# Should we sell second property?



## Casper3 (7 Feb 2017)

We have an investment property valued at €180K - €210K which has a tracker mortgage of €95k, repayment of €950/mth until Nov17 at which point repayments will drop to €580/mth.

Tenants that were long term were paying €770/mth are now moving on.
We should now be able to achieve a rent of €1100-€1200.
Although we struggled with repayments during the recession we can now see the benefit of selling and reaping the profit, however we can also see the income making capacity that this asset would have.
All advice welcome.


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## Leper (7 Feb 2017)

HI Casper.  Speaking as a guy who paid up to 19.75% interest to AIB Home Loans and being as near to broke as make no difference for most of my days.  Remember back in the day married women were forced to resign on marriage which didn't help much to us.  I won't bore you with more of the details.  

You seem to have it made.  A property that yields much more than it costs.  Simple arithmetic, Profit V Loss.  You're to the good bigtime.  Why change the way you can do business? Keep doing what you are doing and love it. You are luckier than you probably think.


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## gnf_ireland (7 Feb 2017)

Casper3 said:


> Tenants that were long term were paying €770/mth are now moving on.
> We should now be able to achieve a rent of €1100-€1200.


Is it in a Rental Pressure Zone? Surely not if you can raise the rent by that amount

How long is left on the mortgage? What age are you ? Do you view the property as part of your 'pension'? How are the rest of your finances looking - do you have another mortgage with a higher interest rate.

If you increase the rent, you will be in a cash-flow positive situation with the investment. This is a good place to be. You also have 100k equity in it (before CGT), so its a case of do you want to have the windfall now or do you want the ongoing income.

How much did you pay for the property, as this will influence the CGT calculation?


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## Casper3 (7 Feb 2017)

Gnf_ireland 
Not in a rental pressure zone just yet, and there in is the reason for the rental increase! Loosing good tenants as a result
Original mortgage ends in November thus reducing the loan.
Equity release mortgage remaining of €92.5K at 1.2% 2031
Wouldn't really view it as a pension, we have a three children due through college in the next few years.! 16,15 and 11.
Bought the property in 1997 for  £57K

PPR mortgage €165K at 1.1% 2029, value approx €400K €1200/mth
Approx savings €60K in state savings and investments.
Every day living requires constant budgeting but comfortable.
Are we foolish to sell?


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## Gordon Gekko (7 Feb 2017)

What's your position as a couple with regard to pension provision?

My sense is that you would mad to sell.


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## Casper3 (7 Feb 2017)

With regards our pensions, we have one private and one public sector.
Private sector one not performing very well I believe.
My belief too is that to sell would be a mistake but that possibly the gains we make will simply return to the tax man.


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## cremeegg (7 Feb 2017)

Seriously, you need to get sharper on the numbers before you even start to think about this. You have nothing to think about until you are clear on the figures.

*Sell*

Sale price                     €200k
CGT (€200-€57)*0.33 = €47k
Fees etc                          €5k
Repay mortgage             €95k

Net sale proceeds           €53k

*Keep*

Rental Income                  €13,200
Interest expense                €1,140
Other expenses estimate    €1,500
Tax at 50%                        €5,422

Profit *after* tax                €5,138

That is an *after* tax profit of almost 10%. 

It depends on what is important to you but to me this is a no brainer. Keep It.


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## irishguy2015 (7 Feb 2017)

Casper3 said:


> Gnf_ireland
> Not in a rental pressure zone just yet, and there in is the reason for the rental increase! Loosing good tenants as a result



I think most people under estimate how reluctant tenants are to move out. I know someone who increased their tenants rent by almost 60% before Christmas and the tenants accepted it with no issue. Good tenants will see a recognise a good landlord and will accept rent increases. Tenants generally kick up an issue with rent increases if the landlord is an absentee landlord ie takes several months to fix/replace essential things. 

If the tenants are about 40% under the market rate, increasing it to 20% under the market rate IMO won't cause them to move out if you are concerned about them leaving. They won't be able to find a similar property at a similar price point. You stand the risk of a Government introducing a national rent control and being stuck at that significantly under market rate for years to come. 

You don't really appear to see it as a pension or an investment when it could be quite a decent one. When the mortgage is paid off, you will have about €1200 per month from it. There will be tax etc but when you are older and not in employment, it will be a decent source of income as your tax credits will go towards your rental income, rather than a regular job. 

If you sell it to put the money in the bank or state savings, you might get around 0.3/0.5% per year which is basically nothing. I would increase their rent by 20% and invest the extra rent.


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## Gordon Gekko (7 Feb 2017)

Casper3 said:


> With regards our pensions, we have one private and one public sector.
> Private sector one not performing very well I believe.
> My belief too is that to sell would be a mistake but that possibly the gains we make will simply return to the tax man.



Not performing well how? How is it invested? What's the party's salary and what does he/she put in annually?

What's the salary of the public sector person and how many years of service will they have at retirement?


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## Casper3 (7 Feb 2017)

Private sector salary €62k projected pension €18K in 16 years
Public sector salary €43k , with expected retirement age now 68 should have 40 yrs.


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## Gordon Gekko (7 Feb 2017)

Casper, does that €18k pension include the State Pension (€12k) or not?


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## Gordon Gekko (7 Feb 2017)

My sense is that you should keep the property and use the extra income to make Additional Voluntary Contributions into the private pension arrangement.


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## Casper3 (7 Feb 2017)

Gordon Gekko
€18K pension does not include the state pension.
The suggestion of AVCs is one that we had considered for the private pension.
The public pension pension has been added to with AVCs for the past 10 years.


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## Gordon Gekko (7 Feb 2017)

I'm not an expert on public sector pensions, but you mentioned that they'll have 40 years service at retirement; do AVCs make sense in such circumstances?

I think you should keep the property and maximise your AVCs.


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## Casper3 (7 Feb 2017)

Yes true about the 40 years , but they are part time years so the AVCs should shore up that deficit.
Think decision is made to hold on to the property for another while and see if every day living becomes a little smoother.
Thanks for all your advice.


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## asdfg (7 Feb 2017)

Hope you paid tax annually on the profit on the rental income


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## Casper3 (7 Feb 2017)

Certainly did! Thankfully.


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## gnf_ireland (7 Feb 2017)

Casper3 said:


> Bought the property in 1997 for £57K





cremeegg said:


> CGT (€200-€57)*0.33 = €47k



One small point from the calculation above - the OP bought in 1997 so it is Irish Punts rather than Euro. £57k would be approximately €72k, so the CGT would be 42k rather than 47k. Small point, but just keep it in mind if you do decide to sell.



cremeegg said:


> That is an *after* tax profit of almost 10%.


That is a fairly impressive number, and has the potential to go a long way toward funding the kids college education (depending on whether they live at home or not). Definitely worth thinking about...


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## Casper3 (7 Feb 2017)

We also lived in the house until 2004 so that will change  the CGT calculation even further.


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## Gordon Gekko (8 Feb 2017)

gnf_ireland said:


> One small point from the calculation above - the OP bought in 1997 so it is Irish Punts rather than Euro. £57k would be approximately €72k, so the CGT would be 42k rather than 47k. Small point, but just keep it in mind if you do decide to sell.
> 
> 
> That is a fairly impressive number, and has the potential to go a long way toward funding the kids college education (depending on whether they live at home or not). Definitely worth thinking about...



Plus indexation up to 2003...the OP would be bonkers to sell the property...AVCs are the sensible play thereafter.


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## Leper (8 Feb 2017)

Some of the heavier hitters are on here giving financial advice.  But, the subject is a no-brainer.  Keep the house, rent it out, reek in the inbuilt profit. Simple !!!!! and keep it simple. As a Tipperary farmer informed me lately having got burnt in the investment game, he said he should have stuck with calves and cows, the business he knows about. 

Casper knows about the property he rents out, so don't change a winning team.


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## gnf_ireland (8 Feb 2017)

Casper3 said:


> We also lived in the house until 2004 so that will change the CGT calculation even further.


I also believe the last 12 months of ownership is also deemed to be PPR if you had lived in the house at some stage. I was advised this when I was calculating the capital loss on our one 



Gordon Gekko said:


> Plus indexation up to 2003


Good point



Gordon Gekko said:


> the OP would be bonkers to sell the property


I guess some of this is a discussion for the OP on whether they wish to be a landlord or not. There are may people who are simply not cut out to be landlords, although if they have been one for 12 years it should be an easy enough decision to make for them. If they dont mind it, then its something they definitely need to consider



Gordon Gekko said:


> ...AVCs are the sensible play thereafter.


If I was the OP, I would look at doing a cashflow projection over a number of years, reflecting the cost of education and other major expenses on the family. They are carrying a reasonable level of savings, so that should not be an issue. If they can make 5k after tax, and the mortgage repayments are 580/month, they will probably just about break even cash flow until 2031
*Maybe my figures are wrong here, so someone can correct me if I am wrong*


cremeegg said:


> Rental Income €13,200
> Interest expense €1,140
> Other expenses estimate €1,500
> Tax at 50% €5,422
> Profit *after* tax €5,138



Mortgage Principal €5,820   (580*12 - 1140 (interest calculation above))
Cashflow Negative  €682

However, in 2031 (14 years time) there will be a nice income return (~8k assuming lower tax rates) to supplement the available pensions (by around 20%) with minimal cost over the intervening time, as well as an asset for the kids in the future.

I think you are 16 years from retirement (from a comment above), so any income you make over the final 2 years can be placed into a pension so as to avoid the higher tax rates in that window.

But again, it is up to you but you do need to consider cashflow projections and what you would do with the funds if you sold and the return you would get on them.


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## Sarenco (8 Feb 2017)

I think GNF's summary is spot on.

The rental, on the face of it, looks like a reasonable long-term investment but it is modestly cash-flow negative as things stand.  Given the prospect of having two kids at college in the near future, I would imagine that there will be significant demands on the OP's savings/cash-flow in the near future.


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## Casper3 (8 Feb 2017)

Saranco, 
Yes immediate and near future cash flow has to be a concern. Also having lived quiet modestly for the past 8-9 years we can see this available lump sum and it can be tempting to cash in, take the holidays, change the car, home improvements etc. 
The sensible part of me continues to plan for the future, education, unplanned events like illness or accident.


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## Sarenco (8 Feb 2017)

Casper3 said:


> Also having lived quiet modestly for the past 8-9 years we can see this available lump sum and it can be tempting to cash in, take the holidays, change the car, home improvements etc.



That's perfectly understandable and I can certainly see why you are looking at this now given the impending departure of your long-term tenants and before the CGT "bite" becomes significant.

I don't think there is a "right" answer here - it's really a case of trying to strike the right balance between your short, medium and long-term financial needs.

Good luck with whatever you decide.


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## Casper3 (8 Feb 2017)

Thanks again for all advice given


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## gnf_ireland (8 Feb 2017)

Casper3 said:


> Yes immediate and near future cash flow has to be a concern. Also having lived quiet modestly for the past 8-9 years we can see this available lump sum and it can be tempting to cash in, take the holidays, change the car, home improvements etc.
> The sensible part of me continues to plan for the future, education, unplanned events like illness or accident.


This summarises the issue up perfectly.

I have to admit, family experiences at the age your kids are will always be remembered. A road trip across the USA (or Canada) would be something extraordinary, and should not be discounted. Life cannot be all about work & being sensible and not living...

Do the cashflow projects and see if it helps you reach the right answer !


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