Risk Adverse or Risk Taker - Making the choice

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ronaldo

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I will find myself in this situation in the near future. I am currently half-way through building a new house which will be rented out. The house is valued at around €250,000 and will have an outstanding mortgage of €135,000. I'm currently living at home with my parents.

My income will be as follows:

Regular Job.. €30,500
Rental ........ € 4,500 (€12,000 rent - €7,500 expenses conservative figures)
Total ......... €35,000


This would leave me in a relatively good financial position as a 23-year old. However, I want more :)

As I have no dependants, I'm thinking that now may be the only time I can "risk it all" in my entire life. Therefore, I am swaying towards option 2 of the two options below:

  1. Use the profit from the rental property together with a large proportion of my salary to pay the mortgage as quickly as possible. This way the mortgage could be paid in 10-15 years (or I could move into the house myself in a few years when I'm ready to settle down.
  2. Remortgage the house and release €75,000 equity as a 30% deposit for a €250,000 apartment in Germany which should yield 7-8%. The rent would be enough to cover a 20-25 year mortgage and I could then concentrate on paying down my Irish mortgage with my Irish rental profit and my salary.
Option 2 is obviously more risky but also could potentially put me in an EXTREMELY good financial position in a few years.

What would you do as a 23-year old with no children in this position?
 
ronaldo said:
What would you do as a 23-year old with no children in this position?
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Well I'd firstly make sure your tax position is ok, I'm sure the last thing you'd want in 10 years time when you do have kids is to receive a big fat bill from Revenue in the post.

I'm sure this isn't what you want to hear but it should be the starting point if you REALLY want to secure your future financially.

So does your 4K rental profit pa include all income tax liabilities?
Did you pay stamp duty at any point on your rental property, and if not is there an outstanding liability?
Have you registered your rental property with the PRTB?
 
Seems an expensive apartment for the yield. I am pretty sure that you will pay German tax of 23% on the rental income (but can offset alot of your costs) and wil get taxed the remainder (double tax) in Ireland.

I have studied the german market and you really must understand the rental rules and german tax before buying. For example if you decide to sell your place and have a fixed mortgage of 15 years the bank will want you still pay off that fixed interest mortgage even if you sell in a years time. Thats one penalty you must be aware of. Also if you want to sell, and your sitting tenant does not want to move, the place cannot be sold vacant but with that sitting tenant.

I went for a german commercial property fund as whilst its less profitable its less complicated.
 
ronaldo said:
  1. Remortgage the house and release €75,000 equity as a 30% deposit for a €250,000 apartment in Germany which should yield 7-8%. The rent would be enough to cover a 20-25 year mortgage and I could then concentrate on paying down my Irish mortgage with my Irish rental profit and my salary.
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If the rental yield covers the mortgage with a bit to spare, then I don't see why not.
 
I think you have to ask yourself,am I bullish on German/Irish property markets,also consider the impact of future interest rate trends.

You are at your the best age to be a risk taker,but there is a difference between aggressive investing and speculation.
 
Option 2 without a shadow of a doubt.

Embrace risk and 7 percent yield is not exactly "high risk" !

Your young get the money working for you.
 
R U sure you are going to get a 7-8% yield on the German Property i.e. have you independently verified this or is that just the sales rep telling you this?
 
ecstatic said:
Option 2 without a shadow of a doubt.

Embrace risk and 7 percent yield is not exactly "high risk" !

Your young get the money working for you.
Click to expand...

I'd tend to agree.
 
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