Should I sell an investment property that is my former home?

W

Whatami

Registered User
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Hi,

Both myself and my wife are working in the IT sector and have good salaries.
We purchased our family home 10 years ago and have approx 200,000 left on the mortgage. It is a tracker mortgage of ECB + 1%.
We also have an investment property (our original house which we didn't sell). It has a mortgage of approx 140,000 left on it and is currently valued at 300,000.
At the moment the investment house is costing us approx 5,000 in tax and property payments. The rental income is 1200, but we are taxed on that. It is an excellent location and we have never had any problem getting tenants for it.

Our plan was to keep the original property and use it to supplement our pensions (still 20 years away from retirement, 15 years left on the mortgage of that). However, I think there are better ways of investing our money considering the house is costing us 5,000 a year.

If we sell the investment property, we will be able to clear our primary mortgage along with savings that we have.
So should we sell?

Thanks
Kevin.
 
Hi, you may get a better, more comprehensive response if you fill in this template. Just copy / paste into your post and fill in the details.
 
This Key Post sets out the procedure on how to assess the profitability of an investment property.

Key Post - Should I keep or sell this investment property in negative equity?

My wife has ongoing dealings with KBC on her PPR (she now lives in my PPR since we got married) at the moment. She is facing a 80k shortfall. She is going to try and sell the property based on their advice. She has told them in no uncertain terms that she wont be able to meet the short fall...
www.askaboutmoney.com
 
Thanks, here are the numbers:

Age: 46
Spouse’s/Partner's age: 46

Annual gross income from employment or profession: 110000
Annual gross income of spouse: 85000

Type of employment: Private sector (IT)

Savings of approx €3500 a month

Rough estimate of value of investment home - €300,000
Amount outstanding on your mortgage: €142,500
What interest rate are you paying? - 2.1%

Other borrowings – car loans/personal loans etc - No other borrowings

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

Savings and investments: €100,000 in Savings, money is in offset mortgage account reducing interest payment on mortgage

Do you have a pension scheme? - Yes, pay 25% each annually (approx 15% month and offset costs of tax o investment property by paying in a lump sum)

Do you own any investment or other property? Have a Primary Property. €212,000 mortgage, ECB + 1%

Ages of children: 11 and 8

Life insurance: Yes, through work

Let me know if any more info required, and thanks for reading
 
Whatami said:
At the moment the investment house is costing us approx 5,000 in tax and property payments. The rental income is 1200, but we are taxed on that. It is an excellent location and we have never had any problem getting tenants for it.
Click to expand...

Is it really costing you 5K. You've income there of 14,400. What are your other costs annually. But most of the rent is paying down capital.

What would you invest the profit on sale in to get you a better return. Have you figured out the CGT.
 
I don't think there will be any CGT. We paid 310,000 for it and it is currently valued at 300,000. We lived in it for 7 years before renting.
The profit on the sale would be used to pay off the mortgage on our family home. I understand there may be better ways of investing the money, especially when out interest rate is so low. But there is a great peace of mind living debt and mortgage free.
The investment house is also nearly 20 years old and I think it may need some investment soon. It is getting to the point where boilers may fail, heavy redecoration is needed etc.
However, I would like to retire at 60 or earlier. I know I am in a privileged position work in a fairly volatile sector so may not even keep employment until 60 (12 years time). So the rental income from the house would be a nice backup to have (although obviously not a guaranteed one.
 
Your figures are a bit confusing . I am assuming you have
An investment property worth €300k
A mortgage of €140k @1% interest

Home loan €200k @2% against which €100k in savings is making it a net home loan of €100k

Whatami said:
We also have an investment property (our original house which we didn't sell). It has a mortgage of approx 140,000 left on it and is currently valued at 300,000.
At the moment the investment house is costing us approx 5,000 in tax and property payments. The rental income is 1200, but we are taxed on that. It is an excellent location and we have never had any problem getting tenants for it.
Click to expand...
Whatami said:
Do you own any investment or other property? Have a Primary Property. €212,000 mortgage, ECB + 1%
Click to expand...

The first question to ask is whether the investment is profitable or not.

Rental income€14,000
Interest paid€1,400€140k @1%
Other expenses€5,000
Profit before tax€8,000
Profit after tax€4,000

If you sell the property, you will have €160k
If you pay off your net mortgage with this, you will get a return of 2.1% on €100k or €2,100
and very little on the balance.

Overall - the property investment is as good as any other at the moment.
So if it's not much hassle, you should keep it. But if you anticipate hassle and expense, then get rid of it.

Other considerations
If you bought the investment property for more than the current price, any increase in value up to the purchase price will be free of Capital Gains Tax, so you should keep it at least until it gets to the price you paid for it.

If you have a capital gain on it, it will be subject to CGT but it will be reduced for the proportion of time it was you family home.

We don't know the value of your current home, but that is a good stake in the housing market. By selling your investment property and buying shares you are diversifying away from Irish property. But you may well be adequately diversified if you have a large pension fund.

Brendan
 
Thanks for the great reply Brendan and sorry for the confusing figures.
Investment property is worth approx €300,000, outstanding mortgage of €142,500 with an interest rate of 2.1% (paid €310,00 for it, so currently no CGT due)
PPR worth approx €450,000, outstanding mortgage of €212,000, 2% interest rate, but offset mortgage and savings of €100,000 offset against it in savings.
Sounds like nothing major to gain from selling, other than peace of mind of living mortgage and debt free.
 
Whatami said:
Sounds like nothing major to gain from selling, other than peace of mind of living mortgage and debt free.
Click to expand...
If you were mortgage free, what would you do with your mortgage payment? It looks like you're already maxing pension contributions.
 
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