# Well off, but 4 investment properties in negative equity



## oceryf (22 Feb 2013)

Hi all

This is my first post, I have only recently come across  the site and find it very informative. I would be interested to get the  views of the contributors on our situation.

*Personal and income details
*Income self: Public servant 75K pa  

*Income partner/spouse:* Not working, was self employed but liquidated in 2011. long story.

*Income history:* He was well paid up until 2011 

*number of children* 3, under 14

*Home loan
*Lender: *Ulster Bank*
Amount outstanding: *€260K*
Value of home: Approx *€600K*
Interest rate:*      ECB + .85*
Monthly repayment  *€1290.00*
Amount in arrears  *None*

We have 4 Buy to Lets, all are let on long term leases of between 10 and 20 years. We are about 4 years into all leases.

*Investment property *
Lender: *KBC*
Amount outstanding: *€235K*
Value of home: *€135K*
Interest rate: *ECB + .85*
Monthly repayment *€313.00 Interest only*
Amount in arrears *N/A*
Monthly rent received *€730.00*

*Investment property - *
Lender: *AIB*
Amount outstanding: *€194k*
Value of home: *€250k*
Interest rate: *ECB + .80*
Monthly repayment *IO €250.00*
Amount in arrears *N/A*
Monthly rent received *€1100.00*

*Investment property -*
Lender: *AIB*
Amount outstanding: *€187K*
Value of home: *€110K*
Interest rate: *ECB + .80*
Monthly repayment *C&I €985.00*
Amount in arrears *N/A*
Monthly rent received *€600.00*

*Investment property - *
Lender: *AIB*
Amount outstanding: *€163K*
Value of home: *€70K*
Interest rate:* ECB + .80*
Monthly repayment *C&I €857.00*
Amount in arrears *N/A*
Monthly rent received *€500.00*

*Other loans and creditors - *We have no other loans or debts.

*Other savings and investments - *We have cash saving of €200K and so other small investments which could add about another €45K.
*Total cash €245K


How important is retaining the family home to you? 
*Its important but not the end of the world.


*Any other relevant information.
*Everything has been washing  its own face until now as the investment property "1" and "2" are due to  go to capital and interest in the coming months. As husband is not  working and although my salary is quiet good it would not be possible to  cover all the capital and interest payments.What do the contributors feel are the best options under our circumstances.*

What is your preferred realistic outcome? 
*I am open minded but would like to keep the family home.

If any other information is required, let me know and i will try and be as informative as possible.

Thanks


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## Brendan Burgess (22 Feb 2013)

Folks

I have edited the title of this thread as it was misleading. 

Please either give advice or suggestions or refrain from commenting. 

Of course, feel free to start a new thread to raise theoretical issues. 

Brendan


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## DerKaiser (22 Feb 2013)

oceryf said:


> property "1" and "2" are due to go to capital and interest in the coming months.


 
Probably need to know what the C&I repayments will amount to on those properties.


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## honest (22 Feb 2013)

An interesting one.     You have assets worth €1,410,000, including cash and other assets.  Your total borrowings are €1,039,000.   Your total net worth, unless I had made some miscalculation, is therefore €371,000. 

Your income is 75k from a secure pensionable public sector job, and your monthly incoming rent from your investment properties is €2930.  You also presumably earn interest from the €245,000 you have in savings - how much a year does that generate?  You could get over 7k a year in a high interest account, before dirt. 

I would hang on to everything you have as you are not badly off, compared to most people.  If the investment properties are causing you stress, you could always sell some of them e.g investment property no. 2 is in positive equity to the tune of 56k, and increase your cash savings.  Cash is king, but possibly property will increase in value some day.  You have a strong asset base and strong earnings and a secure well paid job so I would not panic in to selling anything.  You are probably not very old ( as your kids are under 14 ) so you can afford to ride out the recession, even if it takes 10 or 20 years.   
You are looking for advice : thats my advice.  Keep your family home.  You are in positive equity when you do the figures.  Do not worry.


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## Dr.Debt (22 Feb 2013)

Your case is different to a lot of others for the following reasons

1) You are solvent and overall you have a positive net capital base
2) You have a good income
3) Your credit rating is intact and presumably you want to keep it that way
4) You have cash resources, extremely beneficial in a bad economy

Here's my advice to you

You are over exposed to property investments. Its probably a good idea to offload one or more of these. I would look at selling the 2nd investment property (250K value) which should yield some extra cash. The yield on this property is not good relatively speaking and you will be heading into fairly steep capital repayments shortly.

Otherwise I would leave everything else pretty much as is. The rental properties are actually earning quite well. The downside is that you are paying top rate income tax on the income. Its a pity that some of these investment properties weren't put into a pension wrapper at an earlier stage for maximum tax advantage.

Hold on to your cash balances for now. Dont be tempted to pay down your loans as your tracker rates are too attractive for that.

When your husband re-enters the job market you might then think about a more long term investment home for the cash.

One last thing, You are currently dealing with three different banks which could be very beneficial to you if you ever need to enter an insolvency arrangement down the line
If you do decide to sell one of the properties and all other things are equal, it would be better to sell one of the AIB backed properties


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## DerKaiser (22 Feb 2013)

I'd look at it slightly differently from honest.

First, exclude your own home from the calcs. A salary of €75k should leave you with a comfortable existence, PPR mortgage included.

Second, look at the 4 properties from a cashflow rather than value perspective. You are taking in €2930pm. I've figured that you must be paying over €1,000pm in tax on the rent. Excluding expenses you must be subsidising the cashflow on the properties by over €500pm as it stands.

Again, on a €75k salary, you might be able to cover this level of subsidy in addition to running your own household. Once capital repayments kick in, however, you could be looking for over €1500pm more and this will have to come from savings.

So, your options are:
1) Hold all properties and try renegotiate interest only for a longer period
2) Hold all properties and accept that you will be subsidising the capital repayments on the mortgages from savings, possibly running them down by €20k p.a.
3) Deleverage by selling properties - the first obvious one is property 2 as it is in positive equity and the rental yield is not very attractive.

I'd go for option 3


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## GDUFFY (22 Feb 2013)

This post is interesting. It exposes the fragility of the Irish economy & banks.
The O.P. has a very good secure income at present. Is the 75k net or gross ?
 If the Government was to make you redundant or unilaterally decides to cut your pay scale significantly, it might leave you in a precarious situation. I personally know at least 10 families in a similar position to you. I suppose it comes down to how secure your income is. My advice would be to hold tight and if needs be, when C & I payments kick in you could negotiate with the bank on a mortgage by mortgage basis ,to pay full interest and a percentage of capital you can manage. Any upside in economy or property is a plus.


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## oldnick (22 Feb 2013)

Without knowing the type of proeprty and ,especially, the location one cannot give complete advice.

On AAM one cannot discuss property prices.  But even if one was allowed,  you don't state the location of the properties so one cannot advise whether it is worth holding on to them or not. I would  give different advice if your properties were in the Dublin area or,for example, Leitrim.
You, too, must look carefully at what is happening in the areas where your properties are.

The same applies to rent. Like property prices, rental yields have increased or decreased  at the same time ,depending on the area.
So, again, look at your areas and see what's happening to rents.

I'm amazed by some of my LL friends who seem to be content at collecting a certain rent,unaware that in their area rents have incraesed by 15% in the last couple of years.

However, regardless of any proper scrutiny at the sales or rental market in your area I'd go along with what everyone is saying and get rid of number 2 property immediately.


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## elcato (22 Feb 2013)

> The downside is that you are paying top rate income tax on the income.


If your husband is not working then I believe this may not be the case here. How does revenue see this income ? split 50:50 ?


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## Joe_90 (22 Feb 2013)

I'm with DerKeiser,

You have to look at the cashflow you are subsidising them already and its only going to eat into your savings.

You have investments of €887k cash and property and loans of €779k. 

If you take a long term view, you use the savings to sub the property until rents increase enough to cover the repayments and tax, if you take a shorter term view sell everything and sit back with €100,000 in the bank and an affordable mortgage even with you spouse not working and enjoy life.


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## Dermot (22 Feb 2013)

Just one other matter before making any suggestions. Are any of your properties Sec 23 and if so how much is it. In relation to Old Nick's query the location of the properties would have a bearing on the replies.


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## oceryf (22 Feb 2013)

Many thanks for the replies, I will try and clarify/answer all queries in one go.

*Property 2 cannot be sold as it is cross charged with 3 and 4.
*
*The majority of our cash is in the national solidarity bond, 10 years.
*
*C&I payments on property 1  will revert to €1150.00 and €980 on property 2.*

*My salary is 75K gross*

*Property 1 is located in Wicklow close to the beach and was built by my husband as a holiday home.*

*Property 2 is in Dublin 14.*

*Both properties 3 and 4 are Clonmel.*

We live in Dublin.

I have, since posting spoke to my husband who has reminded me that we have a little more savings. *Total 300K*

My husbands company was very successful up to 2010, some issues caused him to have to liquidate. due to PG's and revenue debts he had to use a substantial amount of our savings to sort these debts out.

My husband is actively looking at starting up again and wishes to keep cash in easy access.

He wants to meet with the banks and look to agree to interest and some capital so reducing the properties already on C&I and giving come capital on the others. He has had a chat with our bank manager who is looking for us to fill out an assets and liabilities type form before submitting it to the relevant persons.

Thanks


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## oldnick (22 Feb 2013)

If property 2 is in Dublin 14,where I live, then I change my advice about selling it. Regardless of the cross-charge I'd keep hold of it for a while. I'm not speculating- just observing prices increase daily here.

As regards the cross-charge this can with the bank's agreement be altered. 

 I can't enter the realms of property speculation but perhaps one should think about the two Clonmel properties, though I must say the yield on no 4 is not bad (6k gross on estimated value of 72k). Hope flood insurance isn't too high !

You really have a lot of savings that would take care of capital repayments on  properties 1 and 2 .  And still leave a fair cash sum.


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## cremeegg (22 Feb 2013)

Do not fill in the banks assets and liabilities form, SFS. If the bank sees you have €300k savings they will insist on you paying C&I strictly according to your loan agreement.  

Take the form from the bank and forget to fill it in.


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## elcato (22 Feb 2013)

> Do not fill in the banks assets and liabilities form, SFS. If the bank  sees you have €300k savings they will insist on you paying C&I  strictly according to your loan agreement.
> 
> Take the form from the bank and forget to fill it in.


My sentiments also. Very sound advice.


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## oceryf (22 Feb 2013)

cremeegg said:


> Do not fill in the banks assets and liabilities form, SFS. If the bank sees you have €300k savings they will insist on you paying C&I strictly according to your loan agreement.
> 
> Take the form from the bank and forget to fill it in.



I don't think he was planning on telling them that, The manager seems to have indicated that 6 months of bank statements will be required and that the "SFS" was not a legal document. it is taken at face value.

When the conversation was ending the manager commented saying "we will see you in six months then".


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