Should we sell our second property??

H

Hareortortoise

Registered User
Messages
6
Hi all,
I am new to this so bare with me.
Can I ask a Question?
I am married with 3 children, I myself am self employed earning approx 15-18,000 per annum, and my husband netts 38,000 per annum.
We have a mortgage costing 1000 per month (Mortgage 200k, value of house 350K), and a second property which is rented out and covers the mortgage but maintenance and tax is costing us 3-4k per annum. If sold now we would probably clear 40-50k. ( its a tracker mortgage and seems to be going up in Value) We also have 45k tied up in deposits. and 6k in savings and an additional 15k coming my way from Inheritance.
We are running 2 cars, childcare & general living expenses and its proving difficult to make ends meet.
Can I ask advice;
Should we sell the house? or cash in the deposits? or any other advice as to how we could increase our disposable income or reduce our out-goings?
Thanks in advance.
 
First of all I would say that on the face of it you are doing really well, ie net worth of c.266k...a lot of people would like to be in that position

It seems your problem is day to day/ cash flow related. You'll need to provide more details and possibly fill out money makeover template
 
39
Spouse’s/Partner's age:
41

Annual gross income from employment or profession:
self employment €22,000
Annual gross income spouse:
€65000

Type of employment:
Self empolyment
Partner Public sector employee

Expenditure pattern:
bills first, very little left over

Rough estimate of value of home
E350,000.00
Mortgage on home
E200,000.00
Mortgage provider:
AIB
Type of mortgage: Tracker, interest only, fixed rate
Variable
Interest rate
3.35%.

Other borrowings – car loans/personal loans etc
An additional property: Value: 330,000 Mortgage: 280,000 (tracker rate)

Do you pay off your full credit card balance each month?
Yes

Savings and investments:
E5,000 savings. €45,000 in investments

Do you have a pension scheme?
Yes, My husband has a state pension
I pay Prsi

Do you own any investment or other property?
An additional property: Value: 330,000 Mortgage: 280,000 (tracker rate)

Ages of children:
Yes: 3

Life insurance:
Yes.

What specific question do you have or what issues are of concern to you?
With all our outgoings we are finding it hard to make ends meet on a day to day basis,

Should we sell our property/Investments? (trying to keep for college funds)
Or how do we make best sense of what to do with our money to allow us to meet all our expenses with a little for extra curricular?
Thanks.
 
Having a tracker on investment property may influence decision (others can comment on that) but selling it would free up c.€50k equity, and more importantly c.€4k per annum from a cash flow perspective. It would also reduce your high exposure to property. Selling could be the solution to all your problems.

From original post it seems your monthly net income is c.€4.6k per month, so after mortgage on PPR is paid you still have €3.6k left. Even allowing for child care and normal family bills this should be loads to live on. You'll also have c.115k in savings and v good equity in home, so will be in a very health positon
 
It appears that your cash-flow shortfall on the investment property is after paying a repayment mortgage. In other words you are reducing the balance outstanding on the mortgage every year.

You don't say how long is left on the buy to let mortgage, but if I understand correctly you will own that property without a mortgage in so many years. The question you must ask yourself is is the short term pain worth the long term gain.

You could use the savings and investments to reduce the balance on your home mortgage. If you kept €10k rainy day fund and reduced the balance that would reduce your monthly repayments by €240 per month (you would need to check that figure carefully, that is based on a lot of assumptions). You would get a 3.35% after tax return on the money, an excellent return.

You dont say what age your children are, how far in the future college is.
 
It's difficult to be definitive without knowing the rental income, tracker rate and remaining mortgage term but, from what you have told us, I strongly suspect you would be better off realising the ~€50k equity in your rental property and applying it against the balance of the mortgage on your PPR.

As cremeegg says, a guaranteed, after-tax net return equivalent to 3.35% is really excellent in the current environment. Are you making a better return than that on your rental on an after-tax basis? If you are, is the additional risk and hassle worth it?

The same point applies to your investments. Given current asset valuations and our punitive tax regime on savings/investments, it is difficult to be optimistic that you would achieve an after-tax net return in excess of 3.35% per annum on your investments over the next decade, regardless of the asset class.

I suggest you keep whatever liquid cash you need to feel comfortable (10k - 20k sounds reasonable to me in your circumstances) and throw the rest at the PPR mortgage balance.
 
No point in you having years of financial struggles now so you have a debt free asset in years to come. Life is for living.

Sell the property and free up your monthly outgoings.

The important bit: use the profit wisely. With 3 kids, do you plan to send them to private or public school? What about university? How are you going to fund that?

So either use the money for future expenditure or reduce the mortgage on your home (you can keep some of it for a nice holiday of course )

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 

HI Cremeegg,

Thanks so much for your reply; We have 19 years left on buy to let mortgage, and the rental income covers the monthly mortgage, but not the maintenance and tax. The annual principal amount being paid off on the mortgage is €11,000k, which far exceeds the cost per annum to keep the house. that is why I am reluctant to sell. Does this make sense?
My kids are 7, 5 and 1.5 years old, so college is 10 years away and will not be going to a private school.
 

Thanks so much for your reply,
Yes I agree in ways we are in a fortunate position but I just want allow us to live with a little less rope around our neck from day to day but not surrendering our future prospects for college funds etc.
Do you think there is a high exposure to property?
And I know you would think 3.6k is loads to live on but I just cant seem to pin down where its going...
 
Hareortortoise said:
The annual principal amount being paid off on the mortgage is €11,000k, which far exceeds the cost per annum to keep the house. that is why I am reluctant to sell. Does this make sense?
Click to expand...
You need to assess the investment holistically rather than simply on a loan principal reduction basis. I.e. assuming a tracker rate of 1.25% your annual interest on the BTL loan would be 3.5K which reflects 14.5k rental income assuming 11k principal reduction pa. However as per the commentary of previous posters rent is not equivalent to a gross return on the asset as costs and tax need to be accounted for.
Taking gross annual rent of 14.5k and costs interest of 7.5k as per the figures quoted earlier your net return before tax on the investment would be 7kpa. This is taxable at your marginal rate and only 75% of interest paid is allowable. Assuming an overall 51% total tax bill the tax amount is c4k. I.e. bottom line return on the investment of 3k. So excluding rent collection costs etc and other hidden costs such as repairs/renewals your net return on the 50k equity in the property would be 6%. hopefully I haven't missed anything in the figures!
 
You need to do a spending diary for 1 month then and note down everything that you spend money on, you should be able to pin it down then!
 

Thanks for respose 44 Brendan,
Im a little confused on your figures, where did you get the costs interest of 7.5K?
So what is your opinion on 6%?
 
Hareortortoise said:
Im a little confused on your figures, where did you get the costs interest of 7.5K?
Click to expand...
Mortgage of 280k at an assumed tracker rate of 1.25%. Obviously if your actual tracker rate is lower/higher this will change the annual interest figure.
Given the current equity investment in the property of 50k a 6% return net of tax would be difficult to match. On the basis of other responses above you should aim to keep the property as a longer term investment for education etc and use the savings to meet your cash flow shortfall. Obviously taking the advice already given of preparing a spending budget.
 
Other factors are the potentially tax free gains (what is your base cost for the investment property and did you ever live there)...
 
44brendan said:
Given the current equity investment in the property of 50k a 6% return net of tax would be difficult to match.
Click to expand...

I would agree with this and go further to say that you have an excellent upside potential in terms of possible future capital appreciation, which is costing you nothing.
 
44brendan said:
Mortgage of 280k at an assumed tracker rate of 1.25%.
Click to expand...

280,000 @ 1.25% is 3,500, not 7,500.

Not sure it makes any real difference to the decision though.

Your first job is certainly to keep a spending diary for a month or so and see where the money is evaporating.
 
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