Q. My partner and I had planned to go abroad in summer 2020 and work for between one and two years. Covid obviously put an end to that – but we are hoping we can travel early in 2022. We currently have combined savings of €80,000 and are each saving €1,000 per month. We are considering two options. The first is to buy a two-bed apartment, put down the minimum deposit required and take out a mortgage for the remaining balance. We’d then put what is left of our €80,000 into an investment fund and rent this property out. When we return to Ireland after travelling, we would continue to rent out the property – and use the investment fund money as a deposit for our own home. The second option is to invest our €80,000 savings into an investment fund and continue to save for the next two to four years. What should we do? Aisling, Co Kildare
A. Well done on managing to build up significant savings towards your long-term financial planning.
Both options that you have outlined are reasonable and deserve consideration but there are several points to expand on – which will likely impact on your decision.
Your first suggestion of buying a two-bed apartment, paying the minimum deposit and taking out a mortgage on the remainder is all fine.
I presume that this is a first property purchase for both of you – if that is the case, as first-time buyers, 10pc of the purchase price would be the required deposit.
The Help to Buy (HTB) scheme is also available to first-time buyers.
This scheme helps first-time buyers with the deposit they need to buy or build a new house or apartment.
However, you have stated that you intend to rent the property out and to go travelling – and you do not seem to have plans to live in it.
It is important to discuss this with your lender at the point of application as it is likely that such a property would be classified as a buy-to-let and different deposit requirements will need to be met if so.
Note too that your plans to rent out the property would preclude you from the HTB scheme as there are a number of conditions which must be met if you are to take up the HTB scheme.
You must for example buy or build a new property between July 19, 2016 and December 31, 2021.
More importantly (in the context of your current dilemma), you must live in the property as your main home for five years after you buy or build it.
Your overall planning – should you buy a property and then travel – seems geared towards the purchase of a second property in the future, which will be the property that you will live in when you return home.
As you would not be first-time buyers at that point, a deposit of 20pc will be required when buying that second property (should current lending rules remain in place). It is important to factor this in and to budget for this.
Your second suggestion is that you invest your current €80,000 savings into an investment fund and continue to save for the next two to four years.
For long-term savings and investments, a globally diversified equity investment has historically been the best home for those seeking good returns.
As a rule though, I would not consider investing in equities for a period of less than five years.
Volatility is the cost of investment growth and investing in equities for two to four years (as you suggest) is too short a time frame. This time frame significantly increases your investment risk.
For these reasons, I do not think your suggestion of investing your savings in an investment fund is feasible.
The only reasonable home for your €80,000 savings over two to four years is deposit.
The return on deposit products will struggle to match inflation in this time period but your savings will be secure – so you would be able to use your savings towards your property purchase when you need them.
I would argue that your best option would be to postpone buying a property until after you travel – so that you maintain your first-time buyer status. By doing so, a smaller deposit will be required when you proceed to buy property and any first-time buyer incentives will remain open to you.
Not proceeding with your plans to buy a rental property would also free you of the landlord and tax obligations that come with renting out a property.
Should you go ahead with your travel plans and postpone your property purchase until your return, continue to save if possible while away – so that you build up your deposit.
This will give you greater purchasing power when you return from your travels – and reduce the mortgage required and the subsequent mortgage repayments. Any excess savings at the point of purchase in two to four years can then be put to long-term investments to meet other goals.