IT article Pension investment in property

elacsaplau said:
OK Steven - I take it you're not a fan!

A few points:

1. I'm struggling to understand your €30k reference and

2. The bit quoted is flat wrong
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I think the IT article is poor but challenging misinformation by providing misinformation is not convincing.

When corrected, you have not acknowledged that your statement about being unable to self-manage is incorrect, and

SBarrett said:
You need liquidity too as part of the pension set up. You can borrow 50% of the value but need 10% of the mortgage amount in cash. You also need close of €30,000 in fees for fit out, legal fees (your solicitor, the pensioneer trustees and the mortgage lenders), stamp duty etc.
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It seems that the €30,000 refers to:

Stamp Duty €2,150
Fit Out €3,500
Estate Agent Costs €900
ITC Legal Fees €1,984
Dilosk Legal Fees €2,000
Conveyancy Fees €2,050
Dilosk Application Fee €538
Bluewater Fee €2,500
Insurance €395

This totals €16,017 - a long way shy of €30,000 - and includes some dubious entries like estate agent costs and insurance (which is more like an on-going cost).
 
I am very appreciative of the comments, as this is something I am seriously looking at.


SBarrett said:
Example of purchase of property
Purchase Price €215,000
Loan Value €107,500
Term 15 years
Interest rate
- Capital & Interest 5.45% - €871 repayments
- Interest Only 5.59% - €500 repayments
Rental Income €1,700 a month

Costs
50% of Purchase price €107,500
Stamp Duty €2,150
Fit Out €3,500
Estate Agent Costs €900
ITC Legal Fees €1,984
Dilosk Legal Fees €2,000
Conveyancy Fees €2,050
Dilosk Application Fee €538
Bluewater Fee €2,500
Insurance €395
10% Liquidity €10,750
Total €134,267
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Thank you for outlining the professional fees involved in the set up, are any of these other than the estate agent and the insurance recurring.

What is the 10% liquidity referring to, is there a requirement that the pension fund have a further 10% available in a liquid investment.

So the investment is €134k (give or take, I am especially unclear on the 10% liquidity)

Income €1,700 per month
Costs
Interest €500
Repairs €100
Ins & RTB €40
Management fee €100

Monthly Profit €960
Annual Profit €11,520

% Profit "after Tax" (that's profit, not yield) 8.6%
 
Hi cremeegg,

Why wouldn’t you look at an international REIT portfolio?

Liquid and diversified.

Gordon
 
Gordon Gekko said:
Hi cremeegg,

Why wouldn’t you look at an international REIT portfolio?

Liquid and diversified.

Gordon
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Because I think that there can be inefficiencies in the property market which someone who understands property can exploit. These arise because prices in residential property are set in large part by would-be owner occupiers. In 2006 residential property was very overpriced in terms of yield. Today it is very underpriced, at least before tax is considered.

I think that any benefits arising from exploiting these inefficiencies in a REIT are more likely to go to management than investors.
 
My own view is that most of us are already long Irish property and should diversify in terms of geography and asset class.

The Irish model seems to be “buy your home and then buy more Irish property”. I prefer the UK approach which is to buy one’s home, then build tax-efficient globally diversified investment portfolios through pension funds and ISAs; then and only then do they look at layering in some additional real property.
 
I have 3 points of contention with this.

My home provides accommodation for myself and my family, its financial value is irrelevant. It has in fact probably almost doubled in value over the last 7 years, that was no benefit to me, just as the preceding fall in value was no disbenefit.

Gordon Gekko said:
then build tax-efficient globally diversified investment portfolios through pension funds and ISAs
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Leverage is not generally available for this.

If I can borrow at 5.5% for a return of 8.5%. That seems like a compelling opportunity.

Unstated in your post is an assumption about risk. If the investment horizon is very long term, ideally multigenerational, risk of short term price changes is less important.
 
elacsaplau said:
I think the IT article is poor but challenging misinformation by providing misinformation is not convincing.

When corrected, you have not acknowledged that your statement about being unable to self-manage is incorrect, and



It seems that the €30,000 refers to:

Stamp Duty €2,150
Fit Out €3,500
Estate Agent Costs €900
ITC Legal Fees €1,984
Dilosk Legal Fees €2,000
Conveyancy Fees €2,050
Dilosk Application Fee €538
Bluewater Fee €2,500
Insurance €395

This totals €16,017 - a long way shy of €30,000 - and includes some dubious entries like estate agent costs and insurance (which is more like an on-going cost).
Click to expand...


You are not allowed to manage the property yourself. You have to use an agent to manage the rental income, fix the blocked toilet etc.

Poor use of language on the set up costs, you need to have a fund of c. €30,000 to cover fees and a liquidity fund.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
cremeegg said:
Can I choose the property my self.

Can I decide if I want to put in new windows myself.

Can I select the tenants myself.

Can I set the rent myself.
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Yes, you can do all of those things. It is the day to day management of the property that you cannot do. You have to use an agent to deal with these things.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
SBarrett said:
Yes, you can do all of those things. It is the day to day management of the property that you cannot do. You have to use an agent to deal with these things.
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Steven

You are confusing typical industry practice with revenue requirements. Not all providers require external management. It's just easier/less hassle for them!

See the FAQ in Paul Ryan's site. Also - see the relevant section of the revenue manual.
 
To remove (or add to) contradiction between posters, I think a clarification is needed.

Most people who but a property through their pension use leverage to do so.

Currently there is only 1 lender who will lend to pension funds for this purpose: Dilosk.
That lender in turn will only deal with 2 pension trustees: ITC or Davy. These trustees will insist on having a property manager in place.

For those who don't need to borrow, there are other options available.
 
One can also buy REITs that themselves deploy leverage (subject to prudent maximums). I prefer the idea of buying a basket of European and Global REITs which has (say) 30% gearing at 1.5% rather than buying a 2 bed apartment in Inchicore financed at 5.5%.
 
As ever, RedOnion knows his onions and speaketh the truth. All I was doing was pointing out that it is not good to undermine the information of the IT article with misinformation.
 
My own opinion: for someone who wants to invest in a specific property in any case as part of a pension pot, it is a very good idea to use a pension vehicle to do so.

To echo the point made by @SBarrett re apartments in Carlow, it's similar to what happened with Section 23 properties in less desirable locations. The tax advantages shouldn't be driving the decision to invest in property - these are available within a pension vehicle regardless of the asset class being invested in.

The requirements to have adequate liquidity within the pension fund along with the low LTVs required (lending is on a non-recourse basis) might make it a stretch, or at least prevent a diversified portfolio, for most people.
 
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elacsaplau said:
Steven

You are confusing typical industry practice with revenue requirements. Not all providers require external management. It's just easier/less hassle for them!

See the FAQ in Paul Ryan's site. Also - see the relevant section of the revenue manual.
Click to expand...

Have you links to these, please.
 
Gordon Gekko said:
One can also buy REITs that themselves deploy leverage (subject to prudent maximums). I prefer the idea of buying a basket of European and Global REITs which has (say) 30% gearing at 1.5% rather than buying a 2 bed apartment in Inchicore financed at 5.5%.
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I have been thinking further about the REIT.

It is a share, so it is priced like a share. If it has good prospects, good management, access to low cost finance etc, exposure to the thriving Irish property market, or overexposure to the overextended Irish property market, all this is reflected in the price. A REIT is a share, not a property investment. The underlying activity of the business is less important.
 
Thanks again to all contributors, some great info here. Especially RedOnion for throwing light on the management situation, you certainly removed some contradictions.

SBarrett said:
You are not allowed to manage the property yourself. You have to use an agent to manage the rental income, fix the blocked toilet etc.

Poor use of language on the set up costs, you need to have a fund of c. €30,000 to cover fees and a liquidity fund.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
Click to expand...

Steven,

Can you please explain a little more on this liquidity requirement.

Thanks
 
Hello Thank you very much for all of the information on this very helpful thread. We are thinking of investing in a house using a Personal Retirement Bond using proceeds of pension from my last full time employment and joint cash. My husband is post retirement age. Does anyone know whether my pension fund could co-own either with (a) husband in sole capacity or (b) myself and husband jointly? Or would the investment have to be held entirely by pension assets? Current plan is to move there in the future and will rent in interim. Thank you again
 
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