Time to get rid of the rental property?

Solari245

New Member
Messages
5
Age: 45
Spouse’s/Partner's age: 48

Annual gross income from employment or profession: 70K
Annual gross income of spouse: 115K basic (+bonus, shares, approx. 20K pa after tax)

Monthly take-home pay: 7500 after pensions maxed (excl bonus, shares)

Type of employment: e.g. Civil Servant, self-employed: Private sector both

In general are you:
(a) spending more than you earn, or
(b) saving?


We would be saving but we have a lot of capital type projects this year (house, car) which any extra is going towards. Expect from next year we will be saving approx. 1000-1500 pm.


Rough estimate of value of home: 700K
Amount outstanding on your mortgage: 200K
What interest rate are you paying? 2.25% Fixed for 2 years. 11 years left.

Other borrowings – car loans/personal loans etc: None

Do you pay off your full credit card balance each month?: We don’t have a cc

Savings and investments: Approx 50K in shares.

Do you have a pension scheme?

Yes. Me approx. 300k, Spouse: approx. 700k – both in low cost passive global equity funds. Maxing out both @25%


Do you own any investment or other property?
Rental property: Value approx. 380K. Mortgage 90k. Interest: Tracker ECB + 1.1%. Rent : 1575 pm. 6 years left.


Ages of children: 13, 11 and 9

Life insurance: Yes, both of us.


What specific question do you have or what issues are of concern to you?

We have held onto our rental property for several years now with the intention that it become our education fund and eventually an income generating asset. We have always considered ourselves conscientious landlords and have never risen the rent to ridiculous levels even though we are aware the average rent in the area would be at least 2k for a similar property. Our current tenants look after the place well and we have always been on the ball when anything needs doing.

Having said that, we can no longer ignore the fact that the house is 40 years old now and needs a lot of upgrading. We are facing a bill of 6K this year on miscellaneous items and realistically the kitchen will need replacing in the coming years as well as other potential items of expenditure such as insulation and replacing windows.

I fully appreciate that this is all part and parcel of being a landlord but I’m beginning to wonder whether we are cut out for this business given the system seems to be stacked against landlords who don’t set rents to the max.

The original plan was that we continue to max out our pensions for the next 6 or 7 years and once the (investment property) mortgage is paid off, it becomes our education fund and between that and the shares also eventually become a top up for our pensions / allow us to give some family members who have not been as fortunate as us a dig out. Perhaps also to give the kids some kind of a head start (but we don’t know how much we subscribe to that given that myself and my spouse were never handed anything). We would also like to eventually stop contributing to the pension and just need an income to cover our day today expenses so we can consider taking jobs that pay less but offer a better work life balance.

Looking for advice as to whether we should stick it out with the rental property or just sell up and potentially pay off our principal residence. What should we do with the surplus if we do this?

Thanks in advance for reading.
 

NoRegretsCoyote

Registered User
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3,069
Two pieces of information still relevant:

What is the monthly mortgage cost on the rental?

When did you acquire the property, did you ever live in it yourself, and how much did you pay for it? (This is all relevant for CGT).
 

Solari245

New Member
Messages
5
Thank you. Yes relevant information I should have provided. Monthly cost of the rental is 1242. We lived in it for several years and we bought it for similar to what it is worth now so I don't think CGT is a particular issue here.
 

Sarenco

Registered User
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6,853
If you sold the rental, you could own your home outright while still in your 40’s.

With approximately €1m in retirement savings and an education fund of well over €100k.

That would be a fantastic financial position for your ages.

With busy jobs and three kids, do you really need the hassle of running a rental business?
 

Solari245

New Member
Messages
5
Thank you for your opinion. You are articulating the conclusion we are coming to ourselves! I suppose we were hoping to diversify our assets / have another income stream eventually but it's probably a business we don't really want to be in anymore. I think we are just in 'save' mode thinking having the house will be worth it in the long run but maybe life's too short for hassle we don't need.

We will have to look into options for the 100k as well as the savings we would have from the monthly mortgage on our own house (1580 pm) as we don't particularly want to leave that earning nothing in the bank. Again, thank you for your input. It is greatly appreciated.
 

Sarenco

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6,853
We will have to look into options for the 100k
€100k would only represent around 5% of your net worth - the other 95% would be invested in risk assets (property and equities).

Bear in mind that corporate depositors actually pay interest on their deposits these days - retail depositors are effectively being subsidised.
 

Brendan Burgess

Founder
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44,678
Rental property: Value approx. 380K. Mortgage 90k. Interest: Tracker ECB + 1.1%. Rent : 1575 pm. 6 years left.

First look at this as an investment in isolation.

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Your equity is about €300k

So what could you do with the €300k?

Clear the mortgage on your home - €200k @2.25% = €4,500

If you leave the balance in a deposit account earning zero

You are financially better off by just €2,500 a year after tax by holding on to the property.

This would be an ok return on an unregulated passive investment.

But I suspect that Sarenco articulates your position well:
With busy jobs and three kids, do you really need the hassle of running a rental business?

From a financial point of view, there is no hurry. Tell the tenants that your plan is to sell off the property in the next year or so if they want to start looking around for alternative accommodation. If they don't find anything suitable, then you will give them formal notice early next year.

Brendan
 

NoRegretsCoyote

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3,069
You are financially better off by just €2,500 a year after tax by holding on to the property.
Risk-adjusted, it's a pretty meagre return. Normally I would say think twice before paying off a tracker but 1.1% is not a low margin and you are paying down capital very quickly at this stage so not very much benefit from a low rate going forward.

Yes, you would earn nothing on the €100k residual after sale but some kind of liquid buffer is probably no harm in your situation as you would have to adjust a lot if you were down to one income temporarily. So I would sell up in your shoes.


Otherwise it's a great example of how tax and regulation are an excess burden on the decent landlord.
 

niceoneted

Registered User
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1,996
If your happy with your current tenants would you let them run their course there then sel. We find most hassle is between tenants when you have to do deep clean and re advertise we have a plumber/electrician etc that we contact if there are any issues and they sort them.
 

Solari245

New Member
Messages
5
Very valid points all and great food for thought.
You are financially better off by just €2,500 a year after tax by holding on to the property.
Thank you for running the sums! So we're a bit better off but we just need to weigh up if its worth it.

If your happy with your current tenants would you let them run their course there then sel.
Potentially an option. We are in no immediate rush to sell. We have good tenants and we would like to do right by them. So maybe a discussion to be had with them. They will get plenty of notice if we do decide to sell.

Otherwise it's a great example of how tax and regulation are an excess burden on the decent landlord
Yes I sometimes feel the RPZ has had unintended consequences. We first let out the house at what was the market rate at the time. We did not rush to put up the rent before the RPZ came in and then we were stuck with a far lower rent than what seemed to be the norm in the area. We were advised by a friend to ensure we always put up the rent by the 4% since the low rent makes it less attractive as a buy to let for would be buyers. So that would make the 4% a target rather than a limit! We haven't done this. Now it feels like if we were to sell, half our target market so to speak would not be interested because the rent is relatively low. So there is no benefit to keeping rents low. Other than we get to tell ourselves we are good landlords :D

Thanks again for your feedback!
 

NoRegretsCoyote

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We were advised by a friend to ensure we always put up the rent by the 4% since the low rent makes it less attractive as a buy to let for would be buyers.
It depends a bit on the property. By the sounds of it your target property is owner occupiers looking for a "doer-upper" so the rent wouldn't be relevant to them.

But for an apartment you would be looking at a material discount to fair value. This may end up in the Supreme Court some day. I can see rent controls for sitting tenants as consistent with "common good" and "social justice" principles of Article 43 of the Constitution. But the inability of landlords to set new rents to market rates seems inconsistent with the private property rights in the same article.
 

Brendan Burgess

Founder
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44,678
By the sounds of it your target property is owner occupiers looking for a "doer-upper" so the rent wouldn't be relevant to them.

I would say that it would affect all properties to some extent.

The price of a house is determined by the competition between owner occupiers and investors. If you exclude investors from the market, then the price will be lower.

By the way, I don't follow the "owner occupier looking for a doer upper" . Wouldn't investors be just as interested in doer uppers? In fact, they might be more interested in doer uppers. Or have we reached the stage whereby investors must avoid doer uppers as they can't increase the rent by more than 4% so they won't get a return on the money spent doing it up?

Brendan
 

NoRegretsCoyote

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@Brendan Burgess - the OP talked about a 40-year old house in need of renovation. It unlikely (but not impossible) that someone would seek to buy this to immediately let it. You'd be looking at a 5% gross yield for a house in need of a five-figure spend renovation. On 4.3-ish% BTL finance and half your profits taxed away I doubt too many investors will be interested.

You can look at the BPFI data. There are <1000 BTL mortgages issued a year now, for about €150m in total. That's for a stock of about 300k rental properties. It's peanuts. Almost no one at small scale is getting into the rental game, at least with mortgage finance.
 

NoRegretsCoyote

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There are plenty of cash buyers of investment properties.
Maybe, but the RTB data shows a decline of about 1.5% per year in the stock of private rented dwellings.

Why would a cash buyer look for a 5% yield on a house when they could get 8% on an apartment?

If we are trading anecdotes, I can tell you stories of friends buying ex-rental properties and all the other viewers are couples with kids.
 

Sarenco

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Yes I sometimes feel the RPZ has had unintended consequences .... Now it feels like if we were to sell, half our target market so to speak would not be interested because the rent is relatively low.
It's probably worth bearing in mind that the RPZ regime is due to expire at the end of this year.

That might be another reason to hold off selling until next year.

Mind you, who knows what the market will be like next year or what cunning laws will be introduced to replace the RPZ regime...

Also, any price appreciation from here will attract CGT, albeit you will have some PPR relief.
 

Sarenco

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6,853
But it will be extended. I doubt that there is even one TD or Senator who will vote against extending it.
Well, the Minister says otherwise...
The constant changing of the rules of the game makes it extremely difficult for landlords and tenants to make informed decisions.
 
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