Property investing

Hi, I was wondering if anyone would be able to advise me on property investing. I here a lot of advertising on buying holiday homes, buying a second home etc but I am a complete amature.

We own our home outright, it was valued at €350,000 in 2005. We have a second property valued at €200,000 in 2005. We have a €130,000 25year taken out in 2005 mortgage on this property. We are repaying the AIB bank €754 per month on this. We have a rental income of €560 per month on this property

We are a one income family with four children My husband earns approx €35,000 per annum so you can imagine funds are tight what with having to supplement the rental income to meet the mortgage repayments and it is next to impossible to save.

Any advise will be greatly appreciated.

Thread moved from Savings and Investments.

Hi Clubman, where did you move the thread to

Here.

Hi Colleen,

What rate is AIB charging you? If you don't mind me asking, why did you acquire the second property? It's not paying it's way and is costing you a fortune in interest plus supplementing the mortgage! Are you hoping for capital appreciation?

You could negotiate an interest only mortgage which would bring down your repayments and give you more cash flow. However this will mean that the amount borrowed remains the same for the duration of the loan.

Unless you have personal reasons for holding on to this investment property, I really don't think it's viable. IMHO it's a money pit and I'd sell it!!

your investment produces no income and looks unlikely to in the medium term given how much rental supply there is out there. with interest rates forecast to increase further and rents static your finances could come under further strain. I might add that property has traditionally been an income producing asset and not purely a vehicle for capital gains.

Colleen said:

Any advise will be greatly appreciated.

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You could always sell the investment property, pay off the mortgage/ EA/Solicitors/CGT fees and pocket the €60,000 (+/- a couple of thousand) profit you know! You could divide the profit into a low/medium risk equity fund and a high interest savings account. You should be able to get 5% or so after tax without too much trouble.

This way, you'll have some exposure to any future possible house price increase (the home you already own) but you'll also have your lump sum appreciating a little bit above inflation.

Alternatively, you could remortgage your principle private residence and buy another 'investment' property

Colleen said:

We are a one income family with four children My husband earns approx €35,000 per annum so you can imagine funds are tight what with having to supplement the rental income to meet the mortgage repayments and it is next to impossible to save.

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Why do you want to invest in another property considering
- you are already subsidising your rented property (€754 - (€560 - tax))
- can not make ends meet
- family income is quite low

If anything, sell your second property which creates the burden, and invest as suggested above.... and enjoy life.
Good luck

Technically the property is producing income, it is not producing profit/yield.

Why the obsession with property?

I assume you no longer want to buy another property and what you are asking is how to generate more income/profit from your existing investment property?

My options:

1. Sell now and lock in c. €50k of profit (after tax). Get independent advice on what to do with this- have you considered pensions, your childrens futures etc?
2. Move to an interest only mortgage. Common enough for investment properties, and it may help generate positove cashflow (albeit at a possible reduction in your profit when you sell). Even with interest only, the rental income may not be sufficient to cover the mortgage repayments.
3. Remortgage-move to another lender (if you can get a better deal)-this may allow you to generate postive cashflow, although, again, the rental income is much lower than the mortgage repayments, so you would have to get a much better deal than is currently the case.
4. Increase the rent charged (may not be a realistic option).

CCOVICH said:

3. Remortgage-move to another lender (if you can get a better deal)-this may allow you to generate postive cashflow, although, again, the rental income is much lower than the mortgage repayments, so you would have to get a much better deal than is currently the case.

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Fully agree with the above (if indeed you do hold the property). Depending on the cash flow situation it could also be worth considering changing to bi-weekly payments. This would mean technically the same monthly outgoings (just at slightly different times than currently being taken) but with a reduction in term and net savings over the term of the mortgage.
Information on this and other ways to save on mortgage payments can be found searching the site.

Looking at your current situation I believe, and just MHO, you may be better to sell the investment property and release the equity, greatly reducing your monthly outgoings (there may be details above what we are aware of that make this a non runner but given the general situation seems the most logical). The majority of your assets (as we can see them at least) are in property and reducing this risk should provide you with more comfort and a higher quality of life (more monthly disposable income - which you could then invest in pension/investments etc.).

Given the large amount you're subsidising the rent it might be worth speaking with a financial advisor about your situation. This would allow you to discuss your entire situation (sometimes not so easy on a public forum) and ensure your gaining full tax relief etc. to help reduce outgoings. They should be able to crunch some numbers for you and show the difference in monthly amounts available to you should you sell the investment. Again, more details available by searching the site.

If you'll excuse the assumption on my part, but a property renting at €560 a month is likely to be located outside of a major population centre and so carries a significant risk of capital depreciation. Cap dec may or may not occur (we could argue that point all day) but the fact is that the risk does exist, and the investment simply doesn't have the potential of generating sufficient returns to justify the risk, imho.

Given that your family income isn't very high, I think you should be looking to take your profit and set up a bit of security for your family if you haven't already done so e.g. rainy day fund, pensions, savings to put kids through college etc.

On top of whatever profit you make if you sell up, you'll have an extra ((764 - 560) *12) = €2448 every year. That money would go a long way to enjoying a good holiday with your kids every summer, wouldn't it?

and nobody ever lost money taking a profit did they ????

if you cash it in now thats 2 years takehome pay banked. Where else will you get a deal like that ??

Thanks all, this property was inherited by my husband from his mother. It is an old cottage and we needed to take out the mortgage to repair it - it will be hard to sell it = it has been in my husbands family for generations

that makes things a lot more difficult then. i can understand the emotional pull that a family home can exert but your other half has to face up to the reality that with 4 kids you have better things to spend your money on.

are you sure that you are getting all the rent that you can from this property? if so then you will probably be contributing to the mortgage for years to come.

not an easy decision i know but the adivce given by the other posters is sound.

Colleen said:

Thanks all, this property was inherited by my husband from his mother. It is an old cottage and we needed to take out the mortgage to repair it - it will be hard to sell it = it has been in my husbands family for generations

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Remember that if the cottage was a Principle Private Residence for a dependant of your husband, you may be able to claw back some of the CGT due on the sale of it.