Sell 2nd property and go mortgage free?

J

JamesN

Registered User
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Personal details

Age: 43
Spouse’s/Partner's age: 44

Number and age of children: 2 (11 and 12)


Income and expenditure
Annual gross income from employment or profession: 90k
Annual gross income of spouse: 35k (works part time)

Monthly take-home pay: Approx 6.7k together

Type of employment: e.g. Civil Servant, self-employed
Both Public Servants

In general are you:
(a) spending more than you earn, or
(b) saving?

(b) Can manage within our means and save a bit every month.


Summary of Assets and Liabilities
Family home worth c.€600k with a €115k mortgage outstanding
Cash of €10k
Defined Contribution pension fund: €100k (from previous private sector employment)
Company shares : 0
Buy to Let Property worth €250k with mortgage of €110k. Bought 2005 at 290k.


Family home mortgage information
Lender: Haven
Interest rate 4.15
Type of interest rate: variable
If fixed, what is the term remaining of the fixed rate?
If tracker, what is the margin e.g. ECB + 1%

Remaining term: (Original term is not relevant) - end March 2036 (based on the current overpayment)
Monthly repayment: Currently pay 997 per month but that includes a 300 euro voluntary overpayment. The interest element is equating to about 280 per month at the minute I think - the statement isnt splitting it all out for me.

Other borrowings – car loans/personal loans etc

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card? Zero


Buy to let properties
Value: 250/260k
Rental income per year: 17000
Rough annual expenses other than mortgage interest : 1400 managemnt fee. Plus usual taxes.
Lender. PTSB
Interest rate: 6.18 (it is a tracker but I cannot spot the rate over ECB - it could be 2.3% although it was never one of the very skinny ones). 11 years left on it.
If fixed, what is the term remaining of the fixed rate?

This property we originally lived in and did not intend to keep long term. With the property crash we couldnt afford to sell so have kept it since and then we managed to get our family home.

Other savings and investments:

Do you have a pension scheme? Yes. Civil Service Single scheme (6 yrs). Private DC one worth 100k. Spouse has a 2002 Public service pension but would not have all the years as working half time the last 7/8 years

Do you own any investment or other property? No

2 cars - no loans on them. Paid from savings.

Other information which might be relevant

Life insurance: Covered under mortgage protection. Also both have death benefits from work (think its 1.5 times annual salary each)


What specific question do you have or what issues are of concern to you?
Myself and spouse are considering selling the investment property and using the money to pay off the family home. We would then be debt free. This would leave us with 35-40k to put away to assist with childrens education. I am not in the best of health and work stress plays a part in that. I am attracted to the idea of being mortgage free as this would give me other options in terms of work. Spouse wishes to sell the apt as she is a believer in being debt free and her parents would have done the same thing around this age. I only see myself being in the public sector for a few more years (if even). Then I would like to move to a more stress free job - wife is supportive of this. My wife loves her job and will stay in it long term. Whatever way house prices go in the future, we remember the crash where our apt was at one stage worth 110k after a purchase price of 290k. In that context it seems like a time to be grateful to be in this postion to go mortgage free.

The question I have is what are the financial implications of the decision to sell the apt and pay off home mortgage? As a pure buy/ hold decision what is financially best?
Secondly, if you have made a similar decision to this - how has this turned out for you particurarly from the non-financial side?

Many thanks and grateful for any contributions.
 
JamesN said:
Buy to let properties
Value: 250/260k
Rental income per year: 17000
Rough annual expenses other than mortgage interest : 1400 managemnt fee. Plus usual taxes.
Lender. PTSB
Interest rate: 6.18 (it is a tracker but I cannot spot the rate over ECB - it could be 2.3% although it was never one of the very skinny ones). 11 years left on it.
Click to expand...
JamesN said:
mortgage of €110k. Bought 2005 at 290k.
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At the moment, you are generating something like the following:
Rental income €17,000
Expenses : €3,000
Interest €7,000
Rental profit €10,000
Profit after tax €5,000

6.18% looks like 4.5% + 1.68% ( which is a rate which ptsb offered)

If the ECB rate falls to 3% , then you would be paying 4.68% or about €5,000 interest, so not hugely different.
 
If you sell for €250k , you will have about €150k after clearing the mortgage.

If you pay that off your home loan, you will save €6,000 a year.

So financially, it makes no difference.
 
A few considerations.

1) If it increases in value to the €290k you paid for it, you will pay no CGT. A minor consideration.

2) Could it be worth keeping for your kids to stay in if they go to college? I suspect not if it's close enough to where you live.

3) But the biggest issue is the management of the property. This can be a huge headache which you don't need. So that suggests selling.

4) Government policy demonises landlords and you might not be allowed to sell it on the open market if this government or the next government changes the law.

Conclusion: Sell
 
It would be great to be debt free and to own your own house. The rental does not seem to be causing you issues currently, but one bad tenant could tip it.

If you do own your house you can free up €1000 a month, which could allow you to drop to a less stressful job, invest in a pension, save for college, or just enjoy the teenage years with the kids, activities and holidays.
 
Thanks for replies.
Yep I'm pretty sure you are right Brendan on the 1.68%, it rings a bell. Thanks for setting out the calcs. They are interesting as I had thought there would be a fair leaning to keeping.

-Re CGT - I had considered that, I am just not sure if the apt will get ever get back to the purchase price. Its in Dublin but not in the best of areas.
-Keeping for kids education - while its in Dublin the area is a bit of an issue. We live a commutable distance to Dublin so there would be other options for them. Ideally I'd like them to live on campus accomodation to have the full experience.
-Mgmt of property. Tenants are fine, they have been there long term, the other side now being they are paying a bit under the market rate. Previous 2 sets of tenants were a nightmare though so I have no wish whatsoever to have to go back to that.
-Govt policy. I just dont understand why the policy is so anti landlords and there is no sign of it changing. I will have to give 9 months notice now. In that 9 months the tenant might decide to not pay anymore and I will have no power whatsoever.
 
JamesN said:
-Re CGT - I had considered that, I am just not sure if the apt will get ever get back to the purchase price. It’s in Dublin but not in the best of areas.
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I strongly suspect that you are underestimating the value of your apartment.

Unless there is something very specific about the apartment/area, it should be worth at least what you paid for it in 2005.

I would suggest having a chat with a local estate agent.

If I’m right and the apartment would likely sell for around €290k, then go for it.

Getting mortgage free at your ages would be some result.
 
JamesN said:
Tenants are fine,
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JamesN said:
I will have to give 9 months notice now
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Argues for leaving them there but selling if they leave.

JamesN said:
Ideally I'd like them to live on campus accomodation to have the full experience.
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That would be ideal, but is it possible? You can't just rock up to UCD or DCU and say "I want to stay on campus for the whole four years."

If the investment property is more commutable to colleges in Dublin than your home, then I would tend to hold onto it.

Brendan
 
Brendan Burgess said:
I am not sure that being mortgage-free should be an objective in itself.
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I don’t disagree.

For example, I wouldn’t defer maximising tax-deferred pension contributions just to get mortgage-free earlier.

But your own figures show that the OP is taking uncompensated risk by holding onto the rental apartment.

It’s a clear sell for me.

Particularly where the OP wants flexibility in terms of his future career.

Would you advise somebody to buy an apartment in advance on the off chance that their kids might in the future go to college in a particular city?

If not, why hold onto the apartment if it makes little sense financially?
 
Hi.
I'm age 49 and in a similar position.
I am currently selling my second property. After paying the remainder of the mortgage I will have 125k left.
I will then clear my primary mortgage leaving about 50k remaining.
This will leave me with debt free.
I will put 30k into college investment account.. and rest will be a holiday some additional savings.
This will free up 1k a month that I will be using to add extra AVCs to allow me to retire at 57 or 58.

There is a lot of risk being a landlord especially with who might be in government soon. Get out when you can and keep life simple. You will sleep better at night ...
 
Sarenco said:
Would you advise somebody to buy an apartment in advance on the off chance that their kids might in the future go to college in a particular city?

If not, why hold onto the apartment if it makes little sense financially?
Click to expand...

Good question.

I am not a fan of property investment at all. Too much management, hassle and risk.

In this case there are arguments for holding onto it and arguments for selling it. It is very closely balanced.

The OP has €850k worth of property with €210k of borrowing.

I think that they can handle the risk fairly well.

If they were living in Dublin and had an apartment in Galway, I would definitely suggest selling it rather than holding onto it on the offchance that their kids might go to college in Galway.

But if the apartment is in Dublin, there is a very good chance that their kids will require accommodation in Dublin in about 7 years.

As they have good tenants at the moment, I think, on balance, I would hold onto it.

If the tenants leave, I would sell unless it's very close to College time.

But, as I say, it's very close and not clear either way.

Brendan
 
The decision is close given the current figures.

If the sales price is higher, the dial moves towards selling. If it's lower, it moves towards keeping.

I don't think it swings it decisively.

My understanding is that college students find it very very difficult and very very expensive to get accommodation with some horrendous stories about commuting for hours a day. If I had kids in another city attending college and I could get them accommodation by buying an apartment for €290k, I would do so.

I would not buy now for €290k in case my kids went to college. But if I had an apartment worth €290k which would be suitable in the event that they went to college and I had good tenants, then I would hold onto it.

By the way, I was not really aware of this issue until others raised it on Askaboutmoney as part of the "should I sell an investment property?" posts.

Brendan
 
Not just college. Once moved out a lot of kids don't want to move back...even with remote working, all the younger (<35 at my age is younger!) colleagues in my work are happy to stay in the capital to enjoy the social life, opportunities to date etc. So there is a potential 8-10 years post graduation that your kids might be able to use a rental property (and hopefully pay you market rent with the great job they got from their studies!).

Now whether they are potentially your best or worse tenants might be an open question, and whether or not they want to live their 20s and early 30s with siblings is another. But I had so many years of moving, searching for places to live, dealing with some great and some not so great landlords, not to mention what I spent on rent (albeit a fraction of today's rates!) that could go back into the family.
 
Brendan Burgess said:
My understanding is that college students find it very very difficult and very very expensive to get accommodation with some horrendous stories about commuting for hours a day.
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Understood but I don’t think that’s an issue in this case -
JamesN said:
-Keeping for kids education - while it’s in Dublin the area is a bit of an issue. We live a commutable distance to Dublin so there would be other options for them.
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