# Trading up and keeping PPR as Rental for Future



## DublinHead54 (25 Aug 2020)

*Age*: 33
*Spouse’s/Partner's age*: 32

*Annual gross income from employment or profession*: E135k (private sector) annual bonus 10%
*Annual gross income spouse*: E100k (private sector) annual bonus 10 to 20%
*Monthly take home pay*: E 11k
*Expenditure pattern*: General Savers but not overly strict

*Rough estimate of value of home*: E500k
*Mortgage on home*: E420k
*Mortgage provider*:
*Type of mortgage*: Fixed 2.6% expiring April 2021 - 1800pcm

*Interest rate* : 2.6%

*Other borrowings:* None.

*Do you pay off your full credit card balance each month?* No credit Cards

*Savings and investments*:
~4k monthly into regular saver accounts. I was overpaying mortgage by 500pcm but stopped recently to fund deposit.
~60k across instant access, regular savers and a small amount in shares that I am waiting until next tax year to sell.


*Do you have a pension scheme?*
Yes, company contributes 10%, I currently contribute nothing, I have a few other schemes from abroad totally around 100k.
Spouse 7.5% contribution pot is only around 15k.

*Do you own any investment or other property?* Yes, but just gone sale agreed, should net 45k post tax. 

*Ages of children:* First is due early next year. 

*Other policies*: No

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

- Due to the expanding family, we are looking to move to a house in the Dublin area, the price will be 600k to 800K (very top end of budget) and we will use all our liquidity to put a 20% deposit down. 
- I am planning to keep the apartment (initially), is this too much risk? I would initially be carrying ~.0.8-1m in mortgage debt. The property I own is in the Grand Canal area and still has strong rental demand, I have estimated I will be cashflow negative between 2.5 to 5k per year initially. Our lifestyles are very manageable within our monthly income, however the childcare costs will add to that, so I am estimating monthly savings to drop by about 1500. 

- My main question is that should I sell straight away as soon as I purchase a house or give it a few years to build up a bit more equity in the property? I think that purely on a numerical reason I should sell and not have the hassle of being a landlord but COVID has changed my mind. I think ultimately we will move rural to the likes of Waterford or Wexford and keeping the apartment in Dublin would be great to have to use for commuting when only required to be in the office a few days a week.


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## _OkGo_ (25 Aug 2020)

So you know you will be cashflow negative which is fine because you can afford it but is the rental actually profitable to you? You will be carrying 500k of mortgage debt because of the rental. Assuming a similar 2.6% rate, it costs you €13k in interest. After all expenses and tax, would the rental net more than €13k. Even if it is slightly above €13k, do you really want all of that hassle to gain €1-2k gross. It is disproportionately high risk compared to your salary. With bonuses, you are taking home in excess of €250k, do you really want to tie up €500k to potentially make a risky <1% of your salary?

Besides, you will be cutting it fine to purchase anything above 600k. You almost have the 120k deposit savings, shares to sell and property sale profits but you will also need to pay solicitors, stamp duty, furniture costs etc. But if the house you like is upwards of 700k, then how long before you €140k deposits plus costs (budget for 20k). 

Get rid of the apartment, buy the PPR you want now and then in a few years when you plan to move rural, reevaluate your finances and see does it make sense to then invest in a Dublin rental when your rural PPR would probably be less than €400k for the equivalent standard. The rental won't make sense until you have a lot more equity in your property

You are in a very similar situation to this thread. Salaries and property values are higher but I think you will end up coming to the same conclusion


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## moneymakeover (25 Aug 2020)

Why are you buying now in Dublin
If you think you want to live in Waterford


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## sharkattack (25 Aug 2020)

Don't have advice as such but just wanted to congratulate OP.  Buying his/her 3rd house with a joint net income of 11k a month plus bonus and still only 32.  I don't think you have anything to worry about no matter what patch you choose.


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## DublinHead54 (25 Aug 2020)

_OkGo_ said:


> So you know you will be cashflow negative which is fine because you can afford it but is the rental actually profitable to you? You will be carrying 500k of mortgage debt because of the rental. Assuming a similar 2.6% rate, it costs you €13k in interest. After all expenses and tax, would the rental net more than €13k. Even if it is slightly above €13k, do you really want all of that hassle to gain €1-2k gross. It is disproportionately high risk compared to your salary. With bonuses, you are taking home in excess of €250k, do you really want to tie up €500k to potentially make a risky <1% of your salary?
> 
> Besides, you will be cutting it fine to purchase anything above 600k. You almost have the 120k deposit savings, shares to sell and property sale profits but you will also need to pay solicitors, stamp duty, furniture costs etc. But if the house you like is upwards of 700k, then how long before you €140k deposits plus costs (budget for 20k).
> 
> ...



This makes complete sense and what I am currently weighing up. I will have the costs and deposits sorted as we have a few more months savings plus bonuses to come in, but yes it will use up all liquidity. However, I should be building ~10k in Equity per year. I think although child care costs will be factor, we will still have some excess capital coming in over the next few years to overpay on the mortgage and build up safety nets again.



moneymakeover said:


> Why are you buying now in Dublin
> If you think you want to live in Waterford



Due to Covid working remote and only commuting to the office a few times a month is likely to be a possibility. However this is unlikely to play out officially in my area of work for a few years and with kids to consider I am not sure I actually want to live down there but it is an option. 



sharkattack said:


> Don't have advice as such but just wanted to congratulate OP.  Buying his/her 3rd house with a joint net income of 11k a month plus bonus and still only 32.  I don't think you have anything to worry about no matter what patch you choose.



Thank you, I had some good budgeting instilled into me from an early age.


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## _OkGo_ (25 Aug 2020)

Dublinbay12 said:


> However, I should be building ~10k in Equity per year.



True but if the net gain is not greater than the interest from the mortgage, then the equity is all coming from your salary. It could be costing you €11k of net salary to get €10k of equity. It would be like putting your savings in a deposit with a guaranteed loss. This is all hypothetical obviously and only you can put some real numbers to rental and expenses but you would have something like 17-18% equity in the your total property assets so it would be unlikely to be profitable unless the rents are very good.

Another thought is whether the apartment currently has a gain if sold. If sold now, you get the benefit of the cgt exemption on PPR. If you keep it and sell in 5-10 years, this gain will have some level of cgt due which further devalues the equity you think you are building in it.


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## DublinHead54 (26 Aug 2020)

_OkGo_ said:


> True but if the net gain is not greater than the interest from the mortgage, then the equity is all coming from your salary. It could be costing you €11k of net salary to get €10k of equity. It would be like putting your savings in a deposit with a guaranteed loss. This is all hypothetical obviously and only you can put some real numbers to rental and expenses but you would have something like 17-18% equity in the your total property assets so it would be unlikely to be profitable unless the rents are very good.
> 
> Another thought is whether the apartment currently has a gain if sold. If sold now, you get the benefit of the cgt exemption on PPR. If you keep it and sell in 5-10 years, this gain will have some level of cgt due which further devalues the equity you think you are building in it.



Thanks OkGo, I hadn't considered fully the Equity vs Cost of Salary. I paid at the very top end of the value for the property and I think right now I would be selling at a loss, but equally I can't predict when or if the value will fully recover. Based on the below and an Equity of 10k per year, I would be ~4k better off. I did the numbers with a conservative rental income based on the area and the apartment spec, but in Covid it is all up in the air. 

If we do keep the apartment the rough strategy is to focus overpaying on the apartment mortgage rather than the new PPR to the point the apartment is cashflow positive. I will reevaluate each year, as our work life develops. This strategy would rather than overpaying into our pensions etc. 

I think based on our incomes initially including childcare we can afford it. I really don't want the hassle of trying to sell our apartment and also buy somewhere with a new born. Also our boiler just packed in so one of the most expensive costs of being a landlord will be taken upfront! 

I am just finding it hard to build wealth in Ireland, and I still think owning a property will pay off in the long run. I am taking the approach of running it as a business that is loss making in its first few years. However, I am also conscious that having a family will incur costs I have not even considered. 


Apartment Rental Income     26,400.00Expenses       5,000.00Interest     10,903.98Taxable Income     10,496.02Tax @ 52%       5,457.93Mortgage Payments     21,852.00Cashflow-      5,909.93


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## Sarenco (26 Aug 2020)

Dublinbay12 said:


> If we do keep the apartment the rough strategy is to focus overpaying on the apartment mortgage rather than the new PPR to the point the apartment is cashflow positive


That would be a bad idea.  Interest on the PPR mortgage is not deductible for tax purposes so that is the mortgage you should prioritise paying down first.

You are projecting an after-tax profit of €5,000 pa by keeping the apartment as a rental.

If you simply cashed out the €80k equity in the apartment and put it towards the house purchase, you would save around €2,000 pa in interest.

Is the €3,000 pa differential sufficient reward for all the risk and hassle of running a property rental business?

The rental would also be cash flow negative and this would appear to restrict you from maximising your pension contributions (which I would suggest is the best way to build wealth in Ireland).


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## Sarenco (26 Aug 2020)

Dublinbay12 said:


> I really don't want the hassle of trying to sell our apartment and also buy somewhere with a new born.


Buying and selling property is certainly stressful.  No doubt about it!

Could I suggest that you park the trading up decision until after your arrival in the new year?


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## _OkGo_ (26 Aug 2020)

Sarenco said:


> If you simply cashed out the €80k equity in the apartment and put it towards the house purchase, you would save around €2,000 pa in interest.
> 
> Is the €3,000 pa differential sufficient reward for all the risk and hassle of running a property rental business?



Is it not worse than that though? To retain the apt as a rental (scenario 1), the OP is paying 23.4k in total interest. If OP moves to a 600k or 800k PPR, they only pay 10.4/15.6k interest. So lets assume they buy a really nice 800k PPR, they would be paying 7.8k less interest. The apt on its own is only generating 5k net so they are down 3k when viewed from their total financial position


*Value**Scenario 1**Scenario 2**Scenario 3*PPR600600800Rental50000Total1100600800*Debt*Mortgage PPR480400600Mortgage Rental420--Total900400600*Interest*23.410.415.6*Extra interest*vs scenario 213vs scenario 37.8




Sarenco said:


> The rental would also be cash flow negative and this would appear to restrict you from maximising your pension contributions (which I would suggest is the best way to build wealth in Ireland).



I would take this approach too. Keep it simple, buy the nice house to suits your needs and increase your pension contributions. Review your situation in a few years if you still want to be a landlord

Separate question as well that may be relevant to OP's decision, how do banks view mortgage rates that were obtained as PPR but are now used as rental? Are mortgage holders contractually obliged to inform them of the change and can they then increase the interest rate closer to BTL rates? I assume that somewhere in the T&C's of a loan offer that the interest rate is based on the property being used as a PPR


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## Sarenco (26 Aug 2020)

_OkGo_ said:


> Is it not worse than that though? To retain the apt as a rental (scenario 1), the OP is paying 23.4k in total interest. If OP moves to a 600k or 800k PPR, they only pay 10.4/15.6k interest. So lets assume they buy a really nice 800k PPR, they would be paying 7.8k less interest. The apt on its own is only generating 5k net so they are down 3k when viewed from their total financial position


Sorry, I can't follow your logic.

The way I look at it, the OP has €80k of equity in the apartment.  

The choice is whether to deploy that capital in a risky business venture that might net an after-tax profit of around €5k pa or to cash out the equity and use it as part of the purchase price for the new PPR, thereby saving around €2k pa in interest payments on money he would otherwise have to borrow.


_OkGo_ said:


> I assume that somewhere in the T&C's of a loan offer that the interest rate is based on the property being used as a PPR


Not generally.  Danske had a provision to that effect in their T&C's but they were very much an outlier.


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## _OkGo_ (26 Aug 2020)

So my logic is that it is not just the interest saved on the 80k equity. There is actually 300k of additional debt to maintain both properties so it is not just a 2k interest saved but rather a 7.8k saved by not having the extra 300k of borrowing.

In other words, yearly net salary is 132k plus 5k from rental but this comes at a cost of 23.4k interest. Basically their salary is at 113.6k before a single euro goes towards equity in either property.
Or, they can live in an 800k PPR with net salary of 132k at a cost of 15.6k interest. In this case, their salary is at 116.4k when they start contributing to equity. This scenario gets better if they buy for less than 800k

They would be roughly 3k better off by not dealing with the rental at all while also having the benefit of living in a nicer 800k PPR.


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## DublinHead54 (27 Aug 2020)

Sarenco said:


> Buying and selling property is certainly stressful.  No doubt about it!
> 
> Could I suggest that you park the trading up decision until after your arrival in the new year?



Apologies I should have clarified, that this move would be done between March-August 21. I am just currently planning ahead, regardless of the scenario I end up choosing. I plan to be in a position where I don't have to sell the apartment before buying a house which we should be. This will ultimately remove any time pressure and as work life after COVID becomes clearer we may choose to move further out rather than buying in Dublin. 

Thank you both @Sarenco  and @_OkGo_  for the helpful insight, you have definitely provided additional viewpoints I had not previously considered to get the full financial picture. 

Regarding the mortgage interest on PPR not being deductible, I wanted to pay off apartment quicker to turn it cashflow positive, but I see from a total asset perspective this would result in paying more interest.


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## DublinHead54 (27 Aug 2020)

_OkGo_ said:


> They would be roughly 3k better off by not dealing with the rental at all while also having the benefit of living in a nicer 800k PPR.



I have already regretted setting the upper bound of the myhome search at 800k! The difference in houses is quite substantial.


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## Peanuts20 (27 Aug 2020)

There is another question here to consider, do you want the hassle of being a landlord?  Also, with Covid and homeworking, is the demand for rental properties in that area going to continue, especially as new schemes come on line. Personally, unless you are intending on being a professional landlord and do nothing else, I'd sell.


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## Gordon Gekko (27 Aug 2020)

We look at a lot of these but there’s an aspect that doesn’t sit particularly well with me. Are we oversimplifying things and not comparing like with like?

The interest saving on home mortgage repayments that you don’t have is finite in that it has a fixed term and reduces to zero over time.

Rental income, on the other hand, is perpetual and, in theory, can exist and grow forever.

So the capital value of the latter is far greater than that of the former.

We look at these things through the prism of this year, but next year the jaws widen just a little and then a little bit more the year after.

We simply say “two grand saved versus two grand of risky income, sell it”, but one is forever and somewhat inflation-linked, while the other is decreasing each year.

I guess I’m not comfortable with the maths of it.


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## DublinHead54 (27 Aug 2020)

Peanuts20 said:


> There is another question here to consider, do you want the hassle of being a landlord?  Also, with Covid and homeworking, is the demand for rental properties in that area going to continue, especially as new schemes come on line. Personally, unless you are intending on being a professional landlord and do nothing else, I'd sell.



I have been a landlord for the last 5 years, and had a relatively good experience. I live in a well built and managed apartment complex, I put in a high-quality bathroom, new floors, repaired outdoor space and soon to be a new boiler. I don't foresee there to be any major repairs required in the next few years. The apartment now stands out against the others available in the complex due to these upgrades so would be a more attractive option to similar at the same price point. On the rental potential, the apartment is located very close to the big Tech companies and close to all the amenities of Ballsbridge and a 20-minute walk to town. My understanding is that the tech companies even though have put work from home in place until July they will have to wfh in Ireland due to tax reasons from the end of the year. It is a two-bed apartment, so space for a home office. However, to account for the risk I reduced the rent in my calculations and included 5k annual expenses to account for management fees etc. 




Gordon Gekko said:


> We look at a lot of these but there’s an aspect that doesn’t sit particularly well with me. Are we oversimplifying things and not comparing like with like?
> 
> The interest saving on home mortgage repayments that you don’t have is finite in that it has a fixed term and reduces to zero over time.



Gordon, I have considered it that way without doing the full maths I surmised it in my head simply as short term pain for long term gain. I have it in my head that for the first 10 years the apartment would be cashflow negative, then it turns positive and eventually I will have an asset of 500k with an income of ~30k (before tax). I am thinking off the future as I don't expect my income levels to remain consistent for the next 30 years until retirement.


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## _OkGo_ (27 Aug 2020)

Gordon Gekko said:


> Are we oversimplifying things and not comparing like with like?



That is very true and we are simplifying it to year one and as OP has stated, he could treat it like a business that is loss making for the first few years knowing it will eventually be profitable. Based on the OP's cash flow, there is certainly scope for it to turn a nice profit. 

I suppose one could go a step further and use the calculations above to estimate the total equity % at which the rental is break even or profitable (from total financial perspective) knowing that from there on it would have a positive impact on their wealth. While understanding that all equity up to that xx% is coming from your salary gives the OP a clear target and vision. With OP's salary, they could probably aggressively pay down PPR for 2-3 years to reach that number quickly ( probably in the 25-30% range) and from there on, the rental is marginally profitable and only a cash flow problem which they can handle 

Getting the cheapest possible interest rate always helps too. UB are offering 2.2% 5 year fixed for high value mortgages above €300k so that will change the scenarios above.



Dublinbay12 said:


> I have been a landlord for the last 5 years, and had a relatively good experience.



Knowing this, you are already comfortable with all the risks of renting and you have the salary to fund your plans so then I think it boils down to whether you want to:
a) live in a 600k PPR while building your wealth with the rental or
b) live in the nicer 800k property that would give you other non-financial benefits, e.g. more space, better location, access to schools etc

At least you are in a healthy financial position to make that choice


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## Sarenco (27 Aug 2020)

Hi @Gordon Gekko

It's a point in time comparison.

The various inputs (rents, mortgage outstanding, etc.) are dynamic so if you run the same analysis again in, say, five years time you will get a different result.

Bear in mind that the mortgage balance on the rental also reduces over time.  Taken on its own, that is likely to reduce the advantage of maintaining the rental relative to paying off the PPR mortgage over time.


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## DublinHead54 (27 Aug 2020)

Thanks all, 

I am definitely looking at it from a point in time / short term vs long term. 

I believe I can afford an 800k PPR on a monthly basis (2.5kpcm based on a 2.6% 640k deposit) and the banks are willing to lend that amount. Whilst I can afford the monthly payments, I don't have the Liquidity pool required currently to purchase + costs + safety net. I will get closer to it through another 6-12 months savings plus upcoming bonus. We have the option to approach family for a loan / gift but up to now we haven't had to and I would prefer to not to.


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## Gordon Gekko (27 Aug 2020)

Sarenco said:


> Hi @Gordon Gekko
> 
> It's a point in time comparison.
> 
> ...



I think that the best approach would be to build a proper model for these scenarios which plots various ‘points in time’ based on certain assumptions.

I do think though that there’s a fundamental error in our analysis of these cases.

The interest saved in respect of the smaller PPR mortgage decreases to zero over a fixed period of time.

The rental income, on the other hand, should increase over time and should exist forever.

If I crudely compare the €2,000 that I could save this year on my PPR mortgage versus the €2,000 that I might make from a rental property, it’s not a valid comparison. One is shrinking and the other is growing; is it not a ludicrous comparison?


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## Gordon Gekko (27 Aug 2020)

Put another way, “things” tend to be valued on the basis of the present value of their future cash-flows.

How can an inflation-proofed and growing perpetual income stream be worth less than a decreasing income stream that has a finite lifespan?

Intuitively, if both yield, say, €2,000 a year today, the rental income is worth way more.


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## Ndiddy (27 Aug 2020)

with a baby due early next year, if this coincides with purchase, won't the banks consider  your purchasing power diminished if partner is on maternity leave and then take the child into account for calculating affordability?


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## RedOnion (27 Aug 2020)

Ndiddy said:


> if partner is on maternity leave


Only if it's unpaid.

With 1/4 million combined income, and over 100k in cash, I don't think there'd be any real affordability concerns.


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## _OkGo_ (27 Aug 2020)

Gordon Gekko said:


> Put another way, “things” tend to be valued on the basis of the present value of their future cash-flows.
> 
> How can an inflation-proofed and growing perpetual income stream be worth less than a decreasing income stream that has a finite lifespan?
> 
> Intuitively, if both yield, say, €2,000 a year today, the rental income is worth way more.



That is a fair point but in this instance it is not a straight €2k gained vs €2k saved. The rental income does not translate to rental profit because of the large overall debt and low initial equity, roughly 18% - 200k/1.1m.  Depending on interest rates and rental income/costs etc, it would not be a net contributor to their wealth until their total equity is somewhere at or above 30-35%. The sooner they add that 100-150k of equity from their own salary the better but in the meantime it is high risk for very low reward.



Gordon Gekko said:


> I think that the best approach would be to build a proper model for these scenarios which plots various ‘points in time’ based on certain assumptions.



That is exactly what is needed, even at 5 year intervals it would give a good indication of how it could benefit overall by keeping or selling.


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## Sarenco (27 Aug 2020)

Gordon Gekko said:


> I think that the best approach would be to build a proper model for these scenarios which plots various ‘points in time’ based on certain assumptions.


Predicting future interest rates, rents, taxes, etc., is fraught with difficulty.

IMO the far better approach is to review an investment from time to time - on the basis of the facts that are known at that time.

A rental property can obviously be acquired or a PPR mortgage can be paid down at a later point in time - there is no logical reason to make the decision for "all time" based on some projection of an unknowable future.


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## _OkGo_ (27 Aug 2020)

Sarenco said:


> Predicting future interest rates, rents, taxes, etc., is fraught with difficulty.



Yes it is but at least it would give you a sense of risk and highlight some key indicators as to stay invested or sell up. It should be reviewed regularly based on factual info but you can also be prepared for different scenarios in 5 years such as: Reduced rent, increased interest/costs, reduced salary, changes to personal expenses such as additional childcare. You can even model the positive impacts, maybe a sudden increase of xx% in houses prices would justify cashing in on the capital gain instead of holding out for rental income

Planning for those scenarios would give you confidence to make the right decisions at any stage to keep or sell so that it is not the 'all time' decision. OP does not have to stay invested for the next 25 years but they can prepare for a few warning signs that if ......... happens, its time to sell


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## Sarenco (27 Aug 2020)

_OkGo_ said:


> Yes it is but at least it would give you a sense of risk and highlight some key indicators as to stay invested or sell up.


It's really not rocket science.

Either the capital tied up in the rental is producing a sufficiently higher after-tax profit than the interest savings that could be achieved by cashing out the equity and applying against the PPR mortgage.  Or it's not.

There's really no need to model scenarios - it's a simply question of fact that can be revisited at regular intervals.


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## _OkGo_ (27 Aug 2020)

I disagree, it's not rocket science to plan for a few simple scenarios either. It would be foolish not to know the risks involved when you are potentially taking on 900k of debt.

There is an obvious cash flow risk because they will use up all of their liquidity in the process. What if their salaries are reduced temporarily or for an extended period? There is a simple way to limit that risk by taking out longer term mortgages to reduce the minimum payments in case of a salary drop while planning to overpay if salaries remain constant.

It's not just the 80k that impacts the decision, its total debt and total equity, interest rates and more. OP is comfortable with some risk now knowing that investing in their total equity will make it profitable in a few years so it's fairly reasonable to plan 4 or 5 years ahead. If the decision was based on today's facts only then its a definite sell. But if the OP has a longer term plan and is aware of the risks then they should keep it


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## Sarenco (27 Aug 2020)

You can identify risks today, without any artificial modelling of an unknowable future.

The OP's decision is really very simple - is the projected €3,000 pa differential in keeping the apartment as a rental as compared with cashing out the €80k equity and applying as part purchase of the new PPR sufficient reward for all the risk and hassle of running a property rental business?

The decision can only be made on the basis of today's known facts.  The future fact pattern is unknowable.


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## Gordon Gekko (27 Aug 2020)

I’m not sure about that.

If the interest on my PPR mortgage is €X today and my rental income is €Y, I can be pretty confident that as time passes, X will decrease and Y will endure and in all likelihood increase.


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## _OkGo_ (27 Aug 2020)

Sarenco said:


> The decision can only be made on the basis of today's known facts. The future fact pattern is unknowable.



By that logic, why would anyone ever invest in a pension? You don't know it will grow, you make assumptions and assume that you'll still be around to benefit from it.

How does it not make sense to plan for a few simple scenarios? It would be ridiculous not to. And there are a few knowable facts such as fixed interest rates that help you plan for 3/5 years time. How would it be a bad thing to know that if the SVR at the end of the fixed period goes up for some unknown reason that it would make sense to sell up? You don't need to know why it has gone up, only that this venture is not viable at interest rates above x.x%


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## DublinHead54 (2 Nov 2020)

Things moved a little faster than expected and we found a house and went sale agreed (pending survey). I am now in the very real situation of making a decision regarding the apartment. In the short term baby is on the way, childcare costs won't start until 2022, spouse is on paid maternity leave for the majority 2021. 

The figures in post 1 largely still hold, the new mortgage will be ~2300 pcm and current mortgage is 1800 pcm. I expect there to be ~3 months of paying double mortgage in the short-term.

I have roughly calculated that the apartment will be running with a slight positive cashflow on a monthly basis with an annual tax bill of 5k vs capital appreciation of 10k. There won't be a significant decrease in the tax bill until the mortgage is paid down significantly. I have based this on quite a low rent reflecting demand post COVID, but ultimately I can afford the 500pcm. 

I think the rental environment for the apartment is better than the current selling environment. Ideally, it would be cashflow neutral, but that isn't the case. I also think our savings would not need to be as aggressive going forward, so can point more cash towards paying down mortgages to a better level. 

Starting point our LTI is 4.18 but after 5 years (with no overpayment) it will be 3.73. 

I still like the idea of eventually having an asset that is producing an income stream, vs what else could I do with that money given that in Ireland it is basically overfund pension or overpay mortgage.


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## Sarenco (2 Nov 2020)

Dublinbay12 said:


> The figures in post 1 largely still hold


Are you sure that's the case?

Clearing rents have fallen back quite a bit in the docklands over the last quarter.








						Q3 2020 Dublin Residential Market Review - Owen Reilly
					

We have released our Q3 transactional analysis on the Dublin residential market in Q3. 2020 has been a rollercoaster ride for the Dublin property market. Key findings: Selling prices 1.2% below asking prices Sales transactions up 21% compared to Q2 65% of our buyers are owner occupiers 42% of...




					www.owenreilly.ie


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## DublinHead54 (2 Nov 2020)

Sarenco said:


> Are you sure that's the case?
> 
> Clearing rents have fallen back quite a bit in the docklands over the last quarter.
> 
> ...



Yes, my first post did not mention rents.

My apartment is technically not the Docklands and on average rents in my development have always been significantly less than those in the docklands. 

Regardless, the rent pcm I have used in calculations reflected the low end and is not a million miles away the average quote in the OW report, and is in line with asking rents in my development. I do think my apartment will achieve the higher end of the market given location in, larger outside space and it has been refurbished. 

Obviously the lower rent the less compelling of an argument there is to keep. However, I do think rents will bounce back as I am aware that the epxectation is the big tech companies will require their staff to work remotely for Ireland rather than their home country in 2022.


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## Sarenco (2 Nov 2020)

Fair enough.

I'm seeing a lot of 2-beds apartments in D2/4 that would have rented for €2,200+ pre-COVID that are now struggling to achieve much more than €1,800pm.

Maybe you're right and rents will recover rapidly. I guess time will tell.


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## Blackrock1 (2 Nov 2020)

Dublinbay12 said:


> Things moved a little faster than expected and we found a house and went sale agreed (pending survey). I am now in the very real situation of making a decision regarding the apartment. In the short term baby is on the way, childcare costs won't start until 2022, spouse is on paid maternity leave for the majority 2021.
> 
> The figures in post 1 largely still hold, the new mortgage will be ~2300 pcm and current mortgage is 1800 pcm. I expect there to be ~3 months of paying double mortgage in the short-term.
> 
> ...



Given that you arent making any payments into your own pension apart from employer contributions is this an either or scenario? because you can put another 10k in tax free give or take for this year (you will have missed the deadline for last year i think).

Id wager thats a better investment.

We were in a similar situation and we sold the apartment, and spent more on the house, 3 years later im satisfied that we made the correct decision but everyones circumstances are different.

theres also the changes that will come over the next decade, you may decide to have more than one child, if thats the case both of you working full time in senior roles becomes less and less appealing, and even if you do child care costs (full time) for multiple kids is expensive.


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## DublinHead54 (2 Nov 2020)

Blackrock1 said:


> Given that you arent making any payments into your own pension apart from employer contributions is this an either or scenario? because you can put another 10k in tax free give or take for this year (you will have missed the deadline for last year i think).
> 
> Id wager thats a better investment.
> 
> ...



The house we have purchased which coincidently is in Blackrock will suffice for a growing family, and struck the right balance of size, location, price etc. I haven't focused too much on pension if I am honest. I think the best solution is to weather the storm and review the situation in a few years. As stated we won't have to save as aggressively and can start directing cash savings towards overpayment of mortgages and additional pension funding.

I hear you on that last part, I will need to sit down and effectively plan how much we will need in retirement.


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## presidenttttt (3 Feb 2021)

Good thread, as suggested by someone on the somewhat similar query I had. Enjoying the debate about making the decision based on the snapshot or the long-term.

I would ask how relevant age is in the equation too? If young, and lucky enough to have a decent income, how do you account for the investment property and the fact it will sooner or later be cash positive, potentially very cash positive, for a period well in excess of the "short-term-pain"? OP may have this paid off at 45. The maths and perspective might be very different for someone expecting final mortgage payment at 65 years old?

I also wondered if OP expects salary to increase? For young high earners can they foresee their pension hitting the €2.0M limit? IF there if there is a possibility of OP maxing the pension in later life anyway does that change the usual logic of building DC pensions ASAP, and therefore encourage investment (not necessarily in property).


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## NoRegretsCoyote (3 Feb 2021)

presidenttttt said:


> For young high earners can they foresee their pension hitting the €2.0M limit?



Over a thirty year horizon it's likely that it will be increased.

Maybe not in real terms, but I wouldn't start planning based on a number until you are 75% to the prevailing SFT and/or in your 50s.


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## DublinHead54 (27 May 2021)

Hi All,

So after much back and forth we decided to initially rent. We priced it towards the higher end of the market in the area given the fact the apartment was refurbished and better situated compared to the others in the development and area. However, the market is very opportunistic and people are looking for deals and interest was at much lower prices than made financial sense. So we have now made the decision to sell. 

It is likely to prove a somewhat costly mistake as we could have put it for sale earlier and before fixing the mortgage rate. But on the whole, when considering the rent we would have been paying and equity built up it could have been a lot worse.

On the flip side we are enjoying suburban life and the never-ending DIY list which comes with an old house!


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## Sarenco (27 May 2021)

Thanks for the follow up.

According to Daft, average asking rents have fallen by 6.5% in Dublin city centre over the year to 31 March 2021 and I can certainly see how that would impact your decision.


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## DublinHead54 (27 May 2021)

Sarenco said:


> Thanks for the follow up.
> 
> According to Daft, average asking rents have fallen by 6.5% in Dublin city centre over the year to 31 March 2021 and I can certainly see how that would impact your decision.



I can confirm that Daft is not wrong


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## NoRegretsCoyote (27 May 2021)

Dublinbay12 said:


> I can confirm that Daft is not wrong


I watch inner suburbs closely enough and I would have thought asking rents are back to February 2020 levels..........a noticeable increase in even the last six weeks.


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## DublinHead54 (27 May 2021)

NoRegretsCoyote said:


> I watch inner suburbs closely enough and I would have thought asking rents are back to February 2020 levels..........a noticeable increase in even the last six weeks.



The asking rents are perhaps but the demand to pay the asking hasn't returned at least in my example. There is still a lot of variation in pricing around the Docklands, and what I found interesting was the feedback from the agent was people were interested but straight away wanted a reduction in rent. Anecdotally I have heard of some companies offering a free month so that the rent is reduced without impacting the advertised rent and their ability to charge market rate when demand returns and not be bound by the RPZ.

The variation in rent might be driven in part by long term renters leaving and landlords who hadn't raised rent and are now stuck by the amount they can increase due to RPZ. 

I think the rents will return to pre covid levels but the demand in the area I was trying to rent out just wasn't quite there yet.


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## LS400 (27 May 2021)

Dublinbay12 said:


> I think the rental environment for the apartment is better than the current selling environment.



I think that situation has probably done a 180` degree turn in the last 6 months.


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## DublinHead54 (15 Jun 2021)

LS400 said:


> I think that situation has probably done a 180` degree turn in the last 6 months.


You were right, the apartment went sale agreed quickly. Fingers crossed it goes smoothly, already felt a huge weight of my shoulders.


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## DublinHead54 (30 Jul 2021)

As a quick update, the apartment sold and we now have a lump sum that we need to decide what to do with. Since the first post we now have short term debt of ~15k for a car loan, which I plan to clear first. I'm discovering the joys of homeownership so the part will go towards immediate renovation costs. 

The question is what to do with the remaining lump? I see two options and I am not sure what is the best long term option or if a mixture or both should be followed. Please let me know your thoughts.

Mortgage outstanding: 660k @2.9%...this was my only option and is with BOI fixed for 1 year, I will move after this.

1. Option 1: Use lump sum to pay down mortgage (LTV will be 80%). Lower monthly payments going forward and use the additional free capacity to make AVCs to pension. 
2. Option 2: Use lump sum as AVC into our pensions today, getting the tax relief and allow it to grow from now. 

I am leaning towards paying down the mortgage to have lower monthly payments but have not done the maths.


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## Brendan Burgess (30 Jul 2021)

It's probably worth taking the initial post and copying it into a new thread and updating it.

Brendan


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## NoRegretsCoyote (30 Jul 2021)

Dublinbay12 said:


> 1. Option 1: Use lump sum to pay down mortgage (LTV will be 80%). Lower monthly payments going forward and use the additional free capacity to make AVCs to pension.
> 2. Option 2: Use lump sum as AVC into our pensions today, getting the tax relief and allow it to grow from now.
> 
> I am leaning towards paying down the mortgage to have lower monthly payments but have not done the maths.



There is merit to both. Normally I would say you won't beat the return on tax-relieved equities over the next half century, so put it into the pension.

OTOH you have monthly mortgage costs of nearly €3k. This is feasible on your income, but leaves you vulnerable if your income changes.

I am a few years ahead of you on the family path, and we eventually found that two demanding, full-time jobs and two (also demanding) kids didn't work. If you make that choice in a few years you'll appreciate having lower mortgage costs.


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