Investment property up 30% in 1 year... sell?

N

nbc

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Hi guys,
I bought a house in 1998 for E120,000(£95,000) and had it on the market last year and was about to accept an offer of E317,500 when first active announced 100% mortgages for FTB. I felt this would have a considerable effect on the market. The house is now valued at E420,000 conservatively. Should I sell it? I owe E80,000 and mortgage is E650 and the rent is E1050(under market rate). I don't need the money for something else. I can't make up my mind. Here are what I see as obvious pros and cons.
pros: 1) Crazy rise in less than a year 2) seller's market currently 3) I have done ok and get out with a nice profit 4) capital gains may rise in the future 5) Not the best area of dublin and if there's a crash will be affected more 6) interest rates rising

cons: 1) Property is along term investment and in 10 yrs may be valued at E750,000! 2) ssia's are maturing over the next year and this may cause further rises 3) It's let to a good tenant and am making a profit(although some will be going in tax) 4) would be very expensive to get a similar asset up and running now.

Are there others I'm missing which may help me to make up my mind?
nbc
 
Re: investment property up 30% in 1 year...?sell

Put it on the market and see what you can get. The way things are at the moment, I wouldn't be surprised to see a "conservative" 420k house selling for well over 450k! Either way, until you sign a contract you can always change your mind and hang on to it. I'm not sure the anticipated SSIA surge will make much difference, tbh. Spiralling personal debt levels at the moment kinda indicate to me that much of that money has already been spent.

Just to comment on your con no.4, if this is your only major investment and you do decide to sell up, you should probably be looking to diversify a bit more, rather than trying to get a "similar asset" up and running.
 
Re: investment property up 30% in 1 year...?sell

conor_mc said:
Just to comment on your con no.4, if this is your only major investment and you do decide to sell up, you should probably be looking to diversify a bit more, rather than trying to get a "similar asset" up and running.
Click to expand...

Yes, there's 2 points missing from your summary:
- how much of your overall investments does this represent? Do you have all your eggs in one basket.
- life circumstances. I'm assuming you have your own home, where are things like pension, retirement, children (& college?) on the horizion.
 
Re: investment property up 30% in 1 year...?sell

i doubt that house will be worth 750k in ten years,actually i doubt if will be much more than it is now in real terms. Peoples incomes arent rising by enough to support prices much higher than now,the banks are trying their best to make them affordable by extending terms to 35/40 years but they cant extend the time periods that much further, interest rates are rising and inflation is high and eating into disposal income , the irish economy is highly vunerable to any global shocks/recessions and is becoming more and more uncompetitive and overreliant on foreign multinationals and property, all the signs are telling me to "take profits" now and reinvest in a diversified portfolio.
 
If you intend to re-invest in property, you would have approx €300k after cgt to re-invest. You could diversify very significantly here. Examples:
- If you need income from your portfolio, a French sale and leaseback will give you 5% guaranteed income for 9/11 years
- at the other end of the risk specturm, you could afford a €80,000 Turkey or Bulgarian property, where youy would hope to double your money in 5 years
- development syndicate from any of 10+ development syndicates which have recently been launched, projecting 15% per annum in 5-7 years time
- commercial property syndicate which would show 8%-10% perr annum in 5-7 years time but a lower risk than development syndicate

Of course, depending on your willingness to borrow, you could sensibly mortgage your €300k by perhaps as much as 50%, giving you €600k of a portfolio. Lots of choices ...
 
Propman said:
If you intend to re-invest in property, you would have approx €300k after cgt to re-invest. You could diversify very significantly here. Examples:
- If you need income from your portfolio, a French sale and leaseback will give you 5% guaranteed income for 9/11 years
- at the other end of the risk specturm, you could afford a €80,000 Turkey or Bulgarian property, where youy would hope to double your money in 5 years
- development syndicate from any of 10+ development syndicates which have recently been launched, projecting 15% per annum in 5-7 years time
- commercial property syndicate which would show 8%-10% perr annum in 5-7 years time but a lower risk than development syndicate

Of course, depending on your willingness to borrow, you could sensibly mortgage your €300k by perhaps as much as 50%, giving you €600k of a portfolio. Lots of choices ...
Click to expand...

All the above choices still only involve diversification within the asset class property, it would also be useful to consifer diversifying into other asset classes e.g. shares.
 
you could start buy and flipping properties in the up and coming markets in Ireland ... Cashel,leitrim,Ennis ..only my opinions
 
hey rave keep away from the e........it is making you too much of a risktaker!
In this market flipping is high risk stuff.
 
Thanks a million guys and thanks for the concrete suggestions given. Much appreciated. Where can I find out more about these property syndicates? I would prefer to invest with an irish company that's well known..one of the banks for example.
I have a couple of other investment properties. Do many of you feel like earlier contributer that diversifying out of property is a good idea?
I also own my own home worth E350,000 and with mortgage outstanding of E125,000 paying 3.6%. I feel there's no point selling to pay this off as I'm sure I can do better than 3.6%. I have the option of transferring a large amount to an account I have in australia(recently back after working there) and earn 5.6% ready access with interest paid monthly. (am aware of currency risks)The australian dollar is weak currently which could be a further advantage. Investing in maybe 5 top companies in ireland (or australia) maybe is another possibility and let 'the stockmarket work it's magic' as I read on abm recently. I guess I'm wondering if I sell will I be annoyed if the market is up another 20% next year or should I be happy with my gains and sell and do other things with the money??
nbc
 
How about using the equity in the house to purchase a section 23 property so that you can take advantage of the tax breaks? This way you wouldn't be paying tax on the rental income for the house you currently own. You could look at areas outside of Dublin e.g. Roscommon,Longford and so on but you would need to hold onto the property for 10 years otherwise the tax breaks would be clawed back.
 
I wouldn’t recommend a section 23 property. Using a very rough calculation……..
Your rental income is 1,050 per month or 12,600 per year. Lets say your interest on the mortgage is 4500 (although I cant be sure of this unless you tell me if you have an interest only or annuity mortgage). Your profit from rental income is 12,600 minus 4,500 minus other expenses e.g. furnishings at 12.5% per year for 8 years, repairs, letting agent fees……etc… say 1,500 per year = 6,600 and this is taxed at either 21 or 42 % depending on which tax bracket this extra income falls into. Worse case 42% means a tax liability of 2,772 a year. If there were any voids in the year in rental income obviously the taxable income would reduce.
Having looked around at section 23 property myself a fair bit recently I have come to the conclusion that there is a 40,000-60,000 premium to be paid on these just because they are section 23 and the rental yields are very low. So assuming rent and mortgage interest remains constant (unlikely!), it would take 14 years of saving 2,772 per year before you saved the original 40,000 extra premium. Unless you have 4 or more rental properties which are all generating a large taxable income, I wouldn’t even consider a section 23 property.
 
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