 400k
Rental income per year: 16,800
Rough annual expenses other than mortgage interest : 2000
Lender: AIB
Interest rate: 2.35 fixed until 19/10/2027
This mortgage is due to end on 03/07/2028

Monthly repayment: 970

Other savings and investments:

12,800 which we use as a buffer. We try to keep this at 15k to 20k so when it goes below that, we replenish it when we can.

We have company shares which will be above 10k after April when yearly bonus is paid.

Other information which might be relevant

Life insurance: 180k mortgage protection and 80k critical illness

4 times salary with employer (204k) and 2 x salary for wife with employer (50k)

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

Our pension is minimal (only 24k) but we spent from 2016 to 2022 paying extra money off our PPR mortgage. There was a period from 2015 to 2020 when we were both on 150k before tax combined.

However, that was in a high risk company and we have both now moved to more stable companies on a lower wage as we plan to work out our careers.

We are now paying 1k a month into our pension and will increase this each year as we get pay rises.

Plan is, when we finish both mortgages in 2028, that we will both maximise our pension contributions for the remainder of our careers.

One area of interest I have is investment. I have earmarked 100e a month at the minute. I wish to start investing this – possibly in a global index fund – so that I can monitor its progress because in 2 years, my company shares will be available and I wish to start moving them to a diversified portfolio. That means I will have 5k a year available to invest then so I want to have my research done on where to move it. Are there any funds people would recommend and can I use something like Degiro and do this myself or should I be using a financial advisor?

I do plan to take out a loan of 12k to fit solar panels to the house. I can get a five year loan which costs 233e per month and the solar panel projection, based on our power usage, is that they will save us at least 200e per month.

I know we could use some of the buffer for this but we really wish to keep in there.

Any thoughts on anything we may be missing or what we could improve?
 
Nice work on the mortgage, well done!

I would be concerned that, like most small landlords, you're too concentrated in one specific property without very much diversification in other assets to speak of. I dare say that with 400k in your back pocket in a few years, you could get more than a 3.7% yield ((12*1400)-2000)/400000) elsewhere with far less risk, certainly less effort, better liquidity, and possibly faster capital growth.

Calypso said:
I do plan to take out a loan of 12k to fit solar panels to the house. I can get a five year loan which costs 233e per month and the solar panel projection, based on our power usage, is that they will save us at least 200e per month.
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I invested something similar this year in solar + battery and I think your 200 a month is optimistic. I'm on track for a more conservative ~1800 a year. Go with a battery though, as this will give you options between being export-focused when FIT rates are high and self-consumption-focused if/when they are not. I can almost guarantee that you will consume far less of the solar generation than you expect, so a battery helps immensely.

On the whole though, it's a great investment with a 6-7 year payback on 25+ years of generation.
 
Re the solar, we have a geothermal heat pump which works off electricity so our ESB bills per year are €4500 to €5000. Not sure if that means my projection is correct because we use more electricity than the average household. Even if only saving 1600 to 1800, I think it’s worth it, particularly with rising energy costs.

The quote I have does include a battery so I’d have 20 panels, a 5kw inverter and 20kw of battery.

We also looked into possibly investing in an electric car but have decided against it for now as the market is too unclear for our liking. We are happy with the two cars we have - the thought of changing was to save on diesel costs.
 
Calypso said:
we have a geothermal heat pump which works off electricity so our ESB bills per year are €4500 to €5000
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Wow, you either have a massive house, massive heat loss and/or your hp setup needs serious attention. Either way, if I were you, I would want to know why I'm spending a fortune on ESB before I invest in solar.
(The cheapest & greenest kWhr is the one you don't need!).
 
Id sell investment property and load up the pensions every which way. Also pay off home loan if still there.
Your well aware of taxes on rental income.
Any growth in pension wrapper tax free.
CGT on rental property factor this in your analysis.
Loading up your pensions carries the least risk and the best returns taking in to account your investment horizon.
 
Yes electricity usage seems madness unless that's a very big house, we have an all electric house with an inefficient EV doing 15,000 km annually and we use 14,500 units at a cost of around 2.8k give or take
 
I think it was a mistake to prioritise paying down the PPR mortgage ahead of funding your pensions, particularly when your incomes were materially higher.

Also, the net, after-tax, profits on the rental property are pretty underwhelming. I think you would have been better off cashing out the equity in the rental and applying it against the PPR mortgage.

But I guess you are where you are…
 
The house is large (3800 square foot) - if I could go back to when we built it, I’d actually build it smaller.
There are two of us working from home (one four days, the other five) plus the kids are here from 3 so I would imagine we consume a lot of power.
I have done comparisons with others with similar houses and our consumption didn’t seem out of the ordinary, particularly given how often we are here.
 
You mention a few times 'our pension'. Is there only one pension fund or two? It can be unwise for only one spouse to have a pension fund.

As other people have mentioned, the yield on the investment property is poor. Having a glance at the rates, you could (after tax) be getting pretty close to that return on deposit. Sell the property, pay off your mortgage, top up the pension, set up a pension for the spouse who doesn't have one, get your solar installed and, if there's anything left over, ad it to your emergency fund and shop around for a better deposit interest rate.
 
Just to add if you sold RIP and 200k was put into both your pension funds separately each pension fund should have between 300k and 400k in it after 10/12 years. That is without any further contributions. You will still be in early fifties. You will not get a similar return in Ireland unless you up the risk factor. Tax relief also for contributions. No way will you do as well out of the rental.
 
Sarenco (I’m not sure how to quote reply), as you say we are where we are.
I didn’t have the consumer finance knowledge I have now when we started overpaying the mortgage in 2016.
At the time, however, we expected to get about 3 years out of the business we were working for. We ended up getting six.
Therefore the plan in 2016 was to reduce our immediate liability going forward while we had that higher income.
Bulking up on the pension is very good but we won’t see that for another 20 years.
Paying off the mortgage we can already think about the benefit of - we’re now only 2 years away from being mortgage free on our PPR and we are both under 45. We’ll both be under 45 when we are mortgage free on both properties.
There’s plenty of time left for us to put money into our pensions.
Perhaps it’s not the most cost effective way we’ve done things but there has to be a human element and piece of mind to these decisions too.

The rental property has only recently reached the valuation of 400k. Had I moved to sell it earlier, the value would have been less. For example, a decade ago the rent was €550 per month. We have a very good tenant so left the rent at €1400 but at the next rent review (August 2026), we could up it to at least €1600 if not more.
 
You may get 1600 rent on the 400k property. Say the property is mortgage free. Tease it out.
Taking into account you most probably will be paying tax at lower rate because your income is not high.
Allowing just 2k year for repairs etc you might clear 11/12k per annum. Less if your earnings increase and your paying tax at high rate. Or have major repairs/bad tenant.
Do the Math a pension wins hands down with tax free growth no hazzle.
If you had a decent pension pot it might be different. In fact for me it would be no different, The yield on the rental property is just too poor.
I am a landlord for the past 23yrs so not against holding rentals.
Please remember time in the market (pension) is of the upmost importance.
Best Wishes for the future.
 
Calypso said:
At the time, however, we expected to get about 3 years out of the business we were working for. We ended up getting six.
Therefore the plan in 2016 was to reduce our immediate liability going forward while we had that higher income.
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I think paying down your mortgage made sense in those circumstances where you expected a drop in income, might not have left you better off mathematically at retirement but certainly reduces your ongoing risk profile for peace of mind today.
 
I’d like to thank everyone for their comments to date. They have really given me some items to think about. I looked at selling the rental property last Summer and ultimately made the decision not to. I’d like to set out some of the reasoning here and see what people think (these are all my humble opinion but feel free to pick apart)…



  1. The house has been a great way of forced savings essentially. If we didn’t have it, do I think we’d have basically 362k (400k value less the 38k mortgage) in savings now? Nope, not a hope would we have I can honestly say.
  2. The property was built in 1998 and is a fully detached house in an estate of only 30 to 40 houses with a large garden. Even the auctioneer advised that it will be very difficult to purchase another house of its type now because houses like that simply aren’t being built anymore. As one friend said to me, I’ve three kids. It’s a house one of them could live in. It’s in a town which is in the commuter belt of Dublin and 20 minutes drive from Navan where the railway is to be extended to (albeit eventually). It’s about 35 to 40 minutes drive from the M3 Parkway rail line which is to change into a dart in the coming years.
  3. I can only see the value going up. The market is about supply and demand. The simple fact is whoever is in power, they aren’t going to get the number of houses that the country needs, built. Therefore why sell an asset now where the value is going to increase and increase while its providing me a monthly amount in return and every month I’m knocking off more off that mortgage so, when I do sell, more goes into my pocket rather than the banks.
  4. Just on this point – “Just to add if you sold RIP and 200k was put into both your pension funds separately each pension fund should have between 300k and 400k in it after 10/12 years”. I wouldn’t get 400k from a sale now though. I paid 290k for the house so there’ll be 33% capital gains on about 110k. 36k capital gains. 38k mortgage to clear then too. That’s 74k gone. Let’s say fees etc are 6k. I’m at 320k. 160k into each pension to grow.
  5. The plan is to maximise our pensions for at least 20 years anyway. In two years, when our PPR mortgage clears, we’ll be putting 25% of income into our pensions. That’s 19k plus my employer contribution of 5k. 24k a year going in. 20 plus years of that and we are used to living within our means too as you can see from our current income.
  6. We have three kids to plan a future for too. I know Eoin McGee says you can’t take bricks & mortar into Brown Thomas but if we put that money into a pension, how long is it gone for? Whereas, at the moment, we couldn’t have the money in the morning but if we opted to sell, we could have it in six to twelve months with the current market.
  7. The tenant is in the house since 2018 and is a good tenant. In fact, my wife and I have said if he and his family left, we’d sell the house but to date we only ever hear from him when something rarely breaks like a washing machine or freezer. We know how lucky we are to have him because in the 17 years I’ve had the house, trust me we have had a mix of tenants, including some very bad. He doesn’t have the funds to purchase a house so plans to stay long term. If something did change and there were issues, we’d also move to sell the house so at the moment it doesn’t overly worry us re tenant conduct.
  8. Is the house not leaving my portfolio diversified? I have company shares, I am going to start investing, we have a plan for the pension – I’ve listened to a lot of podcasts recently re personal finance and one of the key things is diversifying your portfolio.


Now, rip that apart to your heart’s content!
 
Calypso said:
The house has been a great way of forced savings essentially. If we didn’t have it, do I think we’d have basically 362k (400k value less the 38k mortgage) in savings now? Nope, not a hope would we have I can honestly say.
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This is great, but irrelevant to how you move forward.

Calypso said:
I can only see the value going up. The market is about supply and demand. The simple fact is whoever is in power, they aren’t going to get the number of houses that the country needs, built. Therefore why sell an asset now where the value is going to increase and increase while its providing me a monthly amount in return and every month I’m knocking off more off that mortgage so, when I do sell, more goes into my pocket rather than the banks.
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I think a lot of people make this mistake when it comes to property in Ireland. The market is not supply and demand, it is really supply and credit. And no matter how many young, professional couples you have at a viewing, they all have more or less the same buying capacity thanks to central bank lending multiples and the salaries that 30yo's can attain. And we know that credit is already stretched to the limit in Ireland so I don't know if we will see huge growth from such an elevated market.

Calypso said:
We have three kids to plan a future for too. I know Eoin McGee says you can’t take bricks & mortar into Brown Thomas but if we put that money into a pension, how long is it gone for? Whereas, at the moment, we couldn’t have the money in the morning but if we opted to sell, we could have it in six to twelve months with the current market.
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Depending on the pension structure, I think it's accessible from age 50. So not within 12 months but at 9 years for yourself, it's not an unreasonable investment timeframe.

Calypso said:
The tenant is in the house since 2018 and is a good tenant. In fact, my wife and I have said if he and his family left, we’d sell the house but to date we only ever hear from him when something rarely breaks like a washing machine or freezer. We know how lucky we are to have him because in the 17 years I’ve had the house, trust me we have had a mix of tenants, including some very bad. He doesn’t have the funds to purchase a house so plans to stay long term. If something did change and there were issues, we’d also move to sell the house so at the moment it doesn’t overly worry us re tenant conduct.
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That's fair - good tenants with long-term prospects does diminish one of the key worries for a small landlord.
Calypso said:
Is the house not leaving my portfolio diversified? I have company shares, I am going to start investing, we have a plan for the pension – I’ve listened to a lot of podcasts recently re personal finance and one of the key things is diversifying your portfolio.
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When you've got a million or two of other assets, a €400k property gives you diversification. Not when you've got 30-40k of other assets, I'm afraid.

You've given all the pro's for continued ownership of the property above, have you really given yourself the con's though? The property could be damaged in a storm, made unliveable, while the insurance company bickers with you over a claim for a year or two? Your tenant could through unfortunate circumstances or by design just stop paying rent - then what, 2-3 years of legal wrangling at your expense to evict them? These are the types of risks that can bankrupt somebody and as unlikely as they may be, you are exposed to them. And that's why there are rules of thumb for a good quality yield, which your investment doesn't quite make. You could have similar growth from far less risky assets, including simple bank deposits. Basically, it's worth thinking through the potential downsides of holding the property too.
 
Say your 20 yrs from retirement now.
Pick any say 10 yr 15yr or 20yr period say anytime over the past 40yrs.
Compare how property has appreciated versus S&P etc.
To be blunt but factual your property yeild is no better than the lousy rates that are currently on offer from the banks.
I appreciate you have done well with your property and you will do a lot better in a pension where you dont have to do anything and your money is out of reach until the right time. The pension route also offers the least risk hands down.
 
But if I put the money into a pension and, say, in a few years I want to help one of my kids out and need 50k or 100k - I won’t have access to that.

I am also sceptical as to how exactly I invest over 300k. As with my investment strategy, I’d prefer to have worked with an advisor for a bit and got to know them before I jump into anything and taking advice on where to move the funds.

I have also thought about the cons of the property. I honestly can’t see credit being a problem. Forget the 30 year olds, I’ve friends my own age who have mortgages ready to draw down but are being outbid continuously in the commuter belt. As time goes on, you are going to see a huge amount of parents putting up funds for children too. The fact is we need 92,000 houses a year yet can’t even get to a third of that with an increasing population.

I do accept the comments re the tenants and problems. I have had issues in the past which caused sleepless nights I fully admit.
 
@Calypso You're making a real go at life, you and your partner with your three kids and on track to clear mortgages on two properties in your early 40s. You have a lot to be proud of.

I have a rental property with a mortgage... in my case still 250k and 17 years to go. I let it out for about the same as yours. Let's say you pay off yours in a few years. That will feel great. That's been my plan too. But in the end we will have given up years and large sums in mortgage principle and interest payments to an asset that generates pathetic income subject to endless unpredictable costs and taxes. It won't be enough to put your kids through college.

Maybe you decide to sell the place when it's paid off and worth more. Probably it will have cost you more to get it paid off than it will ever be worth to you. In the meantime you lost out on those mortgage payments compounding in a pension fund building you a more comfortable retirement or an earlier one! Anyway, this is what I'm coming around to thinking about my own rental property.
 
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