Pension Backed Mortgage for Investment - Advice

slumped

Hi All,

Anyone reading the pensions forum might have seen my thread about my pension and what it's likely to be worth a good few years from now.

Anywho, my advisors are talking up a pension backed mortgage for me. I was thinking of using it to buy a nice 3 bedroom apartment in Algarve and renting it out for 48 weeks of the year. (Good golfing area and lots of potential)

Can anyone with experience of these tell me if it is a good idea or not?

I'm looking at the following figures:

Mortgage: 350,000
Interest Only repayments: €1385
Monthly Rental (High Season 7 months): €4000 (28,000 pa)
Monthly Rental (Low Season 5 months): €2200 (11,000 pa)

In total: Repayments are 16,620 pa and income is projected at 39,000 (less tax I presume)

Is this a no-brainer??????

S

Time Magazine

slumped wrote:

Can anyone with experience of these tell me if it is a good idea or not?

As I'm sure you're aware, no advice is to be given .

Other than that, I'd probably class you as insane if you turned that down. If you can, I'd suggest you try get out there to talk to some of the Irish/English who also own there. The girlfriend's parents own a few places including one in Spain and they have a couple of stories of management companies being completely incompetent, e.g. not getting a single renter all year. Best way to be sure those rental figures aren't tweaked is to have a chat with your would-be neighbour.

slumped

Ibid wrote:

As I'm sure you're aware, no advice is to be given .
.

Touché!

TY

Diarmuid

slumped wrote:

Monthly Rental (High Season 7 months): €4000 (28,000 pa)
Monthly Rental (Low Season 5 months): €2200 (11,000 pa)

Is that guaranteed or projected?

slumped

Diarmuid wrote:

Is that guaranteed or projected?

Projected. Conservative I'm told. It's from a firm which I believe to be very reputable.

They rent the property, take a management fee and pass the rest on to me.

S

Diarmuid

slumped wrote:

Projected. Conservative I'm told. It's from a firm which I believe to be very reputable.

They rent the property, take a management fee and pass the rest on to me.

S

OK. This is what I would do. Create a spreadsheet, documenting the cost of buying the apartment, the expenses you will incur each month , lighting , electricity, water, changeovers maintenance etc. Add in your mortgage with your interest rate+1%

Then add in your projected income and factor in the tax you will pay on it. Only now will you see how good an investment it could be. Then you need to factor in the risk of not renting out the apartment.

I would be very surprised if you can rent out a 350k apartment in the Algarve for 2200E off season. Do some searches here to validate the claims above.

Do your homework well before putting any money down. Try the attached spreadsheet as a starting point. (I take no responsibility for mistakes;) :-)

Nermal

Over 11% yield? Doesn't sound particularly realistic.

slumped

thanks for the spreadsheet.

have been looking most of day at figures etc and would be worried that i would not be able to fill it 80% of the time.

might consider looking at irihs market, in a univeristy town where rentals are guaranteed.

S

A Random Walk

slumped wrote:

Is this a no-brainer??????

If anything looks like a "sure thing" you have to ask yourself why the seller is being so generous as to give you the opportunity when surely they would take it up themselves.

In this case you seem to be relying on the marketing figures. You need to get a sense independently as to what the real figures will be.

You need to look at the other costs. Will it rent 52 weeks of the year, what are the taxes, can you get an independent solicitor etc.

I'm not saying it's not a good deal, but at the moment all you have is the sales pitch to work off and I've never seen a sale pitch say that something isn't worth buying.