Pay down mortgage or buy to let.

Long term reader here but first time poster. I will try give all relevant info regarding my question in the hope of giving any responder an accurate picture of my situation.

Own a house worth 155k
29 years left on mortgage term
Balance on Mortgage ~98k
Mortgage SVR of 3.99%
20k cash in Savings

Ok, so as per title, I am contemplating either of the two options. Putting 10k of my savings away for a rainy day fund would leave me with 10k. In one years time I could easily manage to have another 10k saved up. Terraced houses worth 70-80k in my town centre command a rent of around €650-€700 a month.

If I used my 20k and borrowed another 50-60k, would the small mortgage repayments vs good rental rate be a better choice than using my money to knock years of my existing mortgage.

Its in the nitty gritty of the cost of buying a house initially, plus all the deductions from the rental income such as tax, maintenance, insurance, LPT etc (that comes with being a landlord) that has muddied the water for me. Would rent of €650 cover the new mortgage plus all costs and some, or is it better to take the easy (and safe) option of paying down mortgage?

Phew.

€650-€700 rent on a 50-60k is high, almost implausibly so. This a regional town with it's own little economic microclimate? If those numbers are correct, the maths might actually work out. You are roughly talking about borrowing at 4% to invest at a hopeful ~9% (after expenses, before tax). In the short term, that could be profitable. Long term, I doubt this imbalance of rent vs value can last.

I'd be uncomfortable with the risk involved. Right now, 75% of your net worth is invested in one address, in one town. In a year's time you're looking to be 90% invested in two properties, in the same town? Sure, if the local rental market corrects itself by prices going up, you'd be quids in. If rents go down instead, you'd be in hot water, likewise if interest rates go up significantly. If the big factory down the road moves to Bangalore, you're cooked.

This sounds like a very Irish situation to be putting yourself into. The numbers suggest you're doing really well - you don't need this risk in your life. Do you want to be a landlord that badly?

Which lender has an SVR of 3.99%?

trasneoir's points are absolutely correct. Do you really want the hassle of becoming a landlord? Today, they announced that they are going to stop landlord's from refusing tenants on rent allowance. Next, landlords will be paying compensation to people for letting the property to someone else. I think anyone who proactively chooses to become a landlord is crazy.

Pay down your mortgage

Your current Loan to Value is 63% €98k/€155k

If you pay €20k off the mortgage, your loan to value will reduce to 50% €78/€155k.

You might be able to get a lower rate from your lender.

First off, thanks for the replies, I appreciate the time given.

transneoir, I may not have been clear enough. The 2/3 bed houses I referred to in Dundalk would cost ~75k mark. Mortgage of 55k plus my 20k deposit. Would this make more sense to the numbers? I agree whole heartily about us being comfortable and not needing such risk.

Brendan, we have just come off our one year fixed mortgage and I'm told by KBC that the rate has remained at 3.99%. For how long I don't know. I wouldn't say I relish the idea of being a landlord, I just really like the potential of a mortgage being paid for concurrently with us paying our own.

I am reluctantly being persuaded to pay down the mortgage with any extra cash we have. Just not as exciting!

marti9t9 said:

transneoir, I may not have been clear enough. The 2/3 bed houses I referred to in Dundalk would cost ~75k mark. Mortgage of 55k plus my 20k deposit. Would this make more sense to the numbers?

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I may not have read your post well enough Those numbers sound more plausible.

marti9t9 said:

I am reluctantly being persuaded to pay down the mortgage with any extra cash we have. Just not as exciting!

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Good man. People very rarely get screwed in "Get rich slowly" schemes.