# Another sell or keep investment property?



## Kerrygrrrl (10 Dec 2021)

Apartment purchased for €475k in 2008, currently worth €360k, outstanding mortgage €295k.  Occupied as PPR for 3 years.  We have had the same tenants in the property since 2011 and they have recently vacated due to purchasing themselves.  Question is do we sell now or retain the property?

Expected rent is €1900 pm, tracker mortgage at 2.25%.  Net rents are taxable at 52%.  Property is in Dublin and is easy to rent out.

Have mortgage of €50k remaining on PPR which is worth circa €1m.  10 years remaining on the mortgage but would hope that it will be paid back in 2/3 years.  Have joint income of circa €300k.  Have maximised pension contributions for last few years  - there is currently €1.25m in two defined benefit pensions.  Based on info noted here over the last number of years we have maximised pension contributions and then overpaid the variable mortgage on PPR which is at 3% with KBC just keeping 4-6 months of outgoings on hand at any one time.

Three children who are 12,10 and 7.  Our ages are 46 and 55.

Nervous about getting new tenants - we were very lucky with the last ones!  And also apprehensive about our rights as property owner if the property is tenanted and we need to sell / use for our children.  What to do?

Thank you


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## Sarenco (10 Dec 2021)

I suspect that this will be a finely balanced decision when you crunch the numbers.  The framework in this post might help in that regard -





						Key Post - Keep Apartment as Rental or Sell?
					

Updated May 2020  The question regularly comes up on AAM whether somebody should keep an apartment that their family has outgrown as a rental or whether they should just sell up.  Borrowers often run projections on the anticipated rental income from an apartment with a cheap tracker and conclude...



					www.askaboutmoney.com
				



Bear in mind that as the apartment is in an RPZ so you are restricted on what rent you can charge a new tenant.


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## Kerrygrrrl (10 Dec 2021)

Thanks Sarenco - I had done this and come out with 4% return and negative cashflow - albeit that is paying down the capital on the loan.  Calculations set out below.  I obviously wouldn't borrow to make this investment now so question is stick or just move on now that we are back in positive equity.


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## Sarenco (10 Dec 2021)

Ok, it looks like you are better off by around €5k per annum by keeping the apartment as a rental rather than simply cashing out the equity and applying it against the PPR mortgage.

Is €5k per annum sufficient reward for all the risk and hassle involved with running a rental property?  I would have thought so but it obviously depends on your perspective.

There is obviously a fair bit of headroom for the apartment to increase in value without worrying about CGT.

The rental may well be cash-flow negative but that doesn’t seem to be impacting your lifestyle or preventing you from maximising your tax-relieved pension contributions.

All in all, I think I would hang onto the apartment for the time being but this decision should be reviewed from time to time.  

Maybe you should consider outsourcing the management of the rental to an agent to reduce the hassle factor.


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## goingforgold (10 Dec 2021)

Hi OP, I assume you mean DC pension fund is worth 1.25m and not DB? If DB and you are also contributing max AVCs then there may be tax implications based on your overall pension fund being over certain limits, or the standard fund threshold ceiling .


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## DublinHead54 (10 Dec 2021)

Are you sure the apartment is only worth 360k? That is 75% of the purchase price whilst broadly property prices have recovered to 90%+ of their 2007 peaks. 

As this is an apartment in Dublin with a rent on the higher side, it might be worth checking the valuation? How did you arrive at 360k?


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## NoRegretsCoyote (10 Dec 2021)

Dublinbay12 said:


> That is 75% of the purchase price whilst broadly property prices have recovered to 90%+ of their 2007 peaks.


Sounds about right. Dublin apartments are 24% of their 2007 peak.

Apartments fell a lot further from peak than houses and haven't recovered as much.


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## Brendan Burgess (10 Dec 2021)

In simple terms...

If you keep the apartment, you earn €7k a year after tax.

If you sell the apartment, you can pay €50k off your home loan which would save you about €1.5k a year in interest.  But you are going to clear that anyway out of your income in a couple of years.

Then you will build up cash and where can you invest that? 

So, if you don't mind the hassle, hold onto the investment property.  You are generating a lot of cash from your salary and rent, so clear your home loan and then clear the mortgage on the investment property.

You paid €475k for it and it's worth €360k.  Any increase in value up to €475k will be free of CGT, which makes it an attractive investment.


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## Brendan Burgess (10 Dec 2021)

Kerrygrrrl said:


> Three children who are 12,10 and 7.





Kerrygrrrl said:


> apprehensive about our rights as property owner if the property is tenanted and we need to sell / use for our children.



That would be another reason for holding onto it.

If you sell it now, you certainly won't be able to use it for your children.

If you hold onto it and you need it for your kids if they are going to college or just to help them fly the nest, then you should be able to do it. If you have a difficult tenant, it might take a year or two to get them out. 

If it's not handy for your kids to go to college, you might sell it when they are ready to go to college and buy another place more suitable for them.

Brendan


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## cremeegg (10 Dec 2021)

Sarenco said:


> There is obviously a fair bit of headroom for the apartment to increase in value without worrying about CGT.


This is the key point.


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## moneymakeover (10 Dec 2021)

costs before tax are 19,928
Adding tax brings it up to approx 27k thus making you cashflow negative

There's interest 7k
Management fees 2k

11k is capital repayments?


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## moneymakeover (10 Dec 2021)

And then net gain
11k - 4.2k negative cash
= 6.8k per annum


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## Brendan Burgess (10 Dec 2021)

moneymakeover said:


> Adding tax brings it up to approx 27k thus making you cashflow negative



Given their overall wealth and income, cashflow is not a relevant consideration.

Brendan


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## Baby boomer (10 Dec 2021)

You've got 65k of equity in this apartment.  It's generating over 7k of after-tax profit.  That's almost 11% after-tax return.  Where else could you come even close to this level of return?  Plus there's the strong possibility of tax-free capital appreciation.

Keep it - it's a no-brainer.


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## Sconeandjam (11 Dec 2021)

Are the Government not working on an act in regards to indefinite tenancies at the moment? 
The same amendment limiting rental increases to no more than 2%. You would not be able sell with vacant possession (sitting tenant) so limiting purchasers available to you? Very few banks would provide mortgages in this situation. I was looking at the act yesterday. Very worrying situation.


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## PebbleBeach2020 (11 Dec 2021)

Once legislation is passed re tenancies of indefinite duration, you have six months from this point. After six months, all new tenancies will become tenancies of indefinite duration. So once the legislation is passed, if you commence a new tenancy then you have 6 years avoiding this tenancy of indefinite duration issue.

However, in reality, I think it's three year timeline, because once or if Sinn Fein get into power, they want to scrap a landlords ability to terminate a tenancy if you want to sell the property. So you will need to sell up and get out of the game before Sinn Fein get into power.


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## _OkGo_ (12 Dec 2021)

Baby boomer said:


> You've got 65k of equity in this apartment. It's generating over 7k of after-tax profit. That's almost 11% after-tax return. Where else could you come even close to this level of return?



Hmm lets have a think about that... maybe on a property running a €125k capital loss?

Return on equity is for the most part a meaningless number when taken out of context like this.


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## Baby boomer (12 Dec 2021)

_OkGo_ said:


> Hmm lets have a think about that... maybe on a property running a €125k capital loss?
> 
> Return on equity is for the most part a meaningless number when taken out of context like this.


I respectfully disagree.  The original purchase price is irrelevant - apart from the CGT shield it generates. The OP can liquidate and realise 65k equity.  Or he can keep it and earn over 7k after-tax pa.  Simple choice.  

Factoring in the original purchase price is a classic example of the _*sunk cost fallacy*_.


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## PebbleBeach2020 (12 Dec 2021)

If his mortgage on a PPR was say 3% then the 65k equity would save him nearly 2k a year. So the profit from keeping rental is really 5k not 7k.


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## Baby boomer (12 Dec 2021)

PebbleBeach2020 said:


> If his mortgage on a PPR was say 3% then the 65k equity would save him nearly 2k a year. So the profit from keeping rental is really 5k not 7k.


No, it's the delta in profit that is 5k.  The profit (after-tax) from deploying the 65k in the rental is 7k. The "profit" from deploying the 65k against the PPR mortgage is 2k. 

Or, put it another way, 11% return against 3%.  I know which I'd take.


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## PebbleBeach2020 (13 Dec 2021)

The 7k profit there is a risk and the 2k profit if you want to call it that from paying 65k off his mortgage is risk free.


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## Baby boomer (13 Dec 2021)

PebbleBeach2020 said:


> The 7k profit there is a risk and the 2k profit if you want to call it that from paying 65k off his mortgage is risk free.


True.  But given the overall health of the OP's finances, it's appropriate to take that level of risk.  

There's always a trade off between increased risk and increased return.


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## Baby boomer (13 Dec 2021)

PebbleBeach2020 said:


> The 7k profit there is a risk and the 2k profit if you want to call it that from paying 65k off his mortgage is risk free.


True.  But given the overall health of the OP's finances, it's appropriate to take that level of risk.

There's always a trade off between increased risk and increased return.


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## Kerrygrrrl (13 Dec 2021)

Thanks everyone for your views.  In the process of organising for it to be painted, carpets cleaned etc so we will look to rent it and see if we like any of the prospective tenants!  Agree with the view that the key is ensuring the tenant can afford the rent.


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