Sell Investment Properties?

[BinMac]

Age: 54
Spouse’s/Partner's age: 51

Annual gross income from employment or profession: 70,000
Annual gross income of spouse: 45,000

Monthly take-home pay- approx. 7,000

Type of employment: Both employees in private sector

In general are you: Saving into pensions and paying capital off mortgages.

Rough estimate of value of home: €650,000
Amount outstanding on your mortgage: €110,000
What interest rate are you paying? Tracker 0.5% to expire in 8 years. Interest only but making €500 per month capital payments.

Other borrowings – Other mortgages

Do you pay off your full credit card balance each month? Yes.

Savings and investments: c. 40,000 rainy day fund

Do you have a pension scheme? Yes. Current pension funds are valued at approx 250K and 150K. Make monthly AVCs of €1000 (me) €500 (spouse). Employer also contributes 12% and 9%.

Investment Property
Northern Ireland: 3 properties. Dublin: 1 property.
Net profit in Northern Ireland before tax is usually £7K per year. Then pay roughly half this in tax to Irish revenue.


Northern Ireland 3 tracker mortgages, one about to expire. Note Rates in UK of approx £2K per year. Management Agent for 3 properties & Block Mgt for apartment complex.

1) Apartment - Mortgage £74K due 2022, will need to remortgage. Purchase £110K, Worth £125K Rent £700 per month. Currently Interest only.
2) House 1- Purchased £168K Worth £115K Rent £495 per month, Mortgage £84K. Currently Capital & Interest payments
3) House 2- Purchased £165K Worth £115K Rent £460 per month Mortgage £81K. Currently Capital & Interest payments.

Dublin
Apartment. No mortgage. Purchase €230K Worth €260K, Rent €1250 per month. Management approx €2K per year. Nothing to write off against tax but as we make €1500 per month AVCs this rental income is in effect being written off against tax.

Ages of children: 17,15,13

Life insurance: Yes *3, with PPR mortgage, work and a private policy. Past history of illness so spouse keen to keep them all.

What specific question do you have or what issues are of concern to you?
Generally we are in a good position overall but the property mgt takes a lot of my time and effort and increasingly is an aggravation.
We are not extravagant and we manage money tightly, as properties in Northern Ireland require top up with the income not covering expenses and mortgage (Capital * 2 and Interest *3).
The two houses were a bad investment and for several years the negative equity caused a lot of stress. There is the obvious capital loss plus currency loss.

Also increasing expenses due to wear and tear and age of properties etc. Market is not great for selling, in particular the houses which are not in great locations.

I wonder if I should sell the houses at a loss. Then either use these losses against the CGT on the sale of one or both apartments.

If I sold the 3 Northern Ireland properties, I could potentially clear my PPR mortgage and then have more disposable income to enjoy or pay more in AVCs with the obvious tax relief.

 

[NoRegretsCoyote]

On your NI portfolio you net about £3.5k sterling for over £100k in capital across the three properties. This is a brutal yield for the hassle involved and the currency risk. You are cash flow negative on these. I know it would feel bad selling at a loss but this is just a poor use of your wealth.

If you want an investment property do it in euro and closer to home.

 

[BinMac]

On your NI portfolio you net about £3.5k sterling for over £100k in capital across the three properties. This is a brutal yield for the hassle involved and the currency risk. You are cash flow negative on these. I know it would feel bad selling at a loss but this is just a poor use of your wealth.

If you want an investment property do it in euro and closer to home.

This is my thinking on the two houses. The apartment performs better but I wonder if it is still better to offset the loss against CGT.

 

[Brendan Burgess]

2) House 1- Purchased £168K Worth £115K Rent £495 per month, Mortgage £84K. Currently Capital & Interest payments

You have to look at each property separately.

Something like the following:

You have an investment of £115k ( forget the price you paid)

You get rent of £6,000
Less rates of £2,000
Less mortgage interest of c. £2,000
Profit before tax: £2,000 on an investment of £115k

Not worth the hassle.

1) Apartment - Mortgage £74K due 2022, will need to remortgage. Purchase £110K, Worth £125K Rent £700 per month. Currently Interest only.

Investment: £125k

Rent £8,400
Rates: £2,000
Interest: £2,000
Profit before tax: £4,000

Seems like a better return and probably worth keeping.

Brendan

 

[Brendan Burgess]

Interest only but making €500 per month capital payments.

Why are you making capital repayments on a 0.5% tracker?

You would be far better off putting that in your pension fund.

You don't tell us the interest rates on the UK properties, but if they are over 1%, then you would be far better off overpaying them instead.

Brendan

 

[BinMac]

Why are you making capital repayments on a 0.5% tracker?

Yes I know. I was paying 1250 per month, but decreased it and raised the AVCs.
I guess it's peace of mind in case something happened to the pension plus a realisation that the term will end soon enough.

You would be far better off putting that in your pension fund.

You don't tell us the interest rates on the UK properties, but if they are over 1%, then you would be far better off overpaying them instead.

Brendan

The NI trackers are very low Base (0.1 I think) plus 0.7 =0.8 on the apt and 0.1 + 0.99 on the houses.

You mean over pay the NI property instead of my € PPR mortgage.

 

[PebbleBeach2020]

Northern Ireland
Apartment has 51k in equity.
House 1 has 31k in equity.
House 2 has 34k in equity.

If you sell all three you have 116k sterling or ballpark 125k euros less legal fees and estate agents I'd say the guts of 13k sterling it 15k euros leaving you with ballpark 110k euro.

Will the prices in northern Ireland recover do you think? You said they are in poor locations. If you believed they might appreciate say 3 or 4 % annually then that would be a consideration in keeping them.

For three properties in another jurisdiction you are make less than 4k euros after tax. As someone else said that's brutal. You could clear your PPR mortgage and save 500 euro a year in interest repayments doing so with no risk.

If you have a bad tenant in any of the three northern Ireland properties you will actually be losing money keeping them. Imagine if you got two or three bad tenants?!

You are contributing 12,000 a year in pension contributions, you are entitled to contribute 30% or 21,000 and next year from aged 55 you are entitled to contribute 35% or 24,500. Your wife is contributing 6,000 a year in pension contributions, she is entitled to contribute 30% or 13,500.

There's scope for an additional 16500 this year and last year increasing to 20,000 next year in pension contributions. Unless you expect some decent house price increases in northern Ireland I would be selling up there and maxing yr pension contributions.

You will have losses of 88k sterling as a result of selling plus buying & selling costs, maybe another 15k sterling at least so between 115-120k euros as losses.

Even if the Dublin apartment goes nuts and prices rocket, you wouldn't pay any CGT on the first approximate 360k selling price.

At yr age I don't know why you want the stress with the northern Ireland three. Yr pension pots are healthy. Selling these and you can be mortgage free on both properties in the south and maxing out you contributions for the pension pot. It's a no brainer.

 

[BinMac]

You have to look at each property separately.

Something like the following:

You have an investment of £115k ( forget the price you paid)

You get rent of £6,000
Less rates of £2,000
Less mortgage interest of c. £2,000
Profit before tax: £2,000 on an investment of £115k

Not worth the hassle.



Investment: £125k

Rent £8,400
Rates: £2,000
Interest: £2,000
Profit before tax: £4,000

Seems like a better return and probably worth keeping.

Brendan

I am very open to selling the houses but perhaps overly focused on using the loss against CGT.
I know the capital loss carries forward.

One issue with selling the houses is that is that it's difficult to sell with a sitting tenant.

 

[PebbleBeach2020]

So give the tenants notice that you are selling up. Or start selling one at s time and give yrself 12 or 18 months to be out of the market.

 

[moneymakeover]

I'm a little bit surprised by the comments saying sell.

What did you expect from your property investments?

Your Dublin apartment seems good?

The other 3 will be likewise when they are paid off.

I suggest stay the course. Increase repayments on the 74k loan until it's paid off and then focus on the other two.

Divert income from Dublin apartment to subsidise other mortgages.

 

[BinMac]

The two apartments were bought for long term investment. The houses were bought with the intention of flipping but my timing was off and the market crashed. I was in serious negative equity with no possibility of selling for several years. So, my greed/stupidity cost me.
The bank will not allow me interest only on the houses, plus the mortgage rate is higher than on the apt.

I agree that it would be best to sell the houses and concentrate on my pension. The NI apt does perform better with the following numbers from last year:- Rent £8700, Expenses £4861, so net £3839. The rent is now £750 per month.
I have contacted the Estate Agent about selling. Assuming I can sell the houses, do I use that equity to pay off the apt which will need to be remortgaged in 2022 or convert to Euro and then pay off my home tracker or keep on deposit while maximising AVCs.

 

[RedOnion]

The NI apt does perform better with the following numbers from last year:- Rent £8700, Expenses £4861, so net £3839. The rent is now £750 per month.

I don't think it really changes the overall decision, but your NI profits the year will be higher, as they're tracker rates and the BOE base rate dropped back in March.

 

[NoRegretsCoyote]

The two apartments were bought for long term investment. The houses were bought with the intention of flipping but my timing was off and the market crashed.

If you want to hold long term, NI has better rental yields than rest of UK, which may suggest undervaluation.

That said, who knows how Brexit could play out with NI. Might be beneficial economically, might not.

 

[BinMac]

Hi, so updated situation.
Sorry if it's a little long winded but I've taken the previous advice and started the process of selling. Due to Covid I was delayed for a variety of reasons but ultimately gave notice (3 months I think) to one of the tenants who was keen to get a council house and wanted me to evict them. In the end that didn't happen and they asked to stay. At the same time the other tenant stopped paying rent, again. So I gave notice to the second tenant and allowed the first one to stay. Of relevance is that the good tenant asked for a monthly contract in case they get a council house.
The property for sale was a little run down and I was offered £120K by an investor. I declined and renovated myself spending approx. £5K and I am now sale agreed at £145K

I'll give the details again but the relevant question is what to do with proceeds from sale of property.

Annual gross income from employment or profession: 70,000 + bonus
Annual gross income of spouse: - New job at 72,000 + bonus

Monthly take-home pay- approx. 7,000 (same as before due to increased AVCs both of us maxed out at 30%, we are both over 50. I will be 55 next birthday so will increase to 35% then).
Type of employment: Both employees in private sector

In general are you: Saving into pensions and paying capital off mortgages.

Rough estimate of value of home: €850,000
Amount outstanding on your mortgage: €100,000
What interest rate are you paying? Tracker 0.5% to expire in 6 years. Interest only but making €500 per month capital payments.

Other borrowings – Investment mortgages

Do you pay off your full credit card balance each month? Yes.

Savings and investments: c. 40,000 rainy day fund

Do you have a pension scheme? Yes. Current pension funds are valued at approx 300K and 170K. Was higher a month ago
Both now maxing out AVCs at 30%. Employers also contribute.

Investment Property
Northern Ireland: 3 properties. Dublin: 1 property.
Net profit in Northern Ireland before tax is usually £7K per year. Then pay roughly half this in tax to Irish revenue.
1 property empty since last October as I am selling after previous advice on the thread.

Northern Ireland - all on tracker rates (UK rates increasing)
1) Apartment - Mortgage £74K due 2022, have now remortgaged so capital repayments. Purchase £110K, Worth £135K Rent £750 per month. Mortgage £700 pm.
2) House 1- Purchased £168K Sale Agreed £145K Mortgage £74K expect to have £65K cash after sale
3) House 2- Purchased £165K Worth £140K (if renovated) Rent £460 per month Mortgage £71K. Currently Capital & Interest payments. £670 pm

Dublin
Apartment. Mortgage paid off as was not on tracker rate. Purchase €230K Worth €250K, Rent €1250 per month. Management approx €2K per year. Nothing to write off against tax but as we make significant AVCs this rental income is in effect being written off against tax.

Ages of children: 17,15,13 One of them about to start college another one moving to a private school.
Life insurance: Yes *3, with PPR mortgage, work and a private policy. Past history of illness so spouse keen to keep them all.

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

I had considered transferring part of the £65K to Euro but now intend to use all/most of it against the mortgage of the other house. When that tenant leaves or next year I will renovate and sell resulting in approx £140K cash.

The options then are:

1) The proceeds from selling 2 houses should be sufficient to clear remaining mortgages, resulting in 3 mortgage free properties. 2 rental apartments in Dublin and NI with total monthly rent of approx €2K per month. Also some cash in the bank. Maybe then look at some investment products but I don't know much about these.
2) Use the Capital loss to offset CGT by also selling the 2 apartments and then buy a house in Dublin to rent. I expect the total rental income would be similar. The reason to consider this is that the apartment in Dublin is not appreciating and a huge numbers of apartments have been built to rent nearby. Against that is my feeling that Dublin prices are getting very high.
3) Sell everything and leave the money in the bank?

As many said before there is aggravation and risk involved in property rental. The Capital loss can be carried forward so we can keep the apartments for a few more years. My main fear is the huge number of apartments being built in Dublin. My current tenants are good and I haven't increased the rent since they moved in 4 years ago but they will eventually move out. The apartment in Belfast is in a good location and easily rents but it will need a total renovation because of excessive wear and tear. Again there is always a risk of a bad tenant but it seems easier to evict in NI if somebody stops paying rent.