Should I sell?

C

Champions

Guest
My current position is as follows:




  • Principal Private Residence Value €550,000 Mortgage outstanding €200,000, currently paying 1350pm on mortgage
  • Investment property 1 Value €320.000 Mortgage (interest only)outstanding €90,000. Currently rented for 900 pm
  • Investment property 2 Value €280000 Mortgage (interest only) outstanding €175,000. Currently rented for 900 pm
Rental income covers all expenses on investment properties including taxes.

Question:

If I sell investment property No1, use proceeds to clear mortgage on my PPR and save the €1350 per month (which I am currently using to make mortgage repayments) for 5 years, I would have saved €81,000 (€1350*60 months).
By my calculations the property would have to achieve capital appreciation of 5% each year to match this, not taking into account any Capital Gains Tax due

With the property market slowing, interest rate increases sure to happen over the short / medium term I am wondering if the time is right to sell?



I would appreciate comments.
 
It should be noted that the 1350 that you are paying on your private residence mortgage is not all interest...some of it is capital payment therefore you are saving 1350x60 = 80000 over the 5 years but if you keep paying the mortgage of 1350 per month only half of this (probably less depending on the term left) is going on the interest. Therefore you would only save around 40000 maximum in real terms. Since your investment property is in a specific area, you should look at the property price increases in that area to see how they are expected to perform over the next few years. But if you can expect a rate of increase of 2.5% this year on the investment property that still easily outperforms the 3.3% interest you are paying on the outstanding 200,000 on your PPR. So if you don't need the cash, hold onto the investment property while there are still capital gains on the investment property.
 
Playing devils advocate here is your overall investment strategy overly dependent on property?

If so (and I'm not neccessariy shouting 'property crash' here) then I personally would feel better selling one property and diversify my overall position.
 
IMO - Increase borrowing on INV PROPS by 200,000 and pay off loan on PPR.

If there is a shortfall between rental income and new repayments use some of the 1350 you are saving on mortgage repayments to subsidise it.

You'll be in a better position overall as 100% of the interest payable will now be allowable against rental income for tax purposes as opposed to the current mortgage interest relief you are currently claiming on PPR loan.

Invest the balance of the 1350 somewhere else or use it to pay off capital portion of the INV PROP loans now or in the future.

Just my opinion and a general idea, would have to see what repayments on INV PROPS are and crunch the numbers to see if it would work.

Stand to be corrected by others on AAM
 
MPH said:
You'll be in a better position overall as 100% of the interest payable will now be allowable against rental income for tax purposes as opposed to the current mortgage interest relief you are currently claiming on PPR loan.
Click to expand...
AFAIK, the interest payable, and therefore deductable against rental income, will remain the same - you can only increase the loan on the investment property and offset against rental income if it is being used to renovate, extend the investment property and not to pay off the loan on your PPR - otherwise we'd all do it! :)
 
Ah right. In my case when I went to buy the inv prop I borrowed an amount more than needed in order to pay off my loan on PPR as it was relatively small compared to value and the bank were happy to do so. I stand corrected....thanks!
 
That's a high repayment rate on your PPR. Is your loan over a short period? If not would you look at moving to another mortgage provider at a lower rate and either paying off the loan sooner or decreasing your repayments?
 
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