Buying out siblings share in a rental property

L

Lipsync

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Hi,

I was wondering if someone can point me in the direction of any thread covering the following or advise me if there is none.

I am considering buying my sister out of a joint buy to let property we have had together for 20 years in a Dublin RPZ. We are not quite covering the mortgage (4 years left) with the rent due to RPZ and being sound during COVID and not increasing the rent on our lovely long term tenants. We have never fully managed to cover the mortgage with the rent, about €1900 each.

We had a very high fixed rate at one stage and were actually caught up in the tracker redress scheme. We are now back to our original tracker. This buy to let has been a dismal experience. She is building a new home and wants to get out. I would have to give her about €150k in equity and take the complete mortgage over in my name, about €124k on the current mortgage and €150k on the new.

We, my husband and I, are also renovating our own family home and will have a €500k mortgage when it’s finished. My husband and I have two stable, pretty well paying, jobs and 3 youngish kids. I have two questions.

1) am I mad as the tax bill is circa €5000 a year and the rent won’t cover the existing mortgage and the top up mortgage

2) is there a means to reduce this tax bill by front loading the interest on the mortgage.

I overheard a conversation in the canteen in work about this possibility but didn’t have the courage to ask! I cannot see this covered anywhere else and everyone here seems so knowledgeable. I would be happy to talk to a financial advisor but I just want to get an idea first of how good or stupid an idea it is.

Thank you ☺️
 
How much is the house worth?

What is the outstanding mortgage? What is the tracker margin and years left?

What is the rent?

None of this is fully clear from your post.
 
Dr Strangelove said:
How much is the house worth?

What is the outstanding mortgage? What is the tracker margin and years left?

What is the rent?

None of this is fully clear from your post.
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Hi Dr Strangelove.
The apartment is worth approx €360k. It was bought for €330k in 2006 and never appreciated significantly.
The tracker margin is 1.5
There is €124k outstanding
The rent is €1900/month

I wanted it as a pension originally but I am in a HSE permanent job since last year so that’s not as much of an issue.
 
Lipsync said:
Hi Dr Strangelove.
The apartment is worth approx €360k. It was bought for €330k in 2006 and never appreciated significantly.
The tracker margin is 1.5
There is €124k outstanding
The rent is €1900/month

I wanted it as a pension originally but I am in a HSE permanent job since last year so that’s not as much of an issue.
Click to expand...
I thought it would be good as a kids college fund but I am not so sure anymore. Also since we went through so much with the tracker redress, it is hard to give it up after all we fought for. We were one of the very first to go to PadraigKissane about the tracker issue and were very emotionally scared by it all!!
 
Lipsync said:
This buy to let has been a dismal experience.
Click to expand...

Lipsync said:
. 1) am I mad as the tax bill is circa €5000 a year and the rent won’t cover the existing mortgage and the top up mortgage
Click to expand...
You've answered your own question here.
Lipsync said:
2) is there a means to reduce this tax bill by front loading the interest on the mortgage.
Click to expand...
Clocking up more overhead costs will reduce your tax bills but will also empty your pockets.
 
Lipsync said:
The apartment is worth approx €360k. It was bought for €330k in 2006 and never appreciated significantly.
The tracker margin is 1.5
There is €124k outstanding
The rent is €1900/month
Click to expand...

The next thing to do is to assess whether the rental is worth buying her half and keeping it.

1723238160458.png
But if you sell it, you will have €120k . If you have a mortgage at 4%, then by selling it and paying the proceeds off you mortgage, you will save about €5k interest.

So, it looks as if you should simply sell it.

Another reason for selling it is that the legislation is making life difficult for amateur landlords like yourself, and you might not be allowed to sell it next year or you might have to sell it with the tenant in situ, which would reduce the price significantly.

Another reason for selling it is that it might be difficult to get a mortgage to buy out half a buy to let and if you do get the mortgage, the interest rate would be very high.

Brendan
 
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Lipsync said:
my husband and I, are also renovating our own family home and will have a €500k mortgage when it’s finished.
Click to expand...

That is a very big mortgage. You do not want another big mortgage as well.

It's very clear. Sell and pay the proceeds off the mortgage.

It is simpler as well. You won't have to argue with your sister about the value of the property.

Brendan
 
Lipsync said:
am I mad as the tax bill is circa €5000 a year
Click to expand...

You only have a tax bill because you are making a profit.

Lipsync said:
The apartment is worth approx €360k. It was bought for €330k in 2006 and never appreciated significantly.
The tracker margin is 1.5
There is €124k outstanding
The rent is €1900/month
Click to expand...

1723238593804.png
If you do buy out your sister, the tax bill would be lower as you would have much higher interest.

Brendan
 
There is a small capital gain there of 30K. Minus purchase costs (solicitor), minus sale costs (solicitor and auctioneer).

So her 120K will be minus half the costs of a solicitor and auctioneer costs and CGT.

She needs to make a decision on what to do, because she must give the tenant's a lot of notice and she needs to do this properly.
 
If you are only in HSE since last year you won't have a full pension. You might consider investing (if you sell) into the pension by buying back years or avc etc.
 
Greenbook said:
How does that work?
Click to expand...

Which part are you asking.

I'm assume not all pensions in the HSE are the same. I assume a recent pension that time in service will be a variable of the final pension. The OP is unlike to have full service but perhaps has a private pension or time served somewhere else in the Public Sector.
 
Bronte said:
There is a small capital gain there of 30K. Minus purchase costs (solicitor), minus sale costs (solicitor and auctioneer).

So her 120K will be minus half the costs of a solicitor and auctioneer costs and CGT.

She needs to make a decision on what to do, because she must give the tenant's a lot of notice and she needs to do this properly.
Click to expand...
Hi Bronte, the current tenants are only on a 6 month lease in anticipation of us possibly selling so that part should be okay.
 
Brendan Burgess said:
You only have a tax bill because you are making a profit.



View attachment 9232
If you do buy out your sister, the tax bill would be lower as you would have much higher interest.

Brendan
Click to expand...
Thanks for your succinct reply Brendan. We will either put the proceeds of the sale into an investment fund for the kids or pay off the mortgage. I am loathe to pay it off the mortgage because the mortgage has essentially been topped up to pay for the renovation. I would rather graft and work overtime and pay off the renovation quickly than use the lump sum to pay for it. And the fancy kitchen and Quooker tap can wait. I grew up in the 80’s and can live without the instagram version of houses
 
Lipsync said:
Thanks for your succinct reply Brendan. We will either put the proceeds of the sale into an investment fund for the kids or pay off the mortgage. I am loathe to pay it off the mortgage because the mortgage has essentially been topped up to pay for the renovation. I would rather graft and work overtime and pay off the renovation quickly than use the lump sum to pay for it. And the fancy kitchen and Quooker tap can wait. I grew up in the 80’s and can live without the instagram version of houses
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On investment funds, does the 41% exit tax not negate the exponential growth of funds/ investments in Ireland from compounding? I can’t see a way around this. We have the children’s benefit going into Irish Life bare funds for them for a few years and we are getting 5.16% APR. The exit tax of 41% makes this return pretty rubbish in real terms though.
 
AlbacoreA said:
Which part are you asking.

I'm assume not all pensions in the HSE are the same. I assume a recent pension that time in service will be a variable of the final pension. The OP is unlike to have full service but perhaps has a private pension or time served somewhere else in the Public Sector.
Click to expand...
I have heard that buying back years is a thing with the HSE but I haven’t had a chance to look into it further. It is so mega busy in the hospital you hardly get a chance to go get a coffee it is on my list though.
 
AlbacoreA said:
Which part are you asking.

I'm assume not all pensions in the HSE are the same. I assume a recent pension that time in service will be a variable of the final pension. The OP is unlike to have full service but perhaps has a private pension or time served somewhere else in the Public Sector.
Click to expand...
Sorry, I didn't ask the question properly. Are you saying that if I say join the HSE in 2024 aged 45, I can 'buy' a pension for the years I wasn't working there eg. from aged 18 to 44 so that when I retire I get a full HSE pension?
 
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