Sell & Buy or Rent out & Buy with Tracker

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laura28

Registered User
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Hello,

I have posted on here previously and gotten some good advice & I would appreciate same again. We are constantly changing our minds based on variations in value of our current property etc so would appreciate some good solid advice.

Financial Details

Mortgage -

Mortgage Interest Rate – Tracker =.75% with AIB

Current Monthly Amount - €600

Borrowed €227,700 Feb 2007 (over paid for a number of years)

Outstanding €169,750

Current Value – Approx. €185,000-190,000


Incomings & Outgoings

Salary 1 - €42k

Salary 2 - €57

Monthly Take Home - €5200

Children – 2, no child care costs

Savings – €60K


What are our options?

1.

  • Keep our apartment and rent out. Rents stable in the area and would secure approx. €1100 per month. We have management fees of €1600 that would need to ne covered annually from this plus the tax liability? Is it a good investment?



  • Hoping to buy a new family home for €300/350k, using our €60k as a deposit. Had initially anticipated a negative equity mortgage but that seems to no longer be an option. In an ideal world we would avail of AIB’s tracker mover mortgage but that seems to be difficult to procure with the 28 day clause. Hence we may rent & just buy a second property?
 
Just following up on the thread above and wondering if anyone has a view or could maybe guide me to where I could find some more info?

Thanks
 
You ask is keeping the apartment and renting it out a good investment.

The simple answer is yes it is. It would give you an annual income of about €10,000 before tax, for an investment of about €15,000 (€185k - €170k), excellent. It also gives you the possibility of a capital gain.

Against this you would have to ask yourself do you want to get into the landlord business. Lots of people will tell you horror stories, but I have been doing it for more than 15 years and I enjoy it, though there certainly is work involved.

Would this reduce your ability to buy the house you want. Well with a joint income of €100k and a deposit of €60k I think you are well set to buy in the €350k region.

I dont know how the tracker mover works but you dont seem to think it is an option anyway.
 
Thank you very much for the reply.

Can I ask how the income on the rental is calculated? I am clueless to this - at the moment our mortgage repayments are €600, we get €1100 rental as an estimate. We need to factor in management fees to this. What is the tax liability etc?

I really am torn between the 2 options. We get a tracker mover mortgage and retain a rate of 1.75% on our current mortgage €160k and then the balance from the €300-350 is at the SVR so a high enough rate. I am sure that on a second mortgage we could shop around more, secure a lower rate with KBC as an example and have all our mortgage repayments at 3.3%...
 
Assuming you keep your tracker and pay an additional 1%

upload_2016-10-27_17-0-35.png

So there is no financial difference. So you have all the hassle for very little.

Of course, the value of the investment property may rise or fall.

If you sell the investment, but can't keep your tracker, then the interest would rise to €9,500 (€270k @3.5%)

But I don't really see any reason why you would not keep your tracker.

One advantage of deciding to sell your existing property , is that you don't have to sell it until after you have bought your new home. So you can buy your new home, fix it up, and move into it and then put your existing home on the market.

The alternative is to sell your own home first, rent somewhere for a while, and hope that you can buy the property you want within the 6 months limit to keep your tracker.

Brendan
 

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Retaining your apartment as a rental certainly looks like a viable option but it comes with considerable risks and will almost certainly be cash flow negative on an after-tax basis for some time.

I would have thought you were ideal candidates for AIB's tracker retention product (although you might have to increase your savings slightly). Once approved for a tracker retention, AIB will issue a loan offer that remains valid for 6 months so there should be sufficient time to sell your apartment and buy your new family home.

Here's the details but it's probably worth sitting down with a mortgage advisor in AIB to work through the logistics:-

https://aib.ie/content/dam/aib/pers.../mortgages/tracker interest rate mortgage.pdf
 
Thanks both for the information.

Brendan - that Excel table looks very informative but I am afraid I am finding it a little difficult to follow and where the calculations come from? From a rough calculation myself I see us "making" on the apartment at the most €3-4k per annum, after tax, management fees etc so very little for the hassle involved. Obviously we are paying off an asset that we can then sell and will hopefully have value....

Sarenco - we have had discussions with AIB around the tracker retention and I had thought this was the option for us. We require a 10-20% deposit for our new purchase and can retain the tracker rate on our current mortgage, the balance is at SVR. With the introduction of KBC and their 3.3% etc interest rates is a tracker retention (plus 1%) even that good a deal any more? Also with the tracker retention you have 28 days to close off on the old mortgage and draw down the new one which appears to be very hard to time.
 
laura28 said:
Sarenco - we have had discussions with AIB around the tracker retention and I had thought this was the option for us. We require a 10-20% deposit for our new purchase and can retain the tracker rate on our current mortgage, the balance is at SVR. With the introduction of KBC and their 3.3% etc interest rates is a tracker retention (plus 1%) even that good a deal any more? Also with the tracker retention you have 28 days to close off on the old mortgage and draw down the new one which appears to be very hard to time.
Click to expand...

The relative value of tracker retention products have certainly diminished as other (non-tracker) variable rates continue to fall. But they're still valuable - 3.5% is obviously double 1.75%.

Using round numbers, if your apartment produced an annual rental profit of €10k (after all allowable costs), that would be roughly €5k after tax. Your mortgage payments (principal and interest) are currently around €7k pa so that's cash flow negative to the tune of around €2k pa. Cash flow isn't everything by any stretch of the imagination (remember you would be paying down the principal) but it's something you should take into account.

It can certainly be challenging to co-ordinate the closing of two property transactions within a narrow window of time - but it's far from impossible. I gather the banks that do offer tracker retention products tend to be reasonably flexible/practical about these logistics.
 
We have 2 small kids and both work full time so I guess the logistics of renting and dealing with incidents etc is probably an added hassle we don't need.

That's interesting to read Sarenco - I would have thought banks would be very un yielding of the logistics but I guess it's in their interest to get more money from us, which is what would be having with a tracker retention mover rate...Maybe the best option is sell up and then have a nice management new mortgage with no rental hassle.....

I have also re-read the link to the AIB tracker retention product you posted. Am I reading correct that there is a 28 day sale and buy time limit or is the 6 month "offer letter" different to this? I find AIB useless when you call as they have very little tracker product experts working there and am always dubious of advise I receive.
 
The (tracker retention) loan offer is good for 6 months (and can be extended at the discretion of the bank).

So you get your loan offer sorted, put your apartment on the market and start looking for a new family home. You now have 6 months to get everything tied down (without having to go back to the bank to get an extension on the loan offer) and you ultimately aim to complete the sale and purchase (i.e. clear the mortgage on the apartment and drawdown the loan for the new house) within a 1 month window (this is were I gather the banks can be reasonably flexible).

Successfully co-ordinating the sale and purchase of a property is always a bit stressful but it's eminently achievable. It might be worth engaging a mortgage broker to take away some of the pain.
 
laura28 said:
Brendan - that Excel table looks very informative but I am afraid I am finding it a little difficult to follow and where the calculations come from?
Click to expand...

OK, I am comparing the interest paid and the rent received under both options. That is all that matters in calculating whether or not it is a profitable investment.

You are probably looking at the monthly repayments. You should not look at these as they include interest which is a cost and capital which is a form of saving.

So you could say that my figures represent the position as if it were an interest only loan and that is the right way to assess it.

Brendan
 
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