# 3 mortgages,  2 rental properties, 1 family - what are the best options?



## Miakk (24 Jul 2022)

*Personal details*
Age: 47
Spouse’s/Partner's age: 42
Number and age of children: 2 (8, 4.5)

*Income and expenditure*
Annual gross income from employment or profession:  €37,500
Annual gross income of spouse:  €90,000 + potential moderate bonuses of up to €5k annually
Monthly take-home pay: (combined) about €6000

*Type of employment: *
Me: Public Sector, working job share (0.5 WTE, permanent post)
Spouse: Private Sector, full-time

*In general are you:*
(a) spending more than you earn, or
*(b) saving?* - making moderate savings monthly individually (about €300 each)  and jointly (aim for €500, but some big expenses lately have made that difficult)

*Summary of Assets and Liabilities
Family home:* recent valuation €1.1M, remaining mortgage €520k
*Cash:*About €10K - the majority of this is from previous Tracker Redress
*Buy to Let Property:* 2 - We each have properties that were originally our PPRs when we met - we are both "accidental landlords"

*Family home mortgage information*
Lender: KBC
Interest rate: recently fixed for 5 years @ 2.4%

*Other borrowings – car loans/personal loans etc*
Me: Car Finance €320 per month (PCP, finishing Jan 2023)
Spouse: PCP €450 per month.
(we need 2 cars)

Do you pay off your full credit card balance each month? Yes


*Buy to let properties*
Me:
Value: Property bought 2005 @ €248k,  currently worth about €225k.  Balance €145K with 18 years left.
Rental income per year: €12,000, in RPZ
Rough annual expenses other than mortgage interest : €2000
Lender: UB
Interest rate: Tracker mortgage of ECB+1%,

*Spouse:  *
Value: Property bought 2005 for about €250k, currently worth about €170k. Balance €125k, 18 years left
Rental income per year: €10k , in RPZ
Rough annual expenses other than mortgage interest : €2000
Lender: UB
Interest rate: ECB +1.15%

*Other savings and investments:*
Do you have a pension scheme? Yes, we each have individual schemes
Me:
AVCs on top of Public Sector Pension, latter is based on final salary so my recent work situation will impact that.
I will also have access to small pension from 5 years of UK NHS employment and I'm making annual UK NI contributions to access a UK state pension also

Spouse: company pension + AVCs

*Savings:*
Altogether*,  *currently about €40k (including some in children's names)

*Other information which might be relevant*
We have no childcare costs for the foreseeable future, thanks to my recent employment changes and WFH for spouse.

Life insurance: we have additional policies on top of our work benefits.
I also pay for separate income protection, about €60/month

We live comfortably  but not excessively - max 1 holiday a year, don’t really eat out, careful-ish with weekly shopping, etc.
In general we are good savers and shop around for utilities, insurance etc at least annually.

I changed employment at the start of this year, from full-time at a high Health Sector grade, to part-time at the grade below.  This has been great overall for our family and my own well being, but I feel cash flow is tight.   I would hope to increase my hours up from half-time in a few years but grade progression is less likely, so I don't envisage any huge changes in finances on that front.

*What specific question do you have or what issues are of concern to you?*

_*Should we sell one or both of our rental properties, and if so what would be the best use of the capital that this would release? *_

Recent inflation & interest rate hikes, with more to come, have us concerned re the rental properties and what is best to do with them.
There are still almost 2 decades outstanding on the mortgages on each of the rental properties and although the current tenants are good and there are no active problems, the tax liability in particular feels like a big hit annually to cash-flow/savings - it's working out at about €6+k a year.
But we have 2 young children who we will need to finance for that same period of time also. By the time the rental property mortgages have been paid off, the children will hopefully have flown the nest, more or less.

The mortgage on our home is manageable, but we’ve had a number of big maintenance expenses recently and need more work done.
Another concern is our ability to remortgage given our other borrowings and my drop in salary - we did consider switching earlier this year but were told by one of the main high street banks that we would have to reduce/remove at least one of the car loans before we could be eligible.  When my current PCP ends in January 2023, I fully intend to downgrade to a run-around vehicle and have no, or at least lower, car finance.

I also went through the whole tracker saga with First Active/UB for my rental property (tracker restored since 2018) so am quite “burnt” by that and I'm  nervous about making another expensive mistake, especially with young dependents.

All advice from the AMA sages is most welcome!


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## Brendan Burgess (24 Jul 2022)

Miakk said:


> *Other borrowings – car loans/personal loans etc*
> Me: Car Finance €320 per month (PCP, finishing Jan 2023)
> Spouse: PCP €450 per month.
> (we need 2 cars)





Miakk said:


> Altogether*, *currently about €40k (including some in children's names)



This is the most obvious thing which strikes me. 

Are you paying interest on your PCPs? 

1) Can you clear them and save interest? 
2) Are you facing big final payments when the PCPs end?  Is the €40k enough to clear them?


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## Brendan Burgess (24 Jul 2022)

Miakk said:


> *Buy to let properties*
> Me:
> Value: Property bought 2005 @ €248k, currently worth about €225k. Balance €145K with 18 years left.
> Rental income per year: €12,000, in RPZ
> ...



You are getting €12k rent
You will be paying about €4k interest when ECB rates rise to 2%
You have €2k expenses
So it's making you €6k a year before tax.
That is not a bad investment.
If you sell it, you will have €80k cash to clear your mortgage at 2.4% , so you would save €2,000 a year in mortgage interest.

Don't forget that your monthly repayments include a big element of capital, so you are effectively saving this money.

So you should keep this.

If the tenants leave, then review the decision.

Brendan


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## Brendan Burgess (24 Jul 2022)

Miakk said:


> *Spouse: *
> Value: Property bought 2005 for about €250k, currently worth about €170k. Balance €125k, 18 years left
> Rental income per year: €10k , in RPZ
> Rough annual expenses other than mortgage interest : €2000
> ...



Very similar to yours. 
Rental income: €10k
Interest when ECB hits 2% €4k
Expenses: €2k 
Profit: €4k 

If you sell you will save €45k @ 2.4% or €1k


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## NoRegretsCoyote (24 Jul 2022)

Miakk said:


> *Buy to let properties*
> Me:
> Value: Property bought 2005 @ €248k, currently worth about €225k. Balance €145K with 18 years left.
> Rental income per year: €12,000, in RPZ
> ...


I would give tenants notice and sell up.

Reasons:
1) you're already cash flow negative and this will only get worse. You can't raise rents much and ECB rates will increase.
2) you have no CGT liability
3) one bad tenant would really mess you up financially
4) you'll walk away with maybe €120k after expenses. This will be useful if you want to trade up/renovate/make more AVCs.


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## Brendan Burgess (24 Jul 2022)

Another reason for keeping your investment properties is that they are worth less than you paid for them.
So any increase in value up to the price you paid will not be subject to Capital Gains Tax. 

If they recover to the price you paid, then maybe sell them. 

Brendan


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## Brendan Burgess (24 Jul 2022)

Miakk said:


> *(b) saving?* - making moderate savings monthly individually (about €300 each) and jointly (aim for €500, but some big expenses lately have made that difficult)



Don't feel that the only savings is additional cash added to your bank account. 
You are saving every month by the capital repayments on your three mortgages. 
So you are saving far more than you think you are.


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## Miakk (24 Jul 2022)

Brendan Burgess said:


> This is the most obvious thing which strikes me.
> 
> Are you paying interest on your PCPs?
> 
> ...


Thanks Brendan,
Should be able to clear mine in Jan 2023, the strong value for second hand cars is working in my favour and will use the savings for any difference and trade down. 


Miakk said:


> When my current PCP ends in January 2023, I fully intend to downgrade to a run-around vehicle and have no, or at least lower, car finance.


Will chat to other half re theirs


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## Brendan Burgess (24 Jul 2022)

Overall, carry on as you are, but keep things under review. 

If the value of your investment properties don't change, then every year your equity will increase due to capital repayments. 

If things get more expensive after a few years with college fees for example, you should have plenty of equity by then and it may well be right to sell off one or both of your properties then. 

Brendan


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## Sarenco (24 Jul 2022)

Are you sure the valuations for the rentals are accurate?

Most properties are now above their 2005 values.


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## Miakk (24 Jul 2022)

Brendan Burgess said:


> If you sell it, you will have €45k cash to clear your mortgage at 2.4% , so you would save €1,000 a year in mortgage interest.


Can I check where you get the €45k figure from?  Property 1 value €225k, mortgage left €145  = €80k; is there a tax I will have to pay other than CGT (which would not be due as less than purchase price)



Brendan Burgess said:


> Another reason for keeping your investment properties is that they are worth less than you paid for them.
> So any increase in value up to the price you paid will not be subject to Capital Gains Tax.
> 
> If they recover to the price you paid, then maybe sell them


I want to word this carefully to avoid a rule violation.... but things seem to be as good as they may be going to get for a while, part of the reason we are looking at options. I feel my property is better established than my spouses  - a house vs a boom era apartment, although both in different regional towns - but values have never recovered back to pre-2005 levels.

Thanks so much Brendan!


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## Miakk (24 Jul 2022)

Sarenco said:


> Are you sure the valuations for the rentals are accurate?
> 
> Most properties are now above their 2005 values.


Hi Sarenco, 
Unfortunately yes, as coincidentally I just said to Brendan above (cross-post). Have based both on latest Property Price Register data for each estate/location.  Nonetheless we are planning to contact Estate Agents for ball park valuations this week,


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## Miakk (24 Jul 2022)

NoRegretsCoyote said:


> I would give tenants notice and sell up.
> 
> Reasons:
> 1) you're already cash flow negative and this will only get worse. You can't raise rents much and ECB rates will increase.
> ...


Thank you NoRegretsCoyote,  Points 1 & 3 in particular are resonating loudly!  
We have both been lucky with tenants to date for the most part,  but I had difficulty with a short tenancy that the management company handled well for me  -  I was still out of pocket to the tune of €1k + rent lost, all while I was on Maternity Leave. The stress!!


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## Brendan Burgess (24 Jul 2022)

Miakk said:


> Can I check where you get the €45k figure from? Property 1 value €225k, mortgage left €145 = €80k; is there a tax I will have to pay other than CGT (which would not be due as less than purchase price)



Sorry, I must have looked at the figures for Property 2!


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## Brendan Burgess (24 Jul 2022)

NoRegretsCoyote said:


> 1) you're already cash flow negative and this will only get worse.



You have to be careful about this.  

All "cash flow negative" means is that you are paying down your capital.  If you were on interest-only, you would not be cash flow negative. 

It's a bit like saying "My savings account is cash flow negative because I put €500 a month into it" 

If you could not afford €500 savings I would not recommend you save that money. 

And if you can't afford to pay the  repayments comfortably, then I would suggest you sell the property.

But it seems to me that you can afford to meet the repayments, so keep at it.


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## Brendan Burgess (24 Jul 2022)

NoRegretsCoyote said:


> 3) one bad tenant would really mess you up financially



Agreed which is why I would say that you should sell them when the tenant leaves. 

But you seem to have good tenants, so this is not an issue. Although, good tenants can turn bad.

Brendan


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## NoRegretsCoyote (25 Jul 2022)

Brendan Burgess said:


> All "cash flow negative" means is that you are paying down your capital. If you were on interest-only, you would not be cash flow negative.


I agree, but OP's circumstances are relevant here. Yes, they are paying down a lot of capital monthly on three mortgages. They have only a €10k cash buffer and are struggling to save. A rogue tenant would really mess them up.

In the short term on the trackers (and medium term PPR) they will be paying materially more on interest out of day-to-day income with very little scope to increase rents to compensate. That additional interest will not pay down any capital and will instead eat into lifestyle. 150bps on the trackers will be about €330 a month which is a lot of things to not spend money on.

There is a good case for selling one property so that things are more comfortable short term. The loss can be carried forward as well and offset against any potential CGT gain on the other. The other reason is OP hasn't specified but it looks like a large majority of their wealth is in Irish property. It makes sense to diversify a bit into global equities via pension.


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## Brendan Burgess (25 Jul 2022)

NoRegretsCoyote said:


> In the short term on the trackers (and medium term PPR) they will be paying materially more on interest



Hi Coyote

I have allowed for this by doing my calculations based on ECB hitting 2% and it's still profitable.



Brendan Burgess said:


> Very similar to yours.
> Rental income: €10k
> Interest when ECB hits 2% €4k
> Expenses: €2k
> Profit: €4k





NoRegretsCoyote said:


> They have only a €10k cash buffer





Miakk said:


> *Savings:*
> Altogether*, *currently about €40k (including some in children's names)



They have €40k so they could handle a non-paying tenant.

They are not struggling to save.

They are paying big lumps of capital off all three mortgages
They are paying AVCs
They have saved €40k
They have also had some big maintenance expenses recently 
 If they were, I would certainly agree with you to dispose of at least one of the properties.

She has taken a salary cut, so if they find themselves running down their €40k cash, then they should probably sell.


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## Brendan Burgess (25 Jul 2022)

NoRegretsCoyote said:


> The other reason is OP hasn't specified but it looks like a large majority of their wealth is in Irish property. It makes sense to diversify a bit into global equities via pension.



I had wondered about this.

Home: €1.1m
Investment 1: €225k
Investment 2: €170k

But selling say investment 1 doesn't help diversification that much.  It reduces their exposure to property by about 10% of their portfolio, if we assume pensions worth about €500k.

And it releases only €80k of equity, which would probably be best used to pay down the mortgage on their home. 

Brendan


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## Brendan Burgess (25 Jul 2022)

By the way, it's quite a close decision. 

In some cases it's clear that the person should sell or it's clear that they should not sell.

In this case, it's close enough.  That is why I would say hold onto them until the tenant leaves and then review and probably sell.  It's probably not worth the risk of a new tenant.   

And keep the decision under review. If they are running down their savings to pay down the capital on the mortgage, then they should probably sell.

Or if there is a change of government, they should probably sell while they are still allowed to sell. 

Brendan


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## Clamball (25 Jul 2022)

You say you need the two cars, but your spouse works from home and you work 0.5 hours.  You are spending a lot on the car loans, do you really need 2 cars at all?

Obviously you are making great savings now on childcare, and are careful spenders on day to day and probably more so now when you have more time to cook from scratch and shop around.

I think you should make your €40K savings work for you, not have car loans, and use this money for the house maintenance.  And use the Childrens allowance for your everyday costs, new shoes, uniforms etc.

As well as focusing on the big money items like the mortgage, also focus more on the day to day.  Reducing your wages by more than 50 % was a big lifestyle change so all spendings and needs (like 2 cars) should be looked at.


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## T McGibney (25 Jul 2022)

Clamball said:


> You say you need the two cars, but your spouse works from home and you work 0.5 hours.  You are spending a lot on the car loans, do you really need 2 cars at all?


They're raising two young children.


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## Miakk (25 Jul 2022)

Re the need for 2 cars, the problem is on those days when I work transportation is still needed get the children to and from school etc, at a minimum.  They are too young and it is too far & not safe enough for them to walk/cycle. 

My own car finance was taken out almost 3 years ago before COVID and before I had any intention of taking a step back - but circumstances and priorities change. That was ironically the first car I used finance for - I've been a car owner since the late 1990s - and I am not planning on repeating it again once the finance ends on this one. 

Although I live in one north Dublin suburb and work in another, it would take me probably 3 x longer to get to and from work by public transport (with several interchanges), not to mention that the times don't match my work shifts in healthcare, having to transport kids, etc. 
I come from an urban area in the south east so I am grateful for the fact that there is public transport at all, but I just can't match the services to my needs without losing a lot of time that I don't have on an awkward commute.


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## Miakk (16 Oct 2022)

An update to my original post as our situation with regard to properties is changing rapidly...

My husband currently has his rental property on the market, it should be going sale agreed in the next couple of weeks; my estimate on valuation was accurate.
I  thought I would at least wait until my husband's sale had cleared before making any decision re. selling my own rental property.
However, my tenants have recently given notice and will be moving out in November, which moves the timelines a lot closer!

I will have no problem letting the property as, apart from the market/lack of supply,  it's a house in an excellent location and in good condition.
But there has also been another ECB rate increase and as I am in an RPZ I cannot increase the rents to keep pace when interest rates rise further or match market equivalents in the area.

I am seriously considering selling up now when I have vacant possession. 
I had tentative valuation in Aug which placed the property back on the price I paid for it in 2005 (€248k).  I would use any capital realised from a sale to reduce the outstanding mortgage on PPR (currently €520k) and to build up AVC and savings for kids college etc.

......any advice??


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## PaddyBloggit (16 Oct 2022)

Miakk said:


> ......any advice??



Sell!

You have good use mentioned for the proceeds of the sale and with the talks of banning evictions..... why take the chance?


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## Bolter (16 Oct 2022)

You're public sector. Have you explored buying back years to enhance your pension (to cover time on leave/time part-time etc)
The terms of pre- 2012  defined benefit pension will probably never be as generous again. 
If you're that category perhaps look at that. It may be better value than avcs .


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