to keep or to sell my former home-now fully declared investment property

N

Needtomove

Registered User
Messages
23
Hi There

so- apartment worth €120k ( based on most recent selling prices on property price register)
owe €91k
interest rate 2.75%
rental income €11k pa ( just recently-use to be 10k)
taxes & expenses circa €3.5k pa

have our own family home- owe €200k worth circa €300k interest rate 4.25%

I have a good tenant in my apartment the last 3 years and pay a letting agent to manage the property , it is "ticking over" more or less - except whatever I must pay for any problems along the way out of my own pocket and the tax bill each year.

We both work- 2 kids-another one on the way-live paycheck to paycheck-no savings- craving a holiday abroad for example!! - or at lest some kind of a contingency fund- just a no go - and can not see any way to start savings!

so now-that i see after mortgage paid-solicitor fees-estate agent fees-advertising costs etc paid- i could POTENTIALLY make €20k -i need that money so much! i am tempted to sell

but........i have only 14.5 years left on my mortgage and cant help thinking would be wiser to keep it to the end as an investment property ( i will be 55 then with 2 college going kids , still 12 year to go on my own mortgage ! and a younger child- just thinking at that point €120k would stretch and help a lot!

for wiser people than I would you mind number crunching and advising me if this seems like a good long term investment?

thank you.
 
I would keep it and favour the long term. How much did you pay for the apt ? You may be liable for capital gains on the time you have let it out.
 
Hi bronte. .sorry...I am literally obsessing over a holiday at the moment !been a few years and no hope on the horizon☺I wouldn't sell it for a holiday....it's more I suppose to have some money in savings...I just feel we are in such a precarious position..literally husband and I get paid 2 separate times during the month. ..out of his goes mortgage and a few other direct debits. ..mine...childcare and the rest of the direct debits...this leaves us with money for petrol. .food....and odd bite to eat out with the kids

We can't save for anything!!every time I think I can put aside something. ..a dishwasher breaks down...or car needs servicing. .or big gas bills comes in etc

I don't want to do anything rash or silly..I just read this board a lot and sometimes people come on here and literally number crunch net profit per year etc and it all seems so much clearer! Whether a wise move to hold on or not

This is the kind of advice I hope I will be lucky enough to receive :)
 
Needtomove said:
This is the kind of advice I hope I will be lucky enough to receive :)
Click to expand...

But you haven't posted us up any actually real figures. And as you asked I'm wondering why you are worried about gas bills when you can afford to eat out !

Do the money makeover thread in detail if you want proper advice.
 
Hi Needtomove

On a back of an envelope basis, I would estimate that your apartment is producing a net rental profit (after deducting 75% of mortgage interest payments and other allowable expenses from your gross rental income) of around €6,000 per annum but is cash flow negative (after deducting income tax, non-deductible interest payments, LPT and principal repayments) to the tune of almost €5,000 per annum.

On an after-tax basis, your apartment is returning around 2.5% per annum (€6,000 x 50%/€120k), excluding any capital appreciation, whereas the mortgage rate on your PPR is 4.25%.

It seems to me that unless your crystal ball tells you that house prices are going to grow strongly in the coming years that you would be better off selling your rental and applying the net proceeds against your PPR mortgage balance.

You will appreciate that the above calculations involve a lot of estimates and assumptions on my part.

Hope that helps.
 
Thanks for all the replies so far and that breakdown Sarenco


My breakdown



Age: 40
Spouse’s/Partner's age: 37

Annual gross income from employment or profession: €35000 ( working 4 days per week )
Annual gross income of spouse:€33000


Monthly take-home pay €4200 plus €280pm children’s allowance

Type of employment: e.g.Both employed in private sector

In general are you:
(a) spending more than you earn, or –Spending more or breaking even
(b) saving?

Rough estimate of value of home €300,000
Amount outstanding on your mortgage: €200,000
What interest rate are you paying? 4.25% - €975pm after tax relief

Other borrowings – car loans/personal loans etc Credit Union loan €6000 – but €3k in savings – pay €180pm

Home loan -€4k- pay €180pm

Do you pay off your full credit card balance each month? No
If not, what is the balance on your credit card? €1100 – arrangement –pay €25pm

Savings and investments: 0

Do you have a pension scheme? Yes –we both have through work-

Do you own any investment or other property? yes

Ages of children: 4 & 3 plus one on the way

childcare cost €1100pm- have discussed with child-minder re when I on mat leave-and then return to work- all too far in the future to discuss fees but hoping max €1400pm as that stage both kids nearly in school etc


I paid €140k for my apartment – it bottomed out at €75k –and now would seem to be feasible €120k then again I am just looking at SIMILAR properties that have sold-not in the same complex! Who knows-may achieve slightly less-but estate agents I have spoken to all quote circa €120k as achievable- therefore I will not be liable for capital gains tax…unless by some miracle it will ever be worth more than €140k
 
All indications from your post are that short term cash-flow is a priority issue. Sale of the apt will release the equity to enable you to clear your CC, facilitate a family holiday plus give you a cash flow reserve ( providing that you resist the temptation to blow the balance of the money!). Ultimately you will need to start funding for children education and while this is still a long way off it's never too early to start!
 
The additional detail provided makes an even more compelling case for selling the rental.

If you applied the net sales proceeds from your rental against the outstanding balance on your PPR mortgage, after clearing all your unsecured debts, you wouldn't be far off having an LTV of less than 60%, which would allow you to refinance your PPR mortgage at a much lower rate. The combination of not carrying a cash flow negative rental, clearing all your unsecured debts and refinancing your PPR mortgage at a much lower rate would have a pretty dramatic impact on your overall cash flow and hence on your lifestyle and your ability to save for the future.
 
I had the below typed up before I saw your more detailed financial information. I will consider that later and see how it impacts on my initial views below. Seems you have significant other debts and cash flow shortages which are a problem.

Hi. Interesting scenario. From a purely financial viewpoint the question I see it as follows (sorry if the numbers get confusing but it really is key to understand the numbers in detail):
1 Continue to pay a contribution towards the rental property and own it in 14.5 years outright OR
2 Sell now, put the 20k towards the ppr and whatever is saved by not contributing to the rental property is also paid towards the ppr (so as to compare apples and apples).

1 Continue as is:
I ran the numbers for the next 15 years in a detailed excel model. Assumptions: €91k mortgage at 2.75%, capital and interest amounts to a monthly payment of €635 which will repay in full the 91k over the next 14.5 years. I assumed 1 vacant month and expenses excluding taxes equal to 2 months (i.e. take 9 months rent as being after expenses and vacancy but before taxes and mortgage payments), rent 917 per month (11k/12 mths). For simplicity I assumed no increase in rent for the 15 years, no house price increase (or decrease), tax rate of 50%, ignored time value of money.

Result: current annual funding of around 2.5k, just over 200 euros per month. Rent 10,083 (excl 1 mth vacant), expenses 1,833, taxes 3,211. Leaves 5,039 to pay the mortgage = 420 per month, plus your top up 215 = monthly mortgage payment 635. Interestingly you say your expenses and taxes at 3.5k per year, I suspect they are higher. Tax alone is 3,200 - 3,500 if assume a higher rate tax payer. Are you? The position is infinitively more attractive if your marginal tax rate is the lower rate.

Over the 15 year period, assuming the above the total mortgage payments (incl interest) will be about €114k, expenses 27.5k, taxes (at 50%) €54.5k. Total outgoings €196k. Net rent is €151k. You will therefore need to fund 45k in total, which works out on average 3k per year. (At the moment it is 2.5k but increases to 3.5 k towards the end as the interest charge is lower and hence you pay more tax.)

2 Sell now, use the 20k and monthly contributions to the ppr (saving interest at 4.25%)

Doing this would save 95k off your ppr. It is based on paying the 20k profit towards your ppr, and on average 3k per year for 14.5 years (ie (3k *14.5yrs) = €43.5 contribution, + profit today 20k and interest saved at 4.25% of about 32k = €96k)

CONCLUSIONS:

Financially it is far better to continue with the buy to let. In return for the 45k you contribute over the next 14.5 years, you will then own a house worth 120k which will produce a rent thereafter (in todays money) of 11k gross. (That's a 9% return just as you are nearing retirement!) Assuming you can fund the 3 grand a year on average - if you can't then clearly an issue.

My calculations show no increase in house prices, no rent increase, for 15 years. On the flip side assumes no increase in interest rates. As a guide a 1% increase in interest rate adds 45 euro month to your mortgage, but over time you would expect rent increases?

As other OP states above, you need to be much more specific with the amounts, exactly how much are you contributing? Are you staying on top of it and keeping the rent money completely separate from your own money that you live on? Important to do this. Else risk of spending the excess monthly rent on your day to day spending and then being caught short when there are things to be fixed or the tax bill has to be paid. If you build up the extra rent over and above the monthly mortgage in a separate bank account then this is available to pay for repairs and towards the tax bill. Even better if you can set up a direct debit of say 230 per month (if you can afford it) to also go into the rent account monthly. Do not be tempd to dip into it during the year. If you do this then you are well set up and have a fund to pay for on-going repairs and the tax bill and
 
Thank you everyone so much for taking the time to give such detail.

Thing is...IF I sold apartment now ...I would use 8k of the 20 to clear debt and take a holiday and leave the rest as out contingency fund.

And then that's it...money gone....whereas I am now thinking if I could continue to pay the 3k pa myself to keep apartment going...at least at end of 15 years that 45k will be woth 120k to me if I sell at that price. ...I know it's not that simple...but in real terms to me ...if I sacrifice 3.5k pa I will end up with a lumpsum of 120k to pay down my mortgage etc etc

Through helpful feedback here and my own gut feeling I am swaying towards keeping it.
 
You will be 320 per month better off or 4k p.a. that will be circa 60k after 15 years.
 
Gerard123 said:
Financially it is far better to continue with the buy to let. In return for the 45k you contribute over the next 14.5 years, you will then own a house worth 120k which will produce a rent thereafter (in todays money) of 11k gross.
Click to expand...

Surely in addition to the 45k of additional contributions as the "cost" of retaining the rental you would have to add the 20k equity and the interest savings that you would otherwise make by paying down the PPR mortgage more aggressively?

I would also suggest that only discounting 25% from the gross achievable rent to allow for deductible expenses and voids/over-holding periods is overly optimistic - 33% is much more realistic in my experience over a long-term holding period (costs increase as a property ages).
 
Needtomove said:
Thank you everyone so much for taking the time to give such detail.

Thing is...IF I sold apartment now ...I would use 8k of the 20 to clear debt and take a holiday and leave the rest as out contingency fund.

And then that's it...money gone....whereas I am now thinking if I could continue to pay the 3k pa myself to keep apartment going...at least at end of 15 years that 45k will be woth 120k to me if I sell at that price. ...I know it's not that simple...but in real terms to me ...if I sacrifice 3.5k pa I will end up with a lumpsum of 120k to pay down my mortgage etc etc

Through helpful feedback here and my own gut feeling I am swaying towards keeping it.
Click to expand...

At least you are beginning to think of the bigger picture. Also think of this, are you likely to use say 10 rather than 8 of the 20 and then in the next couple of years dissipate the remaining 10 and have nothing left and then start building debt again.

Gerard asked you a very pertinent question about the rental, do you have a separate account for this, you should have, where all rent goes in, and all expenditure on the rental goes out, this will give you a truer picture of how much it is costing you. It also makes it much easier to to do tax returns. Are you sure you've claimed everything you can tax wise. Do you have all your receipts.
 
Hi everyone thank you.

Good point Bronte.to be honest I definitely could see us using that 20k and not being able to hold on to any of it, thus being left with nothing...and this is the reason I am thinking it is better to hold out even another 5 years until some more equity in it after selling.

Re keeping a separate account for the rental..yes. ..I do....was 100% exclusively for apartment. ..but being honest within the last year we have been struggling financially day to day and have "dipped in to it and then re paid out of salary .

Just like the other poster here at the moment I feel we are laterally working to pay bills...hence the odd treat of food out for the family...nothing fancy..food Hall in a shopping centre once a month or maybe only once every 2 months I feel we deserve. .I mean we work hard, we commute ...it would just get you down...the whole drudgery of it all ..I obviously realise we are just one of many many couples in these shoes

So. I was thinking if I don't hold on to apartment there literally is nowhere else that I will ever have a lumpsum available to me at any stage (I am not due any inheritance at any stage for example)so this just felt like a "security blanket" I suppose
 
Needtomove said:
.but being honest within the last year we have been struggling financially day to day and have "dipped in to it and then re paid out of salary .

Just like the other poster here at the moment I feel we are laterally working to pay bills

...it would just get you down...the whole drudgery of it all ..
Click to expand...

It's good to be honest that is how you can get help. You have a money management issue it looks like to me. Not sure but it might be just that. You don't have to justify a meal out, that is not my point, but what you need to do is get to the point where your salary is managed so that it covers monthly bills and unexpected bills. You need then to manage the rental account so you never dip into it and also feed it enough to pay the annual taxes.

How about we do a money makeover on you.

Up to you. All details of the rental, all the figures. Want to see if you can cut out some costs like the agent. And see if you are claiming everything.

Separate post then please for your household bills. Need your salary too.

Re the drudgery, life is drudgery quite a bit of it, who likes cleaning nappies or emptying the dishwasher for the one millioneth time, or being the person in charge of the never ending magic laundry basket. Or telling the kids 30 times last evening to brush their teeth ! It was probably 10 but I was exasperated at the end of it. Change your underwear, have you changed your underwear, is it in the magic laundry basket. It was you who didn't flush the toilet, child stompted off to room and slammed door at that ! Evidence was one boot hastely taken off and left on toilet floor and only other person could have been my hubby, hence door slammed coz I was right !

Looking back at your figures, you're doing better than a lot. You have 100K postiive equity in your home, a reasonable mortgage, two jobs, and an investment that is ticking over all right.
 
Needtomove said:
have our own family home- owe €200k worth circa €300k interest rate 4.25%


14.5 years left on my mortgage i will be 55 then with 2 college going kids , still 12 year to go on my own mortgage.
Click to expand...

So you will be 53 in 12 years. Who is your mortgage with? Your LTV is 70%. Wonder can you get a better rate, with your own bank or by switching. What age is your hubby?
 
Hi Bronte...I am 40...hubby 37....mortgage on apartment due to finish oct/2030 by which time I will be 55 and hubby 52

Mortgage on house (as it stands aged 67 and 64!:(

Thinking of getting a valuation for our house and approaching bank. ..hard to decipher exact value...urban area ..but not housing estate..nothing similar house has not sold in last few years. house may actually be worth 320/330. ...

Have never approaches bank about re mortgage as mortgage only with them 3 Years. ..presume I would need an up to date valuation to approx them?
 
You're not making sense becasue you said you had around 15 years on the investment and 12 years on the home? Did you mean 22 years?

Before looking at the mortgage can we tackle the spending? Can you do the rental ins and outs and then the household.

Did you only buy the home three years ago?
 
Needtomove said:
Monthly take-home pay €4200 plus €280pm children’s allowance Total 4480


What interest rate are you paying? 4.25% - €975pm after tax relief

Credit Union loan €6000 – but €3k in savings – pay €180pm

Home loan -€4k- pay €180pm

If not, what is the balance on your credit card? €1100 – arrangement –pay €25pm


Do you own any investment or other property? yes

childcare cost €1100pm- have discussed with child-minder re when I on mat leave-and then return to work- all too far in the future to discuss fees but hoping max €1400pm as that stage both kids nearly in school etc
Click to expand...

Income 4480
Outgoings

975 + 180 + 180 +25 +1100 = 2460 Will be 2860 when third child is born. If really paying 3.5K for investment that's another 300 less a month. So 3160, leaving 1320 plus third child allowance €140 = 1460.

Balance remaining for household bills and cars €2020 currently.

Questions:

What is the arrangement with the CC, is it zero interest, have you cut up the credit card?
Where does the €2020 go? Can you list your expenditure.

Were you living in the apartment and then bought the house 3 years ago. You've had three kids relatively quickly, big cost there plus the new house
 
Last edited:
You must log in or register to reply here.
Back
Top