NoRegretsCoyote
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I'd tend to agree with @Gordon Gekko
Even stress testing your scenario (sadly I've played around with a few scenarios over the weekend to see when it becomes worrying);
if you convert these to P&I mortgage over 20 years, interest rates increase to 6.5% and a 20% drop in Rent, they're still cash flow positive (after tax). They're the kind of scenarios you need to be looking at so you're not forced into a sale if you can't meet repayments.
But that doesn't get away from the fact that you are highly concentrated in a single asset class.
I think the OP needs to bear in mind that Irish house prices can fall a lot, but they can only fall so fast. Even at worst it was never really more than 15% per annum. The same goes for rents.
The OP will have plenty of warning if he is going to face cash-flow issues. That said, selling with tenants in situ means a big discount, and giving them notice of termination if you want to sell is now up to six months for long-standing tenancies. The CGT situation is also pertinent.
Personally I think the level of leverage is probably right for the portfolio overall. If I had this amount of net wealth I would diversify I bit though.
There's really not much point investing in bonds with low yields while carrying debt (effectively a "negative bond") at a much higher interest rate. Also, remember that paying down debt is highly efficient from a tax perspective - there's no point using up valuable tax advantaged space in a pension vehicle when you can achieve a better result elsewhere.I have set my pension scheme to 50pc passive equity fund along with another 40pc in a moderate growth fund which also has 50pc equity with a mix of bonds, alternatives etc balancing out the moderate fund. The remaining 10pc is split between actively managed high risk fund and bonds.
I don't think it's a good idea to re-finance your existing rental portfolio to buy a family home. Just sell your existing home and, if necessary, take out a (low LTV) PPR mortgage to meet the balance.I would be hoping to refinance my existing portfolio along with saving of circa 160k to buy this final home without selling any of them including my current PPR
Rental income: 125k
Interest: 43k
Question: how much time do you allocate weekly or monthly to managing this portfolio?
And when you said you only increase rent when tenants move.... Is that policy to keep them happy?
Looking at this afresh, I think if I was in the OP's shoes I would do the following:-
- I would sell two of the rentals and bring the aggregate LTV on the rental portfolio as a whole down to 50%. That would have a positive impact on the overall blended cost of credit and would materially reduce the risk profile of the portfolio;
- I would keep at least €25k on deposit at all times as a reserve fund to address any unexpected repairs, voids, etc.; and
- I would maximise all tax-relieved pension contributions and would the invest the lot in a global equity fund for the time being.
There's really not much point investing in bonds with low yields while carrying debt (effectively a "negative bond") at a much higher interest rate. Also, remember that paying down debt is highly efficient from a tax perspective - there's no point using up valuable tax advantaged space in a pension vehicle when you can achieve a better result elsewhere.
I don't think it's a good idea to re-finance your existing rental portfolio to buy a family home. Just sell your existing home and, if necessary, take out a (low LTV) PPR mortgage to meet the balance.
Do you have a good accountant?
20k tax seems about right tax.
If you pay down the capital the tax could rise and how would you feel giving the taxman more 20k each year?
Your PPR is your home, whereas your rental portfolio is your business. I don't think it's wise to confuse the two.1. Right now my entire portfolio is less than 50pc gearing including my PPR.
No. I'm saying if I was in your position I would invest the entirety of your pension in global equity fund for the time being. There's no point holding a debt instrument that pays less than 1%, while simultaneously carrying debt that costs over 4%.Are you saying i should stop contributing to pension and divert funds to BTL mortgage?
All of these are residential. I had looked into commercial at the time however with the money involved and i had no experience in that area, i decided against it. It took me long enough to understand the legal aspect of residential as well and commercial would take me a long time to get up to speed with.
If the s*** hit the fan similar to the last recession, as a last resort, i could sell my ppr and move into one of my rentals. It wouldnt be my first move however it is there as a backup plan. During the bad times, my current PPR was worth 200k so would be give me circa 3 years cushion.
I do have liability insurance for all of them. i have had to use my solicitor before for them so know i need to protect myself from that aspect. I am not an LTD so the bank can go after all my assets.
Sorry, did quite understand this comment "If there is a significant downward market adjustment on CMVs, are you at risk of invalidating any existing banking covenants such as <50% LTV ratios that currently qualify you for a lower rate for your cost of funds."- do you mind explaining in layman terms.
Your PPR is your home, whereas your rental portfolio is your business. I don't think it's wise to confuse the two.
If you sell a couple of rentals you will:-
That's what I would do in your shoes - you will obviously have to take your own view.
- Reduce the blended cost of credit applicable to your entire rental business;
- Reduce the interest rate risk associated with that business;
- Give you an appropriate cash reserve to meet any unexpected expenses related to that business; and
- Put yourself in a position to buy your "forever house" once you liquidate your home equity.No. I'm saying if I was in your position I would invest the entirety of your pension in global equity fund for the time being. There's no point holding a debt instrument that pays less than 1%, while simultaneously carrying debt that costs over 4%.
My advice to OP is
Pay Capital and Interest, I don't think it's important to focus on the two properties that are more than 50% LTV, could focus on paying down the one that costs the most in interest. No need to sell anything, I'd try to get a better deal with the interest rates by shopping around. If he'd borrowed on one of the properties as his PPR he might have got a better rate there. House drops don't affect him. Interest rates really do though. But he's equity is currently 50% which is excellent. He should stress test himself on C&I of say 2%. Should see which of the properties is performing best versus one that is not to see if it should be offloaded, but I suspect not. Needs to build up a good sum for all rental issues (major work/repairs/voids). I agree with the rental below market strategy. It works. Keep the properties in good nick.
Should pay as much pension in work as possible. He'll be glad he did in decades to come.
The 20% bond allocation within the first pension fund.Do you mind explaining this further. What is my debt instrument with a yeild of 1pc.
You could also expense the interest on PPR, since the purpose of the funds was to fund your BTL...however when you account for the fact that i expense BTl rates
My apologies for only getting to respond now...
CMV = Current Market Value.
The question I was asking relates to the interest rate deal you have negotiated with your lending institution and whether the interest rate is based on an LTV threshold that is dependent on market value of each property. If the value of a property was to drop by 50%, does this adversely impact the LTV threshold and give the bank grounds to revise the interest rate being charged.
I would suggest you do not conflate your PPR with your business. They should continue to be treated as mutually exclusive endeavors.
Would you consider putting the question of service income threshold to your accountant to ensure you are not liable for VAT on your rental portfolio. Given the size of the rent roll, it may be deemed by Revenue to be your primary source of income.
My own personal experience with a similar portfolio in terms of value (but not as healthy a rent roll as yours), was that after 20 years with BTLs, we decided last year to exit the Irish BTL market as government policy is too volatile. In my view, BTL is a long term business, but with the volume, severity and impact of regulatory, legal and tax changes over recent years, its impossible to measure the return long term with such a high degree of short term volatility. For us, it simply introduced too much of different types of risk into the BTL business model in Ireland. My view is that a dribble of cash form BLT investors exiting the market has already started to leave Ireland for investment abroad and this will continue to increase to chase less risky yield.
My apologies for only getting to respond now...
CMV = Current Market Value.
The question I was asking relates to the interest rate deal you have negotiated with your lending institution and whether the interest rate is based on an LTV threshold that is dependent on market value of each property. If the value of a property was to drop by 50%, does this adversely impact the LTV threshold and give the bank grounds to revise the interest rate being charged.
I would suggest you do not conflate your PPR with your business. They should continue to be treated as mutually exclusive endeavors.
Would you consider putting the question of service income threshold to your accountant to ensure you are not liable for VAT on your rental portfolio. Given the size of the rent roll, it may be deemed by Revenue to be your primary source of income.
My own personal experience with a similar portfolio in terms of value (but not as healthy a rent roll as yours), was that after 20 years with BTLs, we decided last year to exit the Irish BTL market as government policy is too volatile. In my view, BTL is a long term business, but with the volume, severity and impact of regulatory, legal and tax changes over recent years, its impossible to measure the return long term with such a high degree of short term volatility. For us, it simply introduced too much of different types of risk into the BTL business model in Ireland. My view is that a dribble of cash form BLT investors exiting the market has already started to leave Ireland for investment abroad and this will continue to increase to chase less risky yield.
You could also expense the interest on PPR, since the purpose of the funds was to fund your BTL...
Its common in commercial mortgages. In fact you'll often see covenants that could put you in default if they are breached. Probably not on RIPs.LTV is per property, not portfolio. In theory, they could revalue the property and increase the interest rate again however i have not heard of banks doing this.
Yep.Hmm interesting, that is something i didnt think of. Has this been done before and is it allowable?
Hes fine.
Like everyone, i prefer keeping as much of it for myself as possible.
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