# Am I unduly negative about our position?  Should we sell rental property?



## noobie (11 Apr 2022)

*Age:*
46
*Spouse’s/Partner's age:*
49

*Annual gross income from employment or profession:*
E56,000
*Annual gross income spouse:*
E44,000

*Monthly take-home pay: *

EUR 3,000 self

EUR 2,100 spouse (25% going into AVC)

*Type of employment:*
Both private sector employees



*In general are you:*
(a) spending more than you earn, or
(b) saving?

*Is there an option C – treading water  *
We sort of just get by every year, I feel we’re trapped in our jobs by the size of our mortgage repayment and putting 500 per month by from after-tax income to pay the tax on the rental income.

I would like us to be a bit more free to either move to lower stress and lower paying jobs and/or to enjoy life a bit more as having buried two members of my family very young, life is for living, we’re not here forever. But my default setting is to plan for the future so I’m conflicted……

Earning more / moving jobs is not an option for either of us right now due to the age of our son and extended family commitments, believe me, we’ve examined all options for the moment. 

*Rough estimate of value of home*
E600,000


*Mortgage on home*
E242,000 – 16 years remaining


*Mortgage provider:*
AIB


*Type of mortgage: Tracker, interest only, fixed rate*
Tracker


*Interest rate*
ECB + 0.75%

*Other borrowings – car loans/personal loans etc*
None, but probably next year we need to replace one of the cars. 

*Do you pay off your full credit card balance each month?*
N/A don’t have any (I’m a bit of a spender so best I don’t have one  )

*Savings and investments:*
E25,000 in prize bonds. Full disclosure – we didn’t save this, it was the result of the sale of another rental property a few years ago, after we put all we could into our pensions over a few years. We try to save 500 monthly but it all goes on the rental income tax return plus holiday / oil fill / Christmas. 

*Do you have a pension scheme?*
Yes, was making AVCs but have ceased these recently due to parental leave reduction in our take-home. Company pays 10% and there’s approx. EUR 200k balance on mine.

His pension is also paid 10% by company plus AVCs at 25% with current balance approx. EUR 150k. We’ve prioritised getting his to a higher level over the last while. 

*Do you own any investment or other property?*
Yes, bought 2005 for EUR 232k. Current value probably around same so effectively no CGT if we sold. 

Mortgage outstanding of EUR 121k. 13 years remaining. Mtg pmnts 830 per month.

Tracker – ECB + 1.05%

Rental income EUR 800 per month (I know, I know, moved in just over two years ago so it’s only now I could raise the rent and it’s not what I want to do – they’re excellent tenants, hence our our quandary, please read on.…) 

*Ages of children:*
1 aged 9. 

*Life insurance:*
Yes through work for both of us plus mortgage protection on own home and level cover of EUR 208k on rental property (my life only). 

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

I realise we’re very fortunate in many ways, but also it feels like we’re constantly burning ourselves out to just tread water, or am I overly negative in my view of our overall position?  It's good we've no loans, but I can't help but think we're barely treading water without a car loan etc. so are we actually able to afford all this or are we fooling ourselves?  
We decided a while ago that when the current tenants in the rental property move out – which may not be for a few years – we would then sell and use the proceeds to reduce mortgage on our PPR. The reason being we’re just done being landlords, but the current tenants are excellent, the place is immaculate, so we were happy to leave them be. Same tenant's sister rented the house for several years' prior so we know she won't change overnight. Recent developments in the whole rental sector have me spooked that now might be a better time to sell than in a few years, and that it might not be the best idea to leave the timing of it to someone else but to take control of it ourselves while we still can!

BUT, they are excellent tenants, I would hate to put them out. However, if we don’t move now, after Oct we would need to give them 6 month’s notice – could that change to 12 overnight given labour’s failed bid to remove selling as a reason for ending a tenancy? It worries me for what will come next. I’m tired of propping up an asset that I seem to have less and less control over.

Not in RPZ yet but we all know that can happen anytime at the stroke of a pen. They moved in Oct 2019 when EUR 800 was about right, under the rules I could only have looked to increase the rent from Oct just gone, I’m only getting to look at all this now due to a family tragedy. I don’t want to increase the rent to market rates which let’s face it, could be anything, I could literally ask 1,400 for it but the highest bidder isn’t the best tenant, and I’m not going to do that to the current tenants. So, I could increase it to 1,000 pm, they are paying another 200, would probably then look for a few more things to be done / replaced, long story short we would still have to put by the same amount of money every year to pay the tax and upkeep, no-one is better off from a rent increase I don’t want to make but impending RPZ rules are sort of forcing me towards?

On the other hand, mortgage is a tracker plus an excellent level cover life assurance (on my life only) linked to it.

I don’t want to turn 50 in 4 years’ time with 300k debt hanging over us, that might not seem like much compared to some but feels a lot right now. What we are considering is if we could net 100k at least from the sale, reduce our own mortgage repayments to 800-odd but continue to pay 1400 as an overpayment of 600, bringing the term down to 9 or so years, and the 500 a month that currently goes on tax could be saved (with some into my AVCs again).

Thanks for reading.


----------



## Sarenco (11 Apr 2022)

On a back of an envelope basis, I would estimate that you are making an annual profit of around €7,000 on the rental, or around €3,500 after-tax.

If you cashed out the €100k equity in the rental and applied it against the PPR mortage, it would only save you €750 per annum in interest payments.

So, on that basis, it would seem to make sense to hang on to the rental for the time being.

However, if you are finding your day-to-day cash flow position is a bit on the tight side, then selling the rental and paying down the PPR mortgage with the released equity from the rental would certainly help.  Also, any increase in the rental value from here on will be subject to CGT.

In your shoes, I think I would sell the rental and pay down the PPR mortgage.  The after-tax profit is simply too low to justify the risk and hassle of running a rental business.

Continuing to maximise your pension contributions is definitely a good move.


----------



## Brendan Burgess (11 Apr 2022)

Hi noobie

You are not treading water.  You are doing far more, but you just don't see the benefit of it yet. 

Here is your investment property: 


So you are paying down the capital by nearly €9,000 a year.  That is, you are saving €9,000 a year.  You are seeing the repayment as a cost, but it's not. The cost is the interest, which is tiny.  About one month's rent. 

You should definitely keep this property.


----------



## Brendan Burgess (11 Apr 2022)

This is what your home loan looks like 


You are repaying €15k a year!  That is the same as putting €15k into savings. 

So between your two mortgages, you are saving €24k a year. So your wealth is increasing by €24k a year.


----------



## Brendan Burgess (11 Apr 2022)

noobie said:


> We try to save 500 monthly but it all goes on the rental income tax return plus holiday / oil fill / Christmas.



You are already saving €2k a month. You should not be trying to save any more.


----------



## Brendan Burgess (11 Apr 2022)

noobie said:


> I don’t want to turn 50 in 4 years’ time with 300k debt hanging over us



Why not? 

You have €830k of property. 

And the rent is paying the mortgage and the tax on the rental income or near enough.

Brendan


----------



## Brendan Burgess (11 Apr 2022)

noobie said:


> *Annual gross income spouse:*
> E44,000
> 
> EUR 2,100 spouse (25% going into AVC)



So that is another €11,000 a year in savings  - more if you add in your contributions and the employers' contributions. 

Effectively with the tracker mortgages you are borrowing at 0.75% and 1.05% to invest in a tax-relieved pension.  Sounds good to me.  Don't change anything.


----------



## Brendan Burgess (11 Apr 2022)

noobie said:


> We sort of just get by every year, I feel we’re trapped in our jobs by the size of our mortgage repayment and putting 500 per month by from after-tax income to pay the tax on the rental income.
> 
> I would like us to be a bit more free to either move to lower stress and lower paying jobs and/or to enjoy life a bit more as having buried two members of my family very young, life is for living, we’re not here forever. But my default setting is to plan for the future so I’m conflicted……
> 
> Earning more / moving jobs is not an option for either of us right now due to the age of our son and extended family commitments, believe me, we’ve examined all options for the moment.



If moving jobs is not an option, then you are "trapped" in your jobs but not by the size of your mortgage.  As I say you are knocking €24k a year off your mortgages.  In a few years, there won't be much left. And a few more, and they will be cleared.


----------



## Sarenco (11 Apr 2022)

Brendan Burgess said:


> And the rent is paying the mortgage and the tax on the rental income or near enough.


By my estimates, the rental is currently cash-flow negative to the tune of around €6,500 per annum.


----------



## NoRegretsCoyote (12 Apr 2022)

noobie said:


> no-one is better off from a rent increase


Well the landlord is!

I think you need to get serious about the rental or get out of the game. If you hike the rent to market rates you come a lot closer to breaking even in cash flow terms.

If not, sell up and reduce your overall leverage and relax a bit more.

But if you keep the rental and think of it like a business it will really increase your wealth by the time you are 60. Either way, it's a good set of choices to have - good luck!


----------



## Peanuts20 (12 Apr 2022)

Firstly, take a look at your tax position and get some professional advice as to whether or not you have everything set up in terms of credits and what you can claim for and whether or not you can do a claim for past years

Sell the rental, that's harsh on the current tennants but such is life and you need to prioritise yourself and your family. You earning 800 a month in rent on an asset that is costing you 1330 in mortgage payments and tax.  Including the prize bonds, you'll have around €150k to invest, either by reducing your current mortgage or doing something else with it. 25k in what in essence are raffle tickets makes no sense

You then won't need to save 500 per month to cover the rental tax and you will see a difference once that happens.


----------



## Brendan Burgess (12 Apr 2022)

Peanuts20 said:


> You then won't need to save 500 per month to cover the rental tax and you will see a difference once that happens.



Can I just deal with this issue, as it comes up from time to time.

The only reason you are paying tax, is because you are making a profit! 

Getting rid of a rental to save tax, is like saying "I don't want a salary increase as I have to give away half of it in tax." 

Brendan


----------



## Brendan Burgess (12 Apr 2022)

Sarenco said:


> the rental is currently cash-flow negative to the tune of around €6,500 per annum.



Thanks Sarenco - I had not done the calculations. 

OP - it's very important to understand the difference between cash flow negative and profitability. 

Although you are "worse off" by €6,500 cash per annum, you are knocking more than this off the outstanding mortgage.

It's like saying "My savings plan is costing me €3,000 a year because I put that amount into the Post Office". 

You have €25,000 in savings so you can well afford to continue repaying your mortgage.

If you are under financial pressure, you could consider suspending the AVCs until the investment mortgage is cleared. 

Brendan


----------



## Sarenco (12 Apr 2022)

Brendan Burgess said:


> If you are under financial pressure, you could consider suspending the AVCs until the investment mortgage is cleared.


I wouldn't agree with that Brendan - the OP will be 59 before the investment mortgage is cleared as things stand.

The rental is certainly profitable but if it is impacting the OP's cashflow position to the extent that it reduces the ability to make tax relieved pension contributions, then I would sell the rental.


----------



## NoRegretsCoyote (12 Apr 2022)

Sarenco said:


> The rental is certainly profitable but if it is impacting the OP's cashflow position to the extent that it impacts the ability to make tax relieved pension contributions,


I agree. First line of financial defence is the prize bonds anyway. It would be foolish to hold on to these while failing to take advantage of tax-relieved pension contributions in your 40s.


----------



## noobie (12 Apr 2022)

Thank you so much everyone for taking the time to respond to my (rambling in places!) post.  I am normally much better at this than I am right now due to being beaten about a bit by life, so I really appreciate the help gaining clarity.  It seems my outlook might be a bit unduly negative - Brendan, I had exactly the same figures as you worked out on the mortgages but was looking at them in an entirely different light. 
I'm going through them an taking them all in, but it seems maybe we just need to regain a bit of positivity and keep going.   Maybe the scars of the crash have me just wired for the worst.   Thanks again all, will keep you posted!


----------



## noobie (12 Apr 2022)

Brendan Burgess said:


> This is what your home loan looks like
> 
> View attachment 6188
> You are repaying €15k a year!  That is the same as putting €15k into savings.
> ...


Thanks, I was not thinking of it like that at all!


----------



## noobie (12 Apr 2022)

Brendan Burgess said:


> Why not?
> 
> You have €830k of property.
> 
> ...


True, probably just my frame of mind at the moment, we've been in far worse positions before!


----------



## noobie (12 Apr 2022)

NoRegretsCoyote said:


> Well the landlord is!
> 
> I think you need to get serious about the rental or get out of the game. If you hike the rent to market rates you come a lot closer to breaking even in cash flow terms.
> 
> ...


fair point, I do need to think of it more like a business, thank you


----------



## noobie (12 Apr 2022)

Peanuts20 said:


> Firstly, take a look at your tax position and get some professional advice as to whether or not you have everything set up in terms of credits and what you can claim for and whether or not you can do a claim for past years
> 
> Sell the rental, that's harsh on the current tennants but such is life and you need to prioritise yourself and your family. You earning 800 a month in rent on an asset that is costing you 1330 in mortgage payments and tax.  Including the prize bonds, you'll have around €150k to invest, either by reducing your current mortgage or doing something else with it. 25k in what in essence are raffle tickets makes no sense
> 
> You then won't need to save 500 per month to cover the rental tax and you will see a difference once that happens.


I'm definitely all covered for tax credits but what I might do that I haven't is hand over the returns to an accountant, the fees pay for themselves as a cost and I can feel a nit removed from it


----------



## noobie (12 Apr 2022)

Brendan Burgess said:


> Can I just deal with this issue, as it comes up from time to time.
> 
> The only reason you are paying tax, is because you are making a profit!
> 
> ...


Good point - just shows how much I'm not seeing the wood for the trees!


----------



## noobie (12 Apr 2022)

Sarenco said:


> I wouldn't agree with that Brendan - the OP will be 59 before the investment mortgage is cleared as things stand.
> 
> The rental is certainly profitable but if it is impacting the OP's cashflow position to the extent that it reduces the ability to make tax relieved pension contributions, then I would sell the rental.


Thanks, the only thing about that is putting all eggs in one basket with the AVCs, I know the tax element brilliant, I'm going to see if we can put mine back to 25% and there's about 7k for 2021 I didn't put in, that given @NoRegretsCoyote 's comment re: the prize bonds, maybe we should be taking money from there to do that.  That then gives some breathing space in the day to day as well.


----------



## noobie (12 Apr 2022)

NoRegretsCoyote said:


> I agree. First line of financial defence is the prize bonds anyway. It would be foolish to hold on to these while failing to take advantage of tax-relieved pension contributions in your 40s.


Thank you for this - I actually didn't think of that, I have myself wired not to dip into it that I forgot sometimes it makes sense!


----------



## noobie (12 Apr 2022)

Peanuts20 said:


> Firstly, take a look at your tax position and get some professional advice as to whether or not you have everything set up in terms of credits and what you can claim for and whether or not you can do a claim for past years
> 
> Sell the rental, that's harsh on the current tennants but such is life and you need to prioritise yourself and your family. You earning 800 a month in rent on an asset that is costing you 1330 in mortgage payments and tax.  Including the prize bonds, you'll have around €150k to invest, either by reducing your current mortgage or doing something else with it. 25k in what in essence are raffle tickets makes no sense
> 
> You then won't need to save 500 per month to cover the rental tax and you will see a difference once that happens.


 ...raffle tickets, love it! I take your point, at the time I figured there was nowhere offering much return and wanted no risk - and to keep them slightly out of my own reach as well...


----------

