Keep the second property or sell?

bbari1

Registered User
Messages
104
Perhaps it has been asked/answered many times before but I guess everyone has a different circumstances. I will appreciate your opinion.

These are my circumstances.

Rental property:
Value: c. €200K
Loan o/s: €130K
Trackers with KBC
Remaining Term: 20 yrs
Current Value: c. €200K (purchased for €330K)
After the taxes, mortgage plus other expenses, no net income.

We moved into new house 3/4 yrs ago and there is loan of c. €210K (Var 2.75%).

if I sell the rental property, I will have €70K/€80K surplus, which I can use to partially pay off the loan on PPR.

What do you think - Should I keep the 2nd property (deal with all the issues which come with this business and hope the prices will keep rising) or cut my losses and move on ?

Thank you in advance for your opinion.
 
no net income
Do you mean no net cashflow?

Do you have the option of transferring current tracker to your PPR? (Even if + 1%).

There's no way anyone can give you advice without knowing your overall financial circumstances, so a full money makeover might be best option.
 
Do you mean no net cashflow?

Do you have the option of transferring current tracker to your PPR? (Even if + 1%).

There's no way anyone can give you advice without knowing your overall financial circumstances, so a full money makeover might be best option.

Yes, no net cash in from the rental income.
No option to trf the tracker to the other loan - different banks
 
Forget cash flow for the moment. You must focus on the rental income and interest paid. (Most of your monthly repayment is going to pay down your mortgage.)

Here is the calculation you must do. As you have not given the figures, I have estimated them. Substitute your own figures.

4186


If you sell the property and pay down your mortgage, you will save €2,200 interest ( €80,000 @2.75%)

So you are better off by about €2,000 a year if you hold onto the property. Only you can decide, if it's worth the hassle involved.

If you decide to hold onto the property, you should do this calculation again every few years. As you pay down the tracker, it becomes less profitable to hold onto the property.

Other factors to consider
The risks - property prices might fall, rents might fall and interest rates may rise.
The opportunities - property prices may rise, rents may rise. Interest rates are unlikely to fall.

You paid €330k for the property which is worth €200k today. This means that it can increase in value up to €330k before you have to pay any Capital Gains Tax.

Could the house be suitable for your kids when attending college? Owning a property is a lot cheaper than renting one for them.

The "tightness" of your overall financial position. If your job is secure and the mortgage on your home is comfortable and you have good hassle-free tenants, then you can handle a few hiccups. If your home mortgage is very high compared to your income and your tenants are unreliable, a hiccup could ruin your credit rating. If the former, I would hold onto it. If the latter, I would sell it.

Brendan
 
You need to provide actual numbers. I've estimated you're making net 6,500 on this after Tax and expenses.

Then pop them into Brendan's analysis.
 
I did a Key Post on the topic 10 years ago.

It's still valid, but I might update it as I like the simplicity of my answer to you.


Brendan
 
Thank you both.

All the numbers you quoted above are correct.

if I ignore the cash in/out element on the investment property, there is €6K-€7K of profit which is being used to pay the capital. Looking at the last mortgage statement, the o/s amount is reduced by €6K p.a (roughly same as what the profit is from the rent).

By selling this property and using the surplus to partially (c. 33%) pay off the loan on PPR, there will be a saving on the interest of c. €2K p.a.

There isn't any financial "tightness", job is secure, mortgage on the house we live in isn't high (€1K), tenants are very good, never any hassle.

The only reason I was thinking of selling was: i) to pay 1/3 of the loan of the house we live in and be mortgage free in the next 6/7 years, and ii) no cash in from that property (was ignoring the fact that 6K p.a comes off the capital)

Thank you Brendan and RedOnion again. Sincerely appreciate you taking the time to reply.
 
i) to pay 1/3 of the loan of the house we live in and be mortgage free in the next 6/7 years,

I am a great advocate of being mortgage-free. But if you have a mortgage of €100k and €150k equity in a buy to let, then you can be mortgage-free whenever you want.


ii) no cash in from that property (was ignoring the fact that 6K p.a comes off the capital)

A very common mistake made by most people.

Brendan
 
If it's a long-term investment you won't reap the benefits for 20yrs or so. Isn't that really the decision you're making.

Also a 20yr investment at 30 years of age is a different thing than if you are 50.
 
If it's a long-term investment you won't reap the benefits for 20yrs or so. Isn't that really the decision you're making.

No?

Any investment decision must be reviewed regularly.

If the OP decides to hold onto the property, he should review it in about two years to see if it is still the right decision.

Brendan
 
I'm 43 and there are another 20 yrs to go on the loan. You are right in the sense that the benefit will be reaped in 20 yrs times if all goes well.
 
No?

Any investment decision must be reviewed regularly.

If the OP decides to hold onto the property, he should review it in about two years to see if it is still the right decision.

Brendan

I'm not talking about checking on your investments to see are they still on plan and still viable. You should always do that.

I'm just saying that the objective might be more than just a return in investment, it might be to provide passive income later in life.

You can invest in property without getting into rentals.
 
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I don't really understand your point. Could you expand on it please.

Are you saying that he should sell his property and buy a REIT as it would be a passive property investment?

Doesn't sound right given that he has a cheap tracker and a large unused CGT loss.

Brendan
 
I was more comment about the logic of looking at it in the short term as others were suggesting and liquidating it to pay off ppr mortgage in the short term.
 
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Here on AAM we've often talked about the perils of being a landlord. And how other investment vehicles would be simpler, safer and hassle free. Listening to the news last week there were on about people who had invested in Aviva Property funds

https://www.irishtimes.com/business...g-money-out-of-irish-property-funds-1.4157574

Seems that if you've put your money in there you're not allowed to take it out now. Also seems they've written down the values massively.

 
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