Should we sell our investment property?

T

Tweety

Registered User
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46
Hi,
I would like some advice if possible.
We are homeowners with an existing mortgage on our home. We purchased a house in 2004 as a Buy To Let Investment (saw it as a pension at the time). However, the rental income each month does not cover the mortgage repayments and it costs us approx. €300 per month to cover the shortfall & house insurance. I am concerned about the increase in Interest rates (in August 2005, we fixed our home mortgage and investment mortgages @ 3.74% for 2 years). I realise the rise in Interest rates will not affect our repayments until August 2007, but would like to be prepared as we are considering starting a family which will mean I will have to work part-time, thus a drop in earnings. I estimate in Aug 2007, we will owe approx. €175K on the Investment property (other similar houses have recently sold for €235K) and also approx. €16,000 on Credit Union Loan. Rather than having to spend another €200+ per month to keep the property, would we be better off to sell the property when the fixed rate term is up and use the proceeds (after Capital Gains) to clear the mortgage and credit union loan and maybe invest any balance in a pension?
Thank you.
 
- You don't state your position in relation to your own home. Have you much equity, based on current prices in your own home?
- Do you and your partner have existing pension scheme with your employer? If so, are you contributing the maximum?
- Do you have other savings, (shares, SSIAs, bank deposits). I would think that utilising this money to pay-off your loan now would be more beneficial than using the proceeds of a sale of property in two years time?

An important point to remember, with all talk about future capital appreciation, rental yields etc, it's worth remembering that your contributions are going to pay in the long term for a valuable asset, capable of generating an income in your dotage.

Many contributors on-site constantly refer to contributing to pensions, and while I do agree with them, pensions are dependent on the performance of stock markets, long term bonds. The old saying' the value of investments may fall as well as rise' does come into mind. I think the key is diversification and your own attitude to risk. If you are happy that you have a small mortgage on your home, good pension coverage, plenty of savings for a rainy day, and are willing to take a long term view on an investment, maybe you should keep the property. If this is simply not the case, then you should re-assess. 2 years is a very short term view on an investment of this size
 
Sorry, I probably should have given more information. We do not have any pensions at the moment (the buy to let was supposed to be our pension). We have an SSIA which matures next year but it is not the maximum. We should yield approx. €10,000 from this. Our mortgage is approx. €83000 with 14-15 years left. I would estimate that the value on our home would be in the region of €250,000 or more.
We have some savings (approx.€16k) but no shares, this is our Rainy Day money!
 
Tweety, you owe 83k on your home, and (guessing) 190k on buy-to-let, and 16k Credit union. Total borrowings: 289k

It sounds like you are paying capital + interest on both your home and buy-to-let mortgages, because the sums owing on both will have decreased by August 2007.

How much rent are you receiving p.a.?

The interest on 190k at 3.75% is 7125 euros p.a. At 5% the interest on 190k is 9500 p.a. The interest paid should ensure you will not be in a heavily taxable situation from your rent for the next few years. As a worst case scenario, you can probably go interest only on the buy-to-let in August 2007 so that you won't have to subsidise the repayments on a monthly basis from your PAYE earnings.

Even if/when there is a downturn in the price of houses, this will not be for ever. You are considering starting a family, so you are young enough to wait out any short term or intermediate term downturn. Sooner or later, the value of the house will go back up, sure as eggs is eggs. The borrowings on your home will be decreasing all the time - so sometime soon, even if you have to go interest only on the buy to let in the short term, you will be able to start paying back the debt on this also.

My view is that unless things get really rough, you should keep the buy-to-let. Let this be the start of your own self managed pension. You control the fees.
 
Hi Tweety,

I'm in an almost identical situation - what did you decide in the end ?
Milly
 
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