Sell investment property and be mortgage free or hold on?

M

MelF

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Hi all,

Would really appreciate some advice as my head is spinning with all the doom and gloom about the markets and especially after watching the Late Late the other night....

Situation is this. Bought our current PPR for 620k last year (at the height of the market I realise now) and rented out old PPR which we orginally bought for 150k (valued at the time of the move at 770k which again I know is a top of the market valuation). Old PPR currently generates 2500 pm in rent and combined mortgage of both properties is 770k with repayments of 3800 pm.


Given the current state of the market am wondering if we should sell the old PPR and use the profits to pay off the borrowings and be (as much as possible) mortgage free? Given the current credit crunch I'm worried that the banks will raise interest rates independent of ECB which means we would be paying higher mortgage repayments on what it now seems would be falling house prices. So trying to decide whether to try and get max profit from old PPR while we can and reduce borrowings to very little.


To compound the problem the new PPR is small (but in preferred location) and if we are to start a family we would need something bigger, prob in about 2/3 years time, in which case if we were mortage free we might be in a better position to move on something bigger. However, we would then have no investment property and seeing as old PPR gives good return....


We could afford to 'sit it out' for a while and swallow growing repayments on both houses but who knows how long this current mood will last and when market will start to move again?

If you were me, what would you do? All advice and replies much appreciated.
 
I would try and offload one of the houses now before the price falls even further. The trouble is everybody is trying to do the same thing so the price falls will only accelerate if anything.
 
God that's a tough one, I wouldnt be sure what to do myself! It is a very good rent your getting, and seeing as rents are strong I think I would be inclined to hold onto the old property and just sit tight for a year or two.
 
I have many properties that are let out and recently I considered selling them all and paying off my mortgage on my home. I decided not to because like you I am receiving good rent in an area (Swords) where there is massive development planned due expansion of the airport and the Metro North passing right by. Rental demand is very stong and my yield on each property is very good. However over the last year or two I have lost about 10 % on the value of the properties. I do see the threat of losing more....but hopefully not too much more. If I sold I would be subject to capital gains tax aswell. I think for me its going to be a long term investment and as long as 1 rents remain high and 2 the rental potential remains strong I will hold on a while longer. I suppose I see these rental properties like the hen that is laying the golden eggs. The golden eggs being your monthly rent.
 
looks like a no brainer to me. Your mortgage payments are high but so is your rent collected. If your income can cover any rental gaps when house empty and 1300/month is affordable then hang in there!

Have you considered interest only mortgage? If you are planning to offload any properties in the near future then it would make sense from a tax perspective. (assume you are paying tax on rent and all that)
 
Thanks again. My main worry is the current credit crunch and the fact that the banks will likely push up rates as a result independent of the ECB. Think it might be best to clear debts as much as possible coming into this 'rocky' period.
Still, all depends on whether or not I can shift any property in this climate!
 
While the other posters are stating that your rent is high, I would consider it less so. Say it's current value is 770k, then your GROSS rental yield is 3.9%. Net yield is obviously much lower.
Thus, the investment is hardly gilt-edged at this stage, so you will be dumping an investment yielding say 3% (being optimistic) and generating an instant return of approx 5% (or whatever your current rate is on your mortgage).
Also, given the proven rental, there are some like previous posters who will view the house as a good investment, so you may be able to shift it at close to the valuation, although be prepared for a sale at a reduced price. Still a good idea to shift it in my opinion

Like one of the posters said, a no-brainer, but the other way around!
 
Thanks amgd, v. interesting way to look at it. How did you calculate the gross yield that way, I'd always assumed it was the cost of the property against the rent achieved, which naturally enough made it seem much more profitable... So feel better when you put it that way about the yield versus the interest saved.
 
putting a property that is rented up for sale in this climate is maddness - madness i tell you! weather the storm and sell it in a year or two at the top of your valuations. unless you want to take advice from the rest of the sheep standing in line at northern rock.
 
MelF said:
Thanks amgd, v. interesting way to look at it. How did you calculate the gross yield that way, I'd always assumed it was the cost of the property against the rent achieved, which naturally enough made it seem much more profitable... So feel better when you put it that way about the yield versus the interest saved.
Click to expand...

The gross yield calculation is based on your stated current valuation of the property, 770k. Calculation is Annual Rent/house value = 30,000/770,000 = 3.9%
Net yield would take into account ongoing costs, taxes, rental voids etc. so is bound to be less

There is another item to be considered with regard to this also, which may influence your thinking. As your investment property is your PPR, you will be liable for more CGT the longer you hold onto it. If you sell within 12 months of leaving the original PPR, then no CGT applies. Any period longer than this CGT then becomes liable. So there is another imperative to selling. See here for an example thread on CGT
 
yankinlk said:
putting a property that is rented up for sale in this climate is maddness - madness i tell you! weather the storm and sell it in a year or two at the top of your valuations. unless you want to take advice from the rest of the sheep standing in line at northern rock.
Click to expand...

Problem is I'm not convinced the 'storm' will be over in a year or two..... :(
 
amgd28 said:
The gross yield calculation is based on your stated current valuation of the property, 770k. Calculation is Annual Rent/house value = 30,000/770,000 = 3.9%
Net yield would take into account ongoing costs, taxes, rental voids etc. so is bound to be less

There is another item to be considered with regard to this also, which may influence your thinking. As your investment property is your PPR, you will be liable for more CGT the longer you hold onto it. If you sell within 12 months of leaving the original PPR, then no CGT applies. Any period longer than this CGT then becomes liable. So there is another imperative to selling. See here for an example thread on CGT
Click to expand...

Thanks, yes I was aware of the CGT issue which as you say is something else to consider.
 
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