Should we sell buy to let properties or continue to invest in them?

A

ark11pv

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Age: 41
Spouse’s age: 52

Annual gross income from employment: 47k
Annual gross income of spouse: 65k

Monthly take-home pay:6188 total

Type of employment: civil servants

In general we have been spending more than saving but have been able to start saving 800 monthly in the last yr & are restructuring our current spending to overpay CU loan & increase savings.


home: vr 4.55%, 192k mortgage on 210k value, 20 yrs left, monthly repayments 1255euro
buy-to -let (A): ecb +1.15%, 236k mortgage on 110k value, 25 yrs left, monthly repayments 886euro
buy-to-let (B): svr 4.49%, 57k mortgage on 190K value, 15 yrs left, monthly repayments 426euro
Monthly rental income: 1180euro

Buy-to-let properties are currently costing 300 monthly, taking into consideration LPT, house insurance etc but not including upkeep of property & irregular spending renting can incur.

Have been in recent contact with bank requesting reduced interest rate for home mortgage & have been offered 1 yr fixed @ 3.7% & offers of other higher rates for fixing for more than 1 yr.


CU loan: 14k, monthly repayments 374, 3 yrs remaining

Savings: 15k

No credit card spending or overdraft

Do we have a pension scheme? Yes, but I will have to make contributions to top up pension

Age of child: 14

Life insurance: yes


What specific question do you have or what issues are of concern to you?

We are planning on fixing home mortgage for 1yr but would like advice on whether or not to fix it for longer.

We are unsure what to do with 2 buy to let properties.

Do we sell buy-to-let B and pay off some of home mortgage.

Or sell buy-to-let A & B and pay off whatever shortfall is left & continue with home mortgage as it is.

With continued rental income we are in a position to hold onto buy-to-let properties but would like to reduce home mortgage also, so are the buy to let properties a worthy investment to hold onto long term or do we have other options?
 
You need to give lots more information on the buy to lets.

You say they are costing €300 per month, but is this is after capital repayments or before.
 
Effect of selling property B

1) Save €57k @4.5%, less tax relief = €1,500
2) Pay off CU loan and save €14k @9% = €1,300
3) Pay €124k off home loan and save 3.5% = €4,300 ( I use the rate you could get if you switched lender)
Total interest saved :€7,000

I am guessing that your rent is around €9,000, from which, you can deduct around €2,000 expenses and €2,500 tax, so your net rental income after tax is about €5,000

You should sell Property B and pay down your credit union and your home loan.

(I am assuming that you don't have a CGT liability on selling this property)

Another reason for selling Property B, is that you are overexposed to property at €600k with borrowings of €480k.

Yet another reason is that, at some stage, you may wish to trade up to a more expensive home. You will be better able to do so if you have lower borrowings.

You probably should not sell property A
You will save only about €1,200 a year interest or €800 after tax.
But you will lose the €3,000 a year net rent after tax.

You should not fix your home mortgage rate
Rates are artificially high in Ireland so it makes no sense to fix at these rates. You should be able to avail of cheaper variable rates in the coming year or fix at lower rates.

After selling Property B, you will have surplus income which you should use to pay down your home loan.

Brendan
 
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cremeegg said:
You need to give lots more information on the buy to lets.

You say they are costing €300 per month, but is this is after capital repayments or before.
Click to expand...

after capital repayments. rental income property A = 700, property B = 480
 
Brendan Burgess said:
You should not fix your home mortgage rate
Rates are artificially high in Ireland so it makes no sense to fix at these rates. You should be able to avail of cheaper variable rates in the coming year or fix at lower rates.
Click to expand...

I wonder will any such reductions to existing rates be deep enough and happen quickly enough to warrant holding off on a decision to take a one year fix @ 3.7%, rather than sticking with a variable rate of 4.55%? I would have my doubts.

Otherwise, I would strongly agree with the balance of Brendan's advice to sell Property B and use the net proceeds to pay off the CU loan and pay down the PPR mortgage.

You will then be in a position to bring the LTV on the PPR down to a level where switching to another lender at a much more favourable rate becomes an option and the decision whether or not to take the one year fix with your existing lender becomes moot.
 
You probably should not sell property A?

Would the large amount of negative equity on property A have an impact on credit rating for future borrowing?
Also could you explain the difference in amounts from selling or not selling property A please? Not sure how you arrived at them.
 
Brendan Burgess said:
So what? You should be ignoring capital repayments when calculating profitability.

Brendan
Click to expand...

Of course, but the OP said that the rental properties are costing him €300 per month. I think (there is not enough info to be sure) that the Op is actually profiting to the extent of €740 before LPT Tax etc. He is making a substantial profit from his rental business. It is only due to the capital repayments that he has a cash-flow shortfall of €300 per month, that is not a cost. I am sure that you understand this perfectly Brendan but the OP may not.

You say that the OP has a too great exposure to property, but the main exposure he has is to the cash-flow requirements of his borrowing, which he (or she) seems well able to deal with.
 

Selling Property A does not get rid of your negative equity. It just converts the negative equity into an unsecured debt. It's likely that the lender would try to get you to pay this off quickly and would raise the interest rate. As it's on such a low interest rate, you are paying down the capital quickly - about €8,000 a year. In 10 or 12 years, you will have paid off the negative equity, assuming the value of the house does not rise or fall in the meantime.
 
cremeegg said:
You say that the OP has a too great exposure to property, but the main exposure he has is to the cash-flow requirements of his borrowing, which he (or she) seems well able to deal with.
Click to expand...

I agree that the cash-flow is the main exposure. And given that the biggest loan is on a tracker, the effective total borrowing is less than €600k. But it's still a high level of borrowing. If property rises, he will benefit as he will still have €400k if he sells Property B.What if there is a sustained fall in the value of property?

But the main reason for selling Property B is that it is losing money. He would increase his income and improve his cash-flow by selling it.

Brendan
 
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