What to do with positive equity and 100k on deposit ?

R

r2d2

Guest
Hi All....

Having received some good advice in the Savings & Investments forum I thought the next step was in this area. Details are as follows.....

Married with 2 kids...Hitting 40 (not the kids, me !)
60k mortgage balance
My home is valued at €500,000
Car Loan €14k (recently taken out over a two year term)
Hosehold income €90,000 pa
Just got some redundancy and coupled with our savings have 100k on deposit

Pretty much had made my mind up to take the 'safe' option and pay-off both loans, invest circa €15k in the stock market and bank the remaining 11k for a rainy day but a guy I used to work with (who has a few investment properties) said I'm crazy not utilising my positive equity in my own home. He recommends I use €80k of my savings to fund the deposit/stamp duty and legal fees of an investment property....Use the new mortgage to pay off my existing mtg (to avail of the tax effectiveness of interest v rental income on the investment mtg) and not worry too much about the slowing down in capital appreciation as the rental income should still pay off most of the monthly outgoings. He reckons that I could have (on current rates) €1 million in property with circa €490,000 in borrowings and on a househould income of €90k pa (conservative) I will be laughing !

I'd appreciate your comments on the above as I don't even want to go the direction of 'what to buy' unless it seems feasible and reasonable to do so in the first place !

Thanks,

r2d2
 
r2d2 said:
Pretty much had made my mind up to take the 'safe' option and pay-off both loans
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Personally I'd certainly go for that as a first step.
He recommends I use €80k of my savings to fund the deposit/stamp duty and legal fees of an investment property....
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Why property? Most of your wealth is most likely already tied up in property (your home) so why concentrate more in the same asset class, risk/reward profile (and possibly geographic region) rather than diversifying over a broader range of asset classes, risk/reward profiles and geographic regions. Of course, what's appropriate depends not simply on how much money/assets you have but what your short, medium and long term life goas are and how you might need to finance these. The first step is identifying these and then let these guide the financial planning.
 
If you're not comfortable with it, don't do it. Simple as. For the past few years anyone who bought any property in Ireland could make money. Those days may be drawing to a close.

Your original plan sounds good so I would go with that. The less debt I have the easier I sleep.
 
ClubMan,

In response to 'why property'..I guess it's the old 'bricks and mortar' thing as well as the fact that it appears as the most obvious way that my friends have accumulated wealth. Everytime I considered an investment property over the last 4/5 years I kept telling myself that I've missed the boat only to watch another Armada come and go ! The contradiction is that I struggle with the morality of it to be honest...My two kids are 13 and 15 and do I really want to contribute to their first house being 100 miles away from where they work and still costing them a million in ten years time !?.....

r2d2
 
r2d2 said:
I guess it's the old 'bricks and mortar' thing as well as the fact that it appears as the most obvious way that my friends have accumulated wealth.
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No offence but that's not a good reason to jump into property investment in my opinion. The "bricks and mortar" things is a bit of a cliché and would be better replaced with an objective/factual assessment of the aims and viability of any particular property investment based on crunching the numbers. Similarly past performance is no guide to future returns.

Perhaps you need independent, professional advice from somebody (e.g. an authorised advisor or good multi-agency intermediary) who can do a proper detailed fact-find/financial review with you and give you more comprehensive/wide ranging advice and recommendations?
 
r2d2 said:
Use the new mortgage to pay off my existing mtg (to avail of the tax effectiveness of interest v rental income on the investment mtg)
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You can only deduct the interest relevant to the investment property against the rental income.
For example, you get a mortgage for 500k against an investment property and use 60k of that to pay off your PPR mortgage, you can only deduct the interest payable on the 440k.
 
A big factor to be considered is the stability of your income. If there is a slowdown is your 90k secure and unrelated to the construction industry / all parts of the irish economy reliant on it.

There are some people whose income is dependent on it, have their own house, have investment property as well for pension. Hence if anything was to slowdown their exposure to a single asset class in a single economy is huge. Like doing leveraged investing of ones pension and financial savings and wealth in a single share.
 
RE 'the rental income should still pay off most of the monthly outgoings'

Most of the outgoings?

500K over twenty years is going to cost you around 3,000 per month.
What rent would you anticipate for your investment property ?
I would see a serious shortfall to be made up....
 
892896 said:
RE 'the rental income should still pay off most of the monthly outgoings'

Most of the outgoings?

500K over twenty years is going to cost you around 3,000 per month.
What rent would you anticipate for your investment property ?
I would see a serious shortfall to be made up....
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And don't forget to factor in tax etc. when crunching the numbers.
 
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