Getting ready for the future now

[misemoi]

Do you live in commuting distance of colleges for your kids ? If not, how do you plan to fund their education, in particular accommodation? You talk about how the house might be useful to your kids someday, but you have 3. Would they all live there together as adults ? Or if you gave an early inheritance to one of them, how would you deal with the others (obviously you don't have to treat them all equally).

I guess the point I am making is what is the utility to you of the house outside of capital appreciation that you might struggle to realise once you need it (tenant overholding)? If you cam protect your kids from the rental market for college or adult life then there's a value to that but quantify it.

If you sell, you don't have to invest all the proceeds into a pension. You could put some eg educational funds into a shorter term investment. You as a family have amazing assets but coming down the line very fast iie 4 and 6 years is college for your older kids. I think you will struggle on income alone to provide the cash flow to fund this, especially in the concurrent years. Are the mortgage payments that will fall away (calculate the investment one once mortgage int is no longer deductible) enough to do that? If your tenant stops paying, will you still be able to fund education from income?

 

[Tuscany]

Well done on where you are at.

You’ve previously done very good analysis and made decisions on the strength of that. You’re comfortable with those/they brought peace of mind, as you say – changing employments, aggressively paying down mortgage, retaining the second house which resulted in extra rent and appreciation (fortunate probably). You can always look back and wonder if you could have done things differently (as can others), but you are comfortable financially and emotionally with your decisions. That’s important.

I don’t think that your analysis around the second property now is not as strong – useful for one of the children, would sell if tenant left, value will go up, concern what to do with money received for the house.

In your case, I would say that the pension situation is not satisfactory, savings cushion is modest enough, salary income is ok but you have three children at three different stages, and they will be expensive.

You however, have huge equity – 800k plus, I think. Your finances are out of balance and the obvious risk is a downturn in property. You are overly exposed and in your situation, I would be selling and then worrying about what to do with close to 400k.

Financial projections and analysis of your spending/income in 5, 10, 15 etc years – be it house improvements likely education costs, pension etc will bring focus. Those questions from misemoi about likely education costs are important for your planning. If bound for third level, can children commute from your current principal residence?

A couple of questions – you have a 4 bed detached in an estate worth 400k and a 3,800 sq foot worth 500k. The 500k house must be over double the size of the rented house! Is that 500k value correct? In the coming years, will you downsize? That’s a huge property and in long term planning, you can probably take equity from that. There’s no chance your plan is downsizing to the rented property?

Your partner is on 25k but working 4 days; how many hours per week? Is there potential/plan for that to increase in future?

 

[Calypso]

I feel we have worked very hard and haven’t done too badly with our decisions. The decisions we’ve made are made and my opinion is there’s not too many can turn around and say they’ll be mortgage free on two properties by 45.

The large PPR house I’d say is probably worth more than 500k but we’d never sell it. It’s built on family farm land so we’d be more likely to pass it to one of the kids eventually and rehome ourselves than sell it.

My wife works 5 days a week for 5 hours. There’s no plan to increase her standard hours but she does do overtime (where offered) from time to time. In fairness, there’s a lot going on with the kids and this leaves her free for this.

The rented house is closer to Dublin and that greatly affects house prices in the area too. It is about 40 minutes from Dublin and my PPR is 50 to 60. There are teenagers in the area who commute for college to places like Dundalk & Dublin.

 

[misemoi]

I would check with those teenagers how the commute is going. A couple of hours a day with an intense course and heavy course work can be draining even on those with seemingly unlimited energy. And it usually means spending the whole day on campus with the additional costs that are involved in that. Plus the softer skills of learning to live away from home, socialising, getting to know people outside of their local friend group. Don't discount it and prepare for at least a request for some of their college years to be spent living close to the college. And do the maths on how much the commute costs in real terms v supporting them in rented accommodation.

 

[Fortune]

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

Sounds like it mikes away from a location that would make it desirable for a child to live in. And when they're old enough for that, the house will be ancient and expensive to run compared to more modern houses.

it will be very difficult to purchase another house of its type now because houses like that simply aren’t being built anymore.

Why would a house built to 30 year old standards be desirable?

160k into each pension to grow.

Sounds good.

but if we put that money into a pension, how long is it gone for?

You could get at it in 9 years if you really wanted tom

Is the house not leaving my portfolio diversified?

It is making your portfolio massively un-diversified.

 

[Fortune]

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.

You currently don't have access to it, so there no benefit to the property on that regard

 

[Premos]

In terms of pension, it’s easy to say with insight, when life accident haven’t happened that it’s the best investment and so should always be optimised. They are stage in life that it’s easier done than other. The main pension pot of my spouse was with a company he worked for 15 years, at the time we knew that this would not be accessible for 25 years as long as he was working there. It’s also an easier approach to have when incomes are high and additional saving can be made outside pension (to provide in case of needs). However, at this stage you have accumulated significant assets and I think you need to look at your financial situation and decide if the rental is the best vehicle of your wealth now. Personally, as a landlord, I think our investment was a good idea at the time but things change and when I reevaluate, it’s no longer the case. At the early stage, our rental yield were more than 10 per cent, they are now less than 5. The property value also increased rapidly as it nearly tripled in a decade. I am still a landlord because we have other significant assets so property with our ppr represents 50 per cent of our overall wealth. We are also maximising our pensions so can't do more on that. . But the main reason is that our property is in Dublin and we think that in the next 3 years, our eldest will probably use it. However, we know it’s not optimal and we review our situation regularly.

 

[Premos]

I would check with those teenagers how the commute is going. A couple of hours a day with an intense course and heavy course work can be draining even on those with seemingly unlimited energy

Fully agree with that. Commute in public transport can soon become a killer. We are 35 mn/25 km from the university but by public it means 3 to 4 hours a day.

 

[_OkGo_]

Now, rip that apart to your heart’s content!

In fairness, nothing you have listed justifies keeping the property. They are all forms of confirmation bias. You made a decision to keep it and now you create "reasons" to justify that decision.

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.

What?? €6k of shares and €24k in your pension is only 3% of your wealth. It is as far from diversified as you can get.

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.

Again you are drawing a false conclusion with this. You believe it is more valuable to you now (€400k) than it is sold and net of tax/mortgage (€320k). It's the same thing no matter how you look at it, you can never get the €400k so it is irrelevant logic

I can only see the value going up

Markets go up, down and stay flat. It is hardly unthinkable that it could be lower if you needed to to sell in the next 10/15 years

The house has been a great way of forced savings essentially.

Probably the only valid point but equally your high income did the heavy lifting to clear the mortgages. Had your income dropped sooner it may have put you under financial pressure

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.

As others have mentioned, it was a mistake to prioritize the mortgage over pensions but you are where you are. You have at least accumulated a lot of wealth so it's not the end of the world.

However, you should not delay any further by continuing to prioritize the mortgage overpayments. You have the chance now to max AVC's for 2024 and start maxing contributions going forward. The mortgages are comfortable so pension should be your priority.

The big risk to you right now is if you continue focusing on the mortgages then in 2-3 years that cashflow will be directed at 3rd level education. The pension will stay on the long finger and then you'll be 50+ with minimal pension savings.

As a standalone investment, €16.8k rent on €400k is pretty terrible. If property is what you want to stay in then you could get a significantly better return on a cheaper property.

The only benefit to you right now of having rental income is that it pushes you into the higher tax bracket as a married couple. While you can't contribute to a pension based on this income, it does mean that most of the contributions on your earned income are receiving 40% tax relief.

 

[Fortune]

There are teenagers in the area who commute for college to places like Dundalk & Dublin.

And they're missing out on a lot of the lessons on college which happen outside of lectures

 

[misemoi]

I think as well an important factor in yiur situation is that you can't release equity from your ppr. Totally understandable if it's a unique house on family land, that's common. But it does restrict you versus say someone in a generic housing estate who can downsize with less attachment to the house and the land it sits on. And you rightly are considering that it should stay in the family. But again this does lead to questions of how you do plan your eventual estate.

 

[Calypso]

There were a couple of posts dismissing the rental property and it’s location. I’ve no issue with people having their opinion (different strokes for different folks) but how many people commute to Dublin from areas that are a lot further away than 35 to 40 minutes? People, particularly those who have the option of remote work, are actively looking for locations like that because they give them the best of both worlds - close enough to Dublin to commute 2 or 3 days a week but far enough for a more tranquil life. The house is 30 years old but, as I’ve explained, it’s a fully detached property in its own garden and an estate of only 30 or so houses with a school, bus stop, medical centre and town all in walking distance. As I said, estates like that aren’t being build anymore. I’ve spoken to both property developers and auctioneers on this. You can upgrade a 30 year old house, you can’t change the minuscule grounds and area around the majority of new houses that sometimes come with barely even enough parking.

Another poster mentioned focusing on the mortgages. No extra focus has to go on the mortgages. That heavy lifting is done. All we have to do is keep up the current repayments for 2 years on one property and 4 on another. Both are then cleared and we’re under 45 - I’ll keep repeating that because I’m damn proud of it. The days of putting any extra money towards the mortgages is gone. Any extra funds now go to pensions and investing. I’ve already explained why the extra funds were put off the mortgages - we knew our wages were higher for a term so the plan was lessen the mortgages as much as possible for the future so we could take an eventual step back.

The fact is there’s alot to decide re the family in the future. We have the PPR that we’d like to remain in the family but, at the end of the day, there’s a lot to consider. My wife and I are only entering our 40s. Hopefully we’ll be alive another 40 or 50 years so the kids could be middle aged themselves by the time we pass so who’s to say any of them will even live in this area? People talk about college and education costs - what’s to say they all will go to college? I’d have no problem with my son doing an apprenticeship in a trade like being an electrician for example.

What I would like to think is we’ll have the funds to give them a hand. The jobs both of us are in now and hopefully plan to stay in don’t overly exert us and that was the plan after a few hard working years we had. Hopefully, if grandkids come eventually, there’ll be time to help out with those.

People are certainly giving me something to think about re the rental property but the next step would be to decide where to invest any funds. If I have say 300k after a sale, I’d look at 100k into each pension but also 100k to leave funds or deposit accounts where it could be accessed if needed. That is some of the info I was interested in potentially gaining from engaging in this process.

I am somewhat disappointed the rental property seems to have become the main focus of the post. I had hoped to get some better feedback re beginning investing and whether I should be doing it myself through an app like DEGIRO or employing a financial planner,

It’s easy to just say “sell the property” but where is the best place to seek how to move on with the funds from selling the property? Given the considerations I’ve set out, ho we would people move forward with the suggested funds.

The past is done and we are where we are so it’s the future and maximising it I’m looking to.

 

[KOW]

I think you are glossing over what comments feedback has been given.

It does not matter where the property is. From an objective point of view the return is poor. I own property worth 300k with a lot better yield.
The only consideration for a RIP is financial unless you have a use for the property some time. As above you could sell the property and invest in a property tomorrow with a much better yield. Again fair play you have done well out of the property but its bricks and mortar that as it stands is just not performing

Again your comments around investing and pension I feel do the same.
You seem to ignore that contributions to your pension are tax deduct.
Any growth in the pension is tax free.
You state you have a pension up and running just add to that.

What I read between the lines from your comments is a real fear of investing properly in your pension or selling the RIP.
In our little shamrock investing in your pension far out weighs any other investment discussed in this post.
Where your pension stands currently investing outside a pension is crazy.

Tax relief of 20/40% on contributions. Any gains tax free.
In fact many comment that investing in Ireland outside of a pension wrapper is too risky.

Myself and the boss are just retired the last while and I would hate to be surviving on OAP.

 

[Sarenco]

Was the rental property originally your PPR and, if so, how long did you live in the house?

You might have a (diminishing) CGT relief that might be relevant.

 

[presidenttttt]

I am a big believer in forced savings too, and your approach to property has enabled that, well done.

That big win is however behind you, as you reach the last mortgage payments.

I can sense some pride in your achievement of two mortgages almost cleared, and rightly so. Yet, perhaps you can benefit from a mindset shift - selling the property isn't a step backwards or a drop in status. It doesn't mean you can't be proud of you and your partners effort. It is just smart move to realise the benefit of your previous efforts.

As above, return on the property is what mattes. I think towns relatively close to Navan are all also in the rent pressure zone. A half decent detached home should rent around 2100 minimum, and you have no real legal path to 2,100e rent, or at least no path to a yield that beats the market. I am looking in that area for investments hence some knowledge of it.

You might elect to get back into property in a few years, benefiting from a property not held back from rental pressure caps.

Small points, 12K is higher end of a solar setup - borrowing and paying interest for solar panels is likely a razor thin investment decision, and my instinct is this will never make great sense, compared to other options. Be very careful not to over invest in solar - there are plenty of companies throwing big numbers around for systems, and screwing people who do not really understand their actual pay back periods are 2x what they believe.


Solar panels and similar home efficiency upgrades could also be done with cash if it was more liquid than the house.

 

[Calypso]

Was the rental property originally your PPR and, if so, how long did you live in the house?

You might have a (diminishing) CGT relief that might be relevant.

I got the keys to the rental property in August 2008. I lived in it from September 2008 to January 2011 so about 2.5 years.

To answer another poster, it is not in a rent pressure zone.

 

[Fortune]

A half decent detached home should rent around 2100 minimum, and you have no real legal path to 2,100e rent,

And don't forget, the valuation of the detached home is based on a monthly rent of €2,100. The a tual value of the property to an investor will be less than that based on the rent receivable.

 

[Calypso]

Again your comments around investing and pension I feel do the same.
You seem to ignore that contributions to your pension are tax deduct.
Any growth in the pension is tax free.
You state you have a pension up and running just add to that.

What I read between the lines from your comments is a real fear of investing properly in your pension or selling the RIP.
In our little shamrock investing in your pension far out weighs any other investment discussed in this post.
Where your pension stands currently investing outside a pension is crazy.

Tax relief of 20/40% on contributions. Any gains tax free.
In fact many comment that investing in Ireland outside of a pension wrapper is too risky.

Myself and the boss are just retired the last while and I would hate to be surviving on OAP.

I’m a tad confused about the point re surviving on an OAP. That wouldn’t apply to me as my plan is to maximise pension contributions for the next 25 years or however long I work.

Contributions to my pension are tax deductible but only up to 25% of salary at my age. Therefore, taking my wife and I’s combined salaries of 75k. 18,750 is our present amount.

So how do we avail of the relief? Drip feed 200k or so in 20k a year for ten years?

I would freely admit there is a potential fear re selling the rental property because when it’s gone, it’s gone. I have absolutely no appetite for purchasing a property again.

I also do have reservations about potentially locking the money away in a pension as I’ve said.

Don’t get me wrong, I am taking all these comments on board.

I just don’t think it’s as simple as people say.

 

[CharlieMac]

@Calypso I have a Money makeover thread about my own rental property. Our situations are very similar in this regard. I bought a Dublin apartment in 2006. It has been a millstone around my neck and has defined my whole life this past 18 years. It was in negative equity until around 2022 so I never felt I had the option to sell it. Now I find myself in a situation where with savings and over-payments I could clear that mortgage in the next 4-5 years. That would be a monumental achievement for me.

I think few people on here can relate or are willing to indulge the kind of compassionate counsel that might be needed to enlighten people like us in these situations. That would take in to consideration what a massive place a rental property has taken in our lives. Maybe it's like a kind of real estate stockholm syndrome but the thought of selling my rental property, after everything I have been through with it and now when I am in a position to actually pay it off, it would be devastating. I've the same concern as you that if I sell I'll never again have the option of a place in (or near to) Dublin. I won't have the years left in me or the money to go looking for another mortgage ever again all my free money will be going in to my pension. So it doesn't matter if the decision is clear from a financial perspective it's a huge personal decision that goes far beyond rational decision making.

But I've spent a few months reading many posts in these forums, educating myself about the alternatives and I'm starting to understand that in my case selling would be the best choice for me now even though it will definitely feel like failure.

If I sold, once again I would be in the same boat as you, with around 200k to put in a pension. My feelings are to put it all in my AVC (when I start one) and benefit from tax free compounded growth. I might have to forgo any tax relief since I plan on maxing out my AVCs from now on. There is a thread in the Pensions forum discussing over-paying AVCs. If you don't have the option of paying in to an AVC fund you can open your own PRSA. I understand you might want to invest some or all in something else where you could access the money before retirement. Loads of useful information in the Pensions and Investments forums.

 

[misemoi]

Have you done the sums on what your eventual pension will be, maximising at your current salary? And will that be an amount that will give you the standard of living you will require if you do the max?

And I really urge you to cash flow plan the next 20 years, with a few scenarios ie all 3 go to college, 1 goes, 2 go etc. And see if your cash flow will support this and also continue maximising contributions. Because I think as most of your wealth is in property, one which is never to be sold/downsized,, the other pretty illiquid, at some stage, you will need to either reduce pension contributions or not fund something else, even with all the discipline in the world.