Sell rental property now or keep for kids in college?

Hello, I am looking for some advice please. We moved from our 3-bed detached home in Dublin 12 eight years ago and as it was in negative equity we rented it out. Our tenants have recently moved out. The house has been costing us about €5K per year to bridge the difference between rental income after tax, and mortgage etc. There are 6 years left on the mortgage. We have three teenagers. The eldest in fifth year, will hopefully be going to college in the next couple of years, and the other two following. We need to decide if we should sell now, and use the proceeds to fund college and put the rest in a pension fund, or rent it out again and have it for the kids to use if they need it for college. Any advice would be appreciated.

Current market value est €400k
Mortgage remaining €60K
Mortgage repayments €1200 per month
Current rent €2000 per month
Cost of student accommodation in Dublin €10,000 per annum (I'm told)

Owning a property may make sense in these circumstances but probably not the exact property you used to live in.

All else equal I would sell the 3-bed, clear the mortgage, and purchase a 2-bed apartment best located for third-level institutes in Dublin. For me this is in and around Royal Canal.

Far less maintenance, higher yield if you let it and can more easily be sold if your plans change.

When you say "costing us about 5k" per year, are you referring to paying off the mortgage, and building up an asset?

If so, that is not a cost, it is saving.

Many landlords confuse cashflows with profits.

Interest is the cost.

Capital repayments are not a cost.

The interest on a 60k mortgage is small, say 3k per year, so this property is massively profitable.

24k gross rent less 3k interest cost = 21k rental profits before expenses.

Sofarsogood said:

Current market value est €400k
Mortgage remaining €60K
Mortgage repayments €1200 per month
Current rent €2000 per month

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As Protocol has pointed out, this is very profitable - about €10k a year after tax on an investment of €340k.

So the question you have to ask is whether you could do something better with the €340k?

For example, if you have a mortgage on your home of €340k @4% , you would be paying about €14k interest, so it might make sense to sell the property and repay the mortgage.

Or if you have no mortgage but have underfunded your pension, maybe you would be better selling the property now and maxing your pension fund.

Brendan

Sofarsogood said:

. We have three teenagers. The eldest in fifth year, will hopefully be going to college in the next couple of years, and the other two following.

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Sofarsogood said:

Cost of student accommodation in Dublin €10,000 per annum (I'm told)

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It is not just the cost of accommodation, it is the difficulty in finding it. Dublin 12 is probably convenient for most colleges in Dublin - apart from DCU. 20 minutes to Trinity by bike and maybe 30 minutes to UCD for example.

He will have a 3 bed house so you will get additional income from other students.

The risk is that if you let it now to a tenant who refuses to vacate it when you need it, then you won't benefit from keeping it.
And, of course, you children might want to go to college somewhere else.

On balance, I would take the risk and rent it out again, making sure that the tenants know in advance that it is not a long term tenancy.

If you children don't go to college, you can then sell it on.

Brendan

If you are taking the risk ande renting it out again, choose tenants who are unlikely to want to stay there long term ie. the young and the mobile.

If you sell the property, you have €340k in the bank. That is more then enough to put 3 kids through college and have some left over.

If you don't sell or rent you have no income from the property and it is sitting there for 2 years gathering dust. And, as you point out, you will have some costs aside from the mortgage.

What happens if 1 or more of the kids decide they don't want to go to Dublin for college and head for UL or UCC as an example. Do you have the cash to fund that? to me, that's the key question you should be asking.

Personally, I'd take the cash now and invest it for their education

Sounds like you are in a RPZ, was the rent the latest tenants paying below market rate? If so this may influence the sale price. Although in reality a 3 bed house in Dublin 12 will unlikely be purchased by an investor but more likely FTB's .
I would be inclined to hold onto it; its close to all the major universities and takes the headache out of looking for rentals if your kids to go to college in Dublin
Also, you don't say where you are currently living; if in e.g. Louth the likelihood is the kids will go to College in Dublin; if its Tipperary it could be Limerick or Cork. Even if you'd like them to go to college in Dublin (have the house etc) they may end up elsewhere even abroad;

Greenbook said:

If you are taking the risk ande renting it out again, choose tenants who are unlikely to want to stay there long term ie. the young and the mobile.

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Could you target a market for people looking for a house for 6 months while they do up their own house?

You would still be hit by the rent limits and would have to spend a lot doing it up between lets - so no, that would not work.

Brendan