Mortgage free home and two buy to lets - should I buy more?

Atport1

Registered User
Messages
3
Hi all,

Long time follower of AAM here and have found the information really useful over the years, thank you...

I now have a direct query pertaining to an investment I am considering.

Background
Employed sal €93k
Wife home maker
3 kids 13, 9, 6

Own home no mortgage no other debts

Current investments

Hse 1 Bought for €96k in '16 mortgage of 15 Yrs for €55.5k Rent €11k/yr

Hse 2 Bought for €111 in '16 mortgage of 15 Yrs for €55.5k Rent €11k/yr

Savings €130k

Life cover €237k dual lives convertible

Serious Illness Cover €70k

Pension Fund currently €225k. Currently putting in max 25% salary via AVC Company contribute 6%.

Looking at the following

Hse 3 Purchase for €130k mortgage of 20yrs Yrs for €91k Rent €11k/yr

Apt 2bed purchase for €95k mortgage of 20yrs for €66k Rent of €6k 90% Section 23 relief available.

Is this a sound investment or is Hse 1&2 enough of property assets?

Any advice would be most appreciated.

Rgds
Atport1
 

Brendan Burgess

Founder
Messages
40,244
You probably have enough property.

But why don't you pay off your mortgages with the cash?

You are probably paying 4.5% interest. After tax relief, that is about 2.5% net. You are not getting 2.5% on your savings.

Brendan
 

RedOnion

Frequent Poster
Messages
4,285
If you're weighing up the options between the 2, make sure that's still a valid section 23 relief that can transfer. If it was first rented more than 10 years ago it doesn't transfer to purchaser.

Like Brendan though, I'd be looking at reducing my debt first, or as part of the decision.
 

noproblem

Frequent Poster
Messages
2,142
I know it depends where the property is located but what are they worth now? How's your and your wife's health?
Maybe pay €100k off the mortgages and keep a rainy day fund. Also, don't forget we're living in very strange and uncertain times and you'll have college fees, etc, to think about pretty soon plus the life changes that can jump out of nowhere.
 

galway_blow_in

Frequent Poster
Messages
1,593
Hi all,

Long time follower of AAM here and have found the information really useful over the years, thank you...

I now have a direct query pertaining to an investment I am considering.

Background
Employed sal €93k
Wife home maker
3 kids 13, 9, 6

Own home no mortgage no other debts

Current investments

Hse 1 Bought for €96k in '16 mortgage of 15 Yrs for €55.5k Rent €11k/yr

Hse 2 Bought for €111 in '16 mortgage of 15 Yrs for €55.5k Rent €11k/yr

Savings €130k

Life cover €237k dual lives convertible

Serious Illness Cover €70k

Pension Fund currently €225k. Currently putting in max 25% salary via AVC Company contribute 6%.

Looking at the following

Hse 3 Purchase for €130k mortgage of 20yrs Yrs for €91k Rent €11k/yr

Apt 2bed purchase for €95k mortgage of 20yrs for €66k Rent of €6k 90% Section 23 relief available.

Is this a sound investment or is Hse 1&2 enough of property assets?

Any advice would be most appreciated.

Rgds
Atport1

holy smokes !

those are impressive yields , where can a house costing as little as 130 k and delivering a rent of 11 k per annum be bought right now ?

your mortgages ( relatively small ) are so easily covered by those rents , i would not bother paying off the loans , invest in the stock market as a way of diversifying
 

RedOnion

Frequent Poster
Messages
4,285
those are impressive yields , where can a house costing as little as 130 k and delivering a rent of 11 k per annum be bought right now ?
@galway_blow_in I'm surprised. you're playing it too safe if you're not getting yields like that! ;)
All about risk.
I can point you towards regional towns where you could achieve an 18% gross yield on apartments.
 

galway_blow_in

Frequent Poster
Messages
1,593
GBI

The main reason one diversifies is to reduce risk.

Borrowing money to invest in the stock market increases risk.

Brendan
does the fact that the OP has such a high income not slightly change this principal ?

he has a lot of assets with relatively low borrowings and none on his principal residence , a little interest write off seems reasonable so does he need to clear debt ?

just to be clear , i dont think he should buy more property , he has enough as is
 
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galway_blow_in

Frequent Poster
Messages
1,593
@galway_blow_in I'm surprised. you're playing it too safe if you're not getting yields like that! ;)
All about risk.
I can point you towards regional towns where you could achieve an 18% gross yield on apartments.
can you really though ?, i have friends in the property sector and even you buy an apartment for 40 k in somewhere like ballinasloe , you wont get 18% unless im completely behind on where rents are in places like that
 

Brendan Burgess

Founder
Messages
40,244
does the fact that the OP has such a high income not slightly change this principal ?
I agree that it changes it slightly.

upload_2017-11-19_13-46-11.png
He is not by any means overborrowed. So the risk is small. But the risk is still increased by borrowing.

Diversification into equities does not reduce the risk - it increases it as he is doing it with borrowed money.

He is borrowing at about 2.5% net after tax to invest in equities. Most of the time, he will probably beat 2.5% net and may well do so in the long term. I hate timing the stock market, but it just does seem very high at the moment and I think that people with borrowings should be paying them off.

But your point is valid, it's less of an error for someone with 15% of their assets in loans.

Brendan
 

Atport1

Registered User
Messages
3
Thank you for all the views I would not consider stocks as per Brendans analysis I feel they are too dear at the moment.

The decision I must make is whether to add €161k of debt / invest a further €69k equity on 2 additional properties or pay off the mortgages on the 2 existing loans.

If I did pay off the 2 loans I would have an income of €10k per annum nett.

At current rents the 4 loans would pay the mortgage, costs and tax and would leave €4.5k nett of costs between them.

This is the choice as I see it.

@no problem - I see your point about future changes and would see Brexit as a main risk to Ireland. Were England to choose to ignore our plight like so many times in the past we will be in trouble. However a change of government there could alter the landscape greatly.
 

cremeegg

Frequent Poster
Messages
3,214
Current investments

Hse 1 Bought for €96k in '16 mortgage of 15 Yrs for €55.5k Rent €11k/yr

Hse 2 Bought for €111 in '16 mortgage of 15 Yrs for €55.5k Rent €11k/yr




Looking at the following

Hse 3 Purchase for €130k mortgage of 20yrs Yrs for €91k Rent €11k/yr

Apt 2bed purchase for €95k mortgage of 20yrs for €66k Rent of €6k 90% Section 23 relief available.

Is this a sound investment or is Hse 1&2 enough of property assets?
Well for a rent of €11k you paid, first €96k, then €111k, and now you are looking at €130k. Prices have not risen that much since 2016. The only real mistake in property investment is paying too much.
 

galway_blow_in

Frequent Poster
Messages
1,593
Well for a rent of €11k you paid, first €96k, then €111k, and now you are looking at €130k. Prices have not risen that much since 2016. The only real mistake in property investment is paying too much.
depends which period you use , eighteen months ago was may 2016 , houses in dublin alone are up 20% since then as my sister has been looking for that long in D 6 , limerick city is up more than 20% in that period of time

in some areas ( mostly very rural ) , property is up 40% since eighteen months ago , brexit did the opposite of what most expected , property began its next leg up around mid summer of 2016 having not moved all that much in the previous eighteen months , my mother bought a three bed semi in beaumont in december 2014 ( the end of the first leg since the recovery began in mid 2012 ) for 300 k even , it was worth not a penny more by the middle of 2016 , its worth about 370 today
 
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Bronte

Frequent Poster
Messages
13,811
I'd buy the two properties. But watch out in the apartment for the management company and if that is all sorted. Section 23 etc. whenever I looked into those in the past didn't seem to be of any benefit. I have a thing about apartments in Ireland not being properly build (sound/quality/heating).

I'd prefer if you did out all four properties with how much rent/costs/tax you're actually paying on them.

Might need to have a think about increasing your pension contribution if it brings down your tax payable.
 

Bronte

Frequent Poster
Messages
13,811
But that is not the source of risk in this case? These investments are small in relation to his total assets and he can repay them in full at any time.

If any of the following go wrong, then borrowing will make the losses worse:
  • A sustained fall in value of the property
  • An increase in interest rates
  • A fall in rent
  • A bad tenant who refuses to pay rent
As it happens, in this case, the OP will be able to handle these bad outcomes comfortably, but borrowing does increase the risk and it seems to me that he does not need to do so.

Brendan
Yep went true a catastrophic drop in value with the celtic tiger bust, currently on the way back up
Possible out of NE now on the last property
Yep interest rates went up
Initially when I started out interest rates for me were over 9% and other's were paying 17%
Yep, had many falls in rent
Currently rents have never been higher
Yep had tenant take me to the High court for personal injuries - paid her to leave and fixed the house
I have my decision made up as to what to do if I ever get a non paying tenant, I reckon 10k to the PRTB would be the way to go
 

cremeegg

Frequent Poster
Messages
3,214
houses in dublin alone are up 20% since then as my sister has been looking for that long in D 6 , limerick city is up more than 20% in that period of time
€96k plus 20% is €115.2k still far short of €130k

More importantly irrespective of how much prices may be up generally what is value at €96k may not be value at €130k. It is certainly not such good value.
 
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