Stay in Mortgage Debt and be in investor or clear debts

Jonathan

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Take the following scenario:

My colleague Aidan has a PPR worth 400K in Galway, with a 195K mortgage on it. His job is mobile and he can re-locate anywhere in Ireland and his job earns him 70K per year gross. His wife has a fixed place of work in Galway and she earns 40K per year gross. Aidan also has an investment property in Donegal worth 250K with a 214K interest only mortgage on it and €700 per month rental income, just lagging the mortgage payment at the moment. Less than 30% of Aidan's net income services both mortgages. Aidan and his wife’s plan is to re-locate to Donegal at some point, but the critical question is when ?

Capital appreciation on the Galway house and the Donegal house has been extremely positive. Both houses offer a similar standard of living, the Donegal house being slightly larger and detached.

If Aidan were to sell his Galway house, he could clear his Donegal house mortgage completely (with a minor adjustment), re-locate there and live mortgage free and carry on with his job as normal. He could then expect to invest 30-40K per year into new projects, and provide a passive income for his family. On the other hand his wife would be un-employed for a period, and would probably struggle to find a job in Donegal approaching the standard of the job in Galway. In the current economic climate, does it make financial sense to give up one job and be essentially mortgage free? Aidan’s wife to date has not managed to find a job she could transfer to in Donegal but does not particularly mind being un-employed for a period in between.

If Aidan stays in Galway, neither he nor his wife would be able to clear their Galway mortgage for a long time (20 years on existing payments), and have no particular long term plans to stay there. At the moment they are staying because of a rising property market, but are conscious of not being too greedy in that respect either.

This I suppose is essentially a lifestyle choice for Aidan and his wife but I thought I would run it past you so that you could highlight anything you think is relevant.
 
Stay in Mortgage Debt and be an investor or clear debts

Ok so lots of readers but no takers! How about I shorten the conundrum:

Aidan and wife:

- Aidan earns 70K, his wife 40K; they live in Galway but want to move to Donegal
- They have a 195K tracker mortgage on a 400k property Galway - 20 years to run
- They have a 214K interest only mortgage on a 250K investment house in Donegal
- Rental income covers 85% of mortgage on Donegal house
- Capital appreciation on both houses good
- Aidan can re-locate anywhere in the country in his current job, his wife would give up her job, she would have a period of un-employment in between probably
- When they re-locate they are mortgage free
- Aidan and his wife are then debt free

Is it a reasonable proposition in the current economic climate or should they keep their Galway mortgage and Aidan's wife keep her Galway job.
 
Take it from that Sarah that you think it looks reasonable financially whatever they decide ?
 
Agree with Sarah that it's a personal choice. It might be worth baring in mind
though that if they do move to Donegal and through unforeseen circumstances
Aiden loses his current job, they are then in a less than ideal situation as jobs in
Donegal are certainly not as easy to come by as they would be in Galway.

It might be worth some thought to flog the property in Donegal, clear the
mortgage in Galway and that way they can both keep their jobs and the security
of living in an area with more employment opportunities.

Just a suggestion.

Only of course until Aidans wife lands a job in Donegal.
 
Re: Stay in Mortgage Debt and be an investor or clear debts

They wouldn't have enough equity in their Donegal house to raise enough capital to clear the mortgage in Galway Nacho, it would only work the other way around. As you point out the work front is the worrying factor, but then given the likely investment in bordering N.Irl on the back of the St Andrews 'investment deal' there is likely to be a good deal of new employment quite nearby. I suppose the other option is that they could rent their house in Galway covering the Galway mortgage, and maintain that house if they need to move back to Galway. The slight snag there could be the tax implications.
 
If they sell in Galway, yes they will be debt free but they will have seriously reduced their asset base.
I think that if they are going to move they should keep the current rental house as a rental and buy another to live in.
You are suggesting that they would have some money ongoing to put into a project so why not continue to put it in to the existing project
 
Hello Woods, if they keep both houses as rental properties, and hold on to their assets do you think they would be in a position to draw down a third mortgage for another house in Donegal based on their salaries in Galway, and projected rentals, bearing in mind that the banks may want to know that both of them have definite jobs to go to in Donegal, whereas they may only have 1 job to go to in reality (70k). A third mortgage would expose them even more to the property market, despite the fact that on current form they could probably pay for it out of one salary and still live comfortably assuming the rent covers the other debt ? Maybe I have got the wrong end of the stick.
 
Re: Stay in Mortgage Debt and be an investor or clear debts

They wouldn't have enough equity in their Donegal house to raise enough capital to clear the mortgage in Galway Nacho, it would only work the other way around. As you point out the work front is the worrying factor, but then given the likely investment in bordering N.Irl on the back of the St Andrews 'investment deal' there is likely to be a good deal of new employment quite nearby. I suppose the other option is that they could rent their house in Galway covering the Galway mortgage, and maintain that house if they need to move back to Galway. The slight snag there could be the tax implications.

Hi Jon,
Here is another suggestion. Seeing as my last one didn't add up, I kinda misread it.

Another alternative is to sell up both properties now, while they can be fairly sure
of making a substantial cash profit on the Galway property and some cash on the
house in Donegal.

Rent somewhere short-term in Galway until the wife sorts out a decent job in
Donegal and in the meantime earn a bit of interest on the cash and keep saving.

I know there are downsides to this also, the hassle of selling 2 properties and
finding a decent place to rent, before househunting again down the road.

However, the upside is that they will have a significant amount of cash in the
bank...earning and they will also be completey footloose.

Again, just one to ponder on, but their is a lot of work involved I know.
 
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