Property Investment Decision

J

jim

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Hi all,

I am looking for some advice re decision on whether or not to sell investment property.

Profit on a sale would be approximately €80k if sold today, based on est value of property, o/s mortgage and cost of sale including CGT.

Net annual rental income is approximately €6k, after mortgage, income tax and estimate of costs.

So €80k profit if sold versus annual net income of €6k.

We are hoping to buy our future home in the next year or 2 and so will likely need to sell the investment property to fund this. We have another property that we live in that we intend to hold on to as an investment property after we move to our future home.

Value of PPR is approx. 280k and o/s mortgage is €177k. I know this would be factored into affordability by the Bank when getting mortgage for future home.

We will have combined savings in 1 yr of approx. €75k. Combined salary is €145k.

Budget for future home would be €500k approx.

If we can avoid selling the investment property we will as its generating a good annual return.

Does it look like it would be possible to buy future home without having to sell investment property?

Let me know if any questions/further info needed.

Thanks
 
Last edited:
You haven't given any of the information that's actually needed to give you any advice.

You're confusing 'net cashflow' with profit in opening post.

What are your ages, and do you have any dependents?

For each property:
Value
Outstanding mortgage
Rent (per month) - estimate for current PPR
Interest rate
Term remaining
Monthly repayment
 
Apologies RedOnion, here is some more info. Let me know if more is needed.

Ages: 39 & 34
Dependents: 2

Property 1 (Invest Property):
Value = €265k
O/s mortgage = €170k approx
Monthly mortgage = €773
mortgage rate = 2.9%
Term 26 yrs
Monthly gross rent = €1650pm
Net rent per annum after income tax and approx costs = €6k

Property 2 (PPR):
Value = €280k
O/s mortgage = €177k approx
Monthly mortgage = €790
mortgage rate = 3.1%
Term 31 yrs (maybe 30..)
Est rent per month = €1500pm

By my calculation if I were to sell Proprty 1 I would have a profit of approx €80k after costs and CGT. This is a rough enough calc though.

My annual net income from this property is about €6k.

So I am trying to assess whether I should sell property 1 given that, on 1 hand, I am very happy with its annual return, but on the other hand, we prob need to sell to help fund our future home. If, based on the above info, there was a possibility to not sell property 1 and still manage to fund a new home worth around €500k I would want to go that way.

Thanks.
 
Thanks Galway.

€6k does make a decent difference for us, Its an extra 10% approx on our net pay. And we have a good asset/investment.

Question i suppose is do we need to sell to fund new home purchase of around €500k or are we ok given salary (and therefore mortg amount that could be approved) plus forecast savings of about 70k....having the two mortgages obv impacts this but then again so does having rental income.
 
There's 2 separate questions you could ask:
1. Can you keep them both, and
2. Should you.

You only asked the first, so that's what I'll look at.

Unfortunately, you'll only know when you talk to a bank.

You need a 20% deposit, which you're not going to have, so you'll need an exemption. Now, exemptions on LTV are a but easier to get than LTI, but banks can choose who to give them to.

On the income side, the net after tax rent easily covers the mortgages, even with interest rates stressed at 7%. So it shouldn't weigh heavily on your affordability test.
As a rule of thumb, once 75% of the rent after tax can cover the mortgage, you'll be fine.

So, if you can get the exemption (or come up with 20% deposit) you should be fine.
 
RedOnion said:
You need a 20% deposit, which you're not going to have, so you'll need an exemption
Click to expand...
The OP has ~€100k equity in their PPR - that would suffice for the deposit on the new PPR (and they would still have ~€75k in cash savings).

On the face of it, the rental property looks like a sound investment.
 
Sarenco said:
The OP has ~€100k equity in their PPR - that would suffice for the deposit on the new PPR (and they would still have ~€75k in cash savings).
Click to expand...
My post was based on if they don't sell.

In OP he wants to retain BOTH existing properties (it's in there, I just had to read it a few times)

jim said:
We have another property that we live in that we intend to hold on to as an investment property after we move to our future home.
Click to expand...
 
Just to look at things differently, you have 2 houses with approx 170k debt still on them and you will be buying a house worth 500k.

So in total you will have debt of circa (840k)
But you have approx 80k equity in both rental houses and 75k savings, so you have a net worth of circa 240k,

So if you hold on to both rentals and buy the new house you will be worth 240k - 840k so you will have a net worth of (600k) in the negative.

if you sell one rental you will be worth (240 + 170) - 840 so you will have a net worth of (430k) in the negative.

if you sell both rentals you will be worth (240 + 170 + 177) - 840 so you will have a net worth of (253K) in the negative.

Obviously you are well able to service debt with your high incomes of 140k, (but you are young with both high incomes, is this sustainable?) but still even by selling both rentals and doing well out of the property market compared to most people over the last decade you will still have a negative net worth of (253k). That would be the most sensible and low risk option.

Dont forget the mistake made by many irish people a decade ago having rental properties, high paying jobs, and thinking they were doing well, by doing this you will have a negative net worth of (600k)!!
 
Hi Joe,

Just to clarify..

Id have debt of 170 + 170 +400 as id be hoping to cover 100 with cash in theory. So id have total debt of 740.

Id have an assets theoretically worth 500 + 280 +265.

So net position woukd be +305

Servicing debt on all 3 properties woukd be very dooable with salaries as well as rental income from both properties.

Question is can i afford to buy 3rd house without having to sell property 1 so basically off the back of salsry level and savings. Its touch and go id say
 
Hello,

This is fairly simple imho .. sell the investment property.

You'll be taking on significant debt when you buy your new home, and intend to retain your current residence as a property investment, so that will generate future rent from that property (assuming all goes according to plan).

Why risk carrying more debt than you need post acquisition of your new home ? If things continue to go well with regards to future income then great it will help you reduce your debt quickly, or increase your savings and investments, but if something goes wrong (demand for rentals won't always be the same as it is now, one of you might lose your jobs or be forced to take a salary reduction) you'll have a little less debt to manage.

There's also the question about how best to create further wealth into the future. Can you do better by investing in a pension, keeping in mind the immediate tax break when you make contributions ? Is the residential investment property market likely to continue to rise, stabilize, or perhaps fall in the years to come (and will the government impose further taxes or levies on landlords, put more caps on rent increases etc. ?) ? Personally, I'm not convinced that the next 5-8 years are going to be good for residential investment property owners.
 
Hi MrEarl, thanks for your response.

"Why risk carrying more debt than you need post acquisition of your new home ?"

Because the risk as i see it is mitigated by the return, both currently and what i forecast.

Just to be clear as well, i do want to keep both properties taking account of my view of the relevant risk (that of property investment) and my forecast return. Its not a question, for me, of whether i want the debt. Im confortable with the debt.

Taking opinion out of it re property investment and debt, i think its more a matematical question on whether i can afford to keep both investments or am i obliged to sell at least 1 to fund property 3. This is what i am hoping for advice on if possible!

I have my view on property risk, carrying debt and im ok with all of that side of it.
 
Income x 3.5 times is €507k.
Can't see how a bank could let you keep both properties and borrow €400k on top
 
Gordon Gekko said:
Hi joe sod,

Someone with an asset worth €1m and debt of €800k has a net worth of €200k.

Not -€600k as you seem to be suggesting!

Gordon
Click to expand...

correct, was including the 500k house as a debt but forgetting that it was also an asset, a bit silly of me.
 
jim said:
....

"Why risk carrying more debt than you need post acquisition of your new home ?"

Because the risk as i see it is mitigated by the return, both currently and what i forecast.....
Click to expand...

Fair enough, but I think you should take a look at those who put themselves in a similar situation to the one you are proposing to put yourself in, say 12-15 years ago, and see how they subsequently got on. I hope it goes well for you if you take on the risk, and perhaps your incomes are safer than many others, or you have particularly good residential properties etc.

I expect you'll be cutting it close with a homeloan provider in terms of whether you will be able to retain the current arrangements or not, but you may well scrape through it with current interest rates so low (and even allowing for some stress testing of debt servicing ability etc.)
 
Reactions: jim
MrEarl said:
take a look at those who put themselves in a similar situation to the one you are proposing to put yourself in, say 12-15 years ago, and see how they subsequently got on.
Click to expand...

We got on really well thanks.

Our income dipped over that time before recovering well recently.

Rents fell from a level of 100 in 2007 to a trough of just less than 80 in 2012. See here https://onestopshop.rtb.ie/images/uploads/general/prtb-rent-index-report-2007-2012.pdf

However our costs fell through the floor.

Interest expense has fallen by over 95% since 2007. See here https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html

Due the the availability of tracker mortgages many of us were able to avail of this decrease rather than having the banks eat it.

It is a much under appreciated fact just how profitable residential property investment has been over the last decade. Having said that, as a landlord, i would gladly sacrifice part of the profit for some regulatory certainty.
 
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