What to do with Investment Property

[Needtomove]

Age: 41
Spouse’s/Partner's age: 38

Annual gross income from employment or profession: 36,000 plus €6000 Bonus(4 day week)
Spouse: €36,000


Type of employment: Both Private sector

In general are you:
(a) Breaking Even

Rough estimate of value of home 380,000
Amount outstanding on your mortgage: 198,000
What interest rate are you paying? 4.2 % BOI( looking in to Re mortgaging for lower interest rate at present due to good LTV)

Other borrowings – car loans/personal loans etc : Car loan PCP so think about 18k on car left
Do you pay off your full credit card balance each month? No
If not what is the balance on your credit card. €800

Savings and investments: Credit union loan of 6k..savings 3k

Do you have a pension scheme? Yes

Do you own any investment or other property? Yes..Please see all details below...my query relatea to this....

Ages of children: baby, 4 and 5

Life insurance: bank BOI mortgage

What specific question do you have or what issues are of concern to you?

My question relates to my investment property (original.home)

It is let out last 4 years, all income declared.and tax compliant..all taxes..expenses paid and up to date
so: mortgage outstanding 85,500
rate 2.75%
mortgage pm.€690
management fees pm €55
letting agent €90pm

Rent received €950pm

so.after expenses above €100pm left..I use this towards tax...after expenses tax bill circa 2k per year so we end up paying circa €800 per year out of our own money as well as any repairs needed etc

now...I find out from.speaking to.estate agents after paying o/s mortgage , solicitor and estate agent we could potentially net €50k

We have 14 years left on the mortgage

We are so tempted to sell..pay off our debt ( c union
car and Credit card...total €22k) have a nice family holiday abroad(5 years so far since last one) and save the €24k in a long term account we cannot touch until kids start college

We both have fairly good pension scheme at work for our own futures, we pay childcare and live month to month..cannot save for big things/luxury like a nice holiday

We are confused!Please help!Based on figures above


what would you all advise?Sell now?or keep as an investment to be sold when mortgage paid off in 14 years time and two eldest kids in college?

Thank you

 

[Brendan Burgess]

Let's look at the numbers:


That is the profit before any repairs, redecoration, void periods etc.

This is not sufficiently profitable so you should get rid of it.

Pay off your expensive loans - credit card and credit union.

I don't know how PCP works, but if that has an interest charge, you should pay it off if you can.

If not, lob most of the money off your mortgage. You will bring you LTV to below 50% and that will qualify you for the lowest mortgage rates available. You are at 66% LTV now.

save the €24k in a long term account we cannot touch until kids start college

No, pay it off the mortgage. That will earn you a risk free and tax-free return of 3% a year i.e. the mortgage rate you can expect to pay. Your eldest is 5. You won't need a college fund for 13 years. This money will save you interest every year for 13 years.

It will reduce your mortgage repayments. So you will have more cash every month.

Brendan

 

[Needtomove]

Thank you so much for taking the time to reply Brendan and the breakdown.

Can I ask you please what you mean by "Interest on Equity"?

 

[PGF2016]

Brendan has given good advice and I'm sure he'll come back with an answer to your follow up question.

Other borrowings – car loans/personal loans etc : Car loan PCP so think about 18k on car left

...

We are so tempted to sell..pay off our debt ( c union, car and Credit card...total €22k) have a nice family holiday abroad(5 years so far since last one)

I have to ask why you have such an expensive car when have credit car debt and haven't had a nice holiday in 5 years? Sell it. Buy a perfectly reliable second hand car for 10k and bring your family on a holiday.

 

[Buddyboy]

Brendan will answer, but I think the "interest on equity" is the opportunity cost of not selling the house, i.e. if you sold the house, released the €50k and paid it off your mortgage. It is costing you the 50k @ your mortgage rate to not do this.

(I knew those leaving cert economics classes would come in handy some day )

 

[Brendan Burgess]

Buddy has it right.

A lot of people say something like the following:

My mortgage is costing me €1,000 a month, but the rent is €1,200 so it's profitable. But if they have €200k of equity in the house, they should factor in the return they could get on that equity.

Brendan

 

[cremeegg]

A lot of people say something like the following:

My mortgage is costing me €1,000 a month, but the rent is €1,200 so it's profitable. But if they have €200k of equity in the house, they should factor in the return they could get on that equity.

Brendan

Other people might say this:

My income is €8,280 and my costs are €4,092, so I am making a profit of €4,118 per annum. They might go on to say, thats not a bad return on an investment of €50,000. In fact they might say it is an excellent return.

I might ask, is there any capital gains tax to be paid out of the €50,000 you mention.

 

[Brendan Burgess]

My income is €8,280 and my costs are €4,092, so I am making a profit of €4,118 per annum. They might go on to say, thats not a bad return on an investment of €50,000. In fact they might say it is an excellent return.

That is actually the best way of looking at it.

What return am I getting on the €50,000?
Could I get a better return?
And the answer is yes - pay down the mortgage.

Brendan