Buy out out co-owned Rental property or cash in equity?

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FredH

Registered User
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Hi,

Need advice please. How do I decide to either buy out out a co-owned Rental property or cash in equity?

My co-owner of a rental property wants to sell the property for his own good reasons (needs the equity). I want to support him & not block it.

I am trying to decide do I just sell the property & both take the equity or should I buy him out.

Some details:

Rental House value ~€250K
Rental Remaining Mortgage ~€100K
Equity = ~€150K (€75K each)
Mortgage term remaining ~ 10 years.
Rental ~ = monthly rent (no major issues).
Age - mid 40's.
Personal home mortgage is ~ ~€260K, house value is ~€900K, interest rate ~3.2% (fixed 3 years).

Option 1 - sell house, take €75K minus expenses. Use the Equity to reduce own home mortgage.
Option 2 - Buy out co-owner - Increase mortgage by ~€75K, extend term to ~17 years to ensure rent covers the mortgage repayment. Sell house in 10+ years.

I think I will get the mortgage increase approval.

How do I decide what is the financially correct thing to do? I feel I want to buy them out (option 2).

My pension is ok/needing a top up (thinking this could be this rental property).

thank you all,
 
In effect, you are buying a rental property for €125k with a €125k mortgage. (the existing €50k mortgage + an additional €75k)

Is this a good idea?

What is the rent?
What will the interest be on the mortgage?

That is where you start.

Then you put that in the context of your overall finances to see if it's right for you.

How to assess an investment property is set out in this post:

Key Post - Keep Apartment as Rental or Sell?

Updated May 2020 The question regularly comes up on AAM whether somebody should keep an apartment that their family has outgrown as a rental or whether they should just sell up. Borrowers often run projections on the anticipated rental income from an apartment with a cheap tracker and conclude...
www.askaboutmoney.com

Brendan
 
Last edited:
FredH said:
My pension is ok/needing a top up (thinking this could be this rental property).
Click to expand...

An investment property is no substitute for a pension.

If you sell your property and invest the €75k in your pension fund, you will get the equivalent of €125k in the fund - assuming you are a 40% tax payer.

It will grow in the fund tax-free.

It will be taxed at 75% of your marginal rate when you take it out - so even if you will be on 40% in retirement, the effective tax rate will be 30%.

There really is no comparison with a property investment.

Brendan
 
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