Should I sell investment property now?

I have a 3 bed semi in clondalkin thats worth approx 330k with an interest only mortgage of 300k costing 1225 per month with a rental income of 1300 per month. I really want to sell now as I think the value is gonna go into negative equity quite soon. Should I sell and cash in now or should I stay for the long term?

It depends. Do you think you'll have any chance of selling the house for the price you mention?

Yes, I already have some people interested in buying privately. I have my own company which was originally financed via equity release from the property a few years ago so I have the opinion that the money has already been made from the house. I'm getting anxious to sell as I'd hate to get into negative equity and be stuck with it for a few years

Go for it so.

Falling capital value and effectively €75 per month in rental income after deduction of mortgage interest and before income tax and other ongoing expenses (e.g. maintenance etc.) are considered!?! Hmmm......

You are treading water in the swimming pool of a sinking ship. Get out.

And get off the ship too, if you can.

Thanks lads, you've confirmed my thoughts. My accountant actually told me to stick with it for the long term and buy more if possible! I reckon the few bob equity would do better in Rabobank than Clondalkin!

am I missing something here.....you have a sitting tenant paying your mortgage and you want to sell and a bunch of lemmings tell you to cash in your chips at just the wrong time? Give me a break and listen to your accountant! And to make matters worse you
1. take money out of a long term asset that consistently beats inflation
2. pay the governement 20% cgt
3. with whats left put it into deposit which is a non performing entity relative to inflation which only serves to bolsters rabobank balance sheet!

Plus if you put it on the market you would have to kick the tenant out and go into negative cashflow for god knows how long while awaiting sale.
And then when it is sitting unsold for 6 months you will sell at a knockdown price to a professional investor who accepts an early christmas present.

OP is clearing only €75 above interest cost on an interest-only mortgage, has buyer lined up in declining market, is happy with return to date having "extracted equity."

What's to debate?

I'm a bit confused now markowitzman.... The house was originally my PPR and valued at €340k when I moved out therefore I dont think CGT will be applicable if I sell at 330K. Also rents are coming down in the area. I was initially thinking of changing the mortgage to capital and interest repayments and making additional payments (1800/month over 23 years) however I have an excellent company pension which I could just increase AVCs into rather than pay off the investment property mortgage. Any thoughts???

markowitzman said:

am I missing something here.....you have a sitting tenant paying your mortgage and you want to sell and a bunch of lemmings tell you to cash in your chips at just the wrong time?

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Surely the summary numbers above are a cause for concern? Clearing €75 before tax, other costs (e.g. insurance, maintenance costs etc.), vacancy periods and inflation are considered. The ongoing yield here is probably zero or negative. So the original poster is banking on capital appreciation. Fair enough if they want to do this but they need to understand the risks and assess the viability of the investment and its suitability to their own specific circumstances. If they already have a good diversified portfolio of savings/investments and this is a higher risk one that they want to keep then that might make sense. If this is their main or only investment then this too would be a cause for concern in my opinion.

Give me a break and listen to your accountant!

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And buy even more property too!?!

3. with whats left put it into deposit which is a non performing entity relative to inflation which only serves to bolsters rabobank balance sheet!

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Their yield/return right now is worse as far as I can see!

hikicker said:

I'm a bit confused now markowitzman.... The house was originally my PPR and valued at €340k when I moved out therefore I dont think CGT will be applicable if I sell at 330K.

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The value at the time that it became an investment property is irrelevant. What matters is how long it was rented out for and how this determines what proportion of the TOTAL gain since acquisition is assessable for CGT.

When did you buy and when did you first rent it out? What was the outstanding mortgage at this time since only interest on that amount can be written off against rental income. Was there a clawback of stamp duty triggered and, if so, did you pay this or is it outstanding? Are you PRTB registered? If not then you cannot offset interest on the mortgage against rental income.

Also rents are coming down in the area. I was initially thinking of changing the mortgage to capital and interest repayments and making additional payments

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There are strong arguments for not doing this and keeping an rental property mortgage interest only.

Interest only mortgage for investment property

You may need to talk to your accountant about all of these tax issues since you don't seem to understand some or all of them.

I bought it second hand in 2001 for £138k (€175k) as PPR and moved out in Dec '05 when Mortgage was €216k (House value was approx €340k). I'm registered with PRTB and have rented it ever since. Refinanced twice in the period thereafter and now owe €300k.

When exactly did you buy it and then rent it out (month and year)? If you bought in 2001 and rented out within 5 years of purchase then you were (or still are if not already discharged) liable for a clawback of stamp duty.

Assume (for simplicity) you bought in January 2001 and rented it out in January 2006 and then sell it in January 2009 for €330K then your CGT calculations are (roughly)

€330K - €175K = €155K minus allowable expenses etc. let's assume €10K which gives a net capital gain of €145. You owned the property for 8 years the first 5 of which it was your PPR and the remaining 4 of which it was rented out so

€145K x ((4-1)/8) = €145K x 37.5% = €54K odd of your gain is assessable for CGT at 20% which is c. €11K in tax. These figures are simply illustrative and very rough. To get the precise answer you need to crunch the numbers carefully.

Only interest on the loan outstanding at the time that you first rented it out is allowable against rental income. Interest on any subsequent topups/equity releases are not unless used to renovate the property.

Thanks Clubman. I bought it in Jan '01, it was an old house which I paid stamp duty on as I wasn't a ftb. You calculated 9 years rather than the 7 since I bought it (2001-2008)? If I had sold it in jan '06 I wouldn't have had to pay a penny in tax, it seems very unfair that while the value of the property has gone gone down since then and I'll effectively suffer a loss that I should pay any CGT at all???

hikicker said:

Thanks Clubman. I bought it in Jan '01, it was an old house which I paid stamp duty on as I wasn't a ftb.

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OK - if what you paid was the same as what an investor would have paid then there is no SD clawback. Just needed to tease that out.

You calculated 9 years rather than the 7 since I bought it (2001-2008)?

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Sorry - my mistake. I was assuming (for simplicity) acquiring it in January 2001 and selling it in January 2009 which is 8 years ownership. I'll fix my post above.

If I had sold it in jan '06 I wouldn't have had to pay a penny in tax

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Correct - you would have benefited from the owner occupier exemption from CGT which extends to 12 months beyond vacation of the property as one's PPR.

it seems very unfair

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It's to stop people benefiting from owner occupier benefits and immediately converting the property to a rental/investment.

that while the value of the property has gone gone down since then and I'll effectively suffer a loss that I should pay any CGT at all???

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You won't suffer a loss unless the disposal price falls to c. €175K!