Living abroad & selling Dublin aptm. on a tracker (rented out)

I bought an apartment in Dublin in 2006 with my husband.

We moved to the UK during the financial crisis (could not get a job in Ireland) and have been renting the Dublin property since.
Mortgage is with PTSB (Tracker) remaining loan 254K. Properties like mine are on Daft.ie for sale at 230/240k. So, still in negative equity but not too much considering apartment was worth 170k at one point.
Husband now wants to get rid of it and maybe buy in the UK.
Property is renting at 1100pm (we could get more, but have good tenants) and that covers all the expenses (mortgage, managment fee and mortgage protection).

Husband thinks we should get rid of it before it becomes too old and more and more work (and money) will be required.

Is he crazy? Mortgage interest rate is currently 1.15%.

Selling would involve some costs as well (legal fees, estate agent, etc..)

Also would it be possible for us to get a second mortgage in the UK?
Thanks a lot for any replies!

You are very lucky to have a tracker and also it's self financing.Depending on your financial circumstances it should not affect your UK mortgage application.
1100 p.m. Is very low for a 2 bed unless it's a long distance from the city.

Clonback is right - the tracker rate is low and you are sacrificing as Clonback says a better return.
Plenty of upside.

Thanks a lot for your replies.
The Dublin apartment is actually in a quite good location, just north of the Phoenix park (6km from O'Connell st.).

I am keener to keep it than my husband. He believes the rise in prices is another bubble and it will not last.
He wants to get out now (and loose around 6k in fees) instead of waiting and trying to sell later an older apartment (built in 2005).

Clonback, what do you mean "Depending on your financial circumstances it should not affect your UK mortgage"?
When we took out the PTSB mortgage in 2006 we were both working, now I am a stay at home mum.
I am worried that when we go to the bank here for a mortgage, it will come up we have the Dublin one and we will be turned down?

Clonback said:

it's self financing..

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I very much doubt that's true on an after-tax basis.

It doesn't look like a particularly attractive investment to me on the basis of the numbers presented.

I'd sell.

Thanks Sarenco,
I appreciate a different point of view.

My concern is: what if we sell (at a loss) now and prices in Dublin go up again?
ECB interests rates are likely to stay the same for at least the next 2 years, so my expenses shouldn't change much in the near future.
Surely a tracker at 1.15% is the cheapest money I'll ever get in my life time... I am not an expert, but isn't that worth a little risk?

If you keep it, you make a profit before tax of €7,000 a year.

If you sell it, you have a mortgage shortfall and costs of around €25,000

So you are getting a return of €7,000 on a negative investment of €25,000!

The rent covers all your outgoings, so it's not causing you any cash-flow problems. As it's a tracker, you are reducing the mortgage balance by around €6,000 a year. If the value does not change, you will have paid off your negative equity in 4 years.

It is an apartment, so it’s easy to let and maintain.And you have good tenants.

This is as clear an example as I have seen of someone who should keep the investment.

There are other huge advantages in keeping it. At some stage in the future, you may wish to return to Ireland. This allows you to keep a stake in the Irish property market. You may choose to live in it yourselves for a period of time. Or you may be able to sell it and transfer the tracker to a new family home.

The only case where you should sell it is if it stops you borrowing in the UK and you want to buy a house there. We do not allow speculation about house prices on Askaboutmoney, but I would have thought that parts of the UK, especially London, were very risky indeed.

Brendan

Hi Fiona

You are certainly financing the purchase of your apartment at a very cheap rate but I would estimate that it's only producing a net yield of around 3.75%, which I personally wouldn't regard as sufficient compensation for such a risky investment.

You haven't told us the repayment term for your mortgage but I would strongly suspect that the apartment is cash flow negative on an after-tax basis, which means you have to contribute additional sums from your other (taxed) income to retain the investment. Not the end of the world by any means but it's hardly a "self financing" investment.

There are some indications that Dublin property prices have fallen back somewhat in recent months but I've no idea whether or not this trend will continue.

I suspect a UK lender would offer you a significantly lower mortgage than would be the case if you didn't already have a mortgage but it might be worth running this by a local mortgage broker.

Sarenco said:

You haven't told us the repayment term for your mortgage but I would strongly suspect that the apartment is cash flow negative on an after-tax basis, which means you have to contribute additional sums from your other (taxed) income to retain the investment.

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I suspect this as well, but so what?

The additional sums you are contributing are going to pay down the mortgage, so they are a form of savings.

With such a cheap tracker, you should consider this as a long-term investment. The short-term ups and downs of the property market won't have any relevance. What matters is the long-term rise or fall in the value of the property.

After about 10 years, you will have paid off so much capital, that the fact that you have a cheap tracker will no longer be that relevant. So I think your time horizon should be about 10 years. Therefore the question to ask yourself, which is one we can't discuss on askaboumoney, is whether the property will be worth more or less than its current value in 10 years' time.

Brendan Burgess said:

I suspect this as well, but so what?

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So the investment isn't "self-financing" as suggested by Clonbach - it requires regular additional cash contributions from other after-tax income. The question, therefore, is whether this cash could be invested in other assets with a better expected return on a risk-adjusted basis.

Mortgage is a 35 years one.
We are 10 years into it.

Last year the outstanding loan went down by e8,800. Remaining now is e254,800.

One apartment similar to mine sold last year for 255,000 that's why the husband wants out (but he seems to forget costs for making it presentable, fees etc..)

Thanks again!

Sarenco said:

The question, therefore, is whether this cash could be invested in other assets with a better expected return on a risk-adjusted basis.

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Extremely unlikely at this stage, although that may change when the negative equity is paid off.

At the moment, there appears to be negative equity. So they are getting a good return on a negative investment.

It's very tax-efficient. Any increases in the value of the apartment up the price which they paid for it, will be exempt from CGT.

And a loan of 1.15% with the margin fixed for 25 more years? What a fantastic deal!

And they may have an option of transferring the tracker to a different property if they return to Ireland.

Personally, I would continue to rent in the UK and retain my property in Ireland. However, if they are committed to the UK,they can get lifetime trackers as low as Bank of England rate + 1.49%, so if they have to sell in Ireland to qualify for a mortgage in the UK, then they should do so.

Brendan

Brendan: "And a loan of 1.15% with the margin fixed for 25 more years? What a fantastic deal!" (sorry can't use the "quote button" properly)

Thanks Brendan. This is exactly my point, when are we going to get money that cheap in our life time?
Question is: if/when is ECB raising interests?
We were paying 1600 a month in 2007 or 2008. The rent would not cover that if it was to happen again!

I doubt we are returning to Ireland at any stage, all I want to do is not to loose money on this fiasco purchase!

Hi Fiona

It's not a fiasco purchase, although I appreciate why it looks like that now.

It's not costing you any cash, if your figures are correct. In around 3 or 4 years, you will have a small asset. After 25 years you will own a mortgage-free apartment in Dublin.

Brendan

Brendan Burgess said:

It's not costing you any cash, if your figures are correct.

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Why do you say that?

The total mortgage payments (principal and interest) at the moment seem to be around €11,500 pa, of which €8,800 are capital repayments, and, per your figures, the pre-tax rental profit is around €7,000 pa. Assume a marginal tax rate of around 50% and that leaves a significant shortfall to be funded out of other taxable income.

If we assume that the sales proceeds would simply clear the mortgage, the question is then whether the ongoing additional cash injections could produce a better risk-adjusted return if invested elsewhere.

Let's say Fiona decides instead to direct the cash into an ISA and, sticking with the same asset class, invests the lot in a portfolio of REITs with a dividend yield of 3%. There is no income tax (or CGT) on investments made through an ISA so the rate of return on the ISA is clearly higher than the rate of return on the apartment after taxes. Hopefully we can agree that a portfolio of REITs is far less risky than a single rental property.

Admittedly, Fiona will lose the benefit of the leverage provided by the tracker (i.e. the ability to earn a return on other people's money) but leverage, however cheap, is always a double edged sword - it amplifies gains and losses - so it increases risk.

Just to be clear, I'm certainly not saying the apartment is a terrible investment at that financing rate. I'm simply saying that I personally don't think the risks involved are adequately compensated by the expected return.

fiona2014 said:

I am keener to keep it than my husband. He believes the rise in prices is another bubble and it will not last.
He wants to get out now

I am worried that when we go to the bank here for a mortgage, it will come up we have the Dublin one and we will be turned down?

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Does a bubble matter, no it doesn't, not where you are sitting with the apartment covering itself. Eventually by just letting it earn it's keep you will have a fine asset. Bubbles come and go, but Dublin will always be there.

I wouldn't mention the Irish property to the UK bank.

(I'm not saying whether I consider Ireland a bubble or not. Be careful buying in the UK strange times there with Brexit, wonder what way that will affect property)

Fiona I assume you are all tax compliant and you know all about NPPR, Household charge, LPT PRTB etc?

Yes the property will require money, for repairs, a major renovation occasionally, a bad tenant if unlucky, keep money building up for that in your rental account and make sure you are property insured.

Most importantly keep those good tenants, that makes the odds more in your favour. (I'm an ex pat landlord)

Sarenco said:

Why do you say that?

The total mortgage payments (principal and interest) at the moment seem to be around €11,500 pa and, per your figures, the pre-tax rental profit is around €7,000 pa. Assuming a 50% tax rate, that leaves around €8,000 to be funded out of other taxable income.

If we assume that the sales proceeds would clear the mortgage, the question is whether that €8,000 could produce a better risk-adjusted return if invested elsewhere.

Let's say Fiona decides instead to direct the €8,000 into an ISA and, sticking with the same asset class, invests the lot in a portfolio of REITs with a dividend yield of 3%. There is no income tax (or CGT) on investments made through an ISA so the rate of return on the ISA is clearly higher than the rate of return on the apartment after taxes. Hopefully we can agree that a portfolio of REITs is far less risky than a single rental property.

Admittedly, Fiona will lose the benefit of the leverage provided by the tracker (i.e. the ability to earn a return from other people's money) but leverage, however cheap, is always a double edged sword - it amplifies gains and losses - so it increases risk.

Just to be clear, I'm certainly not saying the apartment is a terrible investment at that financing rate. I'm simply saying that I personally don't think the risks involved are adequately compensated by the expected return.

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But Fiona doesn't have 8,000 to put into an ISA if she sells the apartment.

Without putting another penny from her pocket in x number of years she will have an asset worth 230K.

It's a no brainer.

Bronte said:

But Fiona doesn't have 8,000 to put into an ISA if she sells the apartment.

Without putting another penny from her pocket in x number of years she will have an asset worth 230K.

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If the mortgage payments are €11,500 and the after-tax rental profits are €3,500 that leaves a shortfall of €8,000. Where’s that coming from?

I didn't actually run the figures, in the OP she said the rent covered everything.

Her rent is 13K, if her mortgage payments are 11K only 3K of that is interest, so 8K is going off the capital, which is a saving. Burgess assumed costs of 3K, she has about 2K of that from the rent. But there must tax too.

Roughly.

Rent 13 - MI 75% 2250, plus costs of 3K, so let's say 5 off rent. Leaves about 8K profit. Tax is €1600. She is lower rate tax payer as she has no other Irish income. PRSI and USC maybe too. I think she has so far no USC. And you have to hit some ceiling for prsi.

Bronte

Even if Fiona pays zero tax, the apartment is still cash flow negative. Total mortgage payments of €11,500, of which €8,800 are capital repayments, less €8,000 profits still leaves a shortfall. Where does that come from?

The precise figures are not that important - my point is the apartment is not self-financing, Fiona has to inject additional cash into the apartment on an ongoing basis. The question is then whether the apartment is the best home for this money.

Paying down the capital balance is a form of saving - no question - but could a better risk adjusted return be achieved on these savings in another investment vehicle? That's the question.