Hi! everyone, I have a peirod property in D4, with no mortgage, earning E2,300 a month in rent, but needing about E50,000 in repairs - damp etc. I had intended to ask the tenants to leave and place in on the market in February, but the market seems to have gone belly up so quickly. Now I don't know whether to leave the tenants there - lease runs out in June - and sell next September. I am also worried about capital gains (won't be quite such a large sum now with fall in house prices), and believe that there is a likelihood that the next government will increase same. I don't want to keep the property as it is a period listed building which I find is just a hassle in terms of repairs, and a general money pit. The house was valued at E1.8 a few months ago - though I don't think I'll get near that now!! Any advice appreciated.
To put house on the market in Feb or not
- Thread starter elainem
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I'm presuming that you bought the property many years ago for what is a song compared to its valuation now. In fact I'm guessing that even if you bought this 10 years ago and the current price were to fall by as much as 35% you'd still have a tidy profit.
2300 a month is a pretty nice rent and even after tax would more than cover the 50k. Presuming that a mortgage would cost you around about 500-540 a month for a 10 year term, it would be a pity to sell a property that is making you money for the sake of an expense that equates to less than 2 years rent, or 2.8% of the property value. In fairness I know FTBs who have spent a lot more than that percentage on repairs to homes formerly let that were only a couple of years old due to tenant abuse - you should count yourself lucky that what is probably a prime property is going to cost you so little!
My suggestion would be to take out a small mortgage to cover the repair costs, as it will still break even - and maybe consider selling the house a few years down the road. D4 isn't going to drop that much, and a house with that kind of rental yield is very good by today's standard.
As for the tenants, try to keep the better tenants (good tenants are worth their weight in gold these days) and as the others move out do the place up flat by flat.
2300 a month is a pretty nice rent and even after tax would more than cover the 50k. Presuming that a mortgage would cost you around about 500-540 a month for a 10 year term, it would be a pity to sell a property that is making you money for the sake of an expense that equates to less than 2 years rent, or 2.8% of the property value. In fairness I know FTBs who have spent a lot more than that percentage on repairs to homes formerly let that were only a couple of years old due to tenant abuse - you should count yourself lucky that what is probably a prime property is going to cost you so little!
My suggestion would be to take out a small mortgage to cover the repair costs, as it will still break even - and maybe consider selling the house a few years down the road. D4 isn't going to drop that much, and a house with that kind of rental yield is very good by today's standard.
As for the tenants, try to keep the better tenants (good tenants are worth their weight in gold these days) and as the others move out do the place up flat by flat.
Could still sell it now for an excellent price. Otherwise sell in spring season. IMO Q3/Q4 next year could be more difficult as SSIA spend dissapears and according to Davys/ goodbodys / lots of economists the irish economy will start to slow.
Note say sold for 1.8m net ( lets remain optimistic) . Putting this on deposit at say 3.5% would give 63,000 euros a year or about 5,250 euros per month.
It shows that your rent is really very low compared to the price of the asset.
Note say sold for 1.8m net ( lets remain optimistic) . Putting this on deposit at say 3.5% would give 63,000 euros a year or about 5,250 euros per month.
It shows that your rent is really very low compared to the price of the asset.
liteweight
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There have been no price drops in D4 as yet. Last weeks auction results were abysmal but D4 still did ok. Lots of those that did not sell at auction had sold signs put up at weekend, even though this is not reflected on MyHome etc. The only houses taking longer to sell (still selling) are bog standard 4 bed 1930's semis. Your house sounds like it's exactly what buyers are looking for.
I would be inclined to sell sooner rather than later. There have been price drops in D4. Some high profile failures at auction are now selling by private treaty. 7 Shrewsbury Park was withdrawn in May with an AMV of 3.5M and quoted 3.9M in private treaty after the auction. It has now been reduced to 3.45M. There are quite a few other examples.
With interest rates rising, the housing market might weaken further but deposit accounts would pay higher interest.
With interest rates rising, the housing market might weaken further but deposit accounts would pay higher interest.
fatmanknows
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From where I'm standing you are 4-5 months past the point of the best gain from your property. IMO waiting until next year or the year after or even the year is futile. Your Capital Gain from hereonin is only likely to get smaller IMO. You may hear comments such as property in your area wont fall or is safe enough (D4 is immune to falls) and whilst pleasing to your ear are IMO completely flawed. Your property at present is giving an absolutely derisory (Gross !) yield of 1.5% approx. I don't know of any asset class (especially such an illiquid one as property) giving such a pitiful return anywhere else in the world - (perhaps Japanese yen cash deposits) and yet I hear some people commenting that you are getting a good rent. An annual rental income of 1/66th of your property value is a joke. The common consensus is that interest rates (which have already moved 1.25%) are only going in one direction for the next forseeable while ( years imo). This to me would make the idea of holding on to such a poor performing asset a very unwise one. Unless you are of the opinion your current rents can at least quadruple then I would ditch it for a liquid cash higher earning deposit. 3.75% on instant deposits are currently available and are likely to rise further this week.
Rent of €2,300 pm on a valuation of €1.8M produces a gross yield of 1.53%. As fatmanknows pointed out, this is a terrible return. I don't know how anyone could say that yield is "very good", it's atrocious.
liteweight
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I would hold this view also. If the OP makes the decision to sell, then the sooner the better.
whathome said:
I genuinely haven't seen house price drops in the area. Good spotting Whathome, Shrewsbury Park escaped me....don't know where it is but it shouldn't be confused with Shrewsbuty Road.
Mary Harney's old stamping ground off Serpentine Avenue (2 bed) sold for approx. 1.25m....AMV 1m. Heytesbury Lane sold for 1m over it's AMV and last week one of the bog standard semis sold for over 2m. In general D4 is still doing ok particularly for period property. I don't think the OP will have a problem in securing a buyer. Nevertheless if the market collapses, or even falls 'softly', it would be stupid to think any area would remain unaffected.
whathome said:
I agree with you here and also with fatmanknows. There is no point in holding onto something which is costing you money, unless it's for tax purposes.
dunkamania
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. IMO Q3/Q4 next year could be more difficult as SSIA spend dissapears and according to Davys/ goodbodys / lots of economists the irish economy will start to slow.
Note say sold for 1.8m net ( lets remain optimistic) .
quote]
Probably not many ppl hanging on for their SSIA's so they can buy a 1.8m home.
liteweight
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Note say sold for 1.8m net ( lets remain optimistic) .
Probably not many ppl hanging on for their SSIA's so they can buy a 1.8m home.
This is very true.
Another point that a lot of people are not willing to spend this type of money on property which needs renovation, unless they feel they're getting a real bargain. Perhaps you'd be better to carry out repairs to the house before you put it up for sale. Ask estate agents advice re valuation (get at least 3) so that you have a better idea of where you stand.
liteweight
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Yield is calculated on the original cost of the property, not on its current value. There are numerous posts with regard to this on AAM.
It is not simply a case of selling for 1.8m and pocketing the profit. Even if the OP paid 300k for the house, leaving a profit of 1.5m, capital gains tax would take 300k out of the pot, plus EA agents fees, plus legal costs. Personal circumstances have to be taken into account. A monthly payment of 2,300 is much more tax efficient for someone who has no other income, especially if this income suffices.
I'm not saying the OP shouldn't sell....just that all options should be considered before a decision is reached.
You always get this wrong liteweight. Yield is calculated on current value, otherwise there's no way to compare return with alternative investments. If for example the OP had inherited the property, what would the yield be then?
When making a sell/buy decision on an asset, current valuation should always be used.
If you've signed a lease, surely that's their decision?
liteweight
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I beg to differ. You are mistaken. Yield is calculated on the original cost of the property. It is done this way in order to calculate rental returns for tax purposes.
In other threads, I have stated that there is value in comparing what the property is worth 'today' in order to decide whether your money would be better invested elsewhere. When it comes to calculating yields on rental property however, this does not stand up. You cannot calculate a 'yield' on money you do not have and might not get....you can only do it on what you spent.
Whether you inherit a property or not is a moot point. If the tax man looks at your accounts, let's take Elainem as an example:- at 1.8m cost of property and a rental income of 2,300 pm she has very little tax liability. If she inherited it then all 2,300 is liable for tax as she has little or no expenses.
With all due respect you are trying to compare two totally different things and calling them both 'yield'.
I know you have argued this case before and you were wrong then too!!
Gross yield has absolutely nothing to do with tax.
You're confusing gross yield with the ability of a landlord to offset interest expenditure against rental income. They're not related.
If I bought the house in D4 in 1980 for €80,000, it would currently yield 34% according to your calculations. So I compare your "yield" that to a deposit account returning 3.5% and I decide not to sell. Bad move, using your method I've based today's decision on calculations using figures from 26 years ago.
Calculating it correctly, the actual gross yield is based on current valuation - €1,800,000 which returns 1.53%. When making a decision to sell an asset, in order to compare returns - current valuations should always be used.
liteweight
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I am saying the same thing here!! Yield on investment property for tax purposes etc. is calculated on original cost and expenses of property.
If, however, you want to ascertain what your profit might gain elsewhere then by all means 'guestimate' what you will be worth. However, initially you only invested X amount and it is this amount yield is calculated on!!
Bacchus are you Whathome in disguise??
fatmanknows
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Lightweitht, I would think to any investor you have this wrong. Historic yields are irrelevant when making invesment decisions. The present is all that matters.
I lost you with ref to yields and tax returns. However, rent is rent and taxable as such - subject to allowables such as interest and outgoings etc . As for a visit from the taxman - the taxman's concern, if any, will be whether the gross rent declared is reflective ( current yield) of the current market value of the earning propery - for the year in question. After that he/she will look at the deductibles claimed.
A more pertinent example might be the Gilt market. Its not the coupon rate that's most relevent - its the current market rate the loan note yields.
A better approach would be to get some professional valuations as you suggested earlier. This will allow the OP to calculate gross yield. Our calculations were based on the latest valuation of 1.8M.
It might feel that way to you because everyone is pointing out that you are wrong but we're different people. I'm far better looking
liteweight
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Are we talking at cross purposes here? The gross yield translates to rental income IMO.
whathome said:
I'll take your figures as correct. But you're not comparing like with like. You would only be making 34% on 80K, which is what you invested and is an excellent return on your money.
As I've already stated (it feels like time and time again) if you wished to sell THEN you use the current market value of the property, less legal,advertising, and CGT to reach a conclusion. In a lot of circumstances even this is too simplistic, e.g. in a rising market you are making your 34% and the asset is still appreciating...better to hold on. If the market is falling...better to reassess the situation. It is not always the best solution to sell because a deposit account will yield a higher interest rate. What about inflation eroding the capital over time? What if, as some on AAM fear, the banks collapse? What about inheritance....best way to cater for next generation?
whathome said:
You're just repeating what I've been saying all along...When making a decision to sell.........