# Home and two buy to lets. Should we buy another?



## leedsutd (31 Dec 2013)

Hi

Before I start, happy New Year to all askaboutmoney forum members/browsers!

I'm a first time poster and I'm in a fortunate position financially but unsure of what to do from a financial view point going forward.  My wife is of a different opinion to me but maybe I can throw the scenario out to members for their views:

We own our own house; we have 2 investment properties both on tracker mortgages with Ulster Bank.  Property 1 has a mortgage of €300k and is worth approx €400k.  We're now paying the principal/interest on this property @€1,500/month.  

Property 2 has a mortgage of €585k and is worth approx €415k.  We're paying interest only at moment on this property for next 5 years @€570/month.  Total outgoing therefore is approx €2k/month.  Rental income on both properties is €3,100/month.  

Salary wise myself and my wife come out with €4k/month after taxes deducted.  We have €180k in a Nationwideuk deposit account which now only gives us €170/month in interest.  We will change this possibly to Rabodirect if we don't invest same in coming months.

I realise we're in a very good position financially but I'm worried as to how that will change once we go onto principal/interest on our 2nd property in 5 years time.  

My wife feels we should now buy another investment property and sell it in 5 years time and by that time (if the housing market keeps improving), we should have enough to possibly pay off investment property number 1.  

I feel I'd rather pay off possibly €160k on property 1 and increase the monthly payments by €1,000 and keep €20k on account for a rainy day fund (kids college fees, etc.).  I don't particularly like the idea of buying a third investment property and all that entails (more property taxes/more tenants to deal with, etc.) and feel my idea works fine as we still would get appreciation on investment property 1 over the 5 year period and could possibly be close enough to actually paying off the property if we increase the monthly payments.

We have no other credit card/car payment outlay.

I'm 51 and my wife is 50.  I'm putting €1,000/month into an AVC and am also putting 6% salary into company pension and have been working with my company for 12 years.  

Anyway, sorry for the long thread but would appreciate anyone's input into the above and perhaps their views on what they feel would be the prudent thing to do here.  Just don't want to go wrong at this point in life.

Many thanks!


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## goingforgold (31 Dec 2013)

Just to get a clear picture of your total financial position can you clarify if mortgage free on PPR and approx value?

In terms of investment properties you have equity of €815K and loans of €885K which is €70K negative equity.

You have savings of €180K which therefore means total net worth of 110K (excluding PPR).

You are over exposed to property. If anything I would sell investment property 1 as opposed to further investing in more property. 

Diversify and invest some of the money into medium risk shares which is suitable for someone your age. Go to lower risk investments as you  get closer to age 57/58.


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## Brendan Burgess (31 Dec 2013)

|Value| Mortgage 
Home|€500 |0
Property 1|€400k|€300k
Property 2|€415k|€585k
Savings|€180k|
Total|€1.5m|€900k

*You definitely should not buy another property. *

You are overexposed to property, so you definitely should not buy another property. If property prices rise, you have a big enough investment in them anyway, so you will benefit. 

If you can't meet your repayments when you switch to capital and interest, UB will try to get you off your tracker. So you absolutely need to be able to meet the full repayments. So keep your cash somwhere liquid.

*Should you sell Property 1? 
*Assuming the same 1.1%  interest you are paying on the other property, the annual interest is around  €3,000 (+€13,000 capital repayments) 
Rental income, assume - €9,000 

This is profitable based on these assumptions.  But do the calculations yourself to see if the profit justifies the effort. 

Would you be subject to CGT on the gain in the property? If so, then you probably should keep it. If you have an unrealised loss on the other property, it would make sense to sell Property 2 first so that you can use the capital loss against gains on other assets. 

*Should you sell Property 2? 
*Probably not. 
It looks as if you are getting monthly rent of about €1,500 and paying monthly interest of €570. This is very profitable. The negative equity is not relevant. 

Your repayments will increase dramatically, so you must have plenty of liquid investments available to meet the full repayments, so that this very profitable investment is not put at risk. 

*Where should you invest your €180k?
*You must not invest in another property. 
A diversified portfolio of directly held shares is the most likely to generate good returns for you. 
It is also very liquid and can be turned into cash quickly if needed. 

It's possible, although unlikely, that UB might offer a deal for early repayment of tracker mortgages. You should make sure you have access to cash at short notice if this happens.  Having it in blue chip shares means you can turn it into cash quickly. 

*CGT planning issues 
*It's better to hold shares directly than through a managed fund or ETF so that you can use the gains or losses in conjunction with gains or losses on the investment properties.  If you have an ETF, it's unlikely that you could set the profits on the ETF against losses on the investment property.


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## leedsutd (1 Jan 2014)

Thanks for the reply, guys.

To answer your question, goingforgold, I am mortgage free and the ppr is worth in the region of €500k.

Brendan, thanks for your reply also.  I phoned UB over the holiday period and asked if there was any chance they could write off some of the debt on property 1 (€300k) if we were to put a substantial downpayment on it now (€150k) and increase the monthly payments from €1,500/month to possibly €2,500/month, thereby getting the tracker mortage off their books.  They pretty much shot me down.  It seems to me that there is no chance any of the banks will be writing down any loans which aren't in negative equity.

In regards property 1, we bought same in 2004 for €419k (to include the stamp duty) so if we sell it now for €400k, we'd possibly be up approx €100k and CGT would not apply.  However, we just put tenants into this property six months ago and we will possibly increase the rent next year to cover the full cost of the mortgage on this property.  At the moment, we're paying €100/month extra to cover this property so it's certainly not killing us.  The rent on Property number 2 is €1,600/month and we're only paying €500/month for this (interest only).  

If we sold property 2 now, we'd probably sell for €415k (approx) with an outstanding mortgage of €585k, so effectively we'd be €170k in the hole on this property.  We don't have any assets that are profitable in which we could use the capital loss on property 2 against.  

From what I'm hearing from both of you, it seems putting approx €150k into a diversified basket of blue chip stocks with one of the online investment brokers is the way to go on the basis it's easy enough to liquidate the stocks when the time comes and we still have a rainy day fund of €30k.

Many thanks for your input here and sorry for such a long thread.  With the New Year upon us, I felt it was time now to get a handle on what we should be doing going forward that will make the most of the financial position we find ourselves in.  I think retiring by 55 is beyond me but we can always dream!

Cheers!


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## Brendan Burgess (1 Jan 2014)

> From what I'm hearing from both of you, it seems putting approx €150k  into a diversified basket of blue chip stocks with one of the online  investment brokers is the way to go on the basis it's easy enough to  liquidate the stocks when the time comes and we still have a rainy day  fund of €30k.



This is generally the right idea.

Your basket does not have to be too diversified as your cash represents only 10% of your gross assets. Maybe buy 3 to 5 separate stocks. 

I prefer holding shares in certificates rather than online, but it's much of a muchness. 

You don't need a rainyday fund of €30k if you have shares. You can partially cash the shares very quickly if you need the money.

Brendan


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## leedsutd (2 Jan 2014)

Thanks, Brendan.  I assume you use an online broker rather than the regular stockbrokers (Davy's, etc) who charge an arm an a leg for buying/selling stocks?  If buying online, do they hold the shares in your account or would they send a share certificate out to you?  Sorry for the questions but haven't much experience in dealing with shares.

While the wife still seems to be gung-ho on another property, she understands the need to diversify and that we are holding too much of our assets in property.  

Again, many thanks for your comments here.


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