Returning to Ireland with cash; considering buying rental properties for additional income

[Curly Wurly]

Hi All,

I will return to Ireland next year, having spent the past decade abroad. My wife and I are both in our early 40s. We have three children under 10.

We do not have enough social insurance contributions in Ireland to qualify for a state pension, so we plan on working away, building up entitlements.

We also own a family home in Ireland worth around 460k, on which we do not have a mortgage.

We have accumulated relatively significant cash while abroad, which we will repatriate to Ireland, namely 750,000 euros. This will not be taxable upon repatriation.

Something we would like to do is to generate a regular income from these funds. We will both work in paid employment, and we wish to add to this while we work and for retirement.

To this end, I am considering purchasing two apartments in a nearby Kildare commuter town using the cash that we have. To buy these properties would cost approximately 320,000 euros, leaving us with 430,000, of which we would deploy a sizable amount into a private pension.

The endgame would be to have:

- Generated entitlement to a state pension in our late 60s
- Have a private pension
- Have monthly rental income from the two apartments

Conceptually, I would like to know your viewpoints. Since we would not be borrowing to buy the apartments our risk would be greatly reduced. The chosen town is close by, sizable, and growing. However, I have heard that ownership of rental properties is increasingly complex and tenant-centric, and some on AAM have advised against getting into rental property altogether.

I am not against the idea of commercial rental, or storage rental as alternatives. My preferred asset class is equity, specifically ETFs, but as these are taxed punitively by Revenue, it seems there is little alternative to property investment. Or perhaps I simply lack imagination.

I would love to hear your thoughts.
Thank you.

 

[Brendan Burgess]

My wife and I are both in our early 40s

So you will be working and paying tax.

Your best long-term plan for a pension is... a pension.

You will be able to contribute 25% of your salary to a pension fund and should do so.

So if you are earning €100k a year, you will be able to contribute €25k a year. But you can probably do this out of your salary, so maybe you won't need the €750k for the pension.

You have total assets of €1.4m . You already have half of them in the property market in your family home. It would be crazy to put the other half in property too.

You should buy a diversified portfolio of shares and hold onto them for the long-term. If you need some of the cash to fund your pension or your kids' education, you can sell some of them. You can't sell a bit of a rental apartment.

And you won't have all the headache and opprobrium of being a landlord.

Brenda

 

[Marc]

We would agree that avoiding rental property is good financial decision mainly because in your circumstances it would be unnecessarily tax inefficient relative to other options. You would have to pay income tax on your rent and capital gains tax on any gain. Since the expected return is lower you’d be mad to buy a rental property.

The first decision is how much to keep back in cash as an emergency fund

How Do I Get The Best Return On My Savings? - Everlake

We strongly advocate that longer-term investments should be arranged via pensions and stock-market linked investment accounts.

globalwealth.ie

It is possible to make a lump sum payment upfront to a pension and roll over tax relief into the future which could make sense for some of the cash.

Maximum AVC Contributions

There isn't a maximum contribution you can pay into your pension. Pay a lump sum to your pension now and carry forward the tax relief.

globalwealth.ie

Agree that ETFs are the preferred way to make a long term investment outside of a pension and benefit from being considerably less risky than a collection of shares. To get the same tax treatment our clients use non-Eu ETFs.

Global Wealth Tax Guide 2020 v1.0

This guide sets out the issues Irish Resident and Domiciled investors should consider in order to ensure that their investment portfolio is the most suitable for their particular requirements. We summarise Personal and Capital Taxes in Ireland along with the taxation of different fund...

viewer.joomag.com

As you can see from that analysis, you could arrange an “onshore” portfolio of ETFs which would qualify for the class S PRSI contribution but as your wife is not Irish I see from another post then there is a lot of pre-planning to do

Top Financial Tips for Moving to Ireland

Top forward planning financial tips for Foreign Nationals moving to Ireland

globalwealth.ie

So in these situations we would be inclined to initially invest offshore and later to split the investment between and onshore and offshore portfolio once your youngest was no longer eligible for an automatic state pension credit.

Remittance Basis Guide v2.0 Version 2

The guide aims to summarise the Remittance basis of taxation in Ireland in order to assist our clients to consider the various trade-offs around the taxation of investment funds for non-domiciled investors. This document has been prepared for information and educational purposes only and should...

viewer.joomag.com

Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie

 

[fistophobia]

Non EU etfs ?
You mean the funds that will also be subject to Ucits taxation rules?

 

[Marc]

Post in thread 'Revenue E-Brief on ETFs'
https://www.askaboutmoney.com/threads/revenue-e-brief-on-etfs.224674/post-1735666

 

[NoRegretsCoyote]

Your pension will be pretty well funded I think.

For diversification I would say one rental property could make sense but it's borderline. You don't say what your income is, but if you are are the higher rate you will lose half the rental income in tax. Regulations are becoming more onerous on landlords indeed, there are many threads on this.

As advised on other thread, if your wife is not employed then having >€5k rental income will see her pay €500 or 4% (whichever is higher) Class S PRSI which is a very efficient way of getting her eligibility for the contributory state pension.

 

[cremeegg]

You can get 10% rental return on a residential investment property at the moment. That is after costs before tax. Plus there is the possibility for capital appreciation.

 

[Roro999]

You can get 10% rental return on a residential investment property at the moment. That is after costs before tax. Plus there is the possibility for capital appreciation.

That return is excellent especially when you say after costs. Only in very few places surely ?

 

[noproblem]

That return is excellent especially when you say after costs. Only in very few places surely ?

In an ideal world that is

 

[mtk]

You have total assets of €1.4m . You already have half of them in the property market in your family home. It would be crazy to put the other half in property too.

Ìs it not 1.21m in total assets with 460/1210= 38% in property?

s advised on other thread, if your wife is not employed then having >€5k rental income will see her pay €500 or 4% (whichever is higher) Class S PRSI which is a very efficient way of getting her eligibility for the contributory state pension.

The OP has three children as per another thread she would get the homemakers credit for a number of years I think

 

[Brendan Burgess]

Ìs it not 1.21m in total assets with 460/1210= 38% in property?

Correct. I thought it was a house worth €650k.

But the principle is the same. With 38% already in property, he should not be buying any more. Or certainly not putting all his spare cash in property.

Brendan

 

[Curly Wurly]

So you will be working and paying tax.

Yes. Though I would hope that I will have enough accrued in savings by that time so that what I earn in Ireland can be used mainly to enjoy life and cover daily expenses / utilities, rather than further fund a private pension.

Your best long-term plan for a pension is... a pension.

I was going to put a portion of my 750k into a private pension, thereby minimizing the need for excessive thrift when working in Ireland. At least I was, until I read this:

You will be able to contribute 25% of your salary to a pension fund and should do so.
So if you are earning €100k a year, you will be able to contribute €25k a year. But you can probably do this out of your salary, so maybe you won't need the €750k for the pension.

Interesting. Though when repatriating in my early 40s, I would be concerned that even with putting 25% of my salary into a new pension pot, it simply doesn't have ample time to compound significantly. I mean, I can't see my self working until my 60s. The sooner I can stop the better.

You have total assets of €1.4m [it's 1.2m] . You already have half [38%] of them in the property market in your family home. It would be crazy to put the other half in property too.

Don't get me wrong, I don't particularly like property as an asset class. I much prefer equities. But...

You should buy a diversified portfolio of shares and hold onto them for the long-term.

I agree in principle and my preferred way of doing this would be via ETF. But Ireland is unsuitable for ETF investors. So I'm speculating that you would suggest to choose, say 20-30 blue chip companies and invest in each one individually. But how should these companies be selected...based on dividend aristocrat status, or some other basis?

Would you recommend investing to generate dividend income or purely for capital appreciation, or a mixture of both?

And in terms of selection, would you look at an all-world ETF and just invest in the top 20 or 30 constituents on an individual basis? I'm also conscious that I will be holding these positions for 20-40 years. If one had bought the top 20-30 companies from an all-world ETF 20 years ago, one would have missed out on Apple, Google, Amazon, Tesla, Netflix and others. So while I appreciate that given Ireland's tax treatment of ETFs there is no alternative but to invest in individual stocks, how do you mitigate the risk of picking yesterday's winners at the expense of tomorrow's?

 

[Marc]

“So while I appreciate that given Ireland's tax treatment of ETFs there is no alternative but to invest in individual stocks”

Or you could invest in Non-EU ETFs

Post in thread 'Returning to Ireland with cash; considering buying rental properties for additional income'
https://www.askaboutmoney.com/threa...ies-for-additional-income.224707/post-1735998

Or invest offshore on a remittance basis as your wife is not Irish