# Divorced Mom- Sell investment property to pay off debt, or keep for early retirement/ kids?



## Melard (13 Aug 2021)

I am recently divorced. I bought a small 2 bed family home, with need to extend and add another bedroom in a couple of years when children older.

As a divorced mom of 2 dependents getting loans/ mortgages more difficult.

I have an investment property I am thinking of selling to pay off 37k in debt, the debt causes me to struggle to make ends meet at present. Looking to future- proof ourselves a bit from potential recessions/ job losses now that finally have equity in property after 20 years. I am concerned with climate change,the apartment is near a river and may become part of flood area in future.

Tenants have been there less than 6mths and have been notified- now unresponsive to contact. After 6mths will be hard to ask tenants to leave, landlord rights more difficult now, and less flexibility to sell when I need to.

My original plans changing due to climate concerns. I had hoped to retire early and live in property in my retirement and divide house between my children as expect they will struggle to afford property in the future. However keeping the property allows investment to grow/ keep up with inflationary pressures, though really it has not valued up as much as I'd hoped since purchasing in 2002.Gone from 220k to 260k in 19 years). Capital Gains will eat away at profit too. Is it really worth selling?

Selling it enables me to breathe a sigh of relief and enjoy the present, invest money I pay towards debt to other investments that might be more lucrative/ more than make up for inflation.

Do I secure my finances for the present moment, or do I secure them for the future/ retirement?

Age: 46 (plan to retire at 57 from company but keep working part time for myself).

Annual gross income from employment or profession: 90K

Monthly take-home pay: 4k

Type of employment: Full time employee

In general are you:
spending more than I earn- automatically save into accounts for emergency fund (5k saved), yearly family holiday and family events (christmas/ kids bdays).

Rough estimate of value of family home: 450k
Amount outstanding on your family home mortgage: 220k
*What interest rate are you paying? Tracker + 1% on most of it, 2.5% on 80k of it. Mortgage us 1,115 pm*

Rough estimate of value of investment property: 260k
Amount purchased at (for capital gains tax reasons): 220k off the plans in 2002.
Amount outstanding on investment property mortgage:170k
*What interest rate are you paying? Tracker +0.85% on most of it, 4.5% on 40k of it due to two top-ups to buy previous family home before divorce (bad idea!)
Mortgage is 1,250 pm
only 12 years mortgage left (Bank won't allow me to extend as tracker mortgage)*

Other borrowings –
12k 0% credit card
18k car loan (credit union)
7k business loan
In process of Refinancing these into one loan at the moment with credit union

Savings and investments: 5k savings in credit union, held hostage with my loan.

Do you have a pension scheme? Yes 7% + employer match 8% + 5% AVC

Do you own any investment or other property? No

Ages of children: 9 and 12

Life insurance: Yes through work.


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## ClubMan (13 Aug 2021)

I don't understand the bit about "tenants notified".
Of what?
That you're going to sell?

At a glance it seems like a no brainer to me to sell the investment property and use any net profit to fund the home enhancements.

But maybe the rental property is a goldmine and you should keep it. You don't post any info that clarifies.

It goes without saying that guarding against running up more unsecured debt in the future is advisable.

Don't you trust (or expect) your children to be able to fend for themselves in the future?


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## Melard (13 Aug 2021)

ClubMan said:


> I don't understand the bit about "tenants notified".
> Of what?
> That you're going to sell?
> 
> ...


Thanks, yes tenants have been notified that I want to sell- they're refusing to show the property even though I allowed them to stay till any sale goes through ( takes months). Now they refuse to answer calls/ messages so am unfortunately going to have to give them eviction notice- I tried to be flexible.

No the property is not a gold mine unfortunately  I see so many first time buyers struggling to get on property ladder/ parents having to help them out. want to be able to help my kids too when time comes. Having a roof over your head top priority.


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## ClubMan (13 Aug 2021)

So it sounds like you should sell the rental property and use the net proceeds to clear/reduce your debts and extend your current property?

However it's difficult to tell for sure from the partial info posted so far. E.g. no details about the rental property incomings/outgoings.

What is your refinancing plan for the debts?
Could the pension AVC money be better used elsewhere?
I don't understand the "hostage" reference to the CU loan.


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## Brendan Burgess (13 Aug 2021)

Updated for rent figure since supplied 

Let's look at the investment property in isolation first.

Value €260k
Mortgage: €170k
Equity : €90k
Less CGT: €10k
Cash realised if sold: €80k



Rental income: €16,800  ( 1400 x 12)
Interest on mortgage  €3,000
Profit before tax: €14,000
Tax: €7,000
Net profit after tax €7,000

This is a very profitable investment when judged in isolation.

*If you sell it what will you do with the net proceeds? *
You have €37k of unsecured debt.   +€80k of mortgage debt at 2.5%

It's likely that you are or will be paying about 9% a year to the Credit Union on this loan.  It could be a higher or a bit lower.

€37k @9% = €3,300 a year in interest.
€43k@2.5% = €  1,000
Total = €4,300 interest saved


So, yes, you should sell the investment property and repay the loans.
Update: With the higher rent it's not so clear. You are better off by €2,700 a year net keeping the property.

Your monthly cash flow will improve by
Investment Mortgage €1,250
€43k home mortgage reduced: €400
Credit Union : €750  (estimated)
Less rent received: (€1,400 )
Less tax : €600
Net: €1,600 per month


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## huskerdu (13 Aug 2021)

Brendan,
One correction,. The purchase price of the apartment was €220K, so the CGT should be on a gain of €40K so only €12K


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## Brendan Burgess (13 Aug 2021)

The excess cash flow on your investment property has been only a part of your problems. 

It would seem to me that given the €37k in unsecured loans, that you are living beyond your means generally. 

Clearing your debts now, only to build them up again, will just mean that you have the same problem again in 5 years but without the investment property to sell to clear your debts.

So you need to get help with family budgeting. 

Brendan


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## huskerdu (13 Aug 2021)

I agree with Brendan, especially as you say that the debt is worrying you. You have two young kids and a good income, while you should be considering your retirement income, its more important to enjoy your life now with your children. 
It doesnt make sense to be in debt that is bothering you in order to give your kids more money in 20 years time.


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## Brendan Burgess (13 Aug 2021)

huskerdu said:


> Brendan,
> One correction,. The purchase price of the apartment was €220K, so the CGT should be on a gain of €40K so only €12K



Thanks h
Well spotted. Corrected now.

Brendan


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## Ndiddy (13 Aug 2021)

Agree on the kids, the best thing to help them in the future is not have to help you out financially in your later years.  Get things sorted now by selling and lowering your outgoings.  This way you can take the old monthly debt repayment and build up not just pay back the bank.

Kids can always take on future loans if needed ( or they always have a place to get sorted with you) but banks will be less likely to lend to you as time goes on, so can't borrow to retire!


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## Melard (13 Aug 2021)

Thanks everyone! Rent from property is 1400 per month.
Personal debts accrued due to cost of divorce (25k towards lawyers/court) plus doing up old house.
Seems selling property is main advice given so looking into that now.
Really appreciate this thread cheers!


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## NoRegretsCoyote (13 Aug 2021)

Melard said:


> Thanks everyone! Rent from property is 1400 per month.


Agree with advice to sell. 

€1400 rent with a €1250 mortgage will never make sense.

I think you are living within your means when you sell apartment and pay off other debts.


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## Brendan Burgess (13 Aug 2021)

With the higher rent it's not as clear cut.

You are making a net profit of €7,000 after tax and if you sell, you would save €4,300 interest. So you are better off by €2,700 a year in keeping it. 

But your negative cash flow net is €1,600 a month. 

What is happening here is that as you have a cheap tracker, most of your repayments are paying down the capital on the mortgage.  After 12 years, you will own an investment property mortgage-free. 

If the bulk of your debts arose due to the divorce costs, and if your debt is not increasing, then you might consider keeping it.

If your debts are not increasing, then they are under control.  Paying down a mortgage, is a great way of saving. Although you don't see it as clearly as you would if you were putting €4,000 a month into a savings account, it's still a real way of saving for the future.

Brendan


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## Brendan Burgess (13 Aug 2021)

Melard said:


> Do you have a pension scheme? Yes 7% + employer match 8% + 5% AVC



You are putting too much pressure on yourself with this very high level of contributions. 
I presume you are obliged to put in the 7% to get the 8% from the employer.

Stop the AVCs. It will save you €4,500 or €2,300 net a year. You need the cash.  




Melard said:


> automatically save into accounts for emergency fund (5k saved),



Is this with the Credit Union. Stop saving into the Credit Union where the money is taken hostage as you describe. 

It's not an emergency fund if you can't access it. Put it in an ordinary deposit account with a bank where you can access it in an emergency.

Or else pay it off the loans.

Brendan


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## Thirsty (13 Aug 2021)

I would add just one caveat.

Divorce is in the top three most stressful life events.

Sit on your decision for a while if you can; things could look very different to you in six months time.


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## ClubMan (13 Aug 2021)

Brendan Burgess said:


> Is this with the Credit Union. Stop saving into the Credit Union where the money is taken hostage as you describe.


Just taking the CU debt in isolation (although it probably really needs to be considered as part of a wider debt restructuring/financial makeover plan) it should be possible to get them to pay some or all of the €5k in savings/shares off the car loan of €18k thus reducing your regular repayments. They may claim that they can't and you may need to be persistent.


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## kinnjohn (13 Aug 2021)

Melard said:


> Thanks everyone! Rent from property is 1400 per month.
> Personal debts accrued due to cost of divorce (25k towards lawyers/court) plus doing up old house.
> Seems selling property is main advice given so looking into that now.
> Really appreciate this thread cheers!


I haven't borrowed from the credit union in a long time, I get my pension paid into the credit union,
For the last few months, I have noticed they are offering loans for around 4.35%,
What rate is the credit union going to charge you on the new loan,


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## Melard (13 Aug 2021)

It's a tough decision...
Just to add another option in, the bank (KBC) is willing to let me hold onto the 170k that's still on the tracker +1.25%, offer me a 'new business rate of 2.1% on anything extra (instead of 4.5%), so I can sell current apartment, use profits to pay off debt, and move the 170k to a cheaper property (most likely outside Dublin)- they have calculated the new mortgage repayments would be 1100 over 12yr repayment (they can't extend a tracker), so would need to be a property that generates enough rent to cover that, and have a property paid off in 12yrs plus no debts now.

Seems like a potential middle option.

Thx,
Mel.


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## Brendan Burgess (13 Aug 2021)

That is not a valid option as the costs of the transaction, selling and buying and all the associated risks would not justify the money saved. 

Brendan


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## Itchy (13 Aug 2021)

Melard said:


> I have an investment property I am thinking of selling to pay off 37k in debt, *the debt causes me to struggle to make ends meet at present.* Looking to future- proof ourselves a bit from potential recessions/ job losses now that finally have equity in property after 20 years. I am concerned with climate change,the apartment is near a river and *may become part of flood area in future.*



What's the big picture here? 

Selling your investment property solves both worries you have mentioned. A half way house keeps one of the problems - which one do you want?


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## RedOnion (13 Aug 2021)

Melard said:


> Just to add another option in, the bank (KBC) is willing to let me hold onto the 170k that's still on the tracker +1.25%, offer me a 'new business rate of 2.1% on anything extra (instead of 4.5%)


For a buy to let? Are you sure?


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## Itchy (13 Aug 2021)

Melard said:


> I bought a small 2 bed family home, with need to extend and add another bedroom in a couple of years when children older.



The kids are 9 and 12, you will need to extend sooner than you think. You need cash.

The car loan is 18k, what car to you drive? Can you downsize and realise 10/12k? Then with 5k savings and 2.5k from stopping the AVC you could clear the car loan.


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## Melard (13 Aug 2021)

Noted! OK thanks a mill for all the fab advise everyone!


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## Laughahalla (14 Aug 2021)

I would sell the car and buy a used car for a couple of grand and pay off the credit union loan. New car is vanity when you have so much debt.

This would enable you to keep the rental.

You don't have an income problem you have a spending problem.


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## Brendan Burgess (14 Aug 2021)

Laughahalla said:


> You don't have an income problem you have a spending problem.



Hi Laughalla

That was my suspicion as well, but don't forget 
1) She had a big bill for her divorce 
2) She is paying big lumps of capital off her home loan
3) She is paying even bigger lumps of capital off her investment mortgage 

So she is running up expensive debt in the Credit Union to clear cheap debt, her mortgage. 

Brendan


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## Melard (14 Aug 2021)

Laughahalla said:


> I would sell the car and buy a used car for a couple of grand and pay off the credit union loan. New car is vanity when you have so much debt.
> 
> This would enable you to keep the rental.
> 
> You don't have an income problem you have a spending problem.


Yes I sold the previous family car after divorce last year and bought a cheap car, paid off debt to family who had helped me buy house. I will have my old 5k car paid off by September.


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## ClubMan (14 Aug 2021)

Different CUs charge different rates and have different loan products.


Melard said:


> Yes I sold the previous family car after divorce last year and bought a cheap car, paid off debt to family who had helped me buy house. I will have my old 5k car paid off by September.


I don't understand.
How come you have a €18k car loan with the CU so?


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## Melard (14 Aug 2021)

Because a family.member who leant me money for the deposit on my house needed the money back- I sold the car and paid them back, so the car loan is still outstanding. However, it's at a lower rate than if I'd borrowed money to pay family member back.


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## ClubMan (14 Aug 2021)

Melard said:


> Because a family.member who leant me money for the deposit on my house needed the money back- I sold the car and paid them back, so the car loan is still outstanding. However, it's at a lower rate than if I'd borrowed money to pay family member back.


Ok, thanks. I understand now.


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