# Should I pay €30k off a buy to let in deep negative equityy?



## pingin2 (11 Oct 2013)

I'm new to the site but have read many of the posts on similar topics. 

My situation is that I'm in my late 50's ,retired with a state (teachers ) pension, house paid for and kids gone . I have a nest egg and no other debts except 1

The one debt I have is for a buy to let house which I bought in 2006 for 240,000. If it could be sold now it might make 140,000. I owe about 165,000 on it . It's rented for 500 pm and the mortgage costs about 850 pm

Now the question is should i pay 30,000 off the capital and continue letting the house and keeping it as an investment that my make a return over the next 5 years  ?       or try and sell the house and throw the 30,000 with it to finish paying the mortgage?   or put the 30 grand into the post office or shares or anything else ? 
Thanks again for any advice


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## Palerider (11 Oct 2013)

I would not pay off the capital, once done that cannot be undone and it is a nice amount of cash that may be difficult for you to accumulate in the future, interest rates are however poor but that is just for now.


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## Marc (12 Oct 2013)

Do you only have 30k in savings and investments?


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## pingin2 (13 Oct 2013)

Thanks for the replies .
No Marc this is outside of my nest egg . It's sitting waiting for direction


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## Marc (13 Oct 2013)

Ok then I would seriously consider selling the property and crystallising a tax loss of €100,000. However you need to consider if this is the best option for you. For example, are you on a tracker mortgage? What is the interest rate and remaining term of the loan?

Your rental yield is only 4.3% so you are taking on a big risk here with a geared rental property for the income you are getting. You would need a fantastic mortgage deal to make keeping the property attractive.

If you could find a buyer then for the property then it would be possible to restructure your existing investments so that you could make tax fee gains until you use up the 100k loss.

Hope that helps


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## Brendan Burgess (13 Oct 2013)

_ misleading calculations, due to a misreading of the original post, deleted_





> you are taking on a big risk here with a geared rental property


There is a risk, but he can comfortably handle the risk 


state pension
€30k cash
owns his home mortgage free

If he was starting out again, I would not recommend investing in   property as he already has a house, but if he has a cheap tracker, it might be worth keeping. 

If he has a SVR mortgage, probably get rid of it.


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## Marc (14 Oct 2013)

Brendan,

The rental income is 500pm as noted above.
The property is worth about 140k. This is a guess. The property is actually worth what someone actually pays. 


Again, as noted above for an investor it's probably worth about 84k based on the current rental income. The best course of action would be to get a market appraisal and of course  the very best way to do this would be to put it on the market and get some offers.

I noted the point about the mortgage rate in my post it is an important factor so we need to know the terms.

As for the CGT losses again I said they would need to re organise their existing portfolio to avail of the losses. 

However, this is a perfectly rational course of action. 

Any rational investor is going to be much better off with a globally diversified portfolio of tens of thousands of securities and moping up a cgt loss,  rather than a single geared property in Ireland.

The property is owned by the bank due to the negative equity, the mortgage costs more than the rental income. As you say no one would want to start from this position today so as I noted unless it is a fantastic mortgage deal or the property is sited above an oil well why not start again?


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## Brendan Burgess (14 Oct 2013)

Sorry, about that. I misread the first post. 

So the yield is €6,000/€140,000 4.3%, as Marc calculated. 

In practice, it's even less if you allow for costs and void periods. 

pingin

If you have a SVR mortgage, sell as this is losing money on the actual value.

If you have a cheap tracker, it might be worth keeping.


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## Padraigb (14 Oct 2013)

You should distinguish between cash flow and income/expenditure. Yes, you are down money every month because the rent you receive is less than the mortgage payment and costs of ownership.

But the €850 p.m. you pay out on the mortgage comprises both interest (expense) and capital repayment (not an expense, in effect an investment). Each month you should be reducing the balance owing. There is a bit more arithmetic to do before deciding what the best course of action might be.


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## pingin2 (14 Oct 2013)

Thanks very much for the replies . 
There is 18 years left on the mortgage which is not a tracker . Basically i'm losing at least 500 euro a month .
so is the consensus that I should sell.
Thanks again


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## LDFerguson (14 Oct 2013)

I'm trying to figure something out: €165,000 mortgage over 18 years at 1.2% interest = €850 per month (roughly). That's on normal capital and interest repayments.  

Or the interest rate could be 6.2% if it's on interest-only.

Is the loan on interest-only?  If not, there's something odd about a mortgage being on an interest rate of 1.2% and NOT being a tracker. 

I'm trying to expand on Padraigb's point above, which I think is relevant here.


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## pingin2 (14 Oct 2013)

Ld I had very little interest in this investment from the beginning . I just jumped in at the time because my friend were doing it and I was convinced that I'd make a quick buck . I had no great interest in rates or length of mortgage and still have very little interest or understanding of the whole mortgage thing . I'm actually not sure ,to be honest whether the mortgage is for 20 0r 25 years . I did previously pay off a lump of 40,000 grand on the  240,000 I initially borrowed and was on interest only for the first few years .


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## LDFerguson (14 Oct 2013)

pingin2 said:


> Ld I had very little interest in this investment from the beginning . I just jumped in at the time because my friend were doing it and I was convinced that I'd make a quick buck . I had no great interest in rates or length of mortgage and still have very little interest or understanding of the whole mortgage thing . I'm actually not sure ,to be honest whether the mortgage is for 20 0r 25 years . I did previously pay off a lump of 40,000 grand on the 240,000 I initially borrowed and was on interest only for the first few years .


 
Fair enough, but I think you should familiarise yourself with what you have before you make decisions involving what are large sums of money.  I'd recommend that you get on to the bank and ask them the following: - 

(1) Exact amount outstanding right now.  

(2) Expiry date of mortgage. 

(3) Interest rate you're paying.  

(4) Are you on interest-only or full capital and interest repayments?

They should be able to tell you than over the phone.  Post it back here.  

Padraigb's point is relevant - if the rent is more than covering the interest and expenses, then there's an argument in favour of keeping the property, although there are other factors to be looked at.


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## pingin2 (15 Oct 2013)

LD Thanks for the reply . I rand ACC this morning and the answers I got were



(1) Exact amount outstanding right now.   157,000 euro


(2) Expiry date of mortgage.   2031

(3) Interest rate you're paying.  1.73% Tracker Mortgage

(4) Are you on interest-only or full capital and interest repayments?  Full capital and interest mortgage .


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## Padraigb (15 Oct 2013)

You are paying less than €3000 pa in interest: most of your €850 pm is going into reducing your debt.

Back of envelope: Rental income €6000; interest on loan €2800; other costs €1200; profit €2000.

If your estimate of the sale value of the property is good, you are not deeply into negative equity. Your €30k would allow you to bail out of the situation if you wished. Whether or not it would be a good decision depends on many factors: your cash flow situation; how much hassle the letting causes you; prospective rents in the future; prospective property values in the future.


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## LDFerguson (15 Oct 2013)

I agree with Padraigb.  If his figures are close to the mark, this rental is making you money.  Don't focus on the fact that you are having to subsidise the mortgage every month: about €600 per month is coming off the capital of the loan so every month you're buying back a bit more of the property for yourself.  

If this subsidy is causing you financial strain then that's a different story.  You're investing in property each month and if you don't have the disposable income to do that, you have to consider that also.


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## pingin2 (15 Oct 2013)

Thanks very much for the replies Padraig and LD.
The subsidy isn't really causing any financial strain and up to now we haven't had too much hassle with letting the property or with tenants .
So ,in your opinions, should I hold on to the property ,as is, for now, and deal with the future in the future.
Thanks again


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## Steven Barrett (15 Oct 2013)

pingin2 said:


> Thanks very much for the replies Padraig and LD.
> The subsidy isn't really causing any financial strain and up to now we haven't had too much hassle with letting the property or with tenants .
> So ,in your opinions, should I hold on to the property ,as is, for now, and deal with the future in the future.
> Thanks again



If you read the first half of this thread, it's sell, sell, sell. 

If you read the second half of the thread, it's keep, keep, keep.


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## Brendan Burgess (15 Oct 2013)

SBarrett said:


> If you read the first half of this thread, it's sell, sell, sell.
> 
> If you read the second half of the thread, it's keep, keep, keep.



You make it sound as if we are inconsistent. This is what I said 



> as he already has a house, but if he has a cheap tracker, it  might be worth keeping.
> 
> If he has a SVR mortgage, probably get rid of it.



When he turned out to have a cheap tracker, it seems right to keep it.


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## pingin2 (15 Oct 2013)

Would it make sense to use the 30,000 to further reduce the capital if I'm keeping the property ?
Thanks again to everybody who took the time to reply.


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## huskerdu (16 Oct 2013)

pingin2 said:


> Would it make sense to use the 30,000 to further reduce the capital if I'm keeping the property ?
> Thanks again to everybody who took the time to reply.



If you save the €30K you earn interest
If you pay if off the mortgage, you save by paying less interest. 

Your tracker rate is low but the interest rate that you could earn on the €30K is also low, and was reduced even further by the increase in DIRT. 

I have not done an analysis which will make you more money in the long term, but my back of the envelope estimate is that the difference between the two approaches is very small. 

The advantage of not paying off the mortqage, is that you keep control of the €30K in case you need it for something else. If you pay it off the mortgage, you lose this.


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## pingin2 (16 Oct 2013)

Thanks huskerdu. 
You sum it up well . I can do without the money however I'm not really sure that if I want to put it all into the property either.


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## Bronte (17 Oct 2013)

huskerdu said:


> my back of the envelope estimate is that the difference between the two approaches is very small.
> 
> The advantage of not paying off the mortqage, is that you keep control of the €30K in case you need it for something else. If you pay it off the mortgage, you lose this.


 

I agree that if the difference is small the OP is better off keeping the 30K.


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