# Negative Equity Dilemma. Rent or Sell



## markm030 (13 Feb 2011)

Hi, hoping someone can give some good advice here. 
We have an apartment in South Dublin and looking to move, it is too small for both of us and a toddler (another baby also on the way). 

Apartment mortage is €217K currently. We may have an offer soon of €185. (bought it for €313K in 2004 and on market for several months)
Mortage is currently approx €1400 a month, we save an additional €1500 a month between our salaries.
We have €40K in savings.

Looking to move to house approx €400/€450K price range from looking at various properties on myhome.ie 

I feel we have 2 options
1. Sell apartment at €185K , most if not all of our savings will then be gone to cover negative equity, rent ourselves for a year or so and hope prices continue to fall or at least stay the same and buy when we build up a deposit of approx €40K again to buy a house.
2. Rent out our current apartment, rents are about €1000 in area (right on luas line) so will cover most of the mortage and keep our savings for deposit on new house. We have been advised that we may qualify for a second mortgage for a new house of about €400. Try to sell our apartment again when markets recover and maybe keep as an investment. 

If we go with option 2 we are exposed to property quite a bit so relying on markets to recover and interest rates not rising dramatically. We are doing ok at the moment and are hopeful markets are near the bottom.
By going with option 1 will also mean we are not in the market and property prices may start going up before we can afford deposit.
Staying where we are is not an option.

Feel this is a really tough choice as we expect offer in next few days of €185 and dont know what to do for the best.


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## PaddyBloggit (13 Feb 2011)

If, as you say, '_staying put isn't an option_' .....

Grab the €185k, pay off the mortgage with your savings, rent and start saving again until you can afford the deposit for a new home.


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## markm030 (13 Feb 2011)

Thanks Paddy, do you not think it is a waste of all our savings to accept the offer and pay off the negative equity now?
I know having two mortages in an uncertain market is risky so you might be right, just hate having to rent somewhere else and not own my own house.


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## PaddyBloggit (13 Feb 2011)

The way I look at it ...

you may have an offer of €185k, you have the cash to cover the negative equity, you need to move ... I'd jump at it.

The downside is you'll have to rent .... upside is that the upkeep of the place isn't your worry.

Consolidate your finances, save and save and save .... watch the market and hope that you'll have enough funds in a few years to be able to get your own place.

I'd be slow with the idea of holding onto it and keeping it as an investment property .... too much hassle.

You have €32k in negative equity .... by paying it off, covering fees etc. you'll still have €5k plus in savings ...

Look at it positively .... €5k in savings, apartment sold and saving for a larger place that could be yours sooner rather than later.

... and .... by renting you'll have your larger place now (which you need).

As a renter you'll be able to choose from a wide variety of property at a rent that's affordable to you.

The difference in mortgage and rent could go into your savings if you choose wisely.


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## Pope John 11 (14 Feb 2011)

markm030 said:


> .............just hate having to rent somewhere else and not own my own house.


This is why so many Irish people at present are in such a mess with negative equity, its a statement of Irish people in Celtic Tiger era, renting is fashionable nowdays, go for it.


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## markm030 (14 Feb 2011)

Yeah, you are probably right, there is a lot of hassle in manging an investment property unless I involve a management company but their fees are probably not worth it. Also tax on the rent which I wouldnt know anything about, insurance etc.

The market doesnt look like it is ever going to turn back up in the short or medium term either so buying now might not be such a good thing for us.

Just feel like i am giving the apartment away by selling at €185 (cant count my chickens on that either by the way). It is on the luas line close to Sandyford industrial estate, 30 mins from town etc.

Renting is probably fashionable but at 37yo with two kids I thought I would have my own home at this stage.


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## Firefly (14 Feb 2011)

Cash is king at the moment. If it were me, I would rent the apartment and rent somewhere bigger yourself. I'd be holding onto my savings...At your current rates you will have close to 100k in savings in 3 years time. That should give you plenty options.


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## csirl (14 Feb 2011)

You need to work out how much net rent you will receive - because this will impact on your ability to save.

I assume that both of you are paying the higher rate of tax, so, it is safe to assume that a significant proportion of the rental income will be subject to tax at this rate. It is not beyond the bounds of possibility that €1k rent will translate into c.€600 net after taxes etc. If this is the case, the €1,500 you are currently saving will be reduced to €1,100 - and this is assuming that you can rent a bigger place for the €1,400 (i.e. the amount you are currently playing for accommodation), which, fortunately for you is likely in the current market. 

But none of us know your exact calculations, so without doing the sums, it is difficult to advise.


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## niceoneted (14 Feb 2011)

One thing that has not be raised is how secure are your jobs/sectors? How much are you earning? How likely are your wages to saty at this rate?


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## markm030 (14 Feb 2011)

csirl said:


> You need to work out how much net rent you will receive - because this will impact on your ability to save.
> 
> I assume that both of you are paying the higher rate of tax, so, it is safe to assume that a significant proportion of the rental income will be subject to tax at this rate. It is not beyond the bounds of possibility that €1k rent will translate into c.€600 net after taxes etc. If this is the case, the €1,500 you are currently saving will be reduced to €1,100 - and this is assuming that you can rent a bigger place for the €1,400 (i.e. the amount you are currently playing for accommodation), which, fortunately for you is likely in the current market.
> 
> But none of us know your exact calculations, so without doing the sums, it is difficult to advise.


 
We would expect to charge rent of €1000 but really dont want the hassle of managing it so would think of getting a management company to do this for me. 
I dont know the first thing about being a landlord so have to take your word of the €600 net at the end of each month. This doesnt sound good to me. We both pay tax at 41%, currently the €1400 a month is approx 2/3 capital and 1/3 interest payment.
So you are saying we would still be paying €1400 a month mortgage and be only receiving net €600 a month? 
Then we need to rent another house for approx €1400. Sounds like I would be better off selling if I do get this offer of €185


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## markm030 (14 Feb 2011)

niceoneted said:


> One thing that has not be raised is how secure are your jobs/sectors? How much are you earning? How likely are your wages to saty at this rate?


 
Both our jobs are secure at the moment, we both work in financial services I earn about €90K and wife earns €50K. Our wages should stay at that rate over the next few years. 
My wife is quite serious about stopping work in the next couple of years and bringing up the family. Would love to be in a position to make that happen but not sure how realistic it is.


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## partnership (14 Feb 2011)

Take the money and run.  If you rent out apt you will have to pay tax, upkeep etc might not cover mortgage with rent and you have a bigger mortgage.  Sounds daft to me.  Particularly with baby on way and childcare costs etc.


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## markm030 (14 Feb 2011)

partnership said:


> Take the money and run. If you rent out apt you will have to pay tax, upkeep etc might not cover mortgage with rent and you have a bigger mortgage. Sounds daft to me. Particularly with baby on way and childcare costs etc.


 
Think you are right, still waiting on the €185 offer though, got a first offer today from another interested party for €145 (insult). Hoping the other party will offer the €185 asking price. Was told they were very interested. Hope i am not being naive however much lower than similar properties on market in area.


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## PaddyBloggit (15 Feb 2011)

You have a good combined wage ... save hard for the next few years and you'll build up that deposit again.

Stopping a €50k job would dent your house buying dreams .... choose carefully how ye'll proceed.

Good luck with it.


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## Bmel (15 Feb 2011)

*Finding difficult to pay the mortgage*

Hi, Would appreciate your opinion on my current situation. I am a foreign national came here about 5 years ago with my family. We bought a house 4 years back and untill now we have been paying the mortgage without fail, though I had lost my job 3 years back (can't get another one due to many reason like work permit restrictions and no job situation). It is on my wife's income(about 2600/month) we were managing since then. Our mortgage itself is about 1070 plus the life insurance 70 Euro. Another 1% interest hike will be added from this month (about 160 euro/month). WE have some personal loans of about 550 Euros (taken for car, etc).

We approached the bank to give a holiday kind of package so that we could have some money for a vacation to our home country. They seem to turn down our suggestions. In the form they gave us to list down the expenditures, we mentioned 800 euros/month for food(for a 4 member family, including 2 children) and he was telling us that was too much.
Now the point is , I am unable to cope up with this depressive state, have started medication for blood pressure and stomach acidity, all because of the stress I am living through. I am just 36, but dunno how my life will be directed in the current situation. At one point I might go back to my country for the sake of my children, for them to have a proper life. I know I am on negative equity but what am I supposed to do. I know at one point in the near term I will crash down.
Guys, any suggestions for me?


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## wbbs (15 Feb 2011)

Make an appointment with MABS.

Your bank has a couple of issues, if you asked for a payment break so you could go on holidays then they are not going to give it.

They asked for income and expenditure completed which you did and they have queried your amount for food, approx 200 p.w.  They are right, that is too much for family of 4, have a look at your figures again, did you include something other than food in that total?

You have been managing on one income so it is likely that the bank might allow you interest only for a while but a total break is unlikely while there is evidence of sufficient income to pay the mortgage.   

While you are waiting for MABS appointment have a look at the budget planner on their website and try and complete that, if it shows a shortfall after reasonable expenses then the bank will be more likely to help you out, but I would not mention the holiday again!


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## Bmel (15 Feb 2011)

wbbs said:


> Make an appointment with MABS.
> 
> Your bank has a couple of issues, if you asked for a payment break so you could go on holidays then they are not going to give it.
> 
> ...


 
thanks for the reply. Well we have been managin on one income as we were able to fetch money from my parents and thats is drained now. My real questions is, looking ahead the situation of this country and the looming budget cuts over the years and an ever increasing interest rates, how wise it is for me to hold on to this mess? the worst part is todays capital+interest is tomorrows interest only. Banks are trying to make up for their losses by fetching more from the mortgage holders! why do these guys don't realise the folly they are upto. They are asking for a mortgage crisis?


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## Greta (16 Feb 2011)

Bmel, you should be able to apply for Irish citizenship now or very soon, when you get it, you won't have to worry about work permits and will be able to work. That should help you a lot, both financially and psychologically. 

When you and your family get Irish citizenship, you'll be able to consider moving to another EU country, if things don't improve in Ireland. So hang on there, there is light at the end of the tunnel for you!


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