To sell or not to sell investment property?

deeobrien

Frequent Poster
Messages
59
Hi All,

Last year I purchased a new PPR and rented out my previous PPR. The bank were happy to me to keep my existing house. I had bought in the boom so my house was not worth what I paid for it (although not in negative equity). I had a house purchase fall through etc, so it suited to be still in my existing house. My hope (at the time) was that the house would increase a bit further in value in the coming years. I would then sell and reduce the mortgage on my PPR. The current tenant had been about to give notice to quit when the pandemic hit. Now I think they will stay longer. Rent still being paid. If the tenant moves out I'm wondering if I should rent again or look at selling. In looking at the numbers I might be better taking a bit of a hit on the sell price rather than paying out more interest on my PPR? That would be assuming I could get at least the pre covid price (which might not be realistic).

Month on month the investment property (after expenses/tax) is just short of covering cash flow.

Investment property (3 bed semi)
Purchased 2006 for 231,00
Initial Mortgage: 200,000
Interest rate: 0.58%
Remaining term: 13 years aprox
Outstanding balance 117600 aprox
PPR for 13 years
Current value aprox 200,000 before the covid crisis. Unsure at the moment.

PPR
Purchased 2019 for 255,000
Initial Mortgage: 204,000
Interest rate: 3% (fixed for 5 years)
Remaining term; 24 years
Outstanding balance 197,000
 

Sarenco

Frequent Poster
Messages
6,169
What rent are you receiving on the rental property?

This thread might help -

 

Brendan Burgess

Founder
Messages
40,539
Hi Dee

Do these figures look right?

4690
4691
If you sell the property, you will be able to reduce the mortgage on your home by €80k which will save you €2,400

So your net income is much higher if you hold onto the property.

There is also the advantage that any increase in value up to €231k is free of Capital Gains Tax.

Most people just look at cash flow and say things like

Month on month the investment property (after expenses/tax) is just short of covering cash flow.
So they think it's not worthwhile. The issue here is that very little of your repayment is interest. It is nearly all capital. So in about 13 years, you will have paid off the mortgage.

So if you can deal with the hassle of being a landlord and the anti-landlord sentiment from the government and public generally, hold onto the property.

Brendan
 
Last edited:

Brendan Burgess

Founder
Messages
40,539
All of the above assumes that you have a fairly safe job and salary which allows you to meet the repayments on the investment mortgage if you have a period of no rent due to vacancies or tenants deciding not to pay.

If your job is not safe or your income is uncertain, it would argue for minimising the risk and selling now.

Brendan
 

Brendan Burgess

Founder
Messages
40,539
The above conclusion is based on current figures.

As you pay down the mortgage, the amount of equity increases and so you have more money with which to pay down the mortgage on your family home.

So if you decide to keep it, you are not deciding to keep it forever. Review the decision every two or three years or whenever tenants leave.

Brendan
 

deeobrien

Frequent Poster
Messages
59
Thanks Brendan that's brilliant. Figures in the table are bang on. I wasn't sure whether to look at the figures for a year or the length of the PPR mortgage. To take away some of the hassle I took the hit of getting a letting agent managing the property for me. So far its working out fine. (fingers crossed!).

I had a slight error in the original figures - There is actually 17 and not 13 years left in the original mortgage. I don't think that effects the calculations much? at least for the next couple of years.
 

Brendan Burgess

Founder
Messages
40,539
Hi dee

You are welcome.

I wasn't sure whether to look at the figures for a year or the length of the PPR mortgage.
That is very interesting and it's something I will need to stress in other calculations. It's just so obvious to me that I tend not to mention it yet so many people make this mistake.

No one should be making a decision today and not changing it for the next 17 years or 25 years or whatever.

The decision should be based on the annual profitability and the current factors.

And then it should be reviewed from time to time. And the decision should be changed if the circumstances change.

Brendan
 
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