Should we buy an investment property?

B

barrenwuffett

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We are public sector employees with a combined salary of 130k.
Our house is worth 400k, mortgage left is 195k.
Ages 38 and 33. We have two young children. No childcare costs as lucky enough to have family minding our children.

We are considering buying an investment property, probably a two bed apartment. We are currently saving over 2k a month. We have a deposit for a buy to let.
Rental income for this property would be about 1500 pm and the property would cost about 200k with a mortgage of 130k.

Should we buy the property on a 20 year mortgage and use some of our extra income to pay down the mortgage as early as possible, leaving us with an asset providing passive income come retirement?

Thanks
 
What you should do is press the pause button and put some effort in to learning about the investing and the possibilities available to construct a wealth generating portfolio over time. And then make the best decisions based on a proper understanding of the techniques and options available.
 
What rate are you paying on your PPR mortgage?

And what rate would you have to pay on the BTL mortgage?
 
Jim2007 said:
What you should do is press the pause button and put some effort in to learning about the investing and the possibilities available to construct a wealth generating portfolio over time. And then make the best decisions based on a proper understanding of the techniques and options available.
Click to expand...

Thanks for the reply. I have done this and I guess am looking for opinions on this strategy (buying an investment property).
We both will have good pensions, we invest money in a managed fund with Zurich too.
 
While Jim might have been a little sharp with his post he is right. The is a large amount of posts on AAM on this topic.
Your paying 2.25% on your home loan. Pay 70k off this and you save around 120 euro per month on your mortgage. In turn add this saving to your monthly payment.
Apartment 1500pm X 12= 18000. Roughly 5k interest 130@3.95%. Say 1500pa maintenance for apartment pa. Another 1500pa repairs prtb etc. So after expenses you would pay tax on remaining 10000@52%=5200 in tax to revenue. Thats if all goes well no voids no bad tenants.
So now you see where Jim is coming from.
No expert but I would pay down mortgage as quickly as possible. you cannot get 2.25% guaranteed anywhere at the moment. Maybe few euro into education fund college comes quickly. As top tax payers any excess max those pensions.
Your in a great position. KISS as they say in my case anyway Keep It Simple Stupid. enjoy the weekend.
 
KOW said:
While Jim might have been a little sharp with his post he is right. The is a large amount of posts on AAM on this topic.
Your paying 2.25% on your home loan. Pay 70k off this and you save around 120 euro per month on your mortgage. In turn add this saving to your monthly payment.
Apartment 1500pm X 12= 18000. Roughly 5k interest 130@3.95%. Say 1500pa maintenance for apartment pa. Another 1500pa repairs prtb etc. So after expenses you would pay tax on remaining 10000@52%=5200 in tax to revenue. Thats if all goes well no voids no bad tenants.
So now you see where Jim is coming from.
No expert but I would pay down mortgage as quickly as possible. you cannot get 2.25% guaranteed anywhere at the moment. Maybe few euro into education fund college comes quickly. As top tax payers any excess max those pensions.
Your in a great position. KISS as they say in my case anyway Keep It Simple Stupid. enjoy the weekend.
Click to expand...

Thanks for the reply. I guess the reason I'm tempted by property is the ability to create passive income in the future. My idea would be to overpay on that mortgage and clear it as soon as possible.

We could hold off, get a bigger deposit together and have a lower LTV on the investment property.

At what point does an investment property make sense, it obviously does to some people?

Enjoy your weekend too
 
Being a landlord is not for everyone - are you prepared to be on call to fix anything that goes wrong and perhaps deal with "bad" tenants who can't or won't pay. Also your rental income will be taxed at the higher rate as you already have a wage and you will also pay PRSI and USC. There is a demand by some T.D's that sitting tenants remain in the property if a landlord decides to sell - it is not law now but could be in the future. Think carefully.
 
I have an apartment that will be paid off in 5 yrs time. It is currently rented out to the council on the long term rental scheme. I get 1462 (80%) of going rent.

1462X12= 17500pa.

So lets just say things stay the same and for the sake of debate I leave out maintenance fees repairs etc. In 5yrs time after tax I roughly clear 8700euro.

Apartment worth 240k. 8700-240000=3.6% net

Not a great return and Im not dealing with tenants. Not worrying about voids in rental etc.
I will gladly take my 240k in 5yrs time and spread it around with less risk less hassle and hopefully a better return.

Pay your mortgage off. If your both are public servants half of 130k is 65k pension between you and a lump sum of 195k between you. Great starting point. Anything extra would be better invested in assets that have a good chance of out performing a single investment like a property that could prove illiquid and hassle at the very time you want to relax.
 
It's pretty clear that you should clear your mortgage. You have €400k in the property market already and you don't want to add to that.

If you do buy a property

barrenwuffett said:
Should we buy the property on a 20 year mortgage and use some of our extra income to pay down the mortgage as early as possible, leaving us with an asset providing passive income come retirement?
Click to expand...

barrenwuffett said:
Our rate at the moment is 2.25%. A buy to let rate would be 3.95%
Click to expand...

You get tax relief on the interest you pay on the buy to let and not on the home loan. So the 3.95% rate is a net rate of around 2% after tax. So you should pay off your home loan first. Unless paying down the buy to let mortgage gets moves you into a lower LTV band and thus reduces your rate.

Brendan
 
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