# Sell or keep investment property



## PortoBoy (1 Jul 2020)

Age: 39
Spouse’s/Partner's age: 38

Annual gross income from employment or profession: c.42k
Annual gross income of spouse: c. 60k

Monthly take-home pay: No idea.

Type of employment: e.g. Civil Servant, self-employed: Self employed, varies wildly, spouse public sector.

In general are you:
(a) spending more than you earn, or
(b) saving? Spouse is saving, I'm spending all

Rough estimate of value of home €600,000
Amount outstanding on your mortgage: €241,500
*What interest rate are you paying? 2.75% 23 years to completion.*

Other borrowings – car loans/personal loans etc - 5 yr. Car loan €117 p.m. 9 months left to run

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card? 0

Savings and investments: Spouse has c. 10k savings

Do you have a pension scheme? yes, private PRSA fund at c. €145k, adding c. 7k net per annum. Spouse v. generous defined benefit public servant pension 35 - 40k on retirement aged 62.

Do you own any investment or other property? yes, value c. 310k, mortgage 177k, rent at €1350 p.m, monthly mortgage at c. €900, tracker at 0.95%. 18 yrs remaining. Lived there for 8 years, bought for 330k.

Ages of children: 10, 4

Life insurance: only mortgage protection across both properties.


*What specific question do you have or what issues are of concern to you? *
Looking at options for rental property. Another year or so to run on the current lease, but weighing up selling after that and knocking c.140k off PPR mortgage, with a view to maintaining current repayment and being mortgage free in 8 years. My self employed income is erratic, and is likely to decrease as I approach retirement. Spouse is public sector and safe. Kids 10 and 4, no college fund yet. I've no rainy day fund either. Both myself and spouse likely in line for significant inheritances in the next 25 years, maybe 400k and 150k respectively. Any and all help/advice gratefully received.


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## Sarenco (1 Jul 2020)

You have roughly €133k in capital tied up in the rental.  If you cashed in that amount and applied it against the PPR mortgage, you would save around €3,650 in interest payments ((€133k@2.75%).

Is the net profit on the rental, after all expenses and taxes, materially more than €3,650?  I suspect it is more than €5,500 but you would have to review your own accounts.

As a secondary issue, you would have no CGT if you sold the rental for less than €330k and would have partial PPR relief over that amount.

So, on the face of it, you should probably hang on to the rental for now.  But definitely review the position again in a couple of years.


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## PortoBoy (1 Jul 2020)

Thanks Sarenco, that's pretty much along the lines of what I'm thinking. I know it probably makes more financial sense long term to hold onto it given the cheap finance, but the potential quality of life improvement by being mortgage free by our mid/late forties when we're young enough to enjoy it might outweigh having more money than we need in our 60s, given that all things being equal, we should have adequate pension provision, even without the likely inheritances. 
Am I missing anything obvious in terms of pension though?


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## moneymakeover (1 Jul 2020)

PortoBoy said:


> probably makes more financial sense long term to hold onto it given the cheap finance



You said it yourself


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## PortoBoy (1 Jul 2020)

moneymakeover said:


> You said it yourself


I get that in absolute terms holding onto it will likely make us ultimately more wealthy, but I guess what I'm toying with is whether people think the trade off of less wealth from the investment but more time to enjoy the improved quality of life is worth it.


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## Sarenco (1 Jul 2020)

PortoBoy said:


> I know it probably makes more financial sense long term to hold onto it given the cheap finance, but the potential quality of life improvement by being mortgage free by our mid/late forties when we're young enough to enjoy it might outweigh having more money than we need in our 60s, given that all things being equal, we should have adequate pension provision, even without the likely inheritances.


Paying down your PPR mortgage would clearly improve your cash flow and that's certainly a valid consideration.

However, I think you should hang on to the rental for a few more years.

In your shoes, I would sell the rental if the market value rises to €330k or the equity in the rental equals the mortgage outstanding on the PPR.


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## PortoBoy (3 Jul 2020)

Am I mad not to keep the rental property into retirement as an income stream?


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## bbari1 (3 Jul 2020)

OP, I'm in the similar position as yourself except inheritance bit. 
I had a decent tenants for the past many years who are now moving out. As soon as they are out, place will be up for sale. For the sake of €2K per year, i have decided not to keep the property. Equity will clear my PPR mortgage and I'll be done with mortgages. 

In the other case, I'll save 2k pa for 20 yrs deal with potential tenant issues and I'm 95% inclined towards the 1st option. 

Being mortgage free on my PPR will leave another 1k pm in my bank which i can potentially put in pension (2k pm before taxes).

The only bit concerns me is that I'm not sure what the property market is like these days.


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## PortoBoy (4 Aug 2020)

4 bed mid-terrace around the corner from our investment property just sold at 400k, above the 370k asking, two weeks ago. We've a somewhat smaller 3 bed semi. Reckon it's reasonable to value the investment at a conservative 330k now? Or is covid playing havoc with valuations?


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## PortoBoy (29 Aug 2020)

Safe to value the investment property at 330k now, given recent sales and listings. If House prices grow by 3.5% - 4% over then next 3 years, we'd be in a position to clear the PPR mortgage entirely if we sold in 3 years time. Given the pension position and the expected inheritances, and that holding onto the property is costing us 3k cashflow p.a. we'd be mad not to sell then, wouldn't we?


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## cremeegg (29 Aug 2020)

As regards keeping or selling an investment property, the first question is what is your annual profit on it. I suggest that you calculate that first then see where that brings you. ( I think the answer will surprise you)


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## PortoBoy (29 Aug 2020)

Thanks Cremeegg. Rent is currently 1350 pcm, will rise to 1400 in early 2021. So income is ballpark 16800, tax presumably half of that, and mortgage cost for the year is 10800, with around 1500 of that being interest to write off. Probably an additional c. 10k equity gained per year, plus capital appreciation in line with the market, up or down depending. My gut says it's costing 3k p.a. cashflow, but appreciating by c.10k and equity rising by 10k too. Does that sound right?


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## cremeegg (30 Aug 2020)

Profit

Income16,800Costs inc interest2,500Tax7,200Approximate Profit7,100




Investment133,000ROI5.3%


Cash outgoings Repayments, Tax, Costs10,800 + 7,200 + 1,000 = 19,000Cash Income16,800Cash Deficit2,200


A further point, if you sell up to €330k, there is no CGT, above that it will be pro-rata based on the time you lived in it.

We dont speculate on property price movements on AAM, and I would always be slow to build that in to my planning.



PortoBoy said:


> I get that in absolute terms holding onto it will likely make us ultimately more wealthy, but I guess what I'm toying with is whether people think the trade off of less wealth from the investment but more time to enjoy the improved quality of life is worth it.



This is now purely a matter of opinion. I would keep it

EDITED To correct Error pointed out by Serenco


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## _OkGo_ (31 Aug 2020)

I don't think the issue here is whether to keep/sell the rental property but rather how you are managing your cash flow. On a combined €102k income you should be able to manage the monthly €1200 PPR and €250 rental (cashflow €3000/12) costs so I am struggling to see where the problem actually is. Do you have other large expenses such as childcare etc that are eating into your monthly income and if so, will these expenses decrease in the next few years?

Or are the cash flow issues coming from your erratic self employed income? Is there anything you could do here, e.g. take up employment in the same profession? 

I would take another look at your pension contributions. You say are contributing €7k net so is this €11/12k gross? There are a few things here:

Even at an assumed 4% growth rate, your pension pot will be huge. You will have more income in retirement than ever before with no mortgages and potentially significant inheritances
How much of this is only getting 20% tax relief. Consider reducing contributions to only cover 40% relief and use extra net income towards PPR or building emergency fund/3rd level fund
The rental looks like a solid investment, you should plug your actual numbers into cremeggs example to see exactly what return you are getting. I would focus on the rental over your pension especially if you see your income reducing before retirement. 

It would be in your best interest to sit down with a good financial planner/advisor soon. You don't need to be sold any investments (get rid of them if they do), you just need some help to plan your own finances a  little better. You currently have lots of options in retirement between good pension pots, likely inheritances, spouses lump sum and option to downsize PPR also so you just need a bit of a reshuffle to plan the next 10 years


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## LS400 (31 Aug 2020)

PortoBoy said:


> Rent is currently 1350 pcm, will rise to 1400




Thats the problem I see.

Its not enough of a return on a €330k plus! property. 

You can achieve a return of that figure an a substantially lower priced property. If I were in your shoes, id look to see how the figures would add up if I sold the rental to reinvest again. Yes, you would loose the tracker, but, with equity of 150k and borrowings of €100-120k, my plan would be to pay this down as soon as is possible.
You need to make this work for you in a better way.


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## Sarenco (31 Aug 2020)

cremeegg said:


> Costs1,000


That looks like a material underestimate - the mortgage interest alone will come to €1,681.

I would suspect that the net, after-tax profit on the rental is in the region of €5,500 - €6,000.

By cashing out the equity in the rental, the OP would save around €4,207 in interest payments ((€153k@2.75%).

Is a €1,300-€1,800 differential sufficient reward for all the risk and hassle of running a property rental business?


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## cremeegg (31 Aug 2020)

Sarenco said:


> That looks like a material underestimate - the mortgage interest alone will come to €1,681.
> 
> I would suspect that the net, after-tax profit on the rental is in the region of €5,500 - €6,000.
> 
> ...



Thanks for pointing that out. I have now edited. However I still see the profit closer to €7,000 and nearly €3,000 more than the interest saving.  I wouldn't count on any capital appreciation, but it could happen and the first €20k would be tax free. It comes down to the OPs attitude to the hassle.


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## Sarenco (1 Sep 2020)

cremeegg said:


> Costs inc interest2,500


That still looks a bit on the low side to me - even if the rental is self-managed.

I would have thought a figure of around €4,000 - €5,000 (to include interest payments) would be more realistic.

Also, bear in mind that LPT has to come off your after-tax figure (as it's not a deductible cost).


cremeegg said:


> I wouldn't count on any capital appreciation, but it could happen and the first €20k would be tax free.


The OP now seems to be confident that the house would sell for €330k (equivalent to the original purchase price).


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