Release equity on investment apartment or sell?

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neiltheseal

Registered User
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I have a Section 23 Apartment worth €260,000 with an outstanding mortgage of €40,000. There’s an outstanding section 23 allowance of $30,000 and the rent is €900 per month and expenses are about €180 per month.

For my long term investment (15 years) I want to diversify from Irish Property. I have an investment which I hope to get 12-15% per annum over next 15 years. I am trying to decide between selling the apartment and re-mortgaging it. Either way I will have roughly the same amount of money to invest and the monthly payments are the same because rent would cover the interest on the new loan as well as the money I already owe to bank on the apartment.

This seems like a no brainer to keep the apartment. Am I missing something in my calculations?
 
interest on a remortgage is not tax deductible against the rental income, but since you have section 23 to use this should not affect you for the first couple of years. would be interested to know what type of investment you are making that will generate 12-15% pa!
 
webtax said:
would be interested to know what type of investment you are making that will generate 12-15% pa!
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The investment will be in a portfolio of stock indices, stocks and commodity indices. It will be a risky investment given that type of return but I want to assume 12-15% for the purposes of making this decision.
 
If I'm reading the query correctly, you're considering either selling the apartment and investing the net proceeds or re-mortaging to raise funds to invest. Remember that by doing the latter you're gearing up on an existing investment to buy further investments, which themselves are high-risk according to your description. As you mention matching the interest with the rent, I'm assuming that you're looking at an interest-only re-mortgage?

It's high-risk stuff. You need your investment to substantially beat the interest rate over time, after applicable charges and taxes. You also need the value of your apartment to rise. Given your 15 year timeframe, I think these assumptions are reasonable, but not guaranteed.

If you're comfortable with the risks you're taking, I think it makes sense to keep the apartment.
 
neiltheseal said:
The investment will be in a portfolio of stock indices, stocks and commodity indices. It will be a risky investment given that type of return but I want to assume 12-15% for the purposes of making this decision.
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while 12-15% returns may be possible, remember there's a lot of financial institutions with their own research departments who don't generate this so its not that easy to do. for the purposes of making your decision a more conservative estimate and analysis of the worst case scenario would be worth doing.
 
webtax said:
while 12-15% returns may be possible, remember there's a lot of financial institutions with their own research departments who don't generate this so its not that easy to do. for the purposes of making your decision a more conservative estimate and analysis of the worst case scenario would be worth doing.
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Yes, I agree 12-15% is ambitious. It makes sense to do it as long as I make more money after tax than the cost of the loan so that would be more like 6 %. Interest rates may rise - that's a risk as well. I am going to use paid research organisations such as fuller money which are very good at long term analysis. When I say 12-15%, I mean average 12-15% over a 15 year period so I'm allowing for bad years.
 
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