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Any Advice?

  • 20-08-2005 6:30am
    #1
    larrymo
    Closed Accounts Posts: 27 ✭


    Hi all

    I wonder if anyone has any advice on scenario below...

    I'm in the process of getting planning permission to build a detached house on my corner garden site in Castleknock. It will cost me approx Euro 250K to build and detached houses in my area are going for approx Euro 800K. Once the new house is built, I plan on living in it for a year with the family (renting out my present house for the year) and then selling it, offsetting any capital gains. This would give me a gain of approx Euro 550K.

    I then plan on paying off the mortgage on my principal residence (the one I rented out for a year), which is approximately Euro 95K. This would leave me mortgage free and with approx Euro 450K to invest.

    I would be interested in investing in a financial vehicle which gives me a good guarunteed monthly return as I think the property market here in Ireland has probably peaked (I know that's been said before). Anyhow, if anyone has any ideas as to what they would do with this amount, I'm all ears!!!!

    Cheers!

    Larrymo


Comments

  • #2
    RainyDay
    Closed Accounts Posts: 6,925 ✭✭✭RainyDay


    Note that by renting out your own house for 1 year, you will have a capital gains tax liability if/when you sell your own house. Also, there is a possible risk that Revenue will deem you to be a professional property developer and hit your profits for income tax. Consult a good professional tax advisor beforehand.

    With €450k to invest, you should really pay for professional investment advice. Consult a fee-based Authorised Advisor (i.e. one who isn't going to earn commission on any product he sells you). Tell him clearly what level of risk you are prepared to tolerate. Note that if you limit yourself to guaranteed return, you are automatically ruling out many investment options, and you'll be lucky to keep ahead of inflation. With a large lump sum like that, you should be able to tolerate a significant level of risk on a significant part of your capital in order to maximise your return in the long term.


  • #3
    Zaph0d
    Closed Accounts Posts: 756 ✭✭✭Zaph0d


    You can get around the CGT by putting one of your kids in the house you build and making it their principal residence. Ask your tax advisor how long they have to live there before they can sell up without CGT implications. This is the same mechanism used by farmers to build houses on their land for the kids.

    Your kids may not be old enough for this and you may not want to transfer the money to them. And maybe you don't have kids.

    If you build a house rather than sell the site to a builder, you run the risks of
    a. going over budget on the project (very common unless you have experience)
    b. failing to sell the house for the anticipated price due to poor choice of house design or market collapse (less likely than a.)

    If you sell the site you are paying the builder to take away these risks and to give you the cash upfront. In this scenario you most certainly have to pay CGT on the site but not on your house.


  • #4
    ck1
    Registered Users, Registered Users 2 Posts: 123 ✭✭ck1


    As RainyDay stated, you will find it hard to get a guaranteed return on any investment vehicle to keep pace with inflation so your money will go down in real terms however I do not agree with the point that because you have €450k to invest that you can afford to take some risk with some of it. The amount of money does not determain the risk factor. A risk factor can only be determained upon your response to certain questions. The level of risk that you take will depend on many factors, including term of investment, purpose of investment, personal circumstances, your age, the age of your children, your future aspirations, your health, your job situation, and many other factors.

    With regards to Fee v Commissions, point to note, Fees are subject to VAT @ 21% whereas Commissions are VAT exempt. I would state that you do find someone with the appropriate qualifications and that they are completly independent. Avoid banks as they often are geared to one or two companies or just recommend their own products as they are tied agents.

    Remember a product is only a wrapper, what makes your money is the value of the underlying assets. The history of the company is also another factor as is this experience of the investment team within the company. Don't put all your eggs in one basket.


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