rent apartment or sell and cut our losses?!

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rupert7

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I have apartment in Dublin city brought for 290000, selling now for approx 90,000.
We are in 180k negative equity (we were interest only for a while)

AIB tell us there will be doing NE mortgages in approx 6 months.
We are thinking about buying a 3 bed semi d in lucan for 200,000.

My wife has been approved to get a mortgage on her own also if she wants.

Need advise on whether we should
1) sell apartment as part of NE mortgage and buy new house
2) keep apartment and rent it out with the hope that it will gain some value and let wife buy house in Lucan.
or
3) rent apartment and rent house in lucan

Renting apartment will result in us losing our 30% mortgage interest relief and we would have yearly management fees as well as potential hassle with tenants so we are leaning towards cutting or losses with it.

Is there any value on holding onto the apartment?
 
I sympathise with your situation but market for apartments is really hopeless at present. If you can rent the apartment and can make some profit or break even on its mortgage payments take a chance otherwise get rid of it. Prices may (or may not) rise in next 5-6 years but as you are buying another house it'll take care of any rise in market. Its not advisable to get stuck with something that is no use for you in my opinion but whatever you decided best of luck with that.
PS: We are looking houses in Lucan area as well at present, we might very well be neighbours in coming years.
 
I have done a Key Post on the topic at
Should I keep my home in negative equity or rent it out?

If you sell your home and buy another, this will be your position

|current position|proposed position
Mortgage|€270k|€390k
Property value|€90k|€200k
Negative equity on property|€180k|€190k
Savings|?|?
How much savings do you have?


Do you have a tracker mortgage?
If so, you should not be selling.

Why are you moving now?
Your priority should be to reduce or eliminate your negative equity. Of course, you want to live in a three bedroomed house, but living where you are is a lot cheaper. Your long term financial stability will be massively increased if you can reduce or eliminate your negative equity.

If you have to move...
Rent out your apartment and rent your new home. This is the most flexible solution.

If things go wrong for you, you can always move back into the apartment.

What might go wrong?

  • Interest rates will rise in the medium term
  • Your earnings may be reduced
  • you may split up
All in all, being in huge negative equity and having huge borrowings is very knife-edge stuff


I know you don't want to hear this, but of the many people in your position, some will be affected by this.



It is likely that renting out your apartment makes good financial sense
If you provide the interest rate and the likely rent, I will do the figures for you.
 
anuj21k said:
Prices may (or may not) rise in next 5-6 years but as you are buying another house it'll take care of any rise in market. Its not advisable to get stuck with something that is no use for you in my opinion but whatever you decided best of luck with that.
Click to expand...

Property shouldn't be a short-term investment and 5-6 years is a short-term investment by most measures. Assuming you aren't doing the investment property as interest only, there are many many more variables than simply the price of the property.

The most important decision is to decide if you actually want to be a landlord or not. Most of the time it can be plane sailing with nothing to do, but it is time consuming in between tenants, you do need to plan a fair bit for those down months, and if you get a problem tenant it can really become a nightmare. Security deposit rarely covers things when these occur. Luckily the really bad ones aren't too common.
 
We were in same situation. Rented out our apartment and now renting outside of Dublin. I have to say it was stressful to begin with but now that we have secure tenants we have nearly forgotten we own the apartment. Its taking care of itself (except management fees!)

If you secure good tentants thats great.

Renting another property is hassel free and gives you time to make a more planned long term move in the future. Whats the rush? Id be very slow to make another housing purchase unless it was for living there long haul!

Renting gives you breathing space to make more clear decisive plans for the future.

Having done it, Id hang on to the apartment and rent elsewhere.

Hope that helps.
 
Brendan Burgess said:
It is likely that renting out your apartment makes good financial sense
If you provide the interest rate and the likely rent, I will do the figures for you.
Click to expand...

Many thanks Brendan, that is a very kind offer.

We don't have a tracker but we are getting 30% mortgage interest relief.
We have very secure jobs and expect both our pays to rise over the next few years.

We have a 1 year old and have another baby on the way so its too small to stay in so the only two options are to rent it and rent another or to buy a new negative equity mortgage.

If we rent our one bed we will lose our mortgage interest relief. Doing the projections of (expected rent x 11 months) would leave us having to pay €8,000/year to make up the difference in the mortgage (including management fees etc)

1) Assuming we will lose our30% MIR, renting out a new house at €1,200/month + balance of mortgage on apartment will leave us with repayments of €2,200/month.
In 6 years we will have spent €158,000 and (for comparison purposes, assuming house values stay the same) our new NE will be €150,000

2) If we get a NE mortgage with a house costing €200,000, with a deposit of €20,000 our new mortgage payments will be €1,700/month, assuming MIR of 15%.
In 6 years time we will have spent €142,400 (including €20,000 deposit) and our new NE will be €128,000.

So if we take option 2 we will have paid less over the next six years and would be in less negative equity.

I'm sure in alot of situations depending on the % yield available etc that it would make sense to rent both houses but it seems to be that option 2 would be better in my case.

Would you agree?
 
Rupert, have you costed in the 75% interest relief you get for being a landlord? I don't know if it will make a huge difference, but it all helps.
 
Hi Rupert

Sorry, I can't follow your figures at all. I have a sense that they are wrong. But I just don't know.

As Paddy says, you may have left out the tax relief on interest paid on an investment. On the other hand, you may have left out the tax on your rental profit.

You would have to to an actual table of calculations .
If you can't do the table format, do it in line by line style.
You need to tell us the interest rate you are assuming
 
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