Jointly Owned Investment Property

My sister and I purchased an investment property in 2004 for €127,000 and secured a tracker mortgage with Ulster of €114,000 . We were offered 4 years interest only and took it. In 2007, on the basis of a then valuation of €225,000 we topped up the mortgage by €62,000 and invested / loaned the money in a family business. In 2008, we started paying principal and interest on the full mortgage of €176,000. The property is rented since then and will be for the future for €560 per month. The family investment / loan is contributing €330 per month so the monthly payment is covered.

For personal reasons, my sister and I no longer wish to own the property together but I would like to own it and use it as a holiday home.

The figures are:-
Mortgage Balance now - €123,000
Property Value now €115,000
Equity NIL
Mortgage Payment €890 per month
Term Remaining 12 years

If we sell it now, there will be a small loss. Would the best option be for me to take over the mortgage, and pay the personal amount each month i.e 65% of the mortgage as the other 35% of the 2008 full mortgage was invested.
Am I right in thinking the investment / loan should continue to pay the 35% each month until the mortgage is finished?
If this is the case, then taking out the investment, there is equity in the property and my sister will be due a lump sum?

This is the current situation


This is what I would suggest as a starting point:



Your sister now owns 43.5% (€27k/€62k) of the investment, so she would be entitled to €144 per month from the investment (43.5% of €330).

If the lender allows you to take over the tracker mortgage, then you have a really great investment. So I think it would be only fair to compensate your sister for this. Maybe her equity should be increased to around €30k.

So you could pay your sister €30k in cash and then you would own everything.

Is the loan to the company worth €62k? Will you get that money back? If not, make an adjustment to what you owe your sister.

If the lender does not allow you to take over the tracker mortgage, you should do a side deal with your sister, whereby you take over responsibility for the mortgage and the house and she gives up her interest. Of course, any such deal should be put in writing so that no dispute arises later.

Thanks for coming back so promptly Brendan.
Up to now, we've been treating the family investment / loan as simply an injection of funds in 2008 repayable at @ €330 per month for 20 years. Once the mortgage is finished, neither a monthly repayment or lump sum would be due.
Does that mean my sister is entitled to nothing?

OK, that is €62,000 @2.5% over twenty years, gives a repayment of €330 per month.

After 7, years, you have reduced the balance outstanding to €44,000. So feed that into the table above and you get the following:

PaulK99 said:

Up to now, we've been treating the family investment / loan as simply an injection of funds in 2008 repayable at @ €330 per month for 20 years. Once the mortgage is finished, neither a monthly repayment or lump sum would be due.

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Don't really understand this. How are you treating the 62K extra mortgage interest on the house in relation to rental income tax returns?

You put in a borrowed 62K. You get 330 X 330 X 20 = 79K. But the 62K costs you how much in interest payments? Is it separate to the main mortgage. I presume it's a top up mortgage?

Bronte

A very good point.

If they borrowed money to invest in a business, they should have been able to claim the interest as a business expense.

Likewise, if they received interest from a limited company, it would be subject to income tax. If they are self-employed, it's probably simpler.

Brendan

The portion of mortgage interest in relation to the business loan is not being claimed in Case V returns. It was a separate mortgage but got bundled together in 2008 when a new P&I tracker mortgage was taken combining the initial mortgage & the top up.

Very messy.

No response to my question as to how much it costs you? I just want to see how it makes financial sense. As in why?

It's even messier now this loan is one loan on the property, wasn't sure if this loan should have been left out of the equation of BB's table.

But absolutely agree with you and your sister parting ways financially. In a mutually beneficial and amicable way.

Sorry I left out the interest cost on the business loan. The interest for last year on the business loan element of the mortgage was €700 approx. Taking the view that the loan is staying with the business and is being serviced by the business, the value of the house less the business loan element of the mortgage is €115,000 less (€123,000-€44,000=€79,000) €79,000 leaving equity of €36,000, giving my sister with €18,000.

I can pay her this amount and service the mortgage and own the house in 12 years or we both sell now and be left with nothing.

PaulK99 said:

we both sell now and be left with nothing.

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No, you would be in exactly the same net position.

Between you, you would have a loan to the business which pays you €360 a month. This is worth €44k. And you would have to give the bank €8k on top of the proceeds.

However, as you have a cheap tracker, you should not sell the property.

Brendan

Bronte said:

Don't really understand this. How are you treating the 62K extra mortgage interest on the house in relation to rental income tax returns?

You put in a borrowed 62K. You get 330 X 330 X 20 = 79K. But the 62K costs you how much in interest payments? Is it separate to the main mortgage. I presume it's a top up mortgage?

Click to expand...

700 interest X 20 years = 14K. 79 - 14 = 65K. It's actually less than this because I presume the interest was more than 700 Euro in earlier years.

Can you explain this 'investment' to us?