Buying a RIP(mortgage required) with my retired brother- Possible?

N

nbc

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Would welcome advice.

I own an apartment with my brother. We are thinking of selling it and buying a house as the rental value is E1300 per month(going rate E1700( and tied in 4% rises for the foreseeable. Value apt is E275k and E50k outstanding- 1% tracker. Management fees E200 pcm
The house we are considering purchasing is E340000- rental value- E2000 pcm) and 0 management fees
It will take some time to sell the apartment so thinking of the following
He is retired. He can provide 50% of the cost of the house in cash. I have no savings. I was wondering if I could raise the other 50% myself as a mortgage? Then when we sell the apartment we put the funds into the house pro rata. He takes out a lot of what he put in and I reduce the mortgage to a small amount.

His situation- Mortgage free- lots of savings( unlike me)

Me: I am resident in the UK. Income £100 k I am worried this will stop me getting a mortgage. I have a property there( £650k value- Mortgage £375k)
My own house in Dublin where I spend every 2nd weekend ( E300 value- Mortgage E50k)

I own some investment properties-
1) Value E300k Mortgage free
2) Value E150k Mortgage free ( Plan is to sell this in 2019 as I owe my brother 75k as he helped me purchase my UK property 3 years ago)
3) Value E300k Mortgage 75k( this is in same estate as the house we are looking at hoping but the property we are looking at is larger and an end site so more private and parking for 6 cars as opposed to 1)
4) Value E300k Mortgage E290K

2 questions
1) Overall am I right in saying it makes sense to move from this low yield apt to a higher yielding house with no management feees and not locked into 4% rent increases. Yes we lose tracker but outstanding mortgage is small.
2) My fear is that I will find it hard to get a mortgage as non resident as they will think Im over exposed to property and the house is in the same location increasing risks. Is this fear correct?

Appreciate any thoughts

nbc
 
nbc said:
My fear is that I will find it hard to get a mortgage as non resident as they will think Im over exposed to property and the house is in the same location increasing risks. Is this fear correct?
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Your fear should not be that you will find it hard to get a mortgage. You should be delighted that the lender protects you from yourself.

With so much property , so much borrowings and so little cash, you should be selling properties and not borrowing more money to buy more.
 
It's hard to know which properties to sell.
Here are the factors to consider

  • Sell the ones you can sell.
  • Sell the ones with the lowest yield.
  • Sell the ones with the worst tenants.
  • I think selling properties which you jointly own would also be a good idea - you have enough assets to own houses 100% - you should not complicate matters by having joint ownership.
  • The tracker mortgage should not be a factor as it's so small.
  • Sell the ones with the lowest CGT liability
But it's clear. You should be selling and paying down debt rather than borrowing to buy more.

Brendan
 
I disagree. About divesting yourself of property.

- You own property worth 2 million and 275K. You owe 840K on them. Plus 75K to your brother.
- You are an experienced investor
- You know what you are doing as you've taken many years to get to having properties in outright ownership
- you're older and wiser
- you and your brother have been at this a long time
- You've a very good income
- I presume the rent is covering all costs

What I think might be better for you to do is sell the 275K property that you own with your brother and pay back the 50K. Leaves you both with 225 K ie about 100K each or thereabouts. Pay your brother his 75K. And lob 25K off the highest cost mortgage.
 
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nbc said:
We are thinking of selling it and buying a house as the rental value is E1300 per month(going rate E1700( and tied in 4% rises for the foreseeable. Value apt is E275k and E50k outstanding- 1% tracker.
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Bear in mind that the apartment is not likely to appeal to investors due to the current level of rental income and the inability to increase this. Will it appeal to owner-occupiers? If not you may be better to hold on to it until the RPZ regime ends, whenever that is.
 
Thanks Brendan, bronte and LLgon for a prompt replies.
Rental income covers all the mortgages, expenses and still have a couple of grand left per month.
Brendan in this scenario i am actually going to sell 2 properties and buy one so I am reducing my exposure and will have 75K cash next year when that is done.
I also will be improving the cash flow re the apt as currently 1300 in rental income - 200 in management fees- this will change to E2000 in per month.
Thanks for your kind words Bronte- I'm not so sure how clever I am but I'm somewhat seasoned. To me this is a no brainer but Brendan has thrown cold water on it so maybe I need to step back and have a look again.
Re selling the apt Bronte and not purchasing the new property- we then lose out on an asset generating income- the hard years have been put in and now is when we want to pluck the low hanging fruit. My brother has too much cash earning little. And he gets 75K off me next year. In this case he puts down 170k and gets 12k a year( half rental income- ok tax, expenses etc but its still better than what he's doing with it now).
LLgon- I dont think the pressure zones will end in the short term.
We have nice tenants- never screwed them and then this is what happens to us...
nbc
 
Hi nbc (and Bronte)

I am not sure that people really appreciate the risk which the economies are facing at the moment.

Brexit could have a devastating impact on Ireland and the UK. Trade wars internationally could cause a devastating depression. And how long will our partners and friends tolerate our tax haven status?

So people should not borrow to invest. You have €950k borrowing on €2.2m according to Bronte's arithmetic. If you sell off €950k worth of property, you will have €1.2m of property debt-free. That puts you in a very nice position to handle any storm which might come along.

Brendan
 
nbc said:
My brother has too much cash earning little. And he gets 75K off me next year. In this case he puts down 170k and gets 12k a year( half rental income- ok tax, expenses etc but its still better than what he's doing with it now).
LLgon- I dont think the pressure zones will end in the short term.
We have nice tenants- never screwed them and then this is what happens to us...
nbc
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That's the thing for me too, what to do with cash if you don't have it in property. Burgess prefers shares(diversified and equities etc) to property as far as I can tell from his views on this topic. But he knows shares is what I've concluded and people like you and me prefer property.

Agree with you that the pressure zones will not end soon. Forcing landlords like me into increasing the rents. I have nice tenants too, and never screw them over. So I'm very miffied about now being forced to do things I don't want to do.
 
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Brendan Burgess said:
Hi nbc (and Bronte)

I am not sure that people really appreciate the risk which the economies are facing at the moment.

Brexit could have a devastating impact on Ireland and the UK. Trade wars internationally could cause a devastating depression. And how long will our partners and friends tolerate our tax haven status?

So people should not borrow to invest. You have €950k borrowing on €2.2m according to Bronte's arithmetic. If you sell off €950k worth of property, you will have €1.2m of property debt-free. That puts you in a very nice position to handle any storm which might come along.

Brendan
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The OP has already been through the storm of the celtic tiger collapsing. How could Brexit be any worse. Plus the properties are mortgage free, or well on their way to being so. In addition they don't cost him anything and he's getting money out of them. What would he do with the 1.2 million. If he puts money in the bank it costs him. And he's a good landlord housing people as well.
 
In this case nbc's brother seems to have cash to invest, though we don't know much about his finances. Nbc, however, does not have savings and has large borrowings so needs to have a different strategy to the brother. He mentions 'we' when 'I' might be more appropriate.

I agree with you Bronte in your advice to the OP, Brendan's is broadly similar, just going a bit further, and equally valid IMO.
 
I agree BB's advice is equally valid. Totally. Just could never get my head around shares/equites ever. I'd love to sell and have a hassle free life after more than 2 decades at it. But I just can't see how to make money otherwise.
 
Hi Bronte

Just to be clear - I firmly believe that one should not borrow to invest in either shares or property.

I have not advised NBC to invest in shares. I have advised him to reduce or eliminate his borrowings.

After that I recommend a diversified portfolio. He has a property worth £650k so he has a huge exposure to property. Whether you prefer property to shares or not, he should still diversify by investing in shares rather than property. When he has 50% property and 50% shares, he might consider buying more property for cash.

Brendan
 
If people don't borrow to invest in property it would be next to impossible for any investor to get into the market. If shares collapse you're left with nothing. If property prices collapse you still have the property. And the property generates an income that you can use to refund your borrowings. If you borrow to buy shares, which would be crazy, then you've no income to repay the borrowings unless the shares are giving an amazing dividend which just does not happen. Plus if they collapse, you've nothing to pay back the borrowings. That's the big difference between shares and property. In my opinion.
 
Just to be clear - I firmly believe that one should not borrow to invest in either shares or property...

Alas Brendan although I’ve a good income I’ve never had any savings. In 1998 when I purchased my first property I had zero savings. I went to the bank and borrowed 3k and then put that in the credit union and borrowed 12 k.

If I had to save 12 k in 1998 I’d prob still be renting!

I am definitely more on Brontes side regarding property and shares but I also have friends who think like Brendan . I think Brontes point about property always being there and rentable is an important one. People always need a roof over their head- commercial property is another thing.

However all these points considered nobody has answered my 2 basic questions lol
1- Could I get a mortgage in Ireland being a Uk resident
2- isn’t selling one property with net income of 1000 pcm and swapping it for one with income of 2000 pcm a reasonable plan given that it’s only 50k approx more expensive??
NBC
 
nbc said:
In 1998 when I purchased my first property I had zero savings. I went to the bank and borrowed 3k and then put that in the credit union and borrowed 12 k.
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But you were borrowing to buy your home? That is perfectly reasonable.

Borrowing to buy an investment property is taking excessive risk.

Brendan
 
nbc said:
Alas Brendan although I’ve a good income I’ve never had any savings. In 1998 when I purchased my first property I had zero savings. I went to the bank and borrowed 3k and then put that in the credit union and borrowed 12 k.

If I had to save 12 k in 1998 I’d prob still be renting!



NBC
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Wow you bought on full borrowings. What did you tell them the 3K was for? I borrowed off the credit union too without telling the bank. To buy our first home. I made up something to borrow for. Can't remember now what. I deliberately borrowed twice before that with the CU to get my track record in order.

To answer your questions:

I've no idea if you can get a mortgage. Try poster LDFerguson, he's a broker. Have you asked your bank? I got mortgages as a non resident but maybe they don't allow that, though I don't see why not.
 
Second query:

Apartment A 275K
Mortgage 50K - 1% tracker
50/50 with brother
Rent: 1300
Should be:1700
Mortgage monthly: ??
Sell = 225K ie 215K - each brother 107K
Management 2400

New House 340K
Cash 170K Brother
Mortgage 170K NBC
Rent: 2K
Management 0
Mortgage monthly: ?

Sell Apartment A
NBC puts 107K against 170K, leaving 63K owed. Which is basically what you are paying right now. But the rate will be higher?

1300 X 12 =15,600 - 2400 management = 13,200
2000 X 12 = 24K (bascially double what you're getting now and nearly the same mortgage amount)

- You've complicated it by saying he's going to put funds in pro rata after the sale because he's already put in 50% up front.
- What are the costs of purchase?
- Why do you have no savings ?
- Not good no savings on such a large income and with rental profit?

Other property B being sold:

Value E150k
Mortgage free
Owe brother 75k
Balance 75K Say 65K.

Opinion

I think it makes sense. I think you've seen this property and you really want it. But you're making it very complicated. Why not sell Property B now rather than 2019? Are you hedging on property rising? You're obsessed with the management fees (LOL) and the 4% rent cap. How is there no cap on the new place?

It's interesting how the rent cap has changed the score for you. My brother has been at me for ages to sell a property as the yield is not high enough. There's a family of 2 adults and 4 kids in there !

Crux of query
low yield apt to a higher yielding house with no management feees and not locked into 4% rent increases. Yes we lose tracker but outstanding mortgage is small.
 
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Thanks Bronte for your very detailed response.
I also agree that on paper it's a good deal.
I need to give it thought but me not being able to get finance will prob mean it's a non runner.
There are other factors I'v enot mentioned. The apartment is beside a large hospital so always easy to rent. The house we are looking at is in same estate as a rental property I already have. Too many eggs etc...
We shall see!!

Nbc
 
nbc said:
The house we are looking at is in same estate as a rental property I already have. Too many eggs etc...
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That would not worry me unduly. It's probably easier and cheaper to manage properties which are closer together.

Unless you are in a small town which could be devastated by the loss of its major employer.

Brendan
 
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