Trade Up? Stay put?

This is a very interesting question - to what extent do you consider the "investment" values of a home when deciding where to live.

At this stage, I would park the question of investment, pensions and mortgages.

Ask yourself, if money were not a consideration, where would you like to live?

As a general rule, it is better to live closer to work. Cuts down on commuting. Shortens the day. But if you love living in Killiney and love working in Howth, then that is a problem.

But if you are working in Finglas and living in Blackrock you might prefer to move to Clontarf.

So that is the first question you need to answer. Where would you most like to live?

And if you really like the location you live in now, address Des Pondent's question: Could you move job to somewhere closer to where you live?
 
Should you trade up from a €400k apartment to an €800k apartment or house just because you can afford to do so? But you don't really need to!

The tax advantages of "investing" in more house than you need are huge.

1) The return on the investment is the benefit you get from having a nicer house, a bigger house, a house nearer work. And this return is not taxed.
2) If you move again, as you might well do, any capital gain is tax-free.

So, if you have cleared your mortgage and are maxing your pension fund, buying more house than you need is a good investment.
 
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But assuming you still have a mortgage and you have scope to contribute more to your pension, should you still trade up?

You need to balance the three factors:

1) How desperate are you to move?
You don't appear to be in any hurry.

2) How big is your mortgage and how big a mortgage will you require to trade up?
My own rough guideline would be that a mortgage of twice your income is comfortable at age 40. If you have to borrow 3 1/2 times your salary to trade up to a house that you don't really need, then you should not do so.

3) How well funded is your pension?
If your pension is underfunded, then that would be a priority over trading up or paying down your mortgage.
If, on the other hand, your pension is well funded and you expect to work for another 20 years and so will have a big fund on retirement, then paying down the mortgage would be more important as it gives you more scope to trade up now or at some time in the future.
 
I'm in a similar position, though I'm married with a child and a bit older.

I have a small mortgage of €60k and maybe €300k of equity in my home, and between one thing and another we'd probably be in a position to buy a house for maybe €750k.

BUT I'd be mortgaged up to my eyeballs and would stay that way until I retire; I currently expect to be mortgage free in a few years not to long after I turn 50. Being mortgaged up to my eyeballs would
  • pretty much eliminate the possibility of working a shorter week and/or a shorter year from 50 onwards.
  • greatly reduce the amount of cash I can put into my pension and other investments
  • probably require me to work until 66 (boo, hiss)
All of these would mean less time with my family and more stress for longer, and make my retirement much shorter and less comfortable.

But for me the real killer would be the challenge of actually being able to move from one property to another. It's not easy to buy a house these days, not because of affordability but because of the relative lack of properties on the market. It's even harder to buy in a chain- 20 years ago it would be dangerous to sign contracts on a purchase in case your own house didn't sell, but today it's dangerous to sign contracts on a sale in case you're not able to buy a house. If you don't have guaranteed alternate accommodation you run the serious risk of becoming homeless for a time. Maybe I'd risk it if I was single, but not with a family.

So I'd suggest that you put the money into maxing out your 40% relief on your pension contributions, and put any extra cash into more liquid investments:
  • Equities do significantly better than property in the long run, and usually in the short run also. So there's a pretty decent prospect of your liquid investments outpacing house price rises even after tax.
  • Equities can be readily converted to cash which you can actually spend on stuff you like. A more expensive postcode, not so much.
If your personal circumstances change so you need to move (presumably due to the acquisition of a partner and/or kid(s)) the liquid assets will help you do so. If you have a partner, their income will boost your purchasing power also.

But in my opinion buying a more expensive property just so that you have a more expensive property would just be silly.
 
SquirrelChaser said:
I have a small mortgage of €60k and maybe €300k of equity in my home, and between one thing and another we'd probably be in a position to buy a house for maybe €750k.
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SquirrelChaser said:
I'm married with a child and a bit older.
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So it just depends on the circumstances.

Trading up in your situation from a €360k house to a €750k house would not make sense.

But for a single guy trading up from a €300k house to a €500k house could well make sense.

He may be in a position to buy another house without first having to sell his house.

The OP should not be maxing pension contributions. He should be maxing flexibility instead. Either pay down him mortgage or if he might be able to trade up without selling first, then save the money for the 20% deposit required.
 
Sinking all your currently surplus income into an illiquid asset is the opposite of maxing flexibility. Maxing out pension contributions at 40 means maxing your flexibility at 60. Ignoring a pension at 40 is resigning yourself to working until 66 if you're lucky.

Yes overpaying the mortgage is also a good idea but I definitely wouldn't go all in on this.
 
He should be maxing his flexibility now for now. Not for 20 years time.

A house you are planning to sell is not an inflexible asset. A pension fund at 40 is the definition of inflexibility
 
When did planning for retirement in middle age become a bad thing?

The OP's wages have doubled in the last few years, so unless they started from a low base they have the resources to max out is pension, overpay their mortgage, AND save towards a 20% deposit on the off chance they actually do want to move in future. Having a look at the OP's previous posts, they're a doctor so that strongly suggests they didn't start from a low base.

A house you're living in isn't an asset, full stop. It's your home. The potential resale value of something you can't do without is irrelevant because it's money you can't spend.

Why get a massive mortgage to upsize your home so you can have the option of downsizing later?

Trading up to a house (or car, or phone) just so that you feel it better reflects your income/wealth is just silly. But it's nowhere near as bad as loading yourself with debt to give the illusion of wealth at least; I'd be with Dave Ramsey on the stupidity of spending money you don't have to buy things you don't need in order to impress people you don't like...
 
SquirrelChaser said:
When did planning for retirement in middle age become a bad thing?
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It never became a bad thing. But planning to trade up now is not a bad thing either for most people.


SquirrelChaser said:
A house you're living in isn't an asset, full stop. It's your home. The potential resale value of something you can't do without is irrelevant because it's money you can't spend.
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OK.
Say you and I are the same age.
We have the same income.
We are both single.
We live next door in similar value houses.
I own my house worth €500k with no mortgage.
You are renting for €30,000 a year

And you tell me that my house is not an asset?

It's the biggest mistake people make in financial planning. Not including their house in their overall picture.

SquirrelChaser said:
Trading up to a house (or car, or phone) just so that you feel it better reflects your income/wealth is just silly.
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I don't think that the OP is doing this. But trading up to a nicer house or a similar house in a better location is a just plain common sense if you can afford to.
 
Brendan Burgess said:
Trading up in your situation from a €360k house to a €750k house would not make sense.

But for a single guy trading up from a €300k house to a €500k house could well make sense.
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SquirrelChaser said:
But it's nowhere near as bad as loading yourself with debt to give the illusion of wealth
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This is the second biggest mistake people make. Applying what is best in your particular circumstances to someone else whose circumstances are completely different.

In your - Squirrel Chaser - case, it would not be appropriate to load yourself with debt to trade up.

But in the OP's case it could well make sense.
 
Renting privately is a huge liability in Ireland, because it's expenditure without an end date. A mortgage is a liability, but it's a reducing liability which does have an end-date. But a liability being reduced or eliminated isn't on its own equivalent to the creation of an asset.

Say in your example above, instead of renting privately I'm in social housing paying 16% of my income in rent. I have equivalent security to you. My indefinite expenditure, and therefore the liability, is far less than renting privately; but I still don't have an asset, just a much much smaller liability.

As long as it's your home it's not an asset. It could potentially become an asset when you vacate BUT if you move elsewhere you're going to have to either buy (which will require either incurring a liability by getting a loan or reducing your assets by using them to buy your new home) or rent (which is indefinite expenditure and therefore a huge liability). For most people their home is only even a potential asset to their kids when they vacate it by dying.
  • I'm not against estate planning/providing a decent inheritance for your kids. But I'm much more in favour of providing a decent life for oneself before that. I can't take it with me when I die, and adult offspring should really be able to take care of themselves financially and not be there with their tongues hanging out for their inheritance.

I absolutely take my home into account in my financial planning. The (somewhat smaller & definitely colder) house next door is rented at twice what I'm paying on my mortgage, and not having that financial burden/liability makes a huge difference to my family's quality of life. When it's paid off completely I'll be in a position to semi-retire if I choose, or dump a lot more money into my pension or other (currently very meagre) investments.

What I don't do is consider the equity in my home as anything other than a potential part-payment for another home. Rather, if we traded up it would reduce the loan we'd need to do the deal. Trading down (ie realising part of the potential of my home as an asset) is very unlikely in the next 20 years.

it might make sense for the OP to trade up. There may be an area where they prefer to live (that's not what they say) or they may (hope to or actually do so) partner up with someone and/or become a parent (but that's also not something they mention). Or they may simply want to have more space and/or live in a house with a garden instead of an apartment (but again they're not not talking about this). Any of those would be perfectly reasonable grounds to trade up to a more expensive home.

But getting a massive mortgage just so they live in a more valuable property proportionate to their income (which is the only reason they actually cite in their post) is in my opinion a ridiculous reason to trade up.
 

This was the original question. On the one hand, it would be nice to live closer to work. On the other there is no real necessity to move. On the third hand, he seems to anticipate trading up some time in the future.

If he was in his final home which met all his needs and aspirations, then he should not trade up.
But it doesn't sound like his final home, so he should either trade up now, or put himself in a position to trade up when he needs to.
So paying down the mortgage or building up the deposit is his priority now.
After he moves, which might not be for 5 years, then he should prioritise his pension.
 
Brendan Burgess said:
I can't argue any further if you don't accept that a house worth €500k is an asset. That really is fundamental.
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If you truly see no difference between something that is capable of being sold and an asset, these are for you:


9 Body Parts You Can Sell For Profit

Ever considered selling a body part for extra cash? Learn how much different organs are worth: Kidneys earn up to $10,000 while placenta nets only $8.
www.businessinsider.com
 
SquirrelChaser said:
If you truly see no difference between something that is capable of being sold and an asset, these are for you:
Click to expand...
I think going down this rabbit hole doesn't serve any useful purpose. The term asset is well understood and doesn't need to be redefined here to exclude a fundamental element that commentators almost universally categorise as such.

Just to point out the folly of equating a social tenant with a home owner, which do you think would be able to raise a mortgage or secure other lending on their home?
 
Do you love where you live?
Have you access to nice walks or the sea? Do you have a community of nice neighbours or/or nice local shops pubs and restaurants.
Would the other areas of your life improve in a different location?
I think if you are single, then it's nice to have neighbours that you could form a bond with, or that has a 'village' feel.
Also, good transport links to city centre to make going to things easier.
It's not just about money.
 
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