Should I sell now or hold on for the moment but hate being an accidental landlord?

I bought a two bed apartment in 2006 for €300k. The property market crashed almost immediately and it was in negative equity for a long time. Now ive been told i may get between €230k and €250k for it if i sell. I think ill probably get €235 maybe.

The mortgage on it is 215k. Mortgage per month is €1336, rent is €1300.

I had to rent it out as i could not afford to pay the mortgage myself. The interest rate is fairly high, 4.3 per cent. I pay around 3k a year in maintenance/accoutancy fees/taxes. I have around 20 years on the mortgage. It has been a very stressful time being an accidental landlord. The property is a fair bit away from where my family live. Im living back home with my parents. If i sell up i probably wont get another mortgage. Im not sure if id want one. Will i regret that though. I wont miss the stress.

The issue i have to decide is do i sell now. Is it a good time to sell for me? Ive been told that it will probably take up to four months to sell. I have good tenants and they have been there three years so i will give them the requisite six months notice. Some might say hang on to it and you will see the investment in the end. Ive hated being a landlord though. Ive had to go to the RTB and Circuit Court in the past over a tenant who played the system.
If i sell with the tenant still in place will that be tricky? Any advice is greatly appreciated. I dont want to make another bad decision in property.

The rent is €1,300 per month or €15,600 per year
The interest you are paying is €215k@4.3% or €9,200 a year
Expenses excluding taxes : €2,000
Profit before tax: €4,400 per year

We don't allow speculation about property prices on Askaboutmoney.

But you have a profitable investment.

It probably does not feel profitable for you as you are making repayments of €16,000 a year. But only €9,000 of that is interest. You are making capital payments of €7,000 a year, so you will, in time, be building up equity.

You also have a stake in the property market which is important.

If house prices fall, you will feel poorer, but as long as you are getting the rent, then it won't matter too much.

If house prices rise, you will be glad you held onto the property.

The key thing is the amount of hassle involved. You obviously had a bad experience.

But your current tenants are good and are paying the rent.
And it's a profitable investment.
And it's a stake in the housing market.

I would say that while you have these good tenants, hold onto it. When the tenants leave, sell the apartment.

Brendan

If you sell with the tenants in place then you are restricting the pool of potential buyers to buy to let landlords who will be happy with those tenants and that rent. Obviously you are likely to get a lower price as potential owner occupiers are unlikely to be interested.

For me, you have a good investment as Brendan outlined above so why sell, but I understand that you do not like being a landlord so maybe you should sell.

What are your plans outside this property, do you want to buy a place to live in yourself, you say that if you sell you probably won't get another mortgage. I don't understand this, is it because you do not want another mortgage or think that you will not be able to get one. I see no reason why you should not be able to get another mortgage.

Financially it is probably better to keep rather than sell, but only you know if the stress is worth it.

Overall this is not a decision to take on its own, you need to look at your overall plans.

Thank you both for replying and taking the time. I guess my fear is just that the tenants will leave at a time when the property goes down in value and i wont be able to sell it and will have to rent it again and the stress that goes with that. Its just a fear after bad experiences in the past. Thanks Brendan i can see that it makes sense though financially to keep it and it is helpful to know that.

Ive no real plans for myself at the moment. I guess maybe at some stage i was thinking i might buy somewhere down the country that is less expensive. I was thinking it might be very hard to get a mortgage as the rules are strict. The decision whether to sell or not would certainly be easier if i didn't have good tenants.

I was in the same situation a few years ago, although I had a similar size mortgage, I did not have as high rent as you have.
I had anticipated selling the apartment and breaking even, even taking a small loss.

Similarly I had a bad experience with tenants. After that I got a management company to manage the process for me. In my case paying about 10% of the rent was worth it for peace of mind and also I was able to add into my costs for tax purposes. I handle all the tax returns myself and got through a revenue audit on it no problem.

I persevered and now I have an apartment possibly worth about 200 - 220K (Original price 250K around 2004) with an outstanding mortgage of about 70K. The tenants over the intervening time reduced the outstanding mortgage to my advantage and the value of the apartment would have increased,

So if I sold the apartment now I would probably realise 150K in cash on a good day. I would have no capital gains tax to pay and as I was careful to properly manage the tax affairs the 150K would be net of tax. I would probably need to earn over 300K gross to net that amount.

It just depends on how it impacts on your ability to do other things, i.e. if this mortgage stops you getting another mortgage that you need to divest the property. As the years go on you will be dramatically reducing the mortgage amount outstanding.

A calculator such as this can show the amount of the loan going down. The difference between what you sell, and the amount outstanding is money in your pocket, the longer you can wait, the more money in your pocket, of course factoring in the cost of selling.

Probably about 10 years since I considered selling and keeping it and getting a management company involved is the best decision. Because the interest is such a small component of the monthly payments the loan amount outstanding is powering down.

Look at the calculator and see where you could potentially be in 10 years time. Even in a couple of years the sale might give you the deposit for your next property.

Just finished a financial planning session with my financial advisor. Having the apartment as part of our portfolio has made a huge difference to the options and timing of retirement.

It gives a rental income to support my pension and at a point in my mid 70s, it might make sense to sell and realise the capital from it.

A lump sum could be used to pay off the balance of the mortgage and the income from the apartment will support an earlier retirement than otherwise possible.

That sounds very positive DingDing.

It's a tough one. Been there with the awful tenants!!!! Could you do your own taxes on it - save yourself a few quid each year? There's not too much to it.

Isabella21 said:

That sounds very positive DingDing.

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Thanks, really delighted that I stuck with it. It is about looking at the future positives and reducing / managing the negatives. In summary, moving the selection and management of the tenants was a great relief. As Lone Star said, the accounts can be easily done. However, if you are more comfortable. etc... with your current arrangement that is what works for you.

The rental income means that I can retire 3-5 years earlier than planned, and my wife can also retire earlier on the back of it as well, and maintain a higher standard of income into my retirement.

It is also an asset I can sell if I need money down the line.

The other mistake I made in the early years, its a 3 bed, it was through the way a situation evolved rented to 3 individuals at a point in time. That was exceedingly difficult as there was always one of the 3 would not agree something and it was like refereeing a match continually. When they left, we only lent to family units, sourced, and managed by my management agent.

The other thing is to remove emotion from it and look it purely as a financial asset and make decisions to maxamise your return.

Similar situation, never meant to become a landlord. Bought in 2005 a two bed apt for almost 300k. Lived in it for 5 years then had to rent it out as I needed to move but the apt was prob only worth 120k at one point, so selling it would have left me broke. When I rented it out I had terrible problems with the first two tenants including a Garda raid for drugs and suspicions of prostitution. Very stressful and thought I was losing my mind.

Fast forward now and the apt has been with a couple and their daughter for 5 years and rent is on time all the time. They are a very nice couple. They pay probably 20% below market rent but I dont care really. I dont think they could afford the full market rent anyway. My costs are covered and the mortgage is ticking along. Although market value now is still only about 240k.

Good tenants are absolutely priceless, I'd say hang onto it while you have them and reassess if they move out.

JamesN said:

Good tenants are absolutely priceless, I'd say hang onto it while you have them and reassess if they move out.

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As someone who rents residential accommodation for a living, I agree with this, but it just shows how flawed the system is.

In what other industry does a business see customers who pay on time and do not damage property as 'priceless' rather than the norm.

Plus, as long as rent increases are based on a percentage of current rent and not market rent, a landlord is penalised for rewarding decent tenants with lower rent.

I guess ive come along way from someone who thought at one stage id have to consider bankruptcy as the only way forward. The crash in the market certainly left so many of us struggling.

I too just charge my tenants the same rent since they moved in. I want to be fair. I think ill hang on for the moment while the tenants are still there and reassess if they decide to leave. I agree good tenants are golden and being a landlord has been a steep learning curve. Im glad you have good tenants now. It can have such a damaging effect on your mental health when things go wrong with renting out to tenants.

I do agree with trying to remove the emotion from it and view it as a business. That's tough though when you have a tenant who is verbally abusing you and is also playing the system. God when i think of how stressed i was. I got through it though and went to court myself and did the case. I was proud of myself. The Judge saw right through her thank god. Whey dont you pay this woman her rent! God i nearly cried.

Im happy to pay the accountant for doing my accounts and then i can use it against the tax bill. I did get a managing agent once and it was a disaster. I just thought from then on ill do it myself as if something goes wrong ill end up trying to sort it anyway. Thanks for the advice all. Nice to hear from others who have experienced the same things as me.

DingDing said:

Just finished a financial planning session with my financial advisor. Having the apartment as part of our portfolio has made a huge difference to the options and timing of retirement.

It gives a rental income to support my pension and at a point in my mid 70s, it might make sense to sell and realise the capital from it.

A lump sum could be used to pay off the balance of the mortgage and the income from the apartment will support an earlier retirement than otherwise possible.

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Having a rental property probably makes more sense for a pensioner (with a lower income and higher tax reliefs. It also gives them an asset they can realise into cash should there be a need for it.

lff12 said:

Having a rental property probably makes more sense for a pensioner (with a lower income and higher tax reliefs. It also gives them an asset they can realise into cash should there be a need for it.

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In principle yes as the net yield is good but being a landlord can be onerous and is harder to manage as you get older.

A large amount of income is at risk. One bad tenant can leave you without an income for a year.

NoRegretsCoyote said:

In principle yes as the net yield is good but being a landlord can be onerous and is harder to manage as you get older.

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100% agree.

I don't think that older people should invest in residential property. I know a few who have been taken advantage of by tenants who don't pay their rent and refuse to leave. I suspect that the same tenants would be more compliant were the landlord a bury 40 year old Garda.

Brendan Burgess said:

I know a few who have been taken advantage of by tenants who don't pay their rent and refuse to leave.

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Unless you have kids who live nearby and can actively manage it this is a big risk.

Surely the fact that the original poster seems to have most or all of their net worth in one asset (the property) is a relevant factor that everybody seems to have overlooked?

There are 2 ways of looking at an apartment in retirement. The first is as a rental income and I agree that there are risks with this strategy, however in our case we got a very good management company in the past and they vetted the clients and managed the relationship with the tenants going forward. There is a shortage of good rental properties in our location so it would attract good tenants with a track record. There is a certain uncertainty with the rental income and depending on how you fund the pension nothing is clear.

The second way to sell the property and realise the capital and use that to partially fund your retirement.

Once the reduction in the mortgage outstanding, is less than the sale price realised, there is money available that would not otherwise be.

I would think given either scenario if the mortgage is being paid and reducing the amount outstanding, then you are probably better off with the apartment.

As I mentioned earlier, I was considering at one point selling at a small loss, however now there would be at least 100K, if not 130K tax free if we were to sell it in the morning. Every month the amount available goes up by the capital reduction in the mortgage.

The other consideration is any relatives you might leave an inheritance to and how you plan for that.