# What do to (if anything) about investment property on cheap tracker



## Snowdon (5 Feb 2014)

Income details
Net monthly (i.e. after tax) Income self: €2,700 p/m - full-time permanent, private sector
Income history: in full-time employment - 7 years in current job
Net monthly income partner/spouse: €2,500 p/m - full time permanent, public sector
Income history: in full-time employment pretty much since graduation
Amount of child benefit received: €130 p/m
Amount of Mortgage Interest Supplement received: n/a

Personal circumstances so we can calculate your reasonable living expenses 
Do you need a car for work or do you use public transport? We both need cars in our current setup. Mine is 9 years old, spouse's is 14 years old, both about 140,000 miles and at least one will need replacing in the next 3 years or so.
Number of children 0- 2 years old: 1
Number of 3 years old children: 0
Number of 4 - 11 years old: 0
Number of 12 - 18 years old: 0
Monthly childcare costs: €500 (we pay a relative)
Montly spend on special circumstances: n/a

Home loan
Lender: BOI
Amount outstanding: €217k
Value of home: about €200k
Interest rate: SVR 4.5%
Monthly repayment: €1,115 (€75 TRS)
Amount in arrears: no arrears
Summary of discussions and agreements with the bank: n/a

Investment property (was our home up until last year)
Lender: Ulster Bank
Amount outstanding: €183k
Value of home: €100-110k
Interest rate: ECB+ 1.15% so 1.4% at the moment I think
Monthly repayment: €1,050 (been maintaining original payment amount, so overpaying since rates started being cut in 08/09)
Amount in arrears: no arrears
Monthly rent received: €600 (€75 goes to management company)

Credit Union 
Amount of shares: €2,800
Amount of loan outstanding: €2,900 (needed to pay for a small overrun on our new house, which we had gutted and renovated last year)
Monthly repayment: €50
Term left: will depend on extra payments that we make as and when

Other loans and creditors - delete those which don't apply to you
Credit Card: used carefully and cleared every month

Other savings and investments 
Do you expect any lump sums in the medium term future? €3-4k this year and next from employee share scheme that's maturing
About €3k in savings plus €3k in shares (education fund for child)

How important is retaining the family home to you?
I really want to keep the family home even if it means having a large mortgage and negative equity for years to come.

Any other relevant information:
Life assurance: €115 p/m

What is your preferred realistic outcome?
I'm well aware of how fortunate we are compared to a lot of people on here (and mods, please move this thread if it's in the wrong place). However we're finding things very tight with overtime practically gone, pension levy, USC and property tax. We have enough to live, and we're slowly building some savings.
However there's very little leeway and I'm concerned that we could very easily be tipped into difficulty if one of us were made redundant, got sick or had an accident. We are going to have to replace one of the cars soon, and even a modest second-hand car is going to cost €5-6k, which will eat up any savings (or, if we go the repayment route, wipe out any excess that we have to put towards new savings). Neither of us has bought new clothes - other than underwear - for a year now ("boo hoo" I hear you say, but I'm beginning to wonder what the hell we're going to work every day for!)
I would love to be rid of the second property as it would free up a fair chunk of money every month. However there's no possibility of offloading it onto the taxpayer (nor would I like to). To sell now would leave us with a huge unsecured debt, and to sell once the negative equity was cleared would leave us with not a penny out of the deposit or all the money paid over since it was bought in 2006, which would sicken me. We're overpaying now, so as to get the negative equity down, but also so that we don't get a false sense of security now and then get slaughtered when rates rise again on both mortgages.
I suppose there's no way around the second property, rather we will just have to plough through it. But I would welcome any suggestions on our situation and if there's anything we could be doing differently to improve things.

Thanks!
Snowdon


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## WindUp (5 Feb 2014)

How much are you over paying the mortgage by? At least stop for a while to pay off the Credit Union -- it wakes no since to have a credit union loan at i'm guessing 7+% when you have funds available that you can pay off at 1.4%


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## flattea2 (5 Feb 2014)

By my calcs you have €3100 left a month after taking all the above into account? Whats the big struggle?


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## Gerry Canning (5 Feb 2014)

Snowdon; 

As recommended on previous threads
On the investment property , check and see how much you were overpaying. 
With any luck it will a not insignificant monthly amount , which you can save to replace a car.That loan is on a very good low rate.
On credit union , your shares= your debt , so clear off that debt.As said why pay 7%?

You can then resave your old Credit Union Payments + overpayment on investment property. 
That would mean Credit Union would be comfortable lending you for say a car ,if need be. 

As you obviously know ,you are not in a Bad situation but are rightly concerned about were we are all going.
In a worst case scene and you sold the investment property you know you would be stung for k80. Your home is coming close to value of mortgage. 
Property is lifting a bit in value so even a small lift each year will see you ok.
You seem to have it pretty well sussed .
Keep working , it beats the Dole any day !


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## Brendan Burgess (5 Feb 2014)

I don't understand

When did you acquire your current home? How was the investment property your home until last year? 



> Investment property (was our home up until last year)
> Lender: Ulster Bank
> Amount outstanding: €183k
> Value of home: €100-110k
> ...



This is a very profitable investment for you.

Net rental income: €6,000 a year
Interest cost:  €2,500  (€183k @ 1.4%) 
Profit before costs: €3,500 

You are making €12,000 in repayments, which means that after interest of €3,500, you are paying down €8,500 a year in capital off the mortgage. 

Even if house prices don't rise, you will have paid off the shortfall in around 6 years.  It will be shorter or longer depending on how house prices in your area go.

*The credit union situation is bizarre in the extreme 

*
Amount of shares: €2,800
Amount of loan outstanding: €2,900 
Net loan: €100 

Interest on loan: c. €290  ( €2,900 @10%)
Less interest on deposit: €28 (€2,800 @1%) 
Net interest: €260 

Effective APR on net loan: 260% !!!!!What are you doing?  Pay off the loan immediately.


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## Brendan Burgess (5 Feb 2014)

> Home loan
> Lender: BOI
> Amount outstanding: €217k
> Value of home: about €200k
> ...



The monthly interest on your loan is around €813

So you are paying €300 capital per month off the loan. 

If you are feeling the pinch, ask BoI to put you on interest only. You should not be repaying €1,000 of capital a month and making a charitable donation of €260 to the CU while you are feeling the pinch. You probably have to pay the UB capital, but you should be able to negotiate the rest.

Brendan


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## Snowdon (5 Feb 2014)

Everyone, thanks very much for the replies. I've only had a chance to skim over them, but I'll try to do a proper posting later tonight or tomorrow (posting from my phone now).

I just want to draw attention to two errors I made in my initial post: firstly, the CU repayment is €50 per fortnight, not per month, so that figure should be about €108 p/m by my mental calculations. Secondly, the BOI mortgage is a fixed rate for two years, and we've just finished the first year.


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## Mrs Vimes (5 Feb 2014)

You are overpaying a very cheap tracker mortgage on which you receive 75% tax relief on the interest.

This makes no sense to me - there are a number of threads on here about whether it is wise to pay any more off a tracker than you have to but certainly if you feel things are too tight it is the very first thing that should go.

Even if things were not tight - you are paying back the cheapest loan you will ever get instead of the variable rate home loan, the rate of which is three times higher and which attracts no tax relief. Put together savings to be paid off that one in a lump sum once the fixed period is over. Don't even consider borrowing money at 10% or so to buy a car when you are paying off the cheapest loan ahead of schedule! (Don't get me started on the CU set-up).

Ciaran T has a thread about how to maximise savings interest and you would do a lot better by putting extra money into one of the accounts he recommends rather than paying off this cheap loan.

I understand your fear that when interest rates go back up to normal levels you will be in trouble with Ulster Bank, but if you have a lower home loan balance, no other borrowings and a decent savings pot you will be well able to weather things then.


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## Bronte (6 Feb 2014)

Snowdon said:


> Income self: €2,700 p/m - full-time permanent, private sector
> income partner/spouse: €2,500 p/m - full time permanent, public sector
> child benefit: €130 p/m
> 
> ...


 
Income 5930

Mortgage 1 - 1175, mortgage 2 - 1050, management 75 life insurance 115, credit union 108 Childcare 500

Expenditure 3023

*Questions*

How much is your monthly credit card bill (it doesn't matter that you pay it off every month it matters how much it is), groceries, utilities, car running costs

We are missing income of 2907 monthly

It appears you bought recently, why than the Negative Equity (NE)

Credit union loan, what do you mean the term depends on how much you pay, don't they tell you how much you have to pay, what is the interest rate

How much are you saving, is it a regular amount? As posters have pointed out to you, most of your investment property loan, despite it's NE is capital. 

What exactly is the childcare fund, is it a product, what product is it and how much do you pay into it

I image moving house, renovations, being a landlord are all major stressful situations and extra cost. They all came at once it seems and that is probably the issue. Probably were doing really well until those hit or felt and believed you were doing well financially. 

Don't understand how you never have any 'special circumstance' ever. No restaurant, present, birthday....


*Investment property*

Can you list all the costs, prtb, property tax, income tax, repairs, wear and tear - everything

*Comments*

Doesn't matter if compared to others you are fortunate, everybody needs a financial check no matter their circumstances. But if you want it to be realistic, you need to be honest and get all the figures. Even getting the figures is a good thing for everybody to do. And you'll probably then see where you are going wrong, because something is certainly wrong when you're only able to afford underwear with two fine salaries.


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## PadKiss (6 Feb 2014)

Hi Snowden
A few pointers to do immediately
1) establish the correct monthly payment for Ulster Bank loan and alter your direct debit immediately as you are not only paying off a loan that is your cheapest debt but also reducing your tax relief on the rental income you are receiving, this should depending on the term remaining reduce the monthly outgoings by 300 or so (not sure of term remaining)
2) If you wish to continue to overpay any loan pay the overpayment to the BOI loan. I would refrain from this at present and build on your rainy day fund
3) Life cover seems expensive relative to loan amounts price check
4) Build the Credit Union savings where you have an option of not only access to savings but also a loan if needed quickly (car etc)
From an overall point you should be certain of the rates applying to your loans. Be sure your NPPR and Property taxes are up to date
I hope this helps and if you need any further PM me 
Padraic


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## Snowdon (6 Feb 2014)

WindUp said:


> How much are you over paying the mortgage by?


Not entirely sure, but it's probably about €450 (this is the Ulster Bank tracker on the investment property)



Brendan Burgess said:


> I don't understand. When did you acquire your current home? How was the investment property your home until last year?


I bought in 2006 when I was single. We met and married and lived in my place for a while. Then, circumstances changed and also Junior came along, so we decided to buy a bigger place, which we renovated and then moved into in early 2013. We then rented out the original place.



Bronte said:


> Questions
> How much is your monthly credit card bill (it doesn't matter that you pay it off every month it matters how much it is), groceries, utilities, car running costs


- CC bill: this varies. We only use it for big items and clear it from savings once it's due. E.g. last month we bought a bed (€400) but this month we didn't use it at all.
- Groceries: about €100 per week
- Utilities:
* two mobiles - €80 p/m
* UPC - €75 p/m
* Gas - not really sure yet as we haven't had a full year - maybe €100 p/m average
* Electricity - about the same as gas I reckon
- Cars (x2) figures are for both cars, not per car:
* Petrol/diesel: €300 p/m
* Insurance: €700 p/y
* Tax: €1,100 p/y
* servicing, tyres, repairs etc: €2,500 p/y
* Repayments: none, as we own both



Bronte said:


> It appears you bought recently, why than the Negative Equity (NE)


-House cost €158k, renovation cost €90k. The bank were happy to lend us 90% of that total, as they reckoned the finished value was €250k, but from looking at the property price register, I can't see how any house in our estate would fetch any more than €200k. I would stress that I haven't had it valued, and I don't care really, as it's our family home, which we've had renovated to our spec, and which we've no intention of leaving.



Bronte said:


> Credit union loan, what do you mean the term depends on how much you pay, don't they tell you how much you have to pay, what is the interest rate


-Sorry about the ambiguity. We had been paying €50 per fortnight as savings into the CU and although I know they gave us a repayment schedule, I don't know where it is, but that €50 per fortnight more than covers it. In any event, we plan on paying it off when the shares come through shortly.



Bronte said:


> How much are you saving, is it a regular amount? As posters have pointed out to you, most of your investment property loan, despite it's NE is capital.


-We try to save €1,000 a month, but some months we end up taking almost as much back out if there's a big expense like car tax. I suppose the net monthly amount over time is about €2-300.



Bronte said:


> What exactly is the childcare fund, is it a product, what product is it and how much do you pay into it


-I don't know exactly what you're referring to here. We pay €500 p/m to a relative for childcare, and we've also got €3,000 in shares (directly owned) that is for our child's education (long term) - basically a college fund.



Bronte said:


> I image moving house, renovations, being a landlord are all major stressful situations and extra cost. They all came at once it seems and that is probably the issue. Probably were doing really well until those hit or felt and believed you were doing well financially.


-Yes, this exercise has been very helpful and it's highlighted to me that it's probably as a result of all these changes that we're struggling short term. Certainly now that I look back over recent big spending items, a lot are one-offs related to the house, even though I felt we were past that.



Bronte said:


> Don't understand how you never have any 'special circumstance' ever. No restaurant, present, birthday....


- Sorry, I didn't understand that. Yes, we try to eat out occasionally (2-3 times a month, fairly modest stuff, might just be a €40 lunch for two). We don't go mad on presents for each other, maybe €30 p/m for birthdays and new babies over the year, and about €400 on Christmas (presents, chocolates, drink, dinner). We do try to get away from time to time and would prioritise a summer holiday away (€1-1,500k).



Bronte said:


> Investment property
> Can you list all the costs, prtb, property tax, income tax, repairs, wear and tear - everything


- PRTB €90, property tax €200, income tax €1,200, management €75/m, no repairs or wear and tear yet as it's only let about 6 months, paid €300 for repaint before letting, and €130 annual boiler service.



Bronte said:


> Comments
> Doesn't matter if compared to others you are fortunate, everybody needs a financial check no matter their circumstances. But if you want it to be realistic, you need to be honest and get all the figures. Even getting the figures is a good thing for everybody to do. And you'll probably then see where you are going wrong, because something is certainly wrong when you're only able to afford underwear with two fine salaries.


 
Thanks all once again - this is really enabling me to see things clearly!


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## Bronte (6 Feb 2014)

Snowdon said:


> Thanks all once again - this is really enabling me to see things clearly!


 

That's great you've come back with a lot of detail, much easier to understand and advise. And great it's helping you to see things clearly. We don't always get that feedback. 

*Problems*

You are not actually saving, and don't have a savings goal. You think you are saving when you are not. 

Overpaying the investment is a problem because there is no need. The tracker rate is so low as to make it nearly money for nothing.

You don't know how much you are actually spending. For example you're totally unsure of your utility bills, are making guesses and can only remember that you bought a bed on your credit card bill and omitting what you purchased before. 

You think you are broke, and can only afford underwear, but in fact you've bought a bed, lunchs, presents, stuff for babies, holidays, and yet you've had the cheapest Xmas spend of anyone in Ireland (if the statistics on Irish spending habits are anything to go by). At least you can try out the underwear next week on the bed. 

*Questions*

What is the 700 Euro on insurance for

What is the tax of 1200 for? 

Are you sure the grocery bill is 100 Euro, is it one shop, lots of little shops, does it include nappies and formula etc. 

The 2,500 spend on the cars looks very high to me, are you sure? Have you had a lot of repairs.

Has there been impulse buys in relation to the house/child. Things that you want but ought to wait for and save for. 

If you think that you are averaging 200 or 300 in savings, what is the capital amount you have saved and over what period and in what account.

*Suggestions/Solutions*

Fish out your last 6 months of ESB/Gas to give you a proper idea of what you are spending. Do you read your meters, you should do so at least every quarter. There are possibilities to pay it as an even amount over the year, once you know your annual spending. 

You should know the term, interest rate and conditions of all loans. 

Credit union loan has to go. 

Over paying the investment mortgage should stop. But this money should be ring fenced. 

A savings strategy is needed. Rainy day fund, money put aside for the one off annual expenditure (car tax, insurance, holidays etc), fund for child's education etc. But first you must identify your core spending, you build in some fun spending there too, you identify how much you need for the annual once offs, that leaves you then with what you can save. But you must take the savings etc directly out of your salary and put it aside. 

Purchasing by credit card and paying it back is all very well, but if it just means you're overspending, or spending money that should be saved, well than maybe you shouldn't use your credit card. 

*Comments*

There are financial products/savings vehicles for saving towards a child's education. It's now clear this is not what you meant, in fact you have shares (presumably from a work incentive) that you 'consider' are separate to your other finances. Which you call the college fund. Personally I'd have no time for those products, but I'm not an expert. 

The negative equity makes complete sense now, it's a fact that building costs are still high relative to value achieved. 

It's very unlikely that ESB, Gas and Groceries are all a neat 100 Euro each !

The overpayment of the investment is a form of saving as it is all capital and reduced interest, but of course there is a 75% interest relief on investment mortgages. 

There is nothing wrong with having a nice lunch or any of that, but feeling that you are broke, when you've a lovely new house, and a good income, well there is something wrong.


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## Bronte (6 Feb 2014)

*Investment property* 



Snowdon said:


> Investment property
> Lender: Ulster Bank
> Amount outstanding: €183k
> Value of home: €100-110k
> ...


 

You mentioned you're overpaying by €450 a month, so I assume that makes the repayments about €600 equal to rent, but of course not to profit.

Annually

Mortgage 7200
Rent 7200 

Less

PRTB 90
Property tax 200 (let's not discuss the tax system)
Management 900
Repairs/boiler €130 (€ 300 repaint will not be allowed as it's a prior letting expense). 
Mortgage interest at 75% Burgess above said this is €2500 so 1875 allowable. I'm not using this in the expenses as Snowdon did not mention it. 
Wear and tear 12.5% of what?

Profit, rent of 7200 less expenses of 1320 = 5880 taxed at your highest rate, and USC etc as well. I assume the figure of tax of € is a part year. You must be near losing 50% of the profits in tax. 

Did you use an accountant, pay for advertising or an agent. All deductable. 

I presume you have a binder in which you keep every receipt and detail of this investment and if not, you will do so going forward. Note down what you think the furniture/fittings equal to in value. Date it the first letting date.

*(As is always the case, posters should double check any figures I post on here)*


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## Snowdon (6 Feb 2014)

Bronte said:


> That's great you've come back with a lot of detail, much easier to understand and advise. And great it's helping you to see things clearly. We don't always get that feedback.


Well you're helping me after all Bronte... 



Bronte said:


> Questions
> 
> What is the 700 Euro on insurance for


That refers to car insurance for the two of us.



Bronte said:


> What is the tax of 1200 for?


That's my estimate of the income tax on the rental property for a typical year. Because 2013 was only a half-year letting, the actual figure will come to about €600. For 2014 I estimate it will be about that figure of €1,200



Bronte said:


> Are you sure the grocery bill is 100 Euro, is it one shop, lots of little shops, does it include nappies and formula etc.


It's about that. We do one shop a week, which typically ranges anywhere between €80 and €110. We top up midweek (fruit, bread, milk, anything else we've missed) and that comes to €15-20. It includes everything you would buy in a supermarket, including nappies. We try to buy only petrol/diesel in filling stations!



Bronte said:


> The 2,500 spend on the cars looks very high to me, are you sure? Have you had a lot of repairs.


Car 1, used for commute - work is 35 miles away:
- service every 9 months or so: €250, so €333 yearly average
- tyres every year: €400
- NCT and related bits: €150 (this is yearly from now on as the car is 9 years old)
- repairs in the past year: about €1,000
Car 2, used for local driving:
- yearly service: €200
- tyres replaced less often: say €150 per year
- NCT and related bits: €150 (yearly NCT)
You're right that my issue here probably comes down to an unusually large set of repairs over the year just gone. There's something or other each time I have a service though, all the same.



Bronte said:


> Has there been impulse buys in relation to the house/child. Things that you want but ought to wait for and save for.


Not really - we try to keep a tight rein. The bed I referred to was an impulse buy due to having a sick relative stay with us. We had planned on saving for it, but ended up having to bring that forward.



Bronte said:


> If you think that you are averaging 200 or 300 in savings, what is the capital amount you have saved and over what period and in what account.


€3,000 approximately since May in a savings account, so that estimate actually wouldn't be far off.

Regarding the investment place, you mention this:


Bronte said:


> Wear and tear 12.5% of what?


I didn't know we were entitled to this, so I'll look further into it. I thought that was covered by the replacement cost for furniture or the upkeep of the place being deductible.
As regards the other figures, you're pretty much on the money. We have a friend who's an accountant helping us as a favour and she told me to keep the receipts, etc. I have a spreadsheet with all that stuff referenced.
I'm laughing now reading back over my mention of underwear, LOL, but I guess what happens is that when the disposable money is tight, we would tend to prioritise a new-baby gift or birthday present over any clothing for ourselves, unless you're talking about a trousers with a hole in it!


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## Bronte (7 Feb 2014)

Is your accountant friend going to do your accounts. You should pay for this service, I advise it and it's tax deductable. Yes you are entitled to write off the cost of furniture/white goods over 8 years at 12.5%.

It does seem you are saving. But not enough. Your priority now must be to save for a car. Not great on cars, but maybe mileage of 35 km means you have to get new tyres every year. 

I forgot to mention yesterday about a budget. That's very important that you draw one up. 

I think you're main problem is that you had a lot of large expenditure at a particular juncture in your life, but now that has passed it's time to budget, save and plan.

I would use the savings to buy a good second hand car, after you've figured out your budget. 

Hopefully it is now clear to you that the problems you have is not that the investment is taking a large part of your salaries but that you overpaying is part of the problem, but also that you don't see that by paying down capital you are also saving. Plus you may have the added bonus of capital appreciation which may wipe out the NE faster than you think.


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## Snowdon (7 Feb 2014)

Everyone, thanks very much for all your kind help. I feel like I've a lot to take away and mull over now, and I'm pretty much convinced that at the very least, it makes sense to move the overpayment from the cheaper to the more expensive mortgage (once we move to a standard variable at the end of the year).

Just a question - and I know you can't speak for any of the banks - which must have been at the back of my mind. I've been reluctant to call Ulster Bank about anything to do with the tracker, preferring just to keep my head down and pay it, for fear that they'll find out that the house is now rented out and force us onto a higher-rate mortgage.

I fear that if I call them to cancel the overpayment, they'll notice that the TRS is gone off the account and start asking questions. Any opinions?


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## Lucuma (7 Feb 2014)

My interest rates didn't change when I went from living in my house to renting it out. 

Is there a clause in your contract that says they could for you?


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## Brendan Burgess (7 Feb 2014)

Bear in mind that you are actively saving every month by paying the capital off the home loan and off the investment property.  That is huge and you don't need any other long term savings such as your one for the child's education. Use those funds to pay down your home loan or to clear your credit union loan. 

You have a good record with the credit union and may be able to borrow from them when you need to replace your car.


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