I survived the bad times, so why sell rental homes now?
Your questions answered
Q I own a few rental properties in Co Kildare, which I bought back in 2005 and 2006. In hindsight, it wasn't a great move because I borrowed 90pc mortgages, and then with the crash, I was left with small rents and big mortgages. Luckily, I managed to keep everything up to date, but just about. My wife would like me to sell the properties, but I've told her that they are not going to be sold. I suffered through the bad times, so I want to get the gains from the good times. Is there any advice you can give me to get my wife off my back?
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Sean, Kilcock, Co Kildare
You should listen to your wife! I suggest you work out the net yield of those properties, and that may change your mind. The 'good times' you talk about may never come.
Net yield is the only way to assess the viability of property because it takes into account the costs of acquiring and managing it, and these can be extensive: the debt, obviously; and other costs associated with acquiring properties, such as stamp duty and conveyancing fees, furniture and fit-outs, maintenance, repairs, management fees; the list goes on. Then there are tax and USC to be paid on the income earned.
If the number you end up with isn't a compelling reason to put those properties on the market, I suggest you ask why landlords are getting out of the market. Recent governments have come down hard on landlords in the form of rent controls, higher taxation and greater compliance.
Who knows what lies ahead as the housing crisis gets worse and the Government comes under ever greater pressure to regulate the sector.
You may be reluctant to crystallise losses, but at least you won't have to pay capital gains tax, and in the case where the properties will be passed to the next generation, your beneficiaries could exceed their tax-free thresholds and face a tax bill.
One last thought. Being a landlord can be a demanding station with one rental property, never mind three.
Your wife is possibly thinking ahead and has decided she does not want the two of you having to deal with the hassle and worry of being landlords into your later years.
Q I'm a bachelor planning to officially retire in three years' time, but still continuing to earn a living as a part-time consultant to the company I currently work for a couple of days a week. This means I won't be stuck in terms of a reasonable retirement income, so when everyone asks me what I'm going to do with my tax-free lump sum, I'm never sure how to reply. I'm happy with my home, I've no intention of going travelling or ticking off a bucket list or whatever. Is there anything I should be doing with that money?
James, Drumcondra, Dublin 9
When it comes to retirement, there is more than one way to skin a cat. Many people believe they have no choice as to how and when things happen, like drawing down a pension. It sounds like you may be in a position to defer drawing down your pension, and therefore put off accessing your tax-free lump sum.
You may also have savings or investments, which you can spend before turning to the pension. You can defer an occupational pension until the age of 70, a private one until 75. Assuming the pension is defined contribution, the key advantage of deferring is obvious: the pension should last longer. Maintaining your pension as a pre-retirement fund is also more tax-efficient; the growth is exempt from tax, whereas once you convert it to a post-retirement fund, you will start paying income tax and USC on withdrawals.
As for what to spend that lump sum on, I would encourage you to look again at your home. You say you are happy with it, but assuming you'd like to remain there for as long as possible, there are some renovations or adaptations you could make now to make your home more age-friendly, such as fitting an ensuite wet room downstairs, widening doorways and brightening up poorly lit areas. These kinds of projects are much more manageable when we are hale and hearty, and set us up for 'ageing in place'.
On the subject of ageing, I'd encourage you to sit down with the Irish Hospice Federation's Think Ahead booklet, which will prompt lots of questions, including ones about succession. Because you have no spouse or children, those you leave money or assets to will be in category B for capital acquisitions tax assessment, which means your beneficiaries will be paying 33pc on everything over €32,500.
You could potentially use the tax-free lump sum to pass wealth on to loved ones while you are still alive.
Will I, won't I?
Q When is a good time to make a will? We've been putting it off since we pledged to do so after the birth of our first child, and now our third has come along and we're still no further down that road, even though it is clearly something that has become even more urgent. We're still not sure who could take custody of our children if we got run over by a bus tomorrow, yet I'd rather not leave that agonising decision to the family afterwards. Any thoughts appreciated.
Ann, Dungarvan, Co Waterford
Put simply, there is never a bad time to make a will. You might be reluctant to make a will because you don't know what lies ahead, but rather than try to see into a crystal ball, the best advice is to write a will for now.
What would you like to happen if that bus came for you tomorrow? You should then adjust the will as circumstances change. It is not difficult by any means.
Indecision as to who to appoint as a legal guardian should not stop you from making a will. It can always be altered, whereas if you do nothing, the courts will step in and decide.
When it comes to leaving assets to children, and indeed any other beneficiaries, you should approach it from the perspective that fair is not always equal. If you are a farming family, for example, dividing the farm into three equal parcels could result in three unviable farms. Similarly, different assets of equal value can lead to huge inequality.
Let's say you bequeath the family home worth €600,000 to one child, €600,000 in cash to the second, and €600,000 in shares and investments to the third. In a financial crash, the share portfolio could lose value overnight, the house could halve in value, but the cash will retain its value, more or less. It is hard to think of these eventualities when the children are small, and that's where a third party like a solicitor or financial planner can be useful.
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