Advice needed - Better to invest cash in property or the markets?

12345999

Hi all,

I’ve been browsing these boards for a while now, and I’ve learned a fair bit from reading. I was wondering if anybody with experience in property investment would be willing to give me their thoughts on my situation? I intend to speak with an accountant before going with a decision, but I would be interested in your views to help clarify my thinking. There seems to be a fair bit of real world experience here, and I’m sure there’s a few factors I haven’t considered.

My situation is quite unique. I don’t own any property, and have approx. 50k available as a deposit. I have been house hunting for the past few months and have AIP as a sole applicant – job isn’t affected by COVID. My budget is 350k. My original plan was to buy a small house and live there and pay off the mortgage for the next 35 years.

I (might) now have the opportunity to work abroad for a few years, and pay down the mortgage within five years. The money is very good, accommodation is covered and it’s low tax. My question is whether I should:

[1] buy a flat now on a personal mortgage, then rent it out, convert it to a BTL, and pay down the mortgage within five(ish) years, or
[2]use the money I would have put into a deposit and mortgage and invest it in the markets (assuming a return rate of 8% average over five years).

It looks to me like I could get to the same net position by investing the cash for four years, as I could by getting a mortgage and renting it out for five years. On this basis, it seems like (aside from the mortgage leverage opportunities) investing cash at this scale into property isn’t as good as putting it into stocks. I’d be interested to hear contrary views.

I'm not able to paste my spreadsheet calculations, but essentially, they work out as follows:

Buy a house: over five years ~248k input, plus net rental income will pay off a mortgage on a €310 property. This leaves me with €310k plus or minus the change in value of the property.

Invest in the markets: Over four years, investing ~248k with an annualised return of ~8% will give me €310k, but with none of the hassle.

I’ve used the following assumptions.

• Exemption from CGT if/when selling the property on the basis that PPR relief applies while living outside of Ireland (assuming that exemption still applies if rented – seems to according to Revenue website)
• One month unoccupied per year
• 20% income tax on rental income, (no other Irish income)
• Rental expenses (repairs, estate agent, RTB registration etc.) won’t exceed about 20% of the gross rental income.
• Possibility to get unlucky with tenant and lose months of rent and thousands in legal fees. I’m happy with this risk.
• Legislation is subject to change.
• 5% interest on BTL loan