Should we sell or extend our long term lease with the local authority?

A

At home

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Personal details

Age: Early forties
Spouse’s/Partner's age: Late forties
Number and age of children: Three children, six, nine and twelve

Income and expenditure
Annual gross income from employment or profession: Zero (Stay at home mom)
Annual gross income of spouse: 180k
Monthly take-home pay N/A

Type of employment: e.g. Tech Employee
In general are you:
(a) spending more than you earn, or
(b) saving?
Saving around 30k per year

Summary of Assets and Liabilities
Family home worth €1m.
Cash of €800k
Defined Contribution pension fund: Husband has a DC Pension for about 20 years but I don’t know the value
Company shares : 100k in stock options
Buy to Let Property worth €400+k with mortgage of €250k

Other borrowings – car loans/personal loans etc
No other borrowings

Do you pay off your full credit card balance each month? Yes

Buy to let properties
Value: 400k approx
Rental income per year: 19k
Rough annual expenses other than mortgage interest : Insurance and mtg assurance 1200 per year
Lender N/A
Interest rate ECB +0.8%


Other savings and investments: none

Do you have a pension scheme? Husbands, max contributions which are being matched by his employer to 4% of income

Life insurance: None


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

We are currently well off financially with no debts and a paid off mortgage on our PPR. We are mortgage free on our PPR.
We have a rental property with the local authority on a 10 year lease which will shortly end. The lease is for market rate * 0.8 and is payable whether there are tenants in the property or not.
The LA are responsible for the maintenance of the property and the behaviour of the tenants, sparing us from being actual landlords, which is an absolute no-go for us.
The income from the property is negligible in real terms and we’re not confident in the asset class going forward. Also, the asset is getting old and may be undesirable as a property if we go another 10 years with the lease. The LA have declined to purchase the property from us, so the choice is to have the property returned to us, in the same condition we gave to them save for fair wear and tear, or hang onto it for another 10 years.
If we do decide to hold onto it, we have another decision to make, namely should we pay off the mortgage with our free cash?
We’rer trying to shore up our financial future a bit before the girls are getting older and we want to ensure that we can provide for their education while being able to enjoy life in both the meantime and in our later years.

Any questions/comments welcome.
 
I’m in a long term ( ten year ) lease myself with the limerick city local authority since mid 2018 , I’d sign on for another twenty years in the morning if given the option, yield is 12% but my house, location and broader situation are not you’re reality so selling may be the correct decision here ?
 
At home said:
If we do decide to hold onto it, we have another decision to make, namely should we pay off the mortgage with our free cash?
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Absolutely yes. ECB rates are increasing and deposit rates are not catching up.

If you decide to keep the house it's a no-brainer to pay off the mortgage given your cash position.
 
At home said:
Number and age of children: Three children, six, nine and twelve
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What is your own position re the state pension? How many contributions do you have and do you intend to stay out of paid employment for much longer?

The positive about having a BTL is that you are making Class S PRSI contributions which can help with eligibility for a contributory state pension in due course. Don't overlook this aspect in the overall calculations. A full state pension would cost you €300k-€400k if you could buy it!
 
NoRegretsCoyote said:
Absolutely yes. ECB rates are increasing and deposit rates are not catching up.

If you decide to keep the house it's a no-brainer to pay off the mortgage given your cash position.
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Why would it matter paying off the mortgage to save on increase in ECB rates. If you enter into another long term let to the council are not all rates fully tax deduct. on income?
 
KOW said:
Why would it matter paying off the mortgage to save on increase in ECB rates. If you enter into another long term let to the council are not all rates fully tax deduct. on income?
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No point incurring a cost to recoup half of that cost in a tax deduction. They're still out of pocket in net terms after the tax deduction.
 
T McGibney said:
No point incurring a cost to recoup half of that cost in a tax deduction. They're still out of pocket in net terms after the tax deduction.
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Point taken. But no cheaper money can be found if you wished to invest at absolutely minimal risk
 
T McGibney said:
No point incurring a cost to recoup half of that cost in a tax deduction. They're still out of pocket in net terms after the tax deduction.
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Both in their forties plenty of options to invest with really negative risk
 
NoRegretsCoyote said:
Yes it can. OP has 3x the mortgage balance on deposit earning nothing!
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Payed off my own tracker in July +.75 three months back. I am coming up to sixty and have also large sum currently in cash. My long term lease in my property ends November 2025. I am kind of beating myself up a bit regarding loosing out due to high inflation. If I was 20yrs younger as per above couple I would just be a little more aggressive around investments.
 
As stated payed off my Tracker few months back with intention of selling property November 2025 when lease up.
You are much younger than me and currently choose to have large amount of cash earning nothing.
Maybe renewing the lease helps you invest. If you were to sell would you not just end up with more cash sitting.
Looking very broadly at your situation I would renew the lease and address your large cash reserves something I need to do myself. Best of luck.
 
This second bit on Class S PRSI is fascinating. If, theoretically, one decided to give up work when starting a family - could you just generate some investment income, pay the €500 required PRSI (so €12,500 dividend @4%) and remain eligible for both maternity benefit and also keeping full pension contributions?
Seems like a loophole/too good to be true?
 
Pretty much, yes.

In fact all you need is a minimum of €5k non-wage income and you pay €500 PRSI and qualify for a full state pension. Pretty much any rental property will generate this.

I assume some day they will change this rule but until they do people should take advantage.
 
Thanks for all the great replies here. The most surprising one that I’d never even thought of was the PRSI contributions from the rental income. This is a very important point! I’ve 20 years of contributions and will certainly return to the workforce at some stage. It's reassuring to know that I’ve been inadvertently maintaining my pension eligibility!
To KOWs point, yes, we have too much cash lying around doing nothing and we’re starting to come to the conclusion (late) that low cost index funds would be the best choice here. But as you say, keeping the property would force us to invest in a low liquidity asset. Paying off the mortgage is also a good idea I think, as per Noregrets.
We’re grateful for all the interesting viewpoints expressed here and you’ve helped usd a lot with our process. Thank you.
 
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