Sell up or rent out apartment

eb_scoot

Registered User
Messages
8
I think I can probably guess what the answer to my question will be, but I wanted to sense check with this forum.

Ages: Both 36

Annual gross income from employment or profession: €81,500; Spouse ~€60,000 (It's a daily rate but annual contract)

Monthly take-home pay: €4145; Spouse ~€3150

Type of employment: Private sector; Private sector, annual contract

In general are you:
(b) saving - €2,000 jointly assuming this will be used for a house when we trade up, I'm saving another €1000 into a rainy day fund

Rough estimate of value of home:
€380k
Amount outstanding on your mortgage: Nothing - the apartment was inherited. We own it in full
What interest rate are you paying? -

Other borrowings – car loans/personal loans etc:
Car loan, costs €200/month

Do you pay off your full credit card balance each month?
Yes

Savings and investments:
€90k including rainy day fund

Do you have a pension scheme?
Yes, not matched by company. I put 10% of my salary in; Spouse does not

Do you own any investment or other property? No

Ages of children:
No kids yet - possibly one in the future.

Life insurance: Yes, via my work

What specific question do you have or what issues are of concern to you?
We want to trade up to a larger home. We currently own and live in a nice apartment in Dublin docklands area but we want more space, especially since Covid we're both wfh and I will likely have the option to do this part time going forward even after this is all over. Apartment is valued currently at ~€380k, and would likely achieve €2000/month in rent.

As we are in a solid position with very little debt, we don't want to borrow to the max. Our options are:
a) sell up, borrow about €200k and have a total budget to spend on a new house of €650k. This would get us, if not a forever home, a very nice home that would be suitable for 10-15 years in our 'perfect location'.
b) Hang onto the apartment & rent it out. Buy a cheaper home in a nice commuter town near one side of the family (so, longer commutes but handy family support) borrowing about €340k, using the apartment income to service some of the mortgage.

What should we do?
 

goingforgold

Registered User
Messages
296
Sell up and buy your ideal home with a relatively small mortgage. Do you want the hassle of a very big mortgage and all the hassle that comes with being a landlord? You will pay substantial tax on rental income as you have no mortgage to offset against it... Sell up and live comfortably. You're in a very strong financial position for your age so maximize the benefits of that... Don't bring unnecessary stress into equation.
 

Thirsty

Registered User
Messages
3,460
My advice would be to keep it.

Good location, easily rented, no debt so any (unlikely) voids won't kill you.

You can review again in 5 years time.
 

Sarenco

Registered User
Messages
6,853
Apartment is valued currently at ~€380k, and would likely achieve €2000/month in rent.
You would be doing very well to hang on to €10k pa of that rental income, after taking account of all expenses and taxes.

If you cashed out the equity and applied it as part of the purchase price for the new home, you would almost certainly save over €10k pa in mortgage interest payments.

So it's a very clear sell for me.

Incidentally, why do you have a car loan while you have €90k in savings, earning precious little in interest? Pay off the loan pronto.
 

eb_scoot

Registered User
Messages
8
Thanks for all your replies.

@Sarenco you're right that it's kind of a 'break even' scenario. If I go by the KBC mortgage calculator just to get a sense of repayments, borrowing the larger amount would cost around €10k more per annum to pay off, but that would be covered by the rent after tax from the apartment. So in theory we'd end up with an asset at the end while still paying the same amount of money monthly. The downside is of course that becoming a landlord has it's own issues and we're relying on tenants to be easy to deal with and who pay their rent in order to pay off our own mortgage.

The reason we have the car loan is it's cheap to service, and we wanted to keep the cash in our account so we'd have it for a house purchase if needed. Agree that it would make more sense to pay it off if we managed to not need all the cash to buy a new house.
 

eb_scoot

Registered User
Messages
8
Out of interest what is your perfect location?
It's Clontarf / Killester / Raheny. Obviously there's a big range in house costs in those areas but I've seen plenty within budget too. We don't need a 5 bed detached house or anything :)
 

Sarenco

Registered User
Messages
6,853
So in theory we'd end up with an asset at the end while still paying the same amount of money monthly.
That's not the right way to look at this choice.

You currently have €380k in capital tied up in the apartment.

You could deploy that capital in starting a relatively risky new business venture that, all going well, might net you around €10k pa (after all expenses and taxes).

Or you could deploy that capital as part of the purchase price for a new home, thereby saving you around €10k pa in interest payments that you would otherwise have to pay on a €380k mortgage.

So a risky ~€10k versus a guaranteed ~€10k pa (ignoring price appreciation/depreciation).

As an aside, asking rents have fallen appreciably in the docklands since the start of the pandemic...
 

Dublinbay12

Registered User
Messages
529
It's Clontarf / Killester / Raheny. Obviously there's a big range in house costs in those areas but I've seen plenty within budget too. We don't need a 5 bed detached house or anything :)

This is what I would do in your shoes......A 650k house with a 10% deposit (585l mortgage) is ~2,300 pcm. If you sold up and took a small mortgage of 200k, the payment is ~800pcm. I would pretend that your monthly payment is 2,300pcm of which 800 is the actual payment and you can treat the other 1,500 as income. Or aggressively pay off your 200k mortgage over 5 years and you would have turned a 380k asset into a 650k asset.

What is slightly concerning is that you are only saving 2,000 pcm at the minute but have no mortgage or rent outgoings.
 

Dublinbay12

Registered User
Messages
529
As an aside, asking rents have fallen appreciably in the docklands since the start of the pandemic...

I live in the docklands area and watch the market closely. There is a lot more stock of apartments on the market and at lower prices. I think the one beds are going to be squeezed quite a bit.
 

eb_scoot

Registered User
Messages
8
I live in the docklands area and watch the market closely. There is a lot more stock of apartments on the market and at lower prices. I think the one beds are going to be squeezed quite a bit.
Yeah, agreed - not sure how easy it will be to sell. Although we are in a two bed.
 

eb_scoot

Registered User
Messages
8
This is what I would do in your shoes......A 650k house with a 10% deposit (585l mortgage) is ~2,300 pcm. If you sold up and took a small mortgage of 200k, the payment is ~800pcm. I would pretend that your monthly payment is 2,300pcm of which 800 is the actual payment and you can treat the other 1,500 as income. Or aggressively pay off your 200k mortgage over 5 years and you would have turned a 380k asset into a 650k asset.

What is slightly concerning is that you are only saving 2,000 pcm at the minute but have no mortgage or rent outgoings.
This is an interesting way of looking at it. BTW we are saving €3000/month when you take the rainy day fund into account which is 40% of our net income - would you say this is too little? We have been basically aiming to save the cost of what our rent would be + a bit more.
 

Zenith63

Registered User
Messages
859
FWIW we had a similar decision to make a few years ago and decided to keep the apartment and rent it out. I would not do it again and we are Sale Agreed now to be rid of it.

I’m into DIY, already file a tax return annually, apartment was modern and we had great tenants, but honestly it’s just not worth the hassle for the few quid you make versus having a smaller mortgage on your PPR. Looks like you are both in well paid jobs; put the time/mind-share you’ll have to put into managing a rental property into your work and it will likely yield greater returns with much less risk.

The only way I would do it again is if I was getting into it full time with 5-10 properties or on a fully managed basis, but you lose most of the income this way.
 

_OkGo_

Registered User
Messages
251
I would agree with Sarenco, simple decision to sell and use the capital to fund the home you actually want, not the one you will settle for to hold on to the apartment. It is a lot of risk to take for very little gain and a lot of hassle

Managing the buying/selling process could be tricky for you. Assuming you continue living in the apartment until you are sale agreed on a new home, then you may need to borrow a larger mortgage until you can sell the apartment. Right now, you can borrow up 494k (salary x 3.5) meaning you need another 150k cash for a deposit. Maybe the bank would make an exception on this knowing you have the property to sell?? You have the required 10% as first time buyers so it is just the LTI that they would need to make an exception on. Your car loan also impacts this so it probably makes more sense to clear it now and have a clean mortgage application instead of a slightly larger deposit

Once you have sold the apartment, clear down the mortgage to your original 200k estimate. You could then comfortably (and aggressively) overpay the 200k mortgage until a kid comes along leaving you with a small mortgage in the home you will hopefully spend the next 20-30 years or more

Alternatively you sell first and buy second but don't underestimate how long it can take to actually get keys and not just go 'sale agreed'. There could be several months of limbo and renting if you chose to sell first so probably not worth the hassle

BTW, you should also be eligible for the 'help to buy' scheme as you inherited the property. How this makes sense I don't know but they are the rules so you might as well take advantage. See Help to Buy.
 

LS400

Registered User
Messages
685
On your combined income, you don`t need to sell. I wouldn't.

With earnings of €140k, 90k in savings, you can afford to buy you dream home, and as pointed out above, review the situation in 5 years. If little Eb comes along and your finding it a struggle, you have the safety net with the 2 bed.

Docklands will be an easy let, and will attract a different level of tenant. All Lets are vulnerable with this dysfunctional system me have, but good agents will minimize potential trouble.

I try to look at property let, as forgetting about the fact you even have it. Let the agent take the strain. Your in the fortunate position of having this property without the financial burden of obtaining it. You dont need this leg up, you have the ability to fund your home without it..

Set yourself the goal of making the decision of selling the 2 bed on your 50th birthday, and if all financially is still going well, look to off load it and enjoy, but you need to get the head down, and work now to enjoy the benefits later.

Once its gone, its gone..
 

moneymakeover

Registered User
Messages
697
IMHO it makes sense to use the apartment towards your home.

Later when you have your 200k mortgage paid down you can borrow and buy an investment.

Without the tax incentive of borrowed money i don't think it makes sense to invest in property
 

Sarenco

Registered User
Messages
6,853
Once its gone, its gone..
I suspect that flawed thinking is the reason this question comes up on an almost daily basis on AAM.

In behavioural economics it's know as the endowment effect - the observed phenomenon that people are more likely to retain an object they own than acquire that same object when they do not own it.

It's a completely irrational bias.

Say the OP had a mortgage of €380K on his PPR and €380k of cash on deposit in the bank.

Would you advise the OP to buy a rental for cash that might produce a net, after-tax, rental income of €10k pa or to pay down the PPR mortgage if that saved €10k pa in interest?
 
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