Sell apartment question

Discussion in 'Money makeover' started by Budgetgirl007, Jul 11, 2018.

  1. Budgetgirl007

    Budgetgirl007 New Member

    Posts:
    4
    Current state of play:

    Gross income: 70+40 = 110k p.a.
    Civil / public servants. Ages mid 40s.

    Mortgages / loans
    Home value = 330k, mortgage 180k 15 years left
    Investment property = 235k, value 210k+. (Rent 1100 pm. Current market rent 1400). Monthly profit after tax & mgmt fees etc approx 100-150.
    Loans 28k owed (old consumer consolidation etc.).
    No credit cards / overdrafts / car loans. 1 car worth 2k.
    Savings 1000 only for emergencies.

    2 children, 10+12. Childcare 500pm approx.

    Life assurance = mortgage protection & income protection (1 spouse).

    Budget is as tight as possible & debt is down from 70k over past few years.

    My question is: we have spent several years clawing our way out of consumer debt & bad decisions (inc apartment) & are finally seeing light. However one thing very worrying is the current property market as we have an interest only mortgage on an apartment. It’s currently in negative equity by approx 25k. 14 years left on mortgage. Paying interest only so as to use the (small) additional income to pay off other debt. Should we sell now & take the hit or hold out ? It’s in a growing area in Dublin. I’m very worried I’ll end up missing the chance to offload the risk. Aim to pay off all debt as soon as possible.

    Apologies for format I’m on my phone.
     
  2. LDFerguson

    LDFerguson Frequent Poster

    Posts:
    4,012
    If the apartment is in negative equity, would it be your intention to sell now and carry the negative equity forward as another unsecured debt? While I'm not going to get into speculating about future property prices, in mathematical terms only you only need your apartment to rise in value by 12% in total over the next 14 years for you to break even. An average increase of 1% per year would do it. If the apartment is making you a profit every month and not causing you too much stress or work, I'd be inclined to hold on to it and continue to pay down the other loans. That's not based on any prediction on the future of property prices.
     
  3. Budgetgirl007

    Budgetgirl007 New Member

    Posts:
    4
    Definitely no more debt. I suppose my concern is that we’re at the peak now so it’s the best time to sell even at a loss. Otherwise I’m gambling on it being worth more than 235k in 14 years, that we will keep tenants in it that long, and that everything else remains the same too (in terms of mortgage contract etc). I have no plans to pay into principle until we’re in a much better position ourselves. So ideally would want to be selling in 5 years.
     
  4. LDFerguson

    LDFerguson Frequent Poster

    Posts:
    4,012
    If you owe €235,000 and could sell for €210,000 then you don't have a choice but to carry the debt forward and that's assuming that the lender would allow you to sell at all. I don't see that you have the savings to bridge the gap and I would be surprised if the lender will simply write off the difference.
     
  5. Budgetgirl007

    Budgetgirl007 New Member

    Posts:
    4
    Yes sorry I would just have to increase my debt by the 25k and pay it off. Ideally would wait until we could at least break even but I don’t want to miss the chance to get rid of a large mortgage.
     
  6. Sarenco

    Sarenco Frequent Poster

    Posts:
    4,911
    If you break it down, you're really talking about swapping relatively cheap debt (the rate you are paying on the element of the apartment mortgage over and above the property value) for expensive debt (whatever rate you would have to borrow at to pay off the negative equity).

    There's no decision to make here - you just have to keep going as you are and hope for the best.

    In the meantime, keep working on paying off the €28k legacy consumer debt ASAP - that's your biggest financial problem. And don't take on any more debt!
     
  7. Budgetgirl007

    Budgetgirl007 New Member

    Posts:
    4
    I’ll haven’t borrowed in 10 years not going to start now. I’ll have to wait it out & hope it increases enough...
     
  8. Brendan Burgess

    Brendan Burgess Founder

    Posts:
    35,042
    What interest rate are you paying on the investment?

    This is very profitable before interest and tax and still profitable after interest and tax?

    The fact that it is in negative equity does not matter at all. To get a return of €2,000 a year after tax, you would need to invest about €50,000 in something other than a deposit account, so I would say that your current investment is worth about €50,000.

    If the price increases to around €50,000 over the mortgage amount, then you should sell it.

    Or maybe if the price increases to an amount big enough to clear your non-mortgage debts, then you should sell it.

    Brendan