Should we sell rental property

Hi all. Looking for help and opinions with our situation at present. Our primary residence in Dublin has outstanding mortgage of 315k worth in region of 430-450k. Currently on fixed rate of 4.95 till next July and although we have always made full repayments it doesn't leave a lot left over. Current payment is 1754pm. I'm also an accidental landlord with house rented out. Balance of mortgage is 137k with house worth 185-195k. Tracker of 1.75 with 19yrs remaining. I'm fully tax compliant on the rental income but between maintenance and tax and lpt this is costing me approx 2.5-3k a year. We are looking at our options as we also have crèche fees of 1k a month there is very little left over. We are in good position as we have no loans whatsoever and we have a rainy day fund but not much to be honest. Would we be better off to sell the rental property and use cash to reduce our mortgage. Also tracker mortgage is with BOI is there a chance of keeping this if we were to switch to them. Sorry for long post and thanks in advance

Selling your rental property and applying the net sales proceeds against the outstanding balance of your PPR mortgage would lower your LTV and this may well put you in a position to obtain a more favourable interest rate when your current fixed term expires (incidentally, you may also want to check how much it would cost you to break out of your fixed term early).

You could also lower your monthly payments by maintaining the current mortgage term. This may be attractive if you are under pressure from a cash flow perspective.

As against this, you need to decide whether keeping the rental property makes sense as a long term investment. The fact that the rental property is being financed at a low tracker rate obviously helps but we would really need to know the achievable rent in order to offer a fuller opinion.

The fact that the rental property may not be producing a positive annual cash flow doesn't necessarily make it a bad investment. Bear in mind that you are paying down the outstanding balance on the mortgage with each mortgage payment (assuming you are not on an interest only mortgage).

Finally, you need to decide whether you have sufficient cash flow to afford to keep the rental property. Even if it is a good investment, it may not be worth retaining if it is putting your family under undue financial pressure in terms of meeting your day to day expenses.

Thank you sarceno. im getting 730pm for rental property for last 3 years. I know I can easily increase this to 880pm.current mortgage repayment is 698pm But it's the tax and maintenance to keep it legit is the problem. Maybe I'm being short sighted but right now selling this seems to be a viable idea to help us get better deal on our ppr. Really never wanted to be a landlord but don't wanna throw away money that I could make in the future by selling at a later date.

Most of your repayments on the rental is capital, not interest. My advice is to keep it.

Creche fees will end and wasn't there talk of another free year in the budget.

Thanks for responses. I'll take another look at my figures and try sort out what to do. It's disposable income that is real issue and with baby no2 due to start Creche in March it's gonna get tighter.

Hi Ainey

On the basis of the above figures, I think it's pretty clear cut that you would be better advised to sell the rental property and apply the net proceeds against the outstanding balance of the mortgage on your PPR. This would be a better use of your capital and the fact that it would also simplify your life and improve your cash flow is an added bonus.

You are currently paying a rate of 4.95% on your PPR mortgage. Let's say you reasonably expect that rate to drop to, say, 3.5% when your fixed rate term finishes next July. Paying down your PPR mortgage ahead of schedule is the equivalent of receiving a risk free, tax free return of 3.5%. That's the return your rental property has to beat. If it doesn't, then your capital would be better employed by paying down your PPR mortgage.

Your achievable gross yield on your rental property is around 5.5% (880 x 12/€190k) or a net yield of around 3.9% (70% of 5.5). Netting off the rate at which you are financing the purchase of your rental property (1.75%) leaves you at 2.15%. This is obviously a lot lower than 3.5% (the anticipated interest rate on your PPR mortgage) and that's before you take tax on your rental profits into account.

When you do take tax into account, the relative advatage of paying down your PPR mortgage becomes even clearer.

You may also be able to secure a lower rate on your PPR mortgage by having a lower LTV which would be an additional benefit.

I should point out that I am ignoring possible capital gains for the purposes of this analysis. In the medium term property prices could either rise or fall so should be ignored, in my opinion, in deciding whether to acquire or retain any rental property.

Hope that helps.

Thanks so much Sarenco for your extremely informative post. For the situation we find ourselves in I think your advice is sound as I don't see thinking of money I might have 20yrs down the line when the reality is I need the cash flow in the present. I'll be cheeky and ask do you know the CGT implications I might have. House cost 213k in 2003. Am I still liable if I'm selling for less than what it cost

The great thing about CGT is that you have to make a capital gain for it to apply. So, no you won't be liable for any CGT if you sell the rental property for less than its purchase price.

You are also entitled to deduct acquisition, enhancement and disposal costs in calculating any capital gain. So all solicitor's fees on both the acquisition and disposal, stamp duty, estate agent fees, advertising costs, etc. are all deductible.