To sell or not to sell?

[ButtermilkJa]

Got a quick question. It's similar to some threads I've been reading here before but I just wanted to get people's advice specific to my scenario.

I've got an apartment I bought one and a half years ago. I took a 92% mortgage out on it, which was €248,400. I got it valued last week at €350,000. I have a 40 year mortgage (I know ), so considering there's still about €245,000 on that, and with estate agent fees of around €3,000 there's easily €100,000 equity in there.

Now, I've been thinking about this so called property bubble burst everyone's talking about. I'm not getting freaked out or anything but I would be pretty annoyed if things did go belly up and I had missed this opportunity to make some money.

Basically I was thinking of selling now (or in the next couple of months anyway, before the interest rates really start to rise!!). I read on the revenue site that I wouldn't be liable for any CGT too, can anyway clarify this? I would clear my €15,000 car loan and deposit the remaining €85,000 profit in a high interest account.

I have the opportunity to move in with one of my friends in his apartment. With the car loan cleared and no more bills (well, except the rent & utility bills in my friends place of course), I would basically live a very nice life for the next few years and have a nice lump sum in the bank for the future. If the property bubble bursts, I would be laughing that I pulled out in time. If it didn't, or just slowed down as many are predicting, I would still have plenty of money to put a healthy deposit on a new house in the future.

Then there's the flip side. I'd be missing out on further profit gain should the market stay bouyant. I'd be paying rent (which I swore I wouldn't as I consider it dead money, or at least I did in the healthy property market we had a few years back). If house prices continue to rise further my lump sum may not be worth much of a deposit in the future. Bear in mind that current rates would yield about €3,000 per year in interest on the lump sum of €85,000.

Just to fill in some gaps, I am 27 and single, so the probability of meeting someone and sharing any further house purchase would make my lump sum very attractive in that scenario.

What would your advice be? Stay put, or sell and live like most 20-something singles except with €85,000 in my bank account?

Thanks for taking the time to read the longer than I expected post

 

[Savvy]

This is akin to asking the question
Is the housing bubble bursting now?Only hindsight will answer this.
If you couldn't stand the thought of losing out on your equity in the house then cash in. Otherwise stay put. A home is a home afterall.

 

[ButtermilkJa]

I agree, it's a pretty hard question to answer alright. I suppose though I'm not really trying to guage when the bubble will burst, but rather, would it generally be a good idea to do this sort of thing. I know what you're saying, a home is a home, and I agree. If I was married with kids or whatever, then even if the bubble burst, we would still need somewhere to live so it wouldn't make a difference. I agree with that. But being single with no ties, I can rent or own and it really makes no difference. If someone asked my now would I like €100,000 extra in my bank account I'd say yes please.

So I suppose I'm really trying to guage whether it is advisable to stay on the property ladder once you're on, or is it just as good to take the money and run and come back for a second stab later. Kind of like investing in shares and watching the value skyrocket and pulling out when you've made a good profit. You'd be glad to bank what you've made and start again, but all the time wondering if they're gonna keep rising.

Maybe then if you guys could just suggest what you would do in the same situation I suppose.

Thanks for the reply!! Keep 'em comin'

 

[whathome]

I'd be paying rent (which I swore I wouldn't as I consider it dead money, or at least I did in the healthy property market we had a few years back).

I wouldn't want to risk advising you either way but there is one additional factor that you may wish to consider -

Rent isn't dead money. If you rented, you would no longer be paying interest on €245,000 which at current rates of 4.1% is a saving of about €840/month. You could then save the difference - with some financial institutions currently offering regular savings rates as high as 5.5%

However, it's very much a personal choice. If it was an investment property or you were trading up anyway, it would be much easier decision.

 

[SidTheDweeb]

The interest payments on that 40yr mortgage must be criminal.
If you do stay put and keep the apartment, change the term at the very least!

It sounds to me from

(have the opportunity to move in with one of my friends in his apartment. With the car loan cleared and no more bills (well, except the rent & utility bills in my friends place of course), I would basically live a very nice life for the next few years and have a nice lump sum in the bank for the future.)

that you want to sell up and bank your profits.

In these circumstances, with the attitude towards the market that I have, I would sell up and live it up for a few years.

 

[ButtermilkJa]

I never thought of it that way. Makes sense.

I was actually thinking of trading up. That's what started the whole ball rolling. I was thinking that a 3-bed semi would be a better thing to have in the event of a market slowdown. If I held on to the apartment and the market dropped and I needed to trade-up at that point, I might find it very hard to get a decent return from the apartment. Whereas a 3-bed semi would be in more demand (especially considering that they're not really building any anymore!). But then I thought if I did that, it would mean putting all my equity back into a new house and topping up with a 92% mortgage. Basically putting me back to square one, but with no profit/equity to fall back on in.

The more I think about it, the more appealling it sounds to jump ship. Basically I've figured it out to be something like this (very rough figures might I add!!) -

Over a year, the interest on an €85k deposit would be around €4,000
I would be saving around €10,000 by not having to pay morgage interest. I wouldn't have to pay my management fee, that's around €1,200. Misc bills (life insurance, contents insurance, etc) would save around €800. That's a total of about €16k. Add the fact I would also now be free to save anywhere between €500 - €800 of my monthly salary and this makes a new total of around €22k.

Subtract my new rent/utility bills etc., which would be around €6,000 and that makes €16k.

If I kept the apartment, and lets say for arguements sake it increased in value by 10%, that's €35,000. However, it's cost me €10,000 in interest to keep it so that's now down to €25,000. Factor back in my management fee and various insurance bills etc and it starts to get closer to the €20,000 mark.
EDIT: Add €5,000 for renting the 2nd bedroom! Final figure is closer to €30,000.

Now I know these figures are very rough but there doesn't seem to be a huge difference in the totals.

If I'm being too soimplistic here and my above arguement makes no sense at all then by all means let me know (then point and laugh ).

 

[liteweight]

As it's your PPR there is no capital gains tax liability on sale. As to the rest of your post...you seem to have thought of everything and no one here can make up your mind for you.

It's very tempting (the thought of all that money in the bank) and I can't honestly say what you should do. Some other things to consider might be how you feel about sharing, after living alone, with the autonomy that brings. What if the market doesn't crash but continues to rise? Will you be priced out? What if the market remains more or less the same as today, will you be able to buy back in easily if your circumstances change? What is the saving on the monthly amount you pay in mortgage versus renting from a friend? Your lump sum will not earn you 5.5% anywhere. This is the AIB Regular Saver which only allows you to put in 300 max a month!

Only you can decide!!

 

[ButtermilkJa]

The interest payments on that 40yr mortgage must be criminal...

They are!! The only reason I went for 40 years was to reduce the initial payments. Otherwise I wouldn't have been able to get the mortgage on my own. My mortgage is €940 p/m at the moment so I'd say, as whathome has pointed out, that about €800 - €840 is purely interest. Crazy.

In these circumstances, with the attitude towards the market that I have, I would sell up and live it up for a few years.

That's what I'm increasingly leaning towards. If my figures above are correct then I wouldn't be losing much in terms of profit... and that's if the market stays the same. If it drops, and interest rates increase (my savings interest then increases too!) then I'm laughing.

If it doesn't crash, then what the hell, I've still got close on €100k in the bank.

 

[SteelBlue05]

Subtract my new rent/utility bills etc., which would be around €6,000 and that makes €16k. ).

What will you be renting for just 5k a year (1k for esb, heating, TV, phone\broadband,bin collection, tv licence etc).?

I'm paying a fairly big mortgage but having to go an rent a room and live with other people would be a something I would hate to have to do.

 

[ButtermilkJa]

As it's your PPR there is no capital gains tax liability on sale.

Excellent, thanks for that!

What if the market doesn't crash but continues to rise? Will you be priced out?

I think with my lump sum deposit, it would have to be a very sharp and fast rise to force me out quickly. I can't see that happening but who can make a call on that? Otherwise I think I would have time to react and get back in. But it's a very valid point and one I hadn't fully thought of.

What if the market remains more or less the same as today, will you be able to buy back in easily if your circumstances change?

Again another good point. This would be the most important I guess as I would see it as being more possible than the first situation. It may be difficult to get back in, but I'm in a good enough job with the usual salary increases each year so i don't see any dramatic change in my circumstances.

What is the saving on the monthly amount you pay in mortgage versus renting from a friend?

I am paying €940 and I would rent for €400 +bills (appx €450).

 

[ButtermilkJa]

What will you be renting for just 5k a year (1k for esb, heating, TV, phone\broadband,bin collection, tv licence etc).?

I'd be moving in with my friend in his 2 bed apt close by. €400 per month plus bills.

I'm paying a fairly big mortgage but having to go an rent a room and live with other people would be a something I would hate to have to do.

Fair enough, I'd feel the same. I was renting the second bedroom in my apt for the last year and I have to say, now that my tenant is gone, I would much prefer to live with somebody else than on my own. And like I said, it's with one of my close friends, so it wouldn't bother me in the slightest. Moving out of my own home and in with strangers would definitely be a no-go.

 

[ButtermilkJa]

That reminds me, I forgot to add the fact that I could rent the 2nd bedroom in the apartment, which would yield appx €5,000 per annum.

So that widen's the margins between the two a little bit, but I still have to say if I could get the €100k out now I wouldn't lose any sleep over missing out on any future gains.

The only thing stopping me now is the points you guys have raised over getting back into the market should it keep rising. Although with new builds starting to slow, and interest rates starting to increase, I'd be very surprised if the market gained any significant momentum beyond what it has now.

 

[ButtermilkJa]

Hmmm... [broken link removed] makes me even more sure

 

[liteweight]

with my lump sum deposit, it would have to be a very sharp and fast rise to force me out quickly. I can't see that happening but who can make a call on that? Otherwise I think I would have time to react and get back in. But it's a very valid point and one I hadn't fully thought of.

No one could see the very sharp and fast rise coming last Spring..but it did! As to your lump sum:- 350K - 245k-3k(EA)-Adverising-Legal Fees. The amount you're left with can be put on deposit or invested. You should look at other threads to see where you can invest a lump sum. The picture might not be as rosy as you think. Bear in mind that inflation is running at about 4.2% so whatever you decide to do, you'll only be keeping abreast with inflation for the bulk of it.

It may be difficult to get back in, but I'm in a good enough job with the usual salary increases each year so i don't see any dramatic change in my circumstances.

Why wouldn't you use these increases to pay off some of the mortgage and bring down either the term or the repayments?

I am paying €940 and I would rent for €400 +bills (appx €450).

With that amount 400, I imagine you're getting the small room!! You're also helping to buy an apartment for your friend, while you are dependent on him or someone else for a roof over your head.

Ok here's another scenario. You sell up and bank the money. Lets say it's earning a bit above inflation. The room you now inhabit doesn't go anywhere near to holding all the stuff you've accumulated while you were an owner. Neverthless you shoehorn yourself into the space every night, happy in the knowledge that you're earning interest. Your friend has some odd habits, he picks his nose and scratches his a$$ while only wearing boxers and then proceeds to drink your milk from the bottle in the mornings. You thought you'd enjoy the carefree, single life but his idea of it and yours are not the same. He brings people home nearly every night of the week, and you're used to having a quiet time whenever you want it! You take to your room every so often when there's company and the friend begins to think you're antisocial. You give that up because you can't sleep or hear the telly anyway, if you can't beat them, join them!!

Your friend falls in luuuvvv...Thank God for that, things quieten down a bit. It's ok for a while but then she starts to turn up every night and you can hear them tittering and giggling all night long. You feel like an outcast in your own home. Things go from bad to worse. You're the one living in the shoe box and they have the ensuite so why are there knickers and tights drying in the communal bathroom?? You have to wade through a mountain of make-up, cotton balls and perfume to find your razor in the morning!!

You complain to your friend..you like Mary but....He stares icily. Are you making derogatory comments about the love of his life?...or at least the woman who gives him regular sex and occasionally strokes his ego? Nevertheless, he says he'll have a word. Next time you meet her, you're greeted with a stony silence....you begin to feel like a stranger in your own home. But it's not your home is it? Its his, soon to be theirs. You walk in on her in the bathroom one night while she's giving herself a bikini line wax. She's mortified....you're mortified, the friend is not impressed......it's a territorial thing you know!

You think you better move out and leave them to it. Friend not to happy as he's now paying mortgage on his own. Girlfriend is ecstatic. You look at Daft till you're blue in the face but nowhere can you find an apartment to rent ALONE for 940 a month!!

Just food for thought!

 

[ButtermilkJa]

Hee hee!! Wow you paint a very detailed picture . I see what you're getting at, but just a couple of points...

Predictions are running at 0-6% for house price increases in 2007 (see the article linked in my post above). I know, I know, nobody has ever got anything right when it comes to the property market but my point is I'd be happy to just keep up with inflation in regards to my lump sum if the outlook for property is not a huge deal better (5/6% ish!). Even if it's not then that's alright because as I stated above, I'd be happy to sacrafice future profit gains if it meant I could get the €100k out now.

As for using my salary increases to pay of my mortgage and reduce the term... My mortgage is not the problem. I know the interest is crazy over 40 years but I'm not worried about that right now because the plan was never to stay in this place for longer than 2/3 years anyway. And when I trade-up, that would be the opportunity to reduce the term. So I'm not bothered about paying off the mortgage at the moment. I'm just concerned that if I stay where I am and the market slows or reverses, I'll have lost the opportunity to get my hands on €100k. Like I said before, it's like shares. They may keep rising afterwards but you've got to calculate when you want out. I don't need a property. Don't get me wrong it's great to have one but it would also be great to have €100k. As I'm not dependent on providing a home for a family or anyone else, then I feel I can always look at my apartment as a short-term investment if I want. And pull-out when I've made €100k.

The point about moving into my mate's place is a good one. I know that all that stuff you mention can happen. But, if I keep my place, I'll be advertising for a tenant so all that stuff could still happen. I know it will be my home but you're still living with someone else so it's the same scenario really.

It wouldn't bother me either that I'm helping buy his apartment for him as I had a tenant helping me for a year and I'll have made a lot of money out of it.

Also, I wouldn't be looking to rent somewhere on my own for €940 if things did go belly-up in my mate's place. I'd just find another place to share for €400/€500 as I don't want to live on my own.


PS: I probably should mention that I'm also thinking of going travelling or moving abroad to work for a while so maybe that's why I keep coming back to selling and taking the money out.

 

[bearishbull]

Prices wont be going much higher over next decade or more and could crash. Even the Bank of Ireland economist Dan mcLaughlin (who has all the inside info on mortgage approvals, affordability, state of housing market etc) says price growth will slow to 3% next year which is zero or a fall when inflation is subtracted. We have reached a stage where the amounts that are being borrowed cant be made much larger , they cant offer much more than 35 year terms and interest only and rates are heading up further reducing the borrowing,as well as inflation reducing spending power incomes arent growing fast enough to increase the amount an average person/couple can borrow so the only outcome for forseeable future is prices staying roughly flat(after inflation,soft landing hypothesis) or falling. There may be a last spurt in prices in autumn and spring but after that not much for a long time IMO and in many other peoples opinions.
All the best.

 

[ButtermilkJa]

Yeah, that's pretty much how I feel things will pan out as well. But having said that I'm no expert and anytyhing can happen. But it does seem to be the most logical outcome when all factors are taken into consideration.

 

[bingojoe]

I would not be as pessimistic about the prospects of a property crash as most people on this thread seem to be. Some types of property in some areas are supply constrained and IMO will be resilient to a downturn IF it happens e.g. 3 bed semis inside the M 50. I know you said you had an apartment - would it be possible for 500 of the same apartments to be built within walking distance of where you are in the next five years? Also , if property rises only 3 % p.a. the value of your place is going up 10 grand a year.

On a non financial aspect - you are a single guy in your 20's with a property. Surely you are a better proposition on the singles market with a property, than with 85 grand in the bank !

 

[liteweight]

The big difference between you renting a room in your place and sharing a room in someone else's is that you call the shots in the former! If tenant starts taking the michael, you can ask him to move out.

Also, it now appears that you don't like to live alone, what if you find and fall for someone in the next 2 years? 30/31 is a whole different ballgame to 27.

I've noticed that the more you post, the happier you seem to be with 100k in your back pocket...well who wouldn't be? You're already forgetting that you have to pay an estate agent, advertising, solicitor and most importantly, the car loan of 15k!! And now you want to travel too!!! Do you realistically think you'll still have all of that lump sum when you come back?

Anyway, you seem to forget that when you want to buy back in, you'll pay fees all over again. You'll probably have to be in permanent employment for a year here before the institutions will consider you for a mortgage. Most importantly, you will have lost your first time buyer status and the next property you buy will have stamp duty.

One part of me thinks, you're young, free and single so go on......enjoy yourself. The other part of me thinks that you shouldn't sacrifice what might be a long time, years even, trying to get back to the fortunate position you're in now!!!

The very best of luck whatever you decide to do.

 

[ButtermilkJa]

I do agree completely, I am in a fortunate position, and I do not take that lightly. I've worked hard to get where I am and keep that apartment going for the last 2 years or so I wouldn't risk throwing all that away just because I have dollar signs in my eyes.

I haven't overlooked the estate agent fees etc that you mention either. I'm aware they'll take a bit out of the profit but even with that and my car loan, there'll still be easily €85 (probably nearer €95k by the time I go to sell, if I decide to sell). Also, I've already lost my FTB status, so even trading-up will incur Stamp Duty, unless I buy new. Which is also an option should I sell and return later to buy. The travelling part was just an after-thought really, and if I did go I wouldn't expect to have the lump sum intact on my return but that's what I'd use it for anyway so I wouldn't mind.

My plan was to move on from the apartment after 2/3 years anyway because I don't want to spend more time than I have to living in an apartment. It was always in the back of my mind I'd be trading-up in the short term. I guess I never really thought of this option of selling altogether so no wonder the dollar signs are flashing in my eyes . I always thought that once you're on the property ladder you're on it for life. But now I'm not so sure.

I really appreciate the advice anyway. It's great to be grounded by a logical common sense approach every now and again. You do get carried away when you see the opportunity for money.

It's a tough decision alright and I won't be making it in a hurry!