What to do with our savings if we go to work abroad after the Covid?

My partner and I had planned to go abroad in the summer of 2020 to work for one to two years. We now hope to be able to travel in early 2022.

We currently have a combined savings of € 80,000 and each save € 1,000 per month. We are considering two options:

1. Buy a two-bedroom apartment, pay the required minimum deposit, and take out a mortgage for the rest. Put what remains of our € 80,000 in an investment fund and rent this property.

Upon our return to Ireland, continue to rent the property and use the money from the investment fund as a deposit for our house.

2. Invest our current savings of € 80,000 in an investment fund and continue to save for the next two to four years.

What are the advantages and disadvantages of each?

– Ms. AF, email

The longer the current Covid restrictions last, the more people want to spread their wings. Closures, the precarious nature of work in many industries over the past year, and a general reassessment of priorities will also likely cause a number of people to consider the option of a lifestyle change.

And, especially for those younger and unencumbered with family and bills, it just might make the prospect of traveling abroad for work and adventure more appealing than before.

In your case, it looks like you had already considered such a plan before the Covid pandemic hit. And you also had the foresight to start building up your nest egg as a couple. I imagine the past year has been frustrating for you as you are stuck in limbo – attached to the idea of ​​working overseas but unable to act. Fortunately, the vaccines mean there is light at the end of the tunnel.

But back to your choices. You have the option of investing in a property here with at least part of the money or investing the entire amount until you expect to be back in Ireland and in the market for a house to you.

I can see the appeal of buying a property, not least because the risk-free return on savings is currently close to zero.

Lenders have had a difficult decade, and the benefit of the doubt is unlikely to feature prominently in any decision to apply for a loan.

So what are the issues you need to consider? First of all, if you’re buying to rent it, it’s a very different perspective than buying a place you want to call home. You need to equip yourself with a good sales head, look at the areas of rental demand and the yield (return) you can expect from your investment.

You talk about investing the minimum required in one deposit and salting the rest in other investments until you get home. However, I think you misunderstand investing.

As a first-time home buyer, you can expect to have to put down a 10% down payment on a house and be able to borrow the remaining 90% as long as it is less than 3.5 times your joint income. But that’s only for your own family home.

The rental rules are different. The Central Bank requires lenders to ask for deposits of 30 percent of the price of the property on rental mortgages, and banks will only sanction mortgages of 70 percent.

Concretely, this means that there will be very little, if any, of your savings left, even if you manage to persuade a bank to lend you.

Take a two bedroom apartment currently on the market in Inchicore in a development called Tramyard. I don’t know anything about the development or the area as a rental location but, just to calculate the numbers, it is currently on the market for € 240,000. That would mean making a deposit of $ 72,000 – using up almost all of your current savings – and applying for a mortgage for the remaining $ 168,000.

At current mortgage rates, you should be able to get a two-year fixed rate that will require monthly payments of around $ 1,100 – if you get a mortgage.

If either of you are in an industry that has been hit hard by Covid – hospitality, retail, tourism, airlines, or even construction – you might be struggling to get a mortgage right now, no matter what. which will be an investment property. as part of your current plans.

And then there is income security. Banks always look for tax returns when granting mortgages. You may have a job right now, but how certain is your income when you are abroad? And will you return to your old jobs after your trip or face the uncertainty of the job market?

Lenders have had a difficult decade, and the benefit of the doubt is unlikely to feature prominently in any decision to apply for a loan.

Rental income

Single beds at this Inchicore development are currently fetching tenants at € 1,215 per month while triple beds are asking for € 2,400, so let’s assume that a two bed would cost around € 1,800 per month.

This is a “profit” after paying the mortgage of € 700 per month or € 8,400 gross per year. But the management costs will absorb around 1,600 € and you have not yet spent a cent for pre-rental maintenance, furnishings and fittings, professional fees, or tourist tax, which will be charged to you. subject to your marginal rate.

Suffice to say that you will do well to achieve balance during the two years of absence.

So that raises the question of how to build up a deposit for the house you hope to buy for yourself upon your return. The investment fund will not exist because the deposit and the pre-rental costs will have swallowed up your € 80,000.

You mention that you are currently setting aside € 1,000 per month between yourselves. But this is a time when your lives have been largely suspended and there is much less money to spend money on anyway – especially in the area of ​​discretionary spending. The holidays are over, the concerts are over, you can’t attend the sporting events even if you wanted to, nor the gyms. And meeting friends for a meal or a night out is impossible. Even spending on clothes, shoes or accessories is less accessible than before Covid.

Remember that with a rental purchase already behind you, you will no longer be eligible for the 10% mortgage deposit for first-time buyers.

For those who already have a home, the only real possibility for discretionary spending has been the improvement of their properties or gardens – and that doesn’t apply to you. As a result, personal savings in Ireland have exploded. However, there is constant talk of pent-up demand, and it is expected that when the economy reopens, people will be looking to make up for lost time – and have the funds to do so.

Will you continue to save so much under these circumstances, or do you need to review a reasonable post-Covid savings plan? There will be costs associated with moving abroad in and of itself, and your income may not match what you earn here in Ireland.

And if the job isn’t organized before you leave, you’ll have to tap into those rapidly dwindling savings to support yourself until the job is secure and starts handing over the paychecks.

While you can save $ 1,000 per month while you are away, it depends on the type of property you want to live in when you return. Remember that with a rental purchase already behind you, you will no longer be entitled to the 10% mortgage deposit for first-time buyers: instead, you will need 20% of the value of your future home. spared.

Invest

But what about just investing the money while you are away?

One of the key things about investing is how long you can let your money grow. The more likely you are to need it in the short term, the less sense it makes to put the money in a high risk investment, like stocks. Why?

If you feel like I think you are too ambitious, it’s because I

Stocks had the longest bull market in history. Of course, in itself that doesn’t mean anything, but market cycles are a reality and history tells us that at some point there will be a correction. And with the global economy looking to return to a more normal situation after Covid, the levels of uncertainty regarding the linear growth of the stock market are higher.

For those who can leave their money invested for the long haul, the ups and downs will ease and they should see a reasonable return. But you will be looking for that money in two to four years. It doesn’t really give you time to recover if the market plunges in the near future.

The alternative is to invest in less risky areas like bonds. The returns will be lower, but hopefully better than the zero offered by the banks.

Ambitious

If you feel like I think you are too ambitious, it’s because I think so. Your savings of € 80,000 are substantial but they will only extend so far. I’m having a hard time seeing how they’ll cover the cost of a rental purchase and a family home for you over the next few years.

If you’re planning on buying a home here in a few years, get a feel now for what it might cost you in terms of your deposit and loan-to-income ratio at today’s rates. Prices are only likely to go up, so you’ll need to budget your finances for another 10% more, at least, in a few years.

Concretely, this means investing what you have in a low-risk or risk-free environment so that you have the makings of a substantial deposit for a family home at the end of your trip.

Please send questions to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email [email protected] This column is a reading service and is not intended to replace professional advice. No personal correspondence will be exchanged

Business Today

Get the latest business news and commentaryREGISTER HERE

About Deborah Wilson

Check Also

Update on financial situation and process with lenders

Prosafe refers to information about its financial situation and process with lenders that has been …

Leave a Reply

Your email address will not be published.