# Sell up or rent out apartment



## eb_scoot (18 Aug 2020)

I think I can probably guess what the answer to my question will be, but I wanted to sense check with this forum.

*Ages: *Both 36

*Annual gross income from employment or profession: *€81,500; Spouse ~€60,000 (It's a daily rate but annual contract)

*Monthly take-home pay: *€4145; Spouse ~€3150

*Type of employment: *Private sector; Private sector, annual contract

In general are you:
*(b) saving* - €2,000 jointly assuming this will be used for a house when we trade up, I'm saving another €1000 into a rainy day fund
*
Rough estimate of value of home: *€380k
*Amount outstanding on your mortgage: *Nothing - the apartment was inherited. We own it in full
*What interest rate are you paying? -

Other borrowings – car loans/personal loans etc: *Car loan, costs €200/month
*
Do you pay off your full credit card balance each month? *Yes
*
Savings and investments: *€90k including rainy day fund
*
Do you have a pension scheme? *Yes, not matched by company. I put 10% of my salary in; Spouse does not

*Do you own any investment or other property? *No
*
Ages of children: *No kids yet - possibly one in the future.

*Life insurance: *Yes, via my work

*What specific question do you have or what issues are of concern to you?*
We want to trade up to a larger home. We currently own and live in a nice apartment in Dublin docklands area but we want more space, especially since Covid we're both wfh and I will likely have the option to do this part time going forward even after this is all over. Apartment is valued currently at ~€380k, and would likely achieve €2000/month in rent.

As we are in a solid position with very little debt, we don't want to borrow to the max. Our options are: 
a) sell up, borrow about €200k and have a total budget to spend on a new house of €650k. This would get us, if not a forever home, a very nice home that would be suitable for 10-15 years in our 'perfect location'.
b) Hang onto the apartment & rent it out. Buy a cheaper home in a nice commuter town near one side of the family (so, longer commutes but handy family support) borrowing about €340k, using the apartment income to service some of the mortgage.

What should we do?


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## goingforgold (18 Aug 2020)

Sell up and buy your ideal home with a relatively small mortgage. Do you want the hassle of a very big mortgage and all the hassle that comes with being a landlord?  You will pay substantial tax on rental income as you have no mortgage to offset against it... Sell up and live comfortably. You're in a very strong financial position for your age so maximize the benefits of that... Don't bring unnecessary stress into equation.


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## Thirsty (18 Aug 2020)

My advice would be to keep it.

Good location, easily rented, no debt so any (unlikely) voids won't kill you.

You can review again in 5 years time.


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## Sarenco (18 Aug 2020)

eb_scoot said:


> Apartment is valued currently at ~€380k, and would likely achieve €2000/month in rent.


You would be doing very well to hang on to €10k pa of that rental income, after taking account of all expenses and taxes.

If you cashed out the equity and applied it as part of the purchase price for the new home, you would almost certainly save over €10k pa in mortgage interest payments.

So it's a very clear sell for me.

Incidentally, why do you have a car loan while you have €90k in savings, earning precious little in interest?  Pay off the loan pronto.


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## eb_scoot (18 Aug 2020)

Thanks for all your replies. 

@Sarenco you're right that it's kind of a 'break even' scenario. If I go by the KBC mortgage calculator just to get a sense of repayments, borrowing the larger amount would cost around €10k more per annum to pay off, but that would be covered by the rent after tax from the apartment. So in theory we'd end up with an asset at the end while still paying the same amount of money monthly. The downside is of course that becoming a landlord has it's own issues and we're relying on tenants to be easy to deal with and who pay their rent in order to pay off our own mortgage.

The reason we have the car loan is it's cheap to service, and we wanted to keep the cash in our account so we'd have it for a house purchase if needed. Agree that it would make more sense to pay it off if we managed to not need all the cash to buy a new house.


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## DublinHead54 (18 Aug 2020)

Out of interest what is your perfect location?


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## eb_scoot (18 Aug 2020)

Dublinbay12 said:


> Out of interest what is your perfect location?


It's Clontarf / Killester / Raheny. Obviously there's a big range in house costs in those areas but I've seen plenty within budget too. We don't need a 5 bed detached house or anything


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## Sarenco (18 Aug 2020)

eb_scoot said:


> So in theory we'd end up with an asset at the end while still paying the same amount of money monthly.


That's not the right way to look at this choice.

You currently have €380k in capital tied up in the apartment.

You could deploy that capital in starting a relatively risky new business venture that, all going well, might net you around €10k pa (after all expenses and taxes).

Or you could deploy that capital as part of the purchase price for a new home, thereby saving you around €10k pa in interest payments that you would otherwise have to pay on a €380k mortgage.

So a risky ~€10k versus a guaranteed ~€10k pa (ignoring price appreciation/depreciation).

As an aside, asking rents have fallen appreciably in the docklands since the start of the pandemic...


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## DublinHead54 (18 Aug 2020)

eb_scoot said:


> It's Clontarf / Killester / Raheny. Obviously there's a big range in house costs in those areas but I've seen plenty within budget too. We don't need a 5 bed detached house or anything



This is what I would do in your shoes......A 650k house with a 10% deposit (585l mortgage) is ~2,300 pcm. If you sold up and took a small mortgage of 200k, the payment is ~800pcm. I would pretend that your monthly payment is 2,300pcm of which 800 is the actual payment and you can treat the other 1,500 as income. Or aggressively pay off your 200k mortgage over 5 years and you would have turned a 380k asset into a 650k asset.

What is slightly concerning is that you are only saving 2,000 pcm at the minute but have no mortgage or rent outgoings.


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## DublinHead54 (18 Aug 2020)

Sarenco said:


> As an aside, asking rents have fallen appreciably in the docklands since the start of the pandemic...



I live in the docklands area and watch the market closely. There is a lot more stock of apartments on the market and at lower prices. I think the one beds are going to be squeezed quite a bit.


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## eb_scoot (18 Aug 2020)

Dublinbay12 said:


> I live in the docklands area and watch the market closely. There is a lot more stock of apartments on the market and at lower prices. I think the one beds are going to be squeezed quite a bit.


Yeah, agreed - not sure how easy it will be to sell. Although we are in a two bed.


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## eb_scoot (18 Aug 2020)

Dublinbay12 said:


> This is what I would do in your shoes......A 650k house with a 10% deposit (585l mortgage) is ~2,300 pcm. If you sold up and took a small mortgage of 200k, the payment is ~800pcm. I would pretend that your monthly payment is 2,300pcm of which 800 is the actual payment and you can treat the other 1,500 as income. Or aggressively pay off your 200k mortgage over 5 years and you would have turned a 380k asset into a 650k asset.
> 
> What is slightly concerning is that you are only saving 2,000 pcm at the minute but have no mortgage or rent outgoings.


This is an interesting way of looking at it. BTW we are saving €3000/month when you take the rainy day fund into account which is 40% of our net income - would you say this is too little? We have been basically aiming to save the cost of what our rent would be + a bit more.


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## DublinHead54 (18 Aug 2020)

eb_scoot said:


> Yeah, agreed - not sure how easy it will be to sell. Although we are in a two bed.



I have heard in the D4 area apartments are moving quite fast still. In your case as you inherited, you have a bit of wiggle room.


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## Zenith63 (18 Aug 2020)

FWIW we had a similar decision to make a few years ago and decided to keep the apartment and rent it out. I would not do it again and we are Sale Agreed now to be rid of it.

I’m into DIY, already file a tax return annually, apartment was modern and we had great tenants, but honestly it’s just not worth the hassle for the few quid you make versus having a smaller mortgage on your PPR. Looks like you are both in well paid jobs; put the time/mind-share you’ll have to put into managing a rental property into your work and it will likely yield greater returns with much less risk.

The only way I would do it again is if I was getting into it full time with 5-10 properties or on a fully managed basis, but you lose most of the income this way.


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## PaddyBloggit (18 Aug 2020)

Zenith63 said:


> FWIW



What's that?


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## _OkGo_ (18 Aug 2020)

I would agree with Sarenco, simple decision to sell and use the capital to fund the home you actually want, not the one you will settle for to hold on to the apartment. It is a lot of risk to take for very little gain and a lot of hassle

Managing the buying/selling process could be tricky for you. Assuming you continue living in the apartment until you are sale agreed on a new home, then you may need to borrow a larger mortgage until you can sell the apartment. Right now,  you can borrow up 494k (salary x 3.5) meaning you need another 150k cash for a deposit. Maybe the bank would make an exception on this knowing you have the property to sell?? You have the required 10% as first time buyers so it is just the LTI that they would need to make an exception on. Your car loan also impacts this so it probably makes more sense to clear it now and have a clean mortgage application instead of a slightly larger deposit

Once you have sold the apartment, clear down the mortgage to your original 200k estimate. You could then comfortably (and aggressively) overpay the 200k mortgage until a kid comes along leaving you with a small mortgage in the home you will hopefully spend the next 20-30 years or more

Alternatively you sell first and buy second but don't underestimate how long it can take to actually get keys and not just go 'sale agreed'. There could be several months of limbo and renting if you chose to sell first so probably not worth the hassle

BTW, you should also be eligible for the 'help to buy' scheme as you inherited the property. How this makes sense I don't know but they are the rules so you might as well take advantage. See Help to Buy.


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## Sarenco (18 Aug 2020)

PaddyBloggit said:


> What's that?


FWIW = For What It's Worth.


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## LS400 (18 Aug 2020)

On your combined income, you don`t need to sell. I wouldn't.

With earnings of €140k, 90k in savings, you can afford to buy you dream home, and as pointed out above, review the situation in 5 years.  If little Eb comes along and your finding it a struggle, you have the safety net with the 2 bed.

Docklands will be an easy let, and will attract a different level of tenant. All Lets are vulnerable with this dysfunctional system me have, but good agents will minimize potential trouble.

I try to look at property let, as forgetting about the fact you even have it. Let the agent take the strain. Your in the fortunate position of having this property without the financial burden of obtaining it. You dont need this leg up, you have the ability to fund your home without it.. 

Set yourself the goal of making the decision of selling the 2 bed on your 50th birthday, and if all financially is still going well, look to off load it and enjoy, but you need to get the head down, and work now to enjoy the benefits later.  

Once its gone, its gone..


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## moneymakeover (18 Aug 2020)

IMHO it makes sense to use the apartment towards your home.

Later when you have your 200k mortgage paid down you can borrow and buy an investment.

Without the tax incentive of *borrowed* money i don't think it makes sense to invest in property


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## Sarenco (18 Aug 2020)

LS400 said:


> Once its gone, its gone..


I suspect that flawed thinking is the reason this question comes up on an almost daily basis on AAM.

In behavioural economics it's know as the endowment effect - the observed phenomenon that people are more likely to retain an object they own than acquire that same object when they do not own it.  

It's a completely irrational bias.

Say the OP had a mortgage of €380K on his PPR and €380k of cash on deposit in the bank.  

Would you advise the OP to buy a rental for cash that might produce a net, after-tax, rental income of €10k pa or to pay down the PPR mortgage if that saved €10k pa in interest?


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## Brendan Burgess (18 Aug 2020)

eb_scoot said:


> a) sell up, borrow about €200k and have a total budget to spend on a new house of €650k. This would get us, if not a forever home, a very nice home that would be suitable for 10-15 years in our 'perfect location'.
> b) Hang onto the apartment & rent it out. Buy a cheaper home in a nice commuter town near one side of the family (so, longer commutes but handy family support) borrowing about €340k, using the apartment income to service some of the mortgage.



This is so clear that I am struggling to see how there can be any other view. 

Forget the finances for a while. 

1) You can afford to buy an almost forever home with very little commuting.  Why wouldn't you
2)  Zenith's post really hit the nail on the head


Zenith63 said:


> put the time/mind-share you’ll have to put into managing a rental property into your work and it will likely yield greater returns with much less risk.



Keep your life simple.  Live near where you work. Don't be distracted by a part-time job when you are already well paid.

To extend Sarenco's thought experiment a bit further. 
If you had a home worth €650k with a €200k mortgage , would you borrow an additional €380k on which you would not get tax relief to buy an apartment for €380k? 

I hope it's clear that you should not do so.

As well as keeping things simple, you should also reduce or eliminate risk especially in the very uncertain times we live in. You will have a €650k exposure to the Dublin property market. Do you really think you should be increasing that to over €1m? 

This is clear:  Sell and buy where you want to live.

Brendan


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## Thirsty (18 Aug 2020)

"Later ....you can borrow and buy an investment."

Here's the thing though; you have no way of knowing what life will throw at you. For all sorts of reasons borrowing at some distant point in the future may not be possible.

When you have assets, you have options.

The OP has said whatever home they buy won't be the final one.

Rent it out for now; you can always change your mind later.


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## eb_scoot (19 Aug 2020)

Thanks everyone for your input, I appreciate your advice.


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## _OkGo_ (19 Aug 2020)

Thirsty said:


> When you have assets, you have options



Yes, bad options. The same argument can be used to justify not keeping the apartment. At some unknown point in the future, the OP may not be able to access credit to allow them trade up to their 'forever' home leaving them stuck in a PPR they never really wanted and a rental that is costing them money



Sarenco said:


> Say the OP had a mortgage of €380K on his PPR and €380k of cash on deposit in the bank.
> 
> Would you advise the OP to buy a rental for cash that might produce a net, after-tax, rental income of €10k pa or to pay down the PPR mortgage if that saved €10k pa in interest?



Adding to Sarenco's example, would you advise the OP to continue living in the apartment and take out a 340k BTL investment mortgage on the 410k apartment next door (basically the same as option 2)....The asnswer is no. Very likely that the net rental income would not cover the interest on the mortgage so you end up covering that out of salary. Not to mention that a bank wouldn't even give you this type of BTL mortgage without a 30% deposit

Very simple, option 1 all the way. Live where you want in a house you was want with a very reasonable 200k mortgage.


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## Thirsty (19 Aug 2020)

> ... bank wouldn't even give you this type of BTL mortgage without a 30% deposit


Exactly my point. This is an unmortgaged property.

Having assets does not give you 'bad' options; unless you happen to be of a religious persuasion that believes all material goods and property are harmful?


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## _OkGo_ (19 Aug 2020)

You are looking at the apartment as an unmortgaged property in isolation. That is not the OPs situation. They would have 790k value in two properties with a 340k mortgage on the PPR. The rental income would barely, if even, cover the interest on the PPR meaning it is a bad use of that capital. It doesn't matter that the debt is not attached to the apt they wouldn't have it if they didn't keep the apt so it's the same thing. 

Whatever the religious reference is I don't know but having an asset that is doing nothing for you is a bad option. The OP has a very sensible and better use of that 380k right now by investing in the 650k property that they actually want to live in.


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## Brendan Burgess (20 Aug 2020)

_OkGo_ said:


> It doesn't matter that the debt is not attached to the apt they wouldn't have it if they didn't keep the apt so it's the same thing.



This is a very important point which most people miss. 

There is no difference between 

A) Owning a property worth € 500k with a €400k mortgage on it and  a mortgage free property of €400k
and
B) Owning a mortgage free property of €500k  and a €400k property with a mortgage of €400k on it.

In both cases, the value of the property is €900k, the mortgage is €400k and the net assets are €500k

It will usually be better to sell the property and end up with a €500k property and no mortgage. 

But people assign a mortgage to a property in their head and this leads to incorrect decisions. 

I am sure that this is the reason so many people have a property worth €500k with a mortgage of €400k and €100k in the bank. The property and mortgage are in a separate part of their brain from the €100k deposit and they can't seem to get the overall picture.

Brendan


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## Thirsty (20 Aug 2020)

> property worth €500k with a mortgage of €400k and €100k in the bank.


Totally get the point you are making.  

But there is another aspect, if in your example here, I took my 100k in the bank and paid it off my mortgage of 400k, I now have a mortgage of 300k; sounds great.

But if you need that 100k in the future for, let's say education costs, you can't be certain that you will be able to borrow that money again.

Having been through a fair range of what life has to throw at a person; I'm inclined to hold rather than sell. It can always be revisited.

as an aside to @_OkGo_ - many Buddhists believe that ownership or desire for material goods/property is what leads to human suffering.


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## Brendan Burgess (20 Aug 2020)

OK Thirsty 

To go back to Sarenco's endowment argument.

Let's say you own a €400k house with no mortgage.

Would you borrow €100k @ 3% to put it on deposit at 0% in case you might need it in the future? 

I presume not. 

But you could borrow it and invest it in a risky asset such as property or shares. Again,  this means that you have it in case you need it. 

But the problem is that you have to pay it off over time. And this diminishes your wealth.  And you trade off the big risk of a fall in value of the asset against the opportunity of a gain.

If you have a specific need in the near future for spending the money, paying it off would be wrong.  But keeping it in case you might need it and might not be able to borrow it is too remote to justify paying the extra.

In the current case, you are dealing with two well paid 36 year olds.
If they sell the investment property, they are going to have the house they want and a small mortgage.
They are savers so they will probably clear the mortgage well ahead of schedule.

What might go wrong? They separate after 5 years.  One of them can't get a mortgage on their own salary. In that case, they would be glad that they had kept the apartment.   It's easier to split two houses and a mortgage than one house with no mortgage.

Come to think of it, you might have a point...    

Brendan


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## ClubMan (20 Aug 2020)

Another point to consider is that if you keep the apartment to rent out and buy your ideal 10-15 year home then your investment portfolio will be comprised of a single asset/risk class - domestic property in Dublin. In general this would be considered riskier and less advisable than holding a more diversified investment portfolio. Remember, your home is your home but it is also part (often the largest part) of your investment portfolio.


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## Thirsty (20 Aug 2020)

ClubMan said:


> your investment portfolio will be comprised of a single asset/risk class - domestic property in Dublin



But if you sell appt and put all the proceeds into another house that will also be the case will it not?


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## _OkGo_ (20 Aug 2020)

Thirsty said:


> But there is another aspect, if in your example here, I took my 100k in the bank and paid it off my mortgage of 400k, I now have a mortgage of 300k; sounds great.
> 
> But if you need that 100k in the future for, let's say education costs, you can't be certain that you will be able to borrow that money again.



I agree with this statement, if you had teenagers about to go to 3rd level then it makes perfect sense to have cash on hand. But again, that is not the OP's situation. The cash analogy of your suggestion is for the OP to sell the apartment for 380k and keep all of that money on deposit and then go buy a second 410k property with a 340k mortgage. Effectively taking a 340k mortgage and paying interest just so that you can hold on to 380k cash.

The only way it would make sense for the OP to do this is if they had access to really cheap finance, e.g. a tracker mortgage. Then the apt would be turning a healthy profit and would make perfect sense to keep



Thirsty said:


> many Buddhists believe that ownership or desire for material goods/property is what leads to human suffering.



Maybe they do but I think we are all advising OP to put his money into a 650K PPR 



Brendan Burgess said:


> What might go wrong? They separate after 5 years. One of them can't get a mortgage on their own salary. In that case, they would be glad that they had kept the apartment. It's easier to split two houses and a mortgage than one house with no mortgage.



Hopefully we haven't driven the OP to consider this


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## ClubMan (20 Aug 2020)

Thirsty said:


> But if you sell appt and put all the proceeds into another house that will also be the case will it not?


Yes, but if the apartment is retained then they'll be borrowing even more to invest than if they liquidate it. And borrowing to invest is generally inadvisable especially when there is an option available to reduce the need to borrow.


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## Thirsty (28 Aug 2020)

Brendan Burgess said:


> What might go wrong?


Don't know why this bounced back into my head today but it did.

It's not so much a question of what could 'go wrong' as simply life events that happen that can badly trip you up financially.

At the risk of throwing the OP on a complete downer, loss of loved ones, serious illness, businesses going bankrupt, redundancy etc., can all have a huge impact.

I think the focus here can sometimes be very short term; the OP has a long life to live.  

Hold on to your assets.


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## _OkGo_ (28 Aug 2020)

A blanket statement of 'hold on to your assets' really makes no sense.

Many of those life events you mention have financial stress and worry as contributing factors. You assume it is an asset because it is physical property but it can just as easily be a liability if it is not contributing to your wealth. Would you also tell them to hold on to their liabilities?

On the face of it, the OP has the potential to have a net gain of 9-10k from the apartment. This comes at the cost of the PPR mortgage interest, 340k x whatever interest rate they get. It will be marginally profitable if they can get a fixed rate below 2.5%. To really make it work for them, they need to heavily invest in their PPR equity in the next 3-5 years. It means they can't (or at least shouldn't) take on consumer debt for cars etc or else they are wasting their time. If they don't invest in the equity, they will coast along for 5 years and be no better off having had all the work/risk involved with renting.

Knowing how to make it a viable investment and the sacrifices/choices they need to make is much more important than just saying 'hold on to your assets'.


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## presidenttttt (3 Feb 2021)

Zenith63 said:


> The only way I would do it again is if I was getting into it full time with 5-10 properties or on a fully managed basis, but you lose most of the income this way.



People say this on a number of threads, but also tell the posters to sell. Most people don't accumulate 5-10 properties overnight, or maybe some cash buyers do later in life?  To be fair, OP didn't give any indication that they might want to achieve such a portfolio, but genuine question would it change the advice of those saying sell over hold?




Brendan Burgess said:


> But people assign a mortgage to a property in their head and this leads to incorrect decisions.



Agree with this. If we did some work on spreadsheets in school instead of spending 18 years learning a language that is not used, this sort of logic might be more common. Sarcasm aside, self teaching myself on excel in recent years, and using it alot in recent weeks, and it really does help to construct even basic tables for thinking about these decisions.


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## DublinHead54 (4 Feb 2021)

The op is in a unique position and I'm going to through out another option here. 

To my knowledge you can't release equity from your PPR apart from far property enhancements. So once the cash is in its essentially locked up until you sell that home. 

My option is that the Op sells the apartment for 300k and keeps 200k cash and gets a mortgage on their next home that is a manageable monthly cost. 

The Op then looks to invest the 200k in businesses, there are a few business investment networks (HBAN). The average age of people investing is 50-60 because they've acquired lump sums over the yesr. Younger people don't tend to have these but the op does. 

Obviously this depends if the Op is into this type of thing. 

Another point if the OP sells up and gets a small mortgage, what is he going to do with all the cash he accumulates over the following years? Maybe he builds up 200k over 20 years and decides then 'oh I should invest in a business'

I get the point on behavioural bias in decision making but at times you can't always make a decision based on purely numbers.


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## Purple (4 Feb 2021)

Thirsty said:


> I think the focus here can sometimes be very short term; the OP has a long life to live.
> 
> Hold on to your assets.


Or you could say the OP has a long life to live; get rid of your debts. The fewer debts you have to service the more options you have in life.

On a side note the OP and partner have over €7000 a month in income with no mortgage but are only saving €2000 of that. If they sell the apartment and buy a house they will still be in a position to save a considerable amount of money if they stop having their groceries flown in by helicopter, cut back on the Grand Cru wines and sacked the maid and chauffeur.


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## DublinHead54 (4 Feb 2021)

Purple said:


> Or you could say the OP has a long life to live; get rid of your debts. The fewer debts you have to service the more options you have in life.
> 
> On a side note the OP and partner have over €7000 a month in income with no mortgage but are only saving €2000 of that. If they sell the apartment and buy a house they will still be in a position to save a considerable amount of money if they stop having their groceries flown in by helicopter, cut back on the Grand Cru wines and sacked the maid and chauffeur.



Its the 8 eur sandwiches in Lotts & Co that get me. The owner of that shop has made money hand over fist during lockdown.


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## Purple (4 Feb 2021)

Dublinbay12 said:


> Its the 8 eur sandwiches in Lotts & Co that get me. The owner of that shop has made money hand over fist during lockdown.


Sure if you can afford it why not? ANyway, it's mainly retirees have the money for places like that. All the wrinklies that usually keep the restaurants and Cafés in business are tripping over their accumulated cash. They have to spend it somewhere.


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## misemoi (4 Feb 2021)

OP you mentioned that you were considering moving outside of Dublin to be close to family...is this still one of your options?  If you do not have children yet, consider how this could impact on that decision.  Also bear in mind that children have an impact on family finances in either childcare costs, career progressions costs or loss of income.  So try to layer the future into your decision making too.  Especially if you decide to move out of the capital and away from third level education, as the apartment might be worth retaining if you believe that your future children could avail of it in lieu of you paying their rent.  A long way off but just another slant on it.


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