I personally wouldn't dream of asking a family member for a loan to continue funding an investment. I have seen families literally go to war over property related investments far too many times - life is too short in my opinion.
I wouldn't hold cash back to drip feed into your investment properties as the after-tax return on the cash deposits will probably be no greater than the after-tax interest on the outstanding mortgages - just pay off as much debt as you can, as quickly as possible.
I would sell ... Property 3. Incidentally, I suspect you are significantly undervaluing Property 3 - a monthly rent of €440 on a property worth €35k equates to a gross yield of 15% - any sane investor would bite your hand off for that kind of return. Unfortunately, I don't see how you can afford to keep all your investments from a cash-flow perspective.
There well may be a parent or an uncle or aunt who has cash on deposit getting a return of 0.5% on it. Wouldn't it be a much better use of the cash to help a son keep their family in their home?
A very interesting point. My initial reasoning was:
You have a cheap tracker on an investment property.
This package as a whole is very profitable and therefore you must keep your cheap tracker
Keep the cash to help make your repayments as they fall due.
I had not considered paying down the mortgages. Let's look at that option now.
Net interest received on deposit: 0.9% (1.5% from KBC or Rabo less Dirt)
Net interest paid: 0.6% (0.95% less tax relief on 75% of it)
So it makes arithmetic sense to hold onto your cash on deposit.
It also makes a lot of other sense in that it gives you great flexibility.
If any of the lenders offers an incentive for paying off the mortgage early, you will be able to avail of it. You will have lost that incentive if you have paid off your mortgage with the lump sum.
You may choose at some later stage to sell one of the investment properties. If you have paid off the mortgage on the other one, then you will not be able to do so.
Your financial position may improve and you may be in a position to buy a family home again. If you have paid off all your mortgages, you won't have the deposit.
Property 3 is a section 23 apartment and is a complete disaster. I am not making enough rental profit to shelter any tax and the value of this property will never be worth more than €80K (even in 10/15 years time).
This is the one property you should definitely not sell, assuming your figures are correct.
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If you sell it, you will be left with a loan of €120,000 and the lender will probably insist on you paying it off immediately.
If you keep it, the rent is paying the interest in full and knocking €3,000 a year off the mortgage after the management charge.
Not sure how Section 23 works, but I presume that there is some tax advantage in the longer term in keeping it?
Personally, I would steer clear, except, perhaps, as an absolute last resort.
If the OP pays income tax at an average rate of, say, 30% across his entire income, then by my calculations the net interest paid on the mortgage would actually be 0.77%.
More significantly, if the OP discharges the mortgage in full, he will no longer be required to maintain mortgage protection insurance. On an annual basis, the premium savings would be fairly significant.
If it's a choice between taking a loan from a parent and having to sell the family home, I know which one I would take. It's quite possible that at some time in the future, Nic will get an inheritance. Getting an advance now could be great. Getting it in 20 years might be too late.
This makes no sense at all.
In simple terms, if I am paying an effective tax rate of 30% on my income and a marginal rate of 51% and I have to decide whether or not to work overtime to earn €100. If I work overtime, I will earn €49 not €70. All these decisions should be made on the marginal rate.
I think it would be unusual to have mortgage protection insurance on an investment property. If he does have it, he should cancel it whether or not he keeps the properties.
Selling the family home will result in divorce and really is not an option for us.
Thanks all for your feedback. There are no other funds whether it be from parent, uncle, aunty and there is no inheritance on the horizon. Based on your collective feedback it seems the investment properties have long term viability and my problem is having the cashflow to support the increasing repayments. Selling the family home will result in divorce and really is not an option for us. So, I need to sell one car, find another income stream (2nd job), win the lottery. This is what I get for trusting the old bricks and mortar !!!!!
I would have no problem asking a family member for a loan if it meant keeping my family home. And don't forget that this loan is being used to pay down debt. It is not a loan to fund lifestyle expenses. Nic can pay it off at any time by selling the family home.
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I think this is a crazy suggestion. Anything can happen in life. And it is not at all easy to just suddently liquidify a family home. Some ideas on what can go wrong:
It is obviously the case that every Euro of income above the relevant ceiling will attract income tax at the marginal rate (plus PRSI and USC at the applicable rates) and I certainly wasn't trying to suggest otherwise. My point is quite different.
75% of relevant mortgage interest payments are deductible for the purposes of calculating net rental profits.
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