40, should I keep or sell BTL

Personal details



Age: 40

Spouse's age: 38



Number and age of children: Three children, 7/3/1 years old.





Income and expenditure

Annual gross income from employment or profession: 100k (85k salary, approx 15k bonus)

Annual gross income of spouse/partner: 35k



Monthly take-home pay: 5k



Type of employment - Both PAYE Employees

Employer type: Both in private companies.



In general are you:

(a) spending more than you earn, or

(b) saving? Saving





Summary of Assets and Liabilities

Family home value: 750k

Mortgage on family home: 262k

Net equity: 488k



Cash: 30k (all in bank accounts at 3% interest)

Defined Contribution pension fund: 15k

Company shares : 40k

Buy to Let Property value: 270k

Buy to let Mortgage: 40k



Total net assets: 718k





Family home mortgage information

Lender AIB

Interest rate 2.1%

Type of interest rate: Fixed with 1 year remaining



Remaining term: 19 years

Monthly repayment: €1,153



Other borrowings – car loans/personal loans etc

None

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



Pension information



Value of pension fund: 170k + 30k (spouse)



Buy to let properties

Value: 270k

Rental income per year: €20,340

Rough annual expenses other than mortgage interest : 3k

Lender UB

Interest rate 4.5%

If fixed, what is the term remaining of the fixed rate? 2 years



Other savings and investments: 30k cash and 40k in company shares (vesting over next 3 years)





Other information which might be relevant



Life insurance: Cover in place provided by employer.





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

Hi folks, first time poster but long time reader of treads on this site. I've got some good advice from here over the years.

The question I have is regarding our BTL property. Should we sell or keep?

Tenants have recently gave notice to leave so we have always said we would evaluate keep/sell options at any point tenants leave. I am leaning towards selling and my wife is leaning towards keep, but either of us could be convinced to change our minds. My plan if we were to sell would be to use the after tax profits to pay down our home mortgage and then focus on paying the remaining balance over the next 2 years. The question is what to do then? I think we should focus on increasing pension contributions. I currently contribute 25% of salary but spouse I feel needs to contribute more to avail of the tax free lump sum. The ultimate goal would be to maximise our wealth so we hopefully have an option of early retirement at around 60 years old.
I'd appreciate any advice or thoughts on our situation.

What remains on BTL mortgage?

BTL 20,340 - 3k -1.8k interest = 15540 and tax 50% gives about 8k.

270 k minus 40 +10 gives 220k. Is there capital gains.

Bronte said:

BTL 20,340 - 3k -1.8k interest = 15540 and tax 50% gives about 8k.

270 k minus 40 +10 gives 220k. Is there capital gains.

Click to expand...

Thanks Bronte. Capital gains should be about 25k.

So 195k. Now what would you do with that which preservers your capital and gives you an income? Is putting it into pension better than paying down home mortgage. Your home mortgage is pretty low, it’s a savings in and of itself. Why tinker with it. The rental, has it served you well, did it mean you acquired an asset. What is current market rent. These are some questions you need to mull over.

First of all, look at the numbers on their own and compare them with clearing your home loan.



I have used a 3.5% mortgage rate on your home, as that is the likely long-term rate.

But in any event, it makes little difference whether you keep the property or sell it and repay the mortgage.

Second, is it worth the hassle?

I doubt it's worth the hassle. You have had good tenants who have voluntarily left.

If you get a bad tenant or if there is more anti-landlord legislation, you will regret not having sold it when you were free to do so.

So this suggests strongly to sell it.

Third what should you do with the net proceeds of €225k?

Pension seems a better option.

Thanks Brendan and Bronte, great analysis and inputs. Yes I am really thinking now that the better option is to sell, while we can do so freely! We had planned to put the proceeds towards paying down our home mortgage and didn't consider the option to put into a pension.

Assuming a 3.5% mortgage interest rate, perhaps a pension invested in global equities would give a better return.

The BTL ownership is split 50/50 and we are married. Would the best option be to put all the BTL sale proceeds into a pension in my wife's name? As the higher earner I'm likely to have a significantly larger pension pot at retirement age. I presume it would be OK for me to 'gift' my half of the BTL post sale, or are there tax implications?

petergriffin83 said:

Annual gross income of spouse/partner: 35k

Click to expand...

Don't contribute anything to her pension where she does not get 40% tax relief on it.

There are no tax implications on gifts from one spouse to another.

Brendan

petergriffin83 said:

Assuming a 3.5% mortgage interest rate, perhaps a pension invested in global equities would give a better return.

Click to expand...

You need to get an amortization table to figure out the 225K off the mortgage. Here is one:


Interest cost is 88K. But inflation should be considered. Income from rent presumably increases. As does capital appreciation. Those are the crystal balls we do not have. I spoke to an auctioneer last month about property bubbles and peaks. He told me he thought peak was last year and was surprised it had continued this year. Anything I've taken an interest in for sale has gone minimum 10% over asking so you can't rely on that for guidance.