This is where your thinking is fundamentally flawed and you are not even close to comparing apples to apples.A debt free property worth 700K + appreciation over next 15 years vs 100k invested today for them in 15 years ?
€377k x 5.39% (4.5 + 0.89) = €20,320.
So, €31,140 - €20,320 - €3,000 = €7,820.
Less income tax, prsi and usc @52% = €3,753.
Less €750 LPT = €3k.
That’s a lot less than the amount you are paying in interest on your PPR mortgage (which is highly likely to rise when you come off your current fixed rate).
And a heck of a lot less than the rate you are paying on unsecured debt.
You asked for views and I think it’s fair to say that we’re all saying the same thing - sell the rental, pay down your debts and leave your pensions alone.
But, look, it’s your money and your decision.
Best of luck whatever you decide.
Thanks again for all the advice. I definitely need to deal with the expensive short term debt immediately so the choice is to access cash from the pension lump sum or sell the RIP.This is where your thinking is fundamentally flawed and you are not even close to comparing apples to apples.
As @Sarenco has already pointed out to you, your rental is generating a return of ~€3k net. This means that your income is paying down the bulk of the mortgage, not the property itself. And with the level of debt you have in loans, credit card and ppr mortgage, it is loss making.
You currently have debt commitments of ~€5k per month. Unusually both your mortgages go well past your retirement age which is a major red flag. If you were to try clearing these by 65, your monthly commitment would be €5.7k.
Your major problem is cashflow and its only going to get worse in 4/5 years when your kids do start university. You don't have the income to sustain the debt and cost of university.
If you sell the rental (which you absolutely should), it frees up ~€5k per month which can be invested for the next 15 years in something that is more easily accessible e.g. shares/ETF's. It also allows you to easily fund university from your income.
I would also imagine that you won't have €100k left over to play with. There is surely a significant CGT bill on the rental and you should be clearing all debts, not just the ppr mortgage. But even that doesn't change the very obvious need for you to sell the rental
Of course it could falll in value...........
So far so logical. But the probelm I have is the attracttiveness / possibility of further cap appreciation on the house versus the attartiveness of being able to invest the monies currently spent on debt servicing.
Surely that would inly make sense if you have critical illness cover privately and/or sickness cover through work and/or an appropriate level of life asssurance. ?Get the strategy right first, which is to sell the RIP.
Then look at the basics.
You won't need a rainyday fund with such a high income.
And you should be paying down debt rather than building up savings especially when you have savings products which mature in a few years.
Not sure I follow you here Brendan. Most direct property investment involves debt to amplify the return on the equity. I get that the yield in the case of the RIP is poor today but if we had cut and run when we came out of negative equity we would not have the C Eur 350k equity in the RIP today. Yes rates are where they are today but we had 10 years of ecb at zero. That's not to say we shouldn't sell now because we have had a good run, just don't see the logic of not using debt when it comes to property investment.That is the key.
You should not be borrowing money to invest in property. And that is what you are doing in effect.
Brendan
Is that not largely because you have been paying down the principal balance on the RIP mortgage?I get that the yield in the case of the RIP is poor today but if we had cut and run when we came out of negative equity we would not have the C Eur 350k equity in the RIP today.
Hi Itchy, interesting suggestion. I get that the underlying co uses debt to amplify their returns and this should be reflected in NAV and share price growth but don't REITs have a terrible rep for trading at a discount to NAV? Put another more basically if Dublin resi prices go up 5% next year are my 350k IRES shares going to appreciate as much as were I to continue to own a 725k house. I know diversification, one bad tenant, hassle and better (c5% it seems) dividend return from IRES but what about the prospects for cap growth ?You could buy IRES REIT, double your after tax yield, maintain leveraged exposure to the Irish (Dublin) property market, diversify your specific property risk and eliminate the hassle of being a landlord. Your current RIP is a poor investment.
Not totally accurate because from the point we exited neg equity we also had a long period of paying 89 bps interest and after tax profit rent to contribute to amortisation which occured alongside capital growthIs that not largely because you have been paying down the principal balance on the RIP mortgage?
If you paid €350k off the PPR mortgage, you would still have that €350k equity.
Ok, but you’re now paying 5.39% interest and any possible future capital gains are obviously taxable.Not totally accurate because from the point we exited neg equity we also had a long period of paying 89 bps interest and after tax profit rent to contribute to amortisation which occured alongside capital growth
Well, in this case you'd be betting your future on outsized real growth in one particular house's priceOk, but you’re now paying 5.39% interest and any possible future capital gains are obviously taxable.
Over the last 16 years, the real growth of Dublin residential house prices was negative.
Who knows what the next 16 years will bring but I wouldn’t bet my future on outsized real growth in house prices.
The era of zero interest rates is well and truly over.
I know diversification, one bad tenant, hassle and better (c5% it seems) dividend return from IRES but what about the prospects for cap growth ?
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