# Should I sell?



## daithi04 (4 Sep 2006)

Hi all,
I bought my first investment property 3 years ago and carried on from there and I now have 4 residential properties, 2 houses and 2 apartments. Obviously with the growth in the market over the past 3 years my first property has gone up in value, from the initial purchase price of €240K to €335K. My current mortgage on the property is now at €198K. My question is would it be advisable to sell this particular property (making a net profit of about €110K), bank some of the money and buy again? I don't want to release the equity because the rent wouldn't cover the mortgage which it does now. I am thinking along these lines because rates are going up and the market is obviously slowing slightly so a small proportion of the cash I make would help me look after the other properties as rates rise etc. Also I'm only 32 so I have time to still work away on my portfolio and continue buying etc.  Any advice would be greatly appreciated.
David


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## room305 (5 Sep 2006)

Why are you selling to buy again if you are worried about rising rates and a slowing market?


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## liteweight (5 Sep 2006)

Is the rental covering the mortgage on the other properties and will it continue to do so with interest rate hikes?


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## phoenix_n (5 Sep 2006)

daithi04 said:


> Hi all,
> I bought my first investment property 3 years ago and carried on from there and I now have 4 residential properties, 2 houses and 2 apartments. Obviously with the growth in the market over the past 3 years my first property has gone up in value, from the initial purchase price of €240K to €335K. My current mortgage on the property is now at €198K. My question is would it be advisable to sell this particular property (making a net profit of about €110K), bank some of the money and buy again? I don't want to release the equity because the rent wouldn't cover the mortgage which it does now. I am thinking along these lines because rates are going up and the market is obviously slowing slightly so a small proportion of the cash I make would help me look after the other properties as rates rise etc. Also I'm only 32 so I have time to still work away on my portfolio and continue buying etc. Any advice would be greatly appreciated.
> David


 
Since your purchases are all relatively recent i would be concerned with your latter purchases as you may not have a sufficient cushion to offset rate rises. My advice would be to sell your first property and use this to reduce your re-payments on the other 3.


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## sport (5 Sep 2006)

If you have purchased 4 properties in 3 years I assume you used one to borrow for the next and that your overall loan to value ratio is probably quite high.  If this is the case you should be cautious about how exposed you are.  Certainly selling one property will reduce your exposure but you should probably step back and view your overall situation rather than concentrating on one property.


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## liteweight (5 Sep 2006)

sport said:


> If you have purchased 4 properties in 3 years I assume you used one to borrow for the next and that your overall loan to value ratio is probably quite high.  If this is the case you should be cautious about how exposed you are.  Certainly selling one property will reduce your exposure but you should probably step back and view your overall situation rather than concentrating on one property.



Completely agree. I would do as Phoenix suggests unless your loan to value ratio is really low.


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## G123 (5 Sep 2006)

If I'm reading you right, you plan to sell an Irish Property to free up cashflow then take out a new mortgage to buy another.

I don't think this makes sense. Stamp Duty alone would kill this idea.

On the other hand, freeing up money to do something else does make sense. Particularly if your'e making a profit...


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## daithi04 (6 Sep 2006)

Thanks for the replies. I didn't cross any properties against other properties. All properties were bought by paying deposits so LTV is quite good. Here's the figures:
Prop 1 (the one I am thinking of off loading) Value 335K loan 198K
Prop 2 Value 375K loan 264K
Prop 3 Value 270K loan 250K
Prop 4 Value 195K loan 139K

I understand that it seems stupid to sell a property to buy another by if the profit is there is it still not a good thing to do?
The figure I am using to work it out are as follows:
Sell for 335K making gross profit of 137K
Minus selling fee & solicitor 5K = 132K
Take away initial stamp and other expenses for the year and then work out Capital gains at 25K - Net profit 107K
Buy a 3 bed house in Carlow for example 275K, my outlay 10% plus 5% stamp plus solicitor fees 45K leaving me still with 4 properties and 62K in the bank? From this I could keep a small amount aside if I need to add to the rental incomes of the other properties while rates are on the up. 
Am I mad?
Dave


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## money man (6 Sep 2006)

Daithi, 
I fear for you! Equity of 20k in a house worth 270k that would mean you have made a loss on this investment thus far! (fees, stamp duty etc). Just one observation. Your investments are very recent and all have a relatively high loan to value. If interest rates go up by a further 2% you will have seriously high repayments. WIll you be able for that? Do you want to supplement your investments from your income?
Why are you so preoccupied with teh number of properties you have? I think alot of people like to chat down the pub about how many properties they have but really know s.f.a about property or investing. (no offence) 

Just be careful. I think it would be wise to sell the first property but to turn around and buy a house in say carlow for 275k ?! . Best of luck . you will need it. I read on this board that if you can see a gravy train then its usually pulling out of the station! (or something to that effect).


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## room305 (6 Sep 2006)

Your LTV across all properties is about 72%. Doesn't leave a lot of wriggle room if there is a market downturn coupled with rising interest rates.

I'd sell the property you are thinking of selling and use the income to reduce the outstanding balance on the other mortgages. Get yourself down to around 50% LTV, that way you can relax and have a nice income stream. Perhaps even fix your rates, since 5 year fixed rate mortgages are now retailing at < 5% which is a good deal in my opinion.

Also, I'm from Carlow, a 3-bed for €275k might seem like a good deal but it is a very inflated price compared to even a year ago.


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## daithi04 (6 Sep 2006)

Hi Money man,
Im not sure you read my post totally correct? Also why are you concentrating on the property that is worth 270K with a loan of 250K? The reason I ask this is because you should ask more questions about this house before making a judgement. I bought the house for 230K but borrowed 250K to get a 1.1% tracker mortgage. Out of the 20K I had left over I used 9.5K for stamp duty and left me with 10K plus the main point here being I only purchased the house 1 month ago! So if you fear for me that I bought a house effectively for 240K (which includes the stamp) and they're now selling in excess of 270K then I think making 30K in one month Im not sure who should fear for who?The idea of buying any investment property is a long term thing for me and, for example, if I did buy a house in Carlow (which is a growing town and had the college etc.) it's not about making a quick profit each month. Lets say I had to pay 10% of the mortgage myself over the 25 years because of tenants moving etc etc and lets say after 25 years the house is still worth 275K (which I doubt very much as houses in the UK and Ireland have double in price every 8 years over the past 100 years) then I think investing 27.5K to make 275K is a very good investment indeed!
You are right about one thing, 3 of my investments are quite recent but I do believe that after 7 months and after investing 78K I now have 3 properties with equity of 177K is not too bad at all. I don't know many people who are my age that could, if they wanted to, sell some of their investment properties and be mortgage free but of course that's not something Im going to rush out and do.
Thanks for your input
David


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## daithi04 (6 Sep 2006)

Hi room,
I can see what you mean by the LTV etc but that doesn't bother me too much. I also own my own commercial unit which I lease to my business so with creative juggling and adding all the rental incomes together, all the properties wash their faces combined. The price of the property to a degree doesn't bother me too much because the whole country is inflated so the more important point for me is buying in areas where they will rent without difficulty. I have one property in Newbridge and friends who are investing told me I was mad to buy there etc but withing 2 weeks of advertising the house, I had 39 calls and the house was let within 5 days of closing on it. If my LTV is reduced some people would say I was mad because paying a lump off an investment property would only create a higher tax bill each year. The idea I have is really to take advantage of the fact that prop 1 has risen so much in 3 years that because I am young I can afford to buy again and bank 60K to do other things with and I still have 4 properties if I buy again so in 25 years time I still end up with the same outcome (and dont forget I can then boast about my 4 properties in the pub as some people would suggest!)


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## room305 (6 Sep 2006)

Daithi I think you are mad. Why stretch yourself so much? An investment shouldn't cost you money. If you buy shares at the end of every month the company doesn't ring you asking you to supplement the investment with a few extra euro.

Your rental yield on the Carlow property will be about 3.5%. That's assuming you rent it for 12 straight months of the year and ignoring other costs associated with renting. Pretty poor really.

Why not bank some of that gain, reduce your debts and look to diversify your investments into other asset classes.


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## whathome (6 Sep 2006)

daithi04 said:


> and dont forget I can then boast about my 4 properties in the pub as some people would suggest!


 
As Cilla Black used to say...Will you promise to come back next year and tell us all about it?

With interest rates rising and a rapidly weakening property market, it would be prudent to sell some investment property and lower your LTV. That's what I'm doing at the moment while trading up rather than hanging on to two existing properties.

...but will you go for No.1 : Sell investment property 1 to take some equity only to buy again!

or No.2 : Sell investment property and lower your LTV

or No.3 : Keep everything as it is risking exposure going forward.

The decision Daithi04, is all yours!


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## Purple (6 Sep 2006)

It looks like Daithi's investment plan is all about leverage. If this is the case the yeald is not such a big issue as he is leveraging to acquire an asset (which he hopes, with good reason, will appreciate in the future). Therefore yield is not such a big factor since the money he is investing, and getting his yield on, is not his in the first place.
I’m not saying it is a safe strategy but very few strategies that give the returns he has got are. If he has investing his own cash it would be a different matter. 
This is the model that had fuelled the property boom over the last 8 of so years and it has made a lot of people a lot of money. The question is whether it had run its course.

My opinion is that unless he is selling to decrease his LTV he should stay where he is.
I don’t see the point of incurring the transaction costs of staying in the same asset class. If I were selling I would off load the property (properties) in the worst location, regardless of the equity. If any of them are suburban apartments I would sell them, unless they are in very good areas and at values of under 400k I don’t think any of them are in D4. That way the overall exposure to the property market is reduced and overall LTV is increased anyway. 
Exposure in other asset classes would be a good idea as well but considering the leveraged model Daithi is using I don’t see how this can be done without screwing up the rest of it.

_Edit: I am also selling an investment property at the moment so you can take from that what my opinions of the market are._


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## bearishbull (6 Sep 2006)

Cant imagine there being too little supply of property in carlow going into the future ,theres loads of room to build more down that way,i cant see property priced above where it is today in 10 or 15 years time, theres too much supply coming on stream in most parts of ireland and supply will exceed demand in most areas in next few years.


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## room305 (6 Sep 2006)

I concur Bearishbull, _loads_ of supply coming on stream in Carlow. The student population has been taken out of the rental equation by a vast amount of section 50 property. Anyway, who wants to rent a nice new house to students? The rental yield will be even lower from them as well.

Most of the new houses being built are being built on the outskirts to cater for the Dublin commuter market. If prices in Dublin fall these houses will take a serious whack.

Most of the house price inflation has been driven by people from Dublin unable to believe the price differential and thus assuming they are getting a bargain.

I know of a developer who had a cancellation on a development and sold the cancelled house to a woman from Dublin. Chancing his arm, he quoted her a price €10k above the final phase prices (which were €230k). She agreed and being a tight git, when he handed her over the keys he ruminated "I should have probably asked you for €250k".

Her reply?

"I'd have paid it too. What do I care? I sold my bloody apartment in Dublin for twice that!"

Madness that can only end in tears is my opinion. That said, Daithi if you do end up looking at purchases in Carlow feel free to PM and I can at least advise on their likely rental potential.


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## daithi04 (10 Sep 2006)

Hi everyone,
Thanks to all for your replies. Its mad the way the whole post started with a question about whether or not I should sell to realise the equity in one investment property and ended up on a discussion about whether or not Carlow was a good place to buy! I think that's just an Irish thing though.
Thanks again everyone.
Dave


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## JohnG (11 Sep 2006)

Hi Dave,

You plan to sell Prop 1 to invest again in Prop 5, incurring €47.5k in costs (including CGT) along the way.

You end up with 4 properties worth €60k less than before (prop 1 is more expensive than prop 5), and your total loans will be €50k higher. This gives you €110k of which you spend €48k on fees and get to keep €62k. 

Why don't you just remortgage Prop 1 to get the €62k and save yourself all the hassle and fees?

John


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