sell at a loss and start over?

[belini]

Hi
i hope this is the appropriate forum as am looking for some advice.
Myself and OH have good jobs, combined income of around 140K per year. I have an apartment which is in negative equity (mortgage of 310, worth about 220k on fixed rate of 5.25% due to expire next june..)
We have a small baby and need more space and looking at the options available to us. We have savings of about 50k. We've thought about trying to get a second mortgage but realise that this is probably not a sensible option. We're thinking of moving to rental accommodation to get a bigger family home.
Should we:
(1) Rent out apartment and move to rented accommodation
- rental income wont cover the mortgage, will need to supplement it by about E600 per month on current interest rate aswell as pay rent, This will mean we wont be able to continue to save as much as we have, and we will have creche fees of 1000k per month at end of year.
- Should we seek to go interest only on the apartment to reduce amount we're paying and enable us to continue saving meaning capital will not reduce on apartment.

(2) Sell apartment at a loss and start over, using savings to cover negative equity (we will need to save more money to do this or get a loan as we dont have enough at present). Will mean renting for a number of years to save for deposit for another home.

In the long run which makes most financial sense. Apartment is in a relatively good location in Dublin but i dont see it rising in value again in current climate.

Thanks in advance

 

[niceoneted]

I think I would lean towards renting your current place and renting for yourselves elsewhere. Try to perhaps go interest only on the current mortgage so as perhaps rent will cover the mortgage - if extra put it off the mortgage or use to save.
Its tough not knowing what to do. If it is a 2 bed apt I would stick it out for another while based on fact at least baby can have their own room.

 

[csirl]

Do your calculations take into account that you will be paying tax on the rental income you receive?

You appear to be good at saving, so another option might be to tough it out for a couple of years - saving as much as possible to cover the deficit between the apartment value and mortgage. Then sell the apartment and walk away with no debts. Then rent a modest 3-bed semi for a couple of years while saving a deposit, then buy.

With a young family, high creche fees, taxes etc. can you really afford to become a reluctant landlord of a property where the rent doesnt cover the mortgage?

 

[anuj21k]

I dont think there is a straight forward answer to your question and I do appreciate the fact of taking advise I will like to stress that it is up to you to figure out what is best way forward for you. What I can say is-
- It is highly unlikely that prices will move up in next 4 years. It doesnt seems like you can wait that long.
- Being a landlord comes with its own headaches and if you will be unfortunate enough to find the wrong tenant you might end up in more troubles than you are already in.
- Start looking for the type of property and area you are intersted in buying. It will give you an idea on how much extra cash you will need to raise.
- Talk with your bank regarding switching mortgages from property A to propspective property B and what all it entails. You still have to come up with hard cash in this scenario.
- The only bright side is with house prices going down you might be able to find someting big enough for your need on a bargain price as well.
- Sort out your finances accordingly, if you cant come up with cash I think you are stuck like many others.

Sorry for your troubles.

Keep updating this area with any ongoing developments, I do find that taking advise do help.

Hope this can be of a little help.