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Seeking advice - to buy a house or not.

Pussyhands

Let me give some background.

40k basic salary
Single
Paying rent of ~3500 a year
60k in bank.

I was thinking of purchasing a property (2 bed apartment) and getting a 10 year mortgage. I want to be debt free as soon as I can and renting out to someone else will mean that will pay off at least the interest part of the mortgage.

I would live in it and rent out a room to another person. I believe I could get rent of 45% of the mortgage repayment.

Pro's:

I wouldn't have dead money and I'd have someone paying towards my mortgage.
I could go travelling for a short period yet still be gaining net value as I could rent out my room to someone else.
With property prices increasing, my money will not be losing value.

Cons:
Extra costs such as management fees, insurance, bills being more expensive as split between less people. etc. (I don't know exactly how much this would add up to)
If I lost my job (permanent and no reason for it to go) I might end up with a long commute or need to rent somewhere else myself.
Not looking to go long term on this as I'd like to move home to the country eventually so property prices may go down? (But I can't see them going down in the eastern region)

So what do you think I should do?

Essentially, I'm looking for a gain in net value. My money is sitting in my account losing value now while property prices may go up year on year.

If anyone has any other advice regarding what I should do with my money, I am all ears.

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Cute Hoor

Pussyhands wrote: »

Show me where I buy it so.

Any stockbroker

Cute Hoor

Pussyhands wrote: »

By the way, if I had bought a house in May I'd have earned at least 2k from rent, 400 in my own rent (plus sending the extra money into my house thus like saving it) and whatever increase in house value....tax free.

If you had bought the house in May you would probably be thinking of moving in round about now. In the meantime you would probably have spent a significant sum (thousands?) in ancilliary costs, auctioneer, legal, insurance, taxes etc, and you would be setting about spending significant additional money making it habitable, all of which would be adding no value to your asset.

You have your heart set on this, and I hope it works out well for you.

Deub

Like Jim said, one if the most important rule is to diversify. Putting everything in a house could go well but it can go very wrong.
Follow his advice : Read, read and read
Look into stock market and plan to invest a part of your savings once you are confortable and understand how to manage it.
Start a pension.

If the market crashes you will lose money but it is faster and easier to sell than a house.

oceanman

Cute Hoor wrote: »

BTW imo you're also in a great position to be paying into a pension fund, the earlier you start the better the returns long term, max the 40% tax element, your employer will (I presume) contribute as well, a no-brainer imo.

but what about all the people that had their pension nearly wiped out during the downturn?

Cute Hoor

oceanman wrote: »

but what about all the people that had their pension nearly wiped out during the downturn?

Pension pots dropped by 30% approx during the downturn (a bit higher % in Ireland probably), they have recovered and some since. Couple of examples here
https://www.zurich.ie/pensions-retirement/calculators/investment-performance/
http://fundcentre.newireland.ie/

Don't think there was anyone (invested in managed pension funds) nearly wiped out.

People who bought properties themselves in inappropriate locations, to fund their pension years, were probably nearly wiped out alright.

The government of course also pilfered from anybody who had a pension pot in a pension fund

Pussyhands

BTW I will probably join the work pension but I think it's a load of **** tbh.

For 1, you will be taxed on getting the pension anyways.

2, you pay multiple fees yearly.

3, You have to pay to buy the pension, 15-20 euro for every euro in the pension approximately.

Not done a deep dive but if you have a short retirement before dying (less than 10 years) it doesn't look that appealing.

sKeith

Pussyhands wrote: »

BTW I will probably join the work pension but I think it's a load of **** tbh.

For 1, you will be taxed on getting the pension anyways.

2, you pay multiple fees yearly.

3, You have to pay to buy the pension, 15-20 euro for every euro in the pension approximately.

Not done a deep dive but if you have a short retirement before dying (less than 10 years) it doesn't look that appealing.

1. you are not taxed on the earnings that you put into it.

2. get your company to ask about the fees and move to better fund if it is really poor. Everybody will benefit, so you will not get people fighting against the move.

3. You don't have to buy annunity on retirement, you can take it all out and go mad in first year or two of retirement if ya wanted too

Jim2007

oceanman wrote: »

but what about all the people that had their pension nearly wiped out during the downturn?

Who exactly are you referring to. Please provide references to support this statement, or was it just something you heard down the pub?

I have been heavily involved in the pension funds area in mainland Europe for a very long time and I’m not even aware of a single fund that came close to being wiped out.

So I’m very interested in having you back up that claim.

Jim2007

Pussyhands wrote: »

BTW I will probably join the work pension but I think it's a load of **** tbh.

For 1, you will be taxed on getting the pension anyways.

2, you pay multiple fees yearly.

3, You have to pay to buy the pension, 15-20 euro for every euro in the pension approximately.

Not done a deep dive but if you have a short retirement before dying (less than 10 years) it doesn't look that appealing.

So what exactly do you plan to live on in retirement then? Between the tax breaks and employers contributes it is very unlikely you’ll out perform the pension fund.

As for paying taxes, a pension is income and there is no reason you should not pay your fair share according to the tax laws. It is same in most countries.

I prefer to die young and leave an unspent pension pot than live long without a good pension, but that is your choice.

ixus

Listen to Jim. Jim wasn't born in 2007. If I'm
Right and hes the askaboutmoney Jim, he has plenty of credibility. OP, as you said when i questioned you near the start you weren't affected or can't recall events from 2007. That's a big deal for me.

Mathematically, it makes sense to you month to month. Year to year or, applying Real risk scenarios, it makes little sense. Keep accumulating wealth and focus on getting to the top of your career path in the next 10 yrs and you'll be alright.

I've seen a brand new house in 2010, that sold for 380k, recently go for.mid 600ks. Appreciate that was the bottom but that is some rise in price.

Pussyhands

Jim2007 wrote: »

So what exactly do you plan to live on in retirement then? Between the tax breaks and employers contributes it is very unlikely you’ll out perform the pension fund.

As for paying taxes, a pension is income and there is no reason you should not pay your fair share according to the tax laws. It is same in most countries.

I prefer to die young and leave an unspent pension pot than live long without a good pension, but that is your choice.

People say about a pension, it's to keep up the lifestyle you live when you're retired but I don't see myself spending that much money at that age.

Mortgage would be paid off, i'd have further savings.

I understand why it's taxed, it's just people claim it's "TAX FREE MONEY" when it's not which makes it harder for me to trust everything else people say about pensions and how important they are. It's like saying you're salary is tax free and then you get it into your account and it's taxed.

Pussyhands

ixus wrote: »

Listen to Jim. Jim wasn't born in 2007. If I'm
Right and hes the askaboutmoney Jim, he has plenty of credibility. OP, as you said when i questioned you near the start you weren't affected or can't recall events from 2007. That's a big deal for me.

Mathematically, it makes sense to you month to month. Year to year or, applying Real risk scenarios, it makes little sense. Keep accumulating wealth and focus on getting to the top of your career path in the next 10 yrs and you'll be alright.

I've seen a brand new house in 2010, that sold for 380k, recently go for.mid 600ks. Appreciate that was the bottom but that is some rise in price.

Thanks.

TBH I'm not going to make it to the top of my career path, I don't have the talent.

spurshero

Pussyhands wrote: »

Jim2007 wrote: »

So what exactly do you plan to live on in retirement then? Between the tax breaks and employers contributes it is very unlikely you’ll out perform the pension fund.

As for paying taxes, a pension is income and there is no reason you should not pay your fair share according to the tax laws. It is same in most countries.

I prefer to die young and leave an unspent pension pot than live long without a good pension, but that is your choice.

People say about a pension, it's to keep up the lifestyle you live when you're retired but I don't see myself spending that much money at that age.

Mortgage would be paid off, i'd have further savings.

I understand why it's taxed, it's just people claim it's "TAX FREE MONEY" when it's not which makes it harder for me to trust everything else people say about pensions and how important they are. It's like saying you're salary is tax free and then you get it into your account and it's taxed.

One in 3 people don’t make pension age . I think if ya can afford it and it’s a decent location I would buy the house . Rent a room is a great scheme and will pay a fair bit of mortgage for ya . No guarantees house prices will drop but none to say they won’t rise either . As long as you can meet mortgage payments it’s a good asset to have at end of day . Ok people will warn of certain risks but there are risks with everything .

Deub

It is easy to say you don't see yourself keeping your current lifestyle when you retire and expect to spend less. In reality, lowering your lifestyle will be difficult. People that do it usually, don't have a choice.

Regarding pension, lets say you are taxed 40% (which should be your case in few years if not already) and your employer matches your contribution. For every 60€ less on your after tax salary (100€ before tax) you have 200€ on your pension because your employer puts 100€. Do you know investments where you put 60€ and you get 200€. Yes there are fees but still.

But if you want to buy house, do it. Put all your eggs in the same basket. But If something goes wrong (you lose your job, recession comes in, etc) you will certainly be lowering your lifestyle.

[Deleted User]

oceanman wrote: »

but what about all the people that had their pension nearly wiped out during the downturn?

How did they achieve that feat?
You could only do so by having most if your money in individual sticks that went bust.
Any diversified fund recovered within 5 years of the downturn, diversification is a key fundamental if investing. If you aren't diversified you are gambling not investing. One shouldn't gamble their pension.

0gac3yjefb5sv7

I know this thread is part of investments topic but surely buying a house is not a typical investment as you have to live somewhere (even if you rent it for a while).

It doesn't feel like equities or bonds etc should be directly comparable?

Someone with more experience than I may know :pac:

Cute Hoor

Pussyhands wrote: »

it's just people claim it's "TAX FREE MONEY" when it's not which makes it harder for me to trust everything else people say about pensions and how important they are. It's like saying you're salary is tax free and then you get it into your account and it's taxed.

I don't think anybody would suggest that it's tax free when taking your pension (although you can of course manage the effective tax rate), but you do invest your contributions tax free.

As an example: If you have invested €800k in your pension fund over your lifetime working, it will have cost you €480k approx, assuming no employer contribution and presuming that you are a higher rate tax payer. Assuming that your pension fund manager hasn't managed to make any return (unlikely?) during the lifetime of your pension investment you have a €800k pension pot to play with at retirement. Straight away you can take a tax free lump sum of 25% of the accumulated value of the pension or 1.5 times of your final salary, depending on your circumstances. That is up to €200k TAX FREE - you pay no tax whatsoever on it, it is all yours. After that you invest the rest in a pension fund that pays you an annual salary. This is of course taxed, and indeed some of it will probably be taxed at the higher rate but a very significant part won't. You could have an annual effective tax rate of 20% or much lower depending on your circumstances and how you manage it. So anybody who says that you are merely deferring the tax payment is wrong, you will be deferring some (a little) of that tax.

There is a raft of pension information on official government websites which, hopefully, you can trust.

Cute Hoor

This is the Ben and Arthur example of how starting investing early can be advantageous because of the compounding element, I used 9%pa, probably a bit ambitious but an indicator. For an investment of €9,600 over 8 years from age 19 you could get a return of €692,796 at retirement age. 6% pa (a very reasonable target) would give you €203k

Age Ben Invests Arthur Invests
Actual Cost Invested Return Actual Cost Invested Return
19 €1,200 €2,000 €2,180
20 €1,200 €2,000 €4,556
21 €1,200 €2,000 €7,146
22 €1,200 €2,000 €9,969
23 €1,200 €2,000 €13,047
24 €1,200 €2,000 €16,401
25 €1,200 €2,000 €20,057
26 €1,200 €2,000 €24,042
27 €26,206 €1,200 €2,000 €2,180
28 €28,564 €1,200 €2,000 €4,556
29 €31,135 €1,200 €2,000 €7,146
30 €33,937 €1,200 €2,000 €9,969
31 €36,992 €1,200 €2,000 €13,047
32 €40,321 €1,200 €2,000 €16,401
33 €43,950 €1,200 €2,000 €20,057
34 €47,905 €1,200 €2,000 €24,042
35 €52,217 €1,200 €2,000 €28,386
36 €56,916 €1,200 €2,000 €33,121
37 €62,039 €1,200 €2,000 €38,281
38 €67,622 €1,200 €2,000 €43,907
39 €73,708 €1,200 €2,000 €50,038
40 €80,342 €1,200 €2,000 €56,722
41 €87,573 €1,200 €2,000 €64,007
42 €95,454 €1,200 €2,000 €71,947
43 €104,045 €1,200 €2,000 €80,603
44 €113,409 €1,200 €2,000 €90,037
45 €123,616 €1,200 €2,000 €100,320
46 €134,742 €1,200 €2,000 €111,529
47 €146,868 €1,200 €2,000 €123,747
48 €160,087 €1,200 €2,000 €137,064
49 €174,494 €1,200 €2,000 €151,580
50 €190,199 €1,200 €2,000 €167,402
51 €207,317 €1,200 €2,000 €184,648
52 €225,975 €1,200 €2,000 €203,446
53 €246,313 €1,200 €2,000 €223,936
54 €268,481 €1,200 €2,000 €246,271
55 €292,644 €1,200 €2,000 €270,615
56 €318,982 €1,200 €2,000 €297,150
57 €347,691 €1,200 €2,000 €326,074
58 €378,983 €1,200 €2,000 €357,601
59 €413,092 €1,200 €2,000 €391,965
60 €450,270 €1,200 €2,000 €429,422
61 €490,794 €1,200 €2,000 €470,249
62 €534,966 €1,200 €2,000 €514,752
63 €583,112 €1,200 €2,000 €563,260
64 €635,593 €1,200 €2,000 €616,133
65 €692,796 €1,200 €2,000 €673,765

€9,600 €16,000 €692,796 €46,800 €78,000 €673,765

Jim2007

Pussyhands wrote: »

People say about a pension, it's to keep up the lifestyle you live when you're retired but I don't see myself spending that much money at that age.

Mortgage would be paid off, i'd have further savings.

I understand why it's taxed, it's just people claim it's "TAX FREE MONEY" when it's not which makes it harder for me to trust everything else people say about pensions and how important they are. It's like saying you're salary is tax free and then you get it into your account and it's taxed.

People say, people say.... Stop listening to what the talking heads have to say and try to think things out for yourself!

Maintaining your lifestyle in retirement is only part of it. It is about having the money to do the things you want to do or need to do. For a start you will have all day every day to yourself and hopefully you'll have the health to get out and do what to do and so will your mates. Do you really want to sit at home, while everyone else is off having a life? It could be for 20 years or more. In the early years it is very likely that you will spend more not less.

The other thing is that you will be much older and you may not enjoy good health, you may need to have modifications made to your house, pay for meds or treatments that are not covered by state or private health insurance etc... do you really want to end up in that situation.

The other thing is you many not even get that far, you become incapacitated and can't continue to work and earn? Most pension funds I've seen offer some kind of additional occupational pension in such situations. I used to know a painter and decorator in Dublin and at about the age of 35 he hopped up on a table to change a light bulb and that was the last he was able to move his legs! One of my next door neighbours here in Switzerland was involved in an accident at a factory and only now after several years of treatment has he got to the point that he is able to sit out and enjoy the sun.

You should not live your life in fear of any of this happening, but neither should you ignore the possibility and fail to make any provision for such a day.

Jim2007

Pheonix10 wrote: »

I know this thread is part of investments topic but surely buying a house is not a typical investment as you have to live somewhere (even if you rent it for a while).

It doesn't feel like equities or bonds etc should be directly comparable?

Someone with more experience than I may know :pac:

Yes that is a very good point, but most people see their house as an investment. If you as you say you consider it only as a means of providing accommodation, then it is a completely crazy solution!!!! For the most of your life you will be living in a house that is too big, to costly and too time consuming for your actual needs.

Where I am here in Switzerland, the general idea is that accommodation, be it rented or owned should not consume more than about 20% of your monthly income. Most young couples will rent out a two bedroomed apparent early on, move to say a four bedroomed one when the kids come along, then back to a smaller apartment later on when the kids move out. In early retirement they will often move to the countryside where it is cheaper and they are still healthy enough to enjoy it, later when they need more readily access to healthcare etc they will move again to a large town or small city. For them it is just accommodation not an investment.

Jim2007

Augeo wrote: »

How did they achieve that feat?
You could only do so by having most if your money in individual sticks that went bust.
Any diversified fund recovered within 5 years of the downturn, diversification is a key fundamental if investing. If you aren't diversified you are gambling not investing. One shouldn't gamble their pension.

I've yet to see a pension fund with rules that would allow a manager to do anything remotely like that.....

[Deleted User]

Jim2007 wrote: »

I've yet to see a pension fund with rules that would allow a manager to do anything remotely like that.....

Which begs the question how did folk lose all their pension funds?
Maybe they were self directed pensions....lots if self employed have them, coupled with bad advice you never know what they got up to.

Jim2007

Augeo wrote: »

Which begs the question how did folk lose all their pension funds?
Maybe they were self directed pensions....lots if self employed have them, coupled with bad advice you never know what they got up to.

The only question right now is a reference to this claim. At the moment all it is is folklore, something the guy down the pub said.

ANXIOUS

I know plenty of people whose pensions have been wiped out. As Augeo alluded to the vast majority were self directed schemes, but not all.

listermint

Augeo wrote: »

How did they achieve that feat?
You could only do so by having most if your money in individual sticks that went bust.
Any diversified fund recovered within 5 years of the downturn, diversification is a key fundamental if investing. If you aren't diversified you are gambling not investing. One shouldn't gamble their pension.

I know plenty who had their pensions halfed.

Its not pub folklore.

You seem to expect everyday people to have a deep understanding of pension schemes and their rights / abilities. when many just paid into a company scheme and were told it was water tight.

What do you expect the average person on the street to do in this circumstance, they are not experts nor even qualified to make these decisions which is why Finance advisors exist.

if everyone was capable of diversification and loading up different investments then wouldnt that be a mad world.

[Deleted User]

listermint wrote: »

I know plenty who had their pensions halfed.

Its not pub folklore. .........

Halved is certainly plausible. I was referring to a comment that mentioned wiped out. IMO wiped out is not at all close to halved.

The s&P 500 halved in value from 07 to 09, it had recovered by 2012. HAving all of your pension in stocks within 5 years of your retirement date wouldn't be normal for any pension scheme so the actual impact on someone's pension come retirements shouldn't have been stark. No doubt the plenty you know were retiring the following day though ......... bla bla ....... of course they were.

listermint wrote: »

..You seem to expect everyday people to have a deep understanding of pension schemes and their rights / abilities. when many just paid into a company scheme and were told it was water tight....... .........

Not all all, perhaps your idea on what a deep understanding is differs to mine.

Mach 3

To address a few posters points about pensions - has everyone forgotten a certain CEO telling all and sundry "Buy Irish Banks you won't go wrong" (or words to that affect).
A lot of people, self-employed and indeed pension funds, did exactly that at the height of the boom and greed.

Hope that helps.

Jim2007

listermint wrote: »

You seem to expect everyday people to have a deep understanding of pension schemes and their rights / abilities. when many just paid into a company scheme and were told it was water tight.

Which company scheme are you talking about, give us an actual example?

Self direct schemes are some thing entirely different, it is about the equivalent of deciding to do brain surgery on yourself - as an adult you have to accept the consequences of your actions.

Pension funds of course loose money from time to time, but the average Joe or Jane who invest in the company pension fund through out their working live should not see the fund wiped out.

listermint

There's a bit of fingers in the ears in here

Jim don't put words in my mouth.

Plenty had their funds halfed and yes that is decimated to most people

Your being disingenuous.

Some right smartalic answers in here. Dismissing people because they don't understand finance. Pensions are actually not that easy for the average person on the street the differing investments are difficult. Just because you know what to look out for doesn't mean your mother father or uncle would. Bit of cop on needed..

smacl

listermint wrote: »

There's a bit of fingers in the ears in here

Jim don't put words in my mouth.

Plenty had their funds halfed and yes that is decimated to most people

Your being disingenuous.

Some right smartalic answers in here. Dismissing people because they don't understand finance. Pensions are actually not that easy for the average person on the street the differing investments are difficult. Just because you know what to look out for doesn't mean your mother father or uncle would. Bit of cop on needed..

I think you can really only judge a pension fund for its lifetime though, which is going to average around 30-40 years, including a number of up and down cycles. Have many been decimated in terms of contribution versus return over that period? The only people seriously affected that come to mind are those who are retiring during a down cycle, but even then I'd doubt that its not so much their investment has been halved as there anticipated return has been halved in comparison to values in recent years. My own pension certainly got hammered in the last downturn, but has made in reasonable recovery and still looks like one of the best investments I've made over my working life.

It is also worth remembering that state pension has been pushed back to 67 in 2021 and 68 in 2028, so for those wanting to retire that bit earlier it also provides options. As the population grows older, I could see the state pension coming under ever more pressure and wouldn't really want to rely on it.