Advice on specific case please. Rent or sell?

Andrew365

Registered User
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271
Would you ever advocate keeping a property if it had a negative cashflow yearly but when considering equity it is positive. For example the property costs you 2k per year but you are building 10k of equity per year.
 

RedOnion

Frequent Poster
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4,597
Would you ever advocate keeping a property if it had a negative cashflow yearly but when considering equity it is positive. For example the property costs you 2k per year but you are building 10k of equity per year.
It'd depend on the overall financial circumstances. No point telling someone on the breadline to keep it, if they're borrowing the shortfall on their credit card.
The OP couple earn 180k. After pension their net should be 8k per month, and their PPR mortgage is under 2k. They could easily wear a shortfall - it's just another way of putting money into savings.
 

Andrew365

Registered User
Messages
271
It'd depend on the overall financial circumstances. No point telling someone on the breadline to keep it, if they're borrowing the shortfall on their credit card.
The OP couple earn 180k. After pension their net should be 8k per month, and their PPR mortgage is under 2k. They could easily wear a shortfall - it's just another way of putting money into savings.
Thanks, I agree. I will be in a similar position as the Op in a few years. I do not love the idea of being a LL but even to hold the property for an additional 5 years and build 10k in equity per year, seems like a no brainer. Even when considering potential loss of rent / problem tennants.
 

Grasshopper

New Member
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7
We were given the interest rate and the outstanding principal amount.

In very round numbers, the OP could earn around €7k pa, after tax, by keeping the property as a rental. Alternatively, he could cash out the equity and apply it against the mortgage on his new PPR, saving around €2k pa.

So, I guess the question is whether €5k pa is sufficient reward for all the risk and hassle that goes with being a LL?
Thanks again for the responses. I think it just might be worth it alright.
If it turns in to a nightmare I can always get out after initial lease is up. I am favouring availing of a letting agent initially and will see how that goes.
I know the banks are not really policing the Tracker vs BTL rates at the moment, but that can change at any time I suppose.
 

Andrew365

Registered User
Messages
271
Thanks again for the responses. I think it just might be worth it alright.
If it turns in to a nightmare I can always get out after initial lease is up. I am favouring availing of a letting agent initially and will see how that goes.
I know the banks are not really policing the Tracker vs BTL rates at the moment, but that can change at any time I suppose.
Thanks, when deaing with your bank, have they treated this as two separate mortgages or bundled them into one? Did they need you have a minimum LTV in the property that you are going to let? Or did they simply do, (Income * 3.5) - Existing Mortgage = Borrowing capability and then check you had a 20% deposit for new property?

I am going to be in a similar situation in a few years and plan to keep my apartment but would likely only have 20% Equity in it and would probably need an exception up to 4.5 on amount I can borrow.
 

RedOnion

Frequent Poster
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4,597
seems like a no brainer. Even when considering
Now we're going to switch sides on the risk debate!
Don't underestimate the risks involved.

if you were planning this, you'll have 2 separate mortgages. 1 attached to each property. You can use your existing bank for new mortgage, or a different one.

The LTI / LTV criteria relates to your new mortgage, not the combined position. You will need a 20% deposit for the new mortgage; you won't be able to use existing equity for that.

Might be worth getting split out to a separate post if you want to get into more detail.
 

Grasshopper

New Member
Messages
7
Thanks, when deaing with your bank, have they treated this as two separate mortgages or bundled them into one? Did they need you have a minimum LTV in the property that you are going to let? Or did they simply do, (Income * 3.5) - Existing Mortgage = Borrowing capability and then check you had a 20% deposit for new property?

I am going to be in a similar situation in a few years and plan to keep my apartment but would likely only have 20% Equity in it and would probably need an exception up to 4.5 on amount I can borrow.
The mortgages are with two separate banks. I have a mortgage on my own with UB and we have secured a joint mortgage with another lender.
The new lender was fully aware of the first mortgage, childcare etc, and did all of the stress tests. In fact, they don't even take account of the possible future rental income when making their decision. Other finances need to stack up, so be aware of that.
 

Andrew365

Registered User
Messages
271
Now we're going to switch sides on the risk debate!
Don't underestimate the risks involved.

if you were planning this, you'll have 2 separate mortgages. 1 attached to each property. You can use your existing bank for new mortgage, or a different one.

The LTI / LTV criteria relates to your new mortgage, not the combined position. You will need a 20% deposit for the new mortgage; you won't be able to use existing equity for that.

Might be worth getting split out to a separate post if you want to get into more detail.
Yes might be, but as Grasshopper has got his answer, I will post here and then an admin can move if needed.

I agree with the risks, but at the moment I have just done the numbers which are included below. Numbers are based on 3 years from now i.e. my mortgage outstanding will be 401k, with the aim of purchasing a house at 750k max and assuming I will have the 160k deposit required (incl stamp duty and solicitor fees). The apartment will cost me <2k out of my pocket a year, which is not bad when it will generate 10k in Equity.

The next steps are to review the risks which I foresee as a property downturn, non-payment of tenants, repairs and general hassle. Any other issues? The apartment is placed very well in Dublin 4, and one of my thoughts is as a future place for the kids to live if they go to college, or there is the possibility in the future we would be based outside of commuting zone in Dublin but need to stay in Dublin 2/3 nights a week for work.

I have been a LL for 5 years and have been blessed with a good tenant but not such good neighbours so I have seen some of the headaches that can be caused.


Borrowing Amounts MortgagesApartment Rental
SalaryApartment Mortgage 401,576Rental Income 30,000.00
Income (Total incl Spouse 228,000New House (20% Dep) 600,000Expenses 5,000.00
Mortgage Required 1,001,576Interest 10,440.98
Monthly Cost Taxable Income 14,559.02
Tax @ 52% 7,570.69
Borrow at 3.5 798,000Shortfall at 3.5- 203,576
Borrow at 4.5 1,026,000Shortfall at 4.5 24,424Mortgage Payments 19,308.00
Deposit + Fees 160,000.00Cashflow- 1,878.69
 

RedOnion

Frequent Poster
Messages
4,597
one of my thoughts is as a future place for the kids to live if they go to college
Yes, I can see how that'd be a factor.

Other risks - you didn't mention interest rate increase. Over the long term it's bound to happen. If you're not a first time LL you have your eyes open.
 

Andrew365

Registered User
Messages
271
Yes, I can see how that'd be a factor.

Other risks - you didn't mention interest rate increase. Over the long term it's bound to happen. If you're not a first time LL you have your eyes open.
Yes of course, but that would be a risk for my main home as well, which I would stress against. One benefit would be as interest increased the tax liability should marginally reduce due to being able to offset.

On paper this would go down provided it ran smoothly it would be essentially an additional 200 Eur bill a month, so would not massively affect my ability to save or overpay on the main residence. Any large issues would be covered by insurance / rainy day fun.

Alas this is me speculating on the future, but I do love a good financial plan / target :p

Thanks
 
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