# 2 overseas investment properties funded by personal loans



## Macstuff (27 Nov 2009)

*Age: *34
*Spouse’s/Partner's age: *Single. 

*Annual gross income from employment or profession: *E55,000 
*Annual gross income spouse: *N/A
*Type of employment: *Private sector - blue-chip company (I'm as secure as one can be in private sector)

*Expenditure pattern:*
Now - spending much less than my earnings

*Rough estimate of value of home: *E225,000
*Mortgage on home: *E210,000 
*Mortgage provider: *NIB
*Type of mortgage: *Tracker
*Interest rate: *ECB +.79% 

*Other borrowings – car loans/personal loans etc*
Personal Loans (Bank) 24,000
Overdraft 6,000
Loan from family member 60,000

*Do you pay off your full credit card balance each month?*
Yes
*Savings: *None.

*Do you have a pension scheme?*
Yes, my company provide a defined benefit pension on my behalf.
I am not required to pay any monthly contribution 

*Do you own any investment or other property?*
Yes I have two (both in Spain).

Property 1 - Approx value €140,000 (realstic value - I feel)
Mortgage none
Monthly rental income €550

Property 2 - Approx. value 180,000 (realstic value - I feel)
Mortgage outstanding - 135,000 
Monthly rental €530

*Ages of children:*
None.
*Life insurance:*
Yes.

*Additional background information *
Evidently, the main issue relates to the large amounts of personal loans & overdrafts I have. I "acquired" these loans while funding the purchase costs and renovation of my investment properties (mainly the second one). 

Both properties were in a desperate state of repair when purchased. The business case for buying them was based on the foreign bank reimburse my costs (i.e. provide an equity release to allow me cancel my personal borrowings) once the renovations were completed. However they never did due to the credit crisis. 

As a result I now have to pay the personal loans, over a five year period. 
The bank loans cost approx. 700 per month. (3.5 years remain)
Currently I pay €450 pm on the loan from the family member - I intend to up this repayment once the term loans are paid. 

I have really reigned in my monthly spending to meet these payments. I manage to live on approx €800 per month ( including domestic bills, but not including mortgage payments). I've maximized my monthly income; by renting my spare room & engaging in extra work - this income is reflected in the income stated above.

Assuming no major changes to income and expenditure patterns :
By the end of 2010 - I will have paid off my overdraft & 10K of my family loan (have to pay this amt. in 2010).
By 2011 - I will have paid off my bank loans and another 10K of my family loan (have to pay this amt. in 2011).. 
In the remaining years I plan to focus on paying back the remainder of the family loans - no major pressure on the timescales for this repayment.

The rental income from my investment properties is used to pay the mortgage and the surplus is currently being used to do some necessary upgrades to the properties (rewiring, improved plumbing etc.) 
Once these are completed I will divert any surplus rental into debt repayment (obviously focusing on the most expensive loans initially). 

*What specific question do you have or what issues are of concern to you?*
My reason for buying the investment properties was to fund early retirement / expand my options in later life / or use the sale of them to buy my dream house here in Ireland. 
I can't have kids so feel I need to provide alot of cushion for my future.

While the price of my properties has taken a hit, I'm not _too_ worried about this as I'm happy to ride the market long term. 
The rental income on my investment properties is pretty steady (both are tenanted with long term tenants and both apts are in high demand due to their location, also the agent is a trustworthy family friend who puts alot of effort into maintaining them).

Ultimately my questions are:
- Am I crazy to maintain both investment properties?
- Should I focus more (or less) on debt repayment - currently all spare money is being diverted into this. 
- Is the order in which I plan to repay my loans correct i.e. am I focusing on the right loans?
- Overall I'm pretty happy with my standard of living & lifestyle - even though things are tight at the moment. Are my priorities right? (more of a lifestyle question than money one).
- Any other thoughts on my financial situation - once I repay the loans (tidy up the mess) what should I be looking to do - reduce my mortgages - diversify my investments etc. 

Thanks in advance for all help / advice


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## Brendan Burgess (27 Nov 2009)

The main problem I see here is that you have reasonable assets and a good salary with a reliable job but you appear to be making financial sacrifices to get by. 

Someone in your position should be enjoying life rather than worrying about retirement in 30 years' time. 

You are oversaving by trying to repay capital. You need to stop oversaving. I do not mean that you need to go mad spending - just get the balance a bit better. 

If you can, you should take the pressure off by selling the investment property which has no mortgage. This will allow you pay off your personal loans. You will then be under no pressure. You won't need a tenant in your house, unless you want one. You won't need to do overtime. You won't need to rein in your monthly expenses.

You might also explain the situation to your mortgage lenders and see if you can go to interest only for a bit as I assume that the interest rate is lower than on the personal loans.

You have a secure well-paid job and a defined benefit pension scheme. Enjoy life.

Brendan


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## diarmuidc (30 Nov 2009)

Brendan said:


> If you can, you should take the pressure off by selling the investment property which has no mortgage. This will allow you pay off your personal loans. You will then be under no pressure. You won't need a tenant in your house, unless you want one. You won't need to do overtime. You won't need to rein in your monthly expenses


Agreed but I would sell the other one. Property 1 has a rental yield of 4.7%, property 2 has a yield of 3.5%. Why are you suggesting selling the one producing the lower yield?


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## Brendan Burgess (30 Nov 2009)

Because there is no mortgage on it and so he will be able to pay off all his loans. 

Brendan


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## PJM (9 Feb 2010)

I agree with Brendan.  The capital payments on the investment property are essentially a form of pension saving - but without the tax deduction.

So get rid of one of the properties and pay down the debt.

If you feel the need to save for your retirement you should do it via a pension fund so you get the tax refund on the capital investment.   

The difference between the way you are saving now - post tax - and putting the money in a pension - pre tax - is HUGE.


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## chlipps (9 Feb 2010)

I agree with the responses above. Sell one and clear the tenant.

Get out and enjoy life....Work to live and not live to work!


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## galwegian44 (10 Feb 2010)

PJM - I have to admit that I am one of those people that have difficulties taking advantage of the tax relief available in pensions. My major issue is that I have no clue as to the value of my pension. Yes, I get annual statements but it's very difficult to determine the value, whereas I have a pretty good idea of the value of my investment property (even in these times) and I know exactly the value of my equity investments (majority funded through an ESOP schemem so tax relief being taken).

I feel I should maximise my pension through AVC's but have refrained from doing this and focused on equity investment instead. Also, my plan is to reduce my work level as I near retirement (and consequently take a drop in salary) which is going to have a negative impact on my pension....another reason not to maximise it at this point. Maybe I'm missing something but it just doesn't seem as attractive an investment as portrayed.

I have to agree with the responses to the original post, take some of the pressure off yourself and enjoy life. You seem to be well invested for retirement but don't forget today.



PJM said:


> I agree with Brendan. The capital payments on the investment property are essentially a form of pension saving - but without the tax deduction.
> 
> So get rid of one of the properties and pay down the debt.
> 
> ...


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## Arch2 (10 Feb 2010)

I assume you are aware that your €1,080 rent is taxable in Spain with no deduction for the interest portion of the mortgage.  
Non Residents in spain can not claim a deduction for interst against rental income.  

I believe this is another reason why you should consider selling one property to clear all your debts.


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## Macstuff (30 Dec 2011)

Thanks for all the replies - I thought I'd update this in order to report on progress. 

*Age: *36
*Spouse’s/Partner's age: N/A *(now am in a long term relatioship but for now we treat our finances seperately) 

*Annual gross income from employment or profession: *E55,000 
*Annual gross income spouse: *N/A
*Type of employment: *Private sector - blue-chip company (I've been promoted twice since I last posted on this thread).

*Expenditure pattern:*
Still spending much less than my earnings

*Rough estimate of value of home:* E160,500 *( was approx.* E225,000 2 years ago)
*Mortgage on home: *E196,000 
*Mortgage provider: *NIB
*Type of mortgage: *Tracker
*Interest rate: *ECB +.79% 
*Monthly Payment:* Approx. €780

*Other borrowings – t**he reason why I have such a large amt. of debt is detailed in my origonal post.*

Personal Loans (Bank) 7,000 (Current monthly payment = €680)
Overdraft 3,300
Loan from family member 45,500
*Current non-mortgage debt total = €56,252 (it was approx €90k two years ago).*

A couple of other relevant updates. 
*1)* I thought about selling one of the investment properties (as advised by some on AAM - thankyou) but decided against it as
a) the market is very slow in Spain and I would take a large hit to sell. I am happy to wait until the market improves as the properties rent easily and pay for themselves - even now when the rental market is in decline. 
b) In Spain, IMO the law is very pro-tenant and it's hard to arrange viewings with 'sitting' tenants. Therefore, I would have to empty the apt. I was going to sell and I concluded that I could not afford to have the properties empty for a long period while I was tryin to sell them. 

*2)* I was advised on here to get a better balance between paying down the debt and enjoying life. I took this on board and have taken a break from paying back the loan to my family member. Now I am 'only' making the monthly mortgage and loan payments.
That has allowed me to have cash to go on an annual holiday, have some treats with my partner, friends, family etc. 
I must admit though that I still worry about having so many demands on my monthly pay cheque. 

*3)* I still rent my spare room - the tenant is the same guy as two years ago and is very easy to live with. 

*4)* I have twice approached banks in Spain about getting a mortgage on the non-mortgaged property. They were polite and processed my application but ultimately turned me down as they said they don't lend to people who are using the money to pay down personal / non-mortgage debt. 
For me, that's very ironic as they reason I have this debt is becuase they didn't give me the money the second mortgage instalment. Also, I could easily afford the mortgage - as it would be MUCH less than my montly personal loan payments. Ah well, I get on with it. 

*5)* I approached my bank here in Ireland to ask about converting my OD into a personal loan. The interest rates they offered were MUCH higher (about 4.5%) than my OD rates, so I declined. 

*6)* I did pay off a lump sum off one of my loans during this year. I now look back on that decision with some regret as I got a few unexpected bills during the year and wished I'd had the lump sum. 
That led to a few stresses (which I got over) and I've now learned that having a rainy day fund (even in my situation) is important. 

*7)* I still watch my money and use the following princial methods to control my spending:
a) I pay with cash or laser for most things
b) I withdraw a fixed amt each week and use that to live off. If something comes up and I don't have the money, I usually say no to it. 
c) I try to predict when I will have to spend money and then look for the cheapest / best way to do it. 
d) I have been honest with family and friends about my position so that they understand better the choices I've had to make over the past two years. 
e) I make sure to have treats / fun with family and friends but look for less expensive ways to do this. 

Overall I am making lots of progress, but still have alot of debt. I do worry about something large or unexpected cropping (e.g. my old car giving up, an unexpected repair bill) up as I don't have any savings. 
I also stupidly worry about macro economic issues such as the collapse of the euro, but I always remind myself that I can only worry about my own little world.

All going well, I will have paid off my personal loans and some / all of my OD by this time next year. That will 'only' leave me with the family member loan, which I will then restart the payments on. 
I then will 'release the purse strings' a little more to allow myself a few more treats, as well as starting a savings habit. 
I will also join a credit union - I have seen over the past two years how hard it is to work with the banks and don't want to be too dependant on them going forward. 

Overall I think I am getting the balance right between paying off debt and enjoying life. Relatively speaking I am in a very strong position. I really thank those people who pointed out the need to get the balance right in my life - it was something that I didn't think about and this has made alot of difference. Onwards and upwards 

Any comments / advice welcome.


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## Gekko (30 Dec 2011)

Is the family member okay with you not making repayments on the loan?

Have you scope to offer him or her a piece of the action (i.e. a share of one of the properties)?  Perhaps they'd be interested in such a proposal?


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## Brendan Burgess (30 Dec 2011)

Hi Macstuff

It's great to get the long term feedback and I am glad that you are getting a better work/debt balance. 

It's probably still worth considering selling one or other of the properties in Spain. That would relieve the total pressure and give you a lot more financial flexibility. It would also reduce your exposure to the property market.


> *5)* I approached my bank here in  Ireland to ask about converting my OD into a personal loan. The interest  rates they offered were MUCH higher (about 4.5%) than my OD rates, so I  declined.



That doesn't sound right. What overdraft rate are you paying? What term loan rate did they quote you?


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## Macstuff (30 Dec 2011)

Thanks Brendan - I don't have the paperwork to hand (it's in my office) but AFAIK the OD rate is 10.2% (I have had this OD facility for approx. 4 years) and the rate quoted to me this summer for a new personal loan to clear it off was 14.5%. 
I was shocked, as I have been with the bank all my life and have had several loans with them etc. etc.


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## Macstuff (30 Dec 2011)

To Gekko - The answer to your question is yes. I borrowed the money from my mum and made alot of repayments during year 1. 
However I have not paid anything to her since July of this year but will restart payments in July 2012. She is happy enough to postpone the repayments. 
She is quite an elderly lady with a small nest egg, a good pension and a very inexpensive lifestyle, so she is in a position to allow me this breathing space. I am lucky in this regard and appreciate that fact.
Due to health reasons, she would have no interest in owning part of these properties - the stress would not be good for her, so I haven't and couldn't consider suggesting it.


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