Would like objective opinion - about an investment property

B

Blackwexford

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Hi All
Not sure if correct form, if not please delete or move.
My question is about an investment property, should i sell and pay off all mortgages or wait till retirement which was always my plan.
The apartment is rented but costing me money each month which we can afford at the moment.

My main reason for keeping the apartment is that the tenant is paying off most of the mortgage , which is about 500euro PM under the going rate.
I always believe in honesty and not ripping anybody off so i have gone with the government rent pressure zone guidelines and if the tenant has any issues i get sorted ASAP as its there home. I was advised by an estate agent i could up the rent to include the Management fee, my tenant is good single parent with a small child and could not afford this increase. I do increase by 50euro PM each year,
Anyway don't want to ramble on.

Wages myself 50,000 the wife 35,000. Take home about 5,300 per month.
No lone apart from Mortgages.
Pension Myself 220,000 my wife 175,000.
55,000 in different shares and about 70,000 in bond which matures next year.
No Kids

I am 51 and my wife 49. Please god would love to retire at 60, my wife has had a tough time in general, she is my life so want us to be comfortable in retirement.
Mortgage on PPR 145,000 value 420,000 costs 850 pm
Rented Apartment mortgage 140,000 value 270,000.
I am getting rent of 1,250 for the apartment but pay life insurance, Management fee and Tax so Apartment costs 1,950 per month. I have to add 700 per month.

We can afford everything at the moment but not saving apart for 200 euro per month. About 8,000 in savings at the moment.

My main question is am I be better paying the 700 per month for the apartment and ride it out till i am 60 in which case the mortgage will be a lot smaller and i could pay off all mortgages and have about 150,000 profit to maybe buy a holiday place abroad. I don't mind working on once my wife does not have to work.

Or do i sell now and pay or all mortgages more or less and put at least 1,000 per month extra into my pension till i retire.
My concern is the more money i have free i will spend on luxury items.

Any opinions most welcome sorry for the long post.
 
Sarenco sets out how to approach this problem here:

Key Post - Keep Apartment as Rental or Sell?

Updated May 2020 The question regularly comes up on AAM whether somebody should keep an apartment that their family has outgrown as a rental or whether they should just sell up. Borrowers often run projections on the anticipated rental income from an apartment with a cheap tracker and conclude...
www.askaboutmoney.com

The "cost" to you of the investment is the interest element of the repayment + the maintenance. The capital repayment is not a cost.

For example, if you are paying 4% interest, the cost is €500 a month in interest, which makes this a very profitable investment.
 
Blackwexford said:
Mortgage on PPR 145,000 value 420,000 costs 850 pm
Click to expand...

Again, the cost is the interest which is probably c. €400 a month, so you are saving the difference between the repayment and the interest element.


Blackwexford said:
55,000 in different shares and about 70,000 in bond which matures next year.
Click to expand...

Why are you borrowing to invest in shares and a bond?

You should sell the shares and pay down the mortgage with the highest interest rate after tax. This is most likely the mortgage on your home.

When the bond matures, you should use it to clear the mortgage.

If both mortgages are on rates of 4%, the investment property is costing you only 2.4% after tax.

But if the mortgage on the investment property is 4% and the family home is a 1% tracker, then you should pay off the investment property first.

Brendan
 
The alternative to paying down your mortgage is to max your pension contributions.

With a mortgage of €145k on an income of €85,000, it's a bit high for your age. It's much of a muchness, but I would probably pay down the mortgage and when it is cleared, start stuffing the pension fund with the payments you would otherwise have made.

Brendan
 
Thanks Brendan
Interest rate is tracker 0.95% so i am lucky. Its just adding the 700 euro per month to pay the interest , management fee and tax that i was worried about. I started thinking about selling and putting that money into my pension.
Not sure is 395000 a descent amount to have in a pension for people of our age.

Thanks again for the reply
 
For what it's worth I would suggest sell aswell. I suspect new legislation will come into force that will require investment properties sell with sitting tenant. With your low rent and the possibility of selling with a sitting tenant then the value of the property will not be as much as it would be on the open market.

I am a landlord for the last 13 yrs and am similar in age to yourself.
 
Brendan Burgess said:
Again, the cost is the interest which is probably c. €400 a month, so you are saving the difference between the repayment and the interest element.




Why are you borrowing to invest in shares and a bond?

You should sell the shares and pay down the mortgage with the highest interest rate after tax. This is most likely the mortgage on your home.

When the bond matures, you should use it to clear the mortgage.

If both mortgages are on rates of 4%, the investment property is costing you only 2.4% after tax.

But if the mortgage on the investment property is 4% and the family home is a 1% tracker, then you should pay off the investment property first.

Brendan
Click to expand...
Hi Brendan
Not borrowing for the shares or bond have them for years.
The interest rate is only 0.95% on Apartment and 0.75% on PPR if i sell shares large bill for CGT. Plan for shares is to sell about 3,000 per year when we retire as will not have CGT.
I do plan to pay the bond off my PPR when i get it next year, as AIB sold my lone i will get a deal of about 15 to 20% off the amount outstanding.
The company who have my mortgage told me this .

Thanks
 
The Horseman said:
For what it's worth I would suggest sell aswell. I suspect new legislation will come into force that will require investment properties sell with sitting tenant. With your low rent and the possibility of selling with a sitting tenant then the value of the property will not be as much as it would be on the open market.

I am a landlord for the last 13 yrs and am similar in age to yourself.
Click to expand...
Thanks Horseman
the interest rate is only 0.95% if it was 4% i would have sold. The government concern is the vulture fund but the likes of you and me are also affected. We treat our tenant's well and don't try to rip off, i feel we should be rewarded for this but this wont happen. I know its not my problem but i also worry about the tenant as she could well be homeless. As you can guess i am not a business man, but i worry about people and if she was homeless with a young child it would bother me.
Sorry i should have posted the interest rate in my original post.
 
Blackwexford said:
Not borrowing for the shares or bond have them for years.
Click to expand...

If you have loans outstanding while you own shares, you are borrowing to buy shares. It is not a good idea.

Look at it like this.

If you had a mortgage of €95k on your home, would you add €55k to your mortgage to buy shares?

Brendan
 
Blackwexford said:
as AIB sold my lone i will get a deal of about 15 to 20% off the amount outstanding.
The company who have my mortgage told me this .
Click to expand...

This seems very strange.

Why did AIB sell your mortgage? Were you in deep arrears?

I am not aware that any lender is giving discounts for early repayment of trackers. You should check with them again. If this is available grab it quickly before it's withdrawn.

Brendan
 
Blackwexford said:
Thanks Horseman
the interest rate is only 0.95% if it was 4% i would have sold. The government concern is the vulture fund but the likes of you and me are also affected. We treat our tenant's well and don't try to rip off, i feel we should be rewarded for this but this wont happen. I know its not my problem but i also worry about the tenant as she could well be homeless. As you can guess i am not a business man, but i worry about people and if she was homeless with a young child it would bother me.
Sorry i should have posted the interest rate in my original post.
Click to expand...
Ultimately the decision is yours. One piece of advice I would give you is to treat the apartment and the tenant as a business.

If your tenant is on HAP, ras or rent allowance I personally would raise the rent to the limits allowed by law. For every €10 increase in rent your tenant may only have to pay 50c towards it with the state covering the difference. At least the loss in the value in your property may be reduced somewhat by the rental level. Remember an investor looks at return on capital (ie the interest rate they receive on their investment). The higher the rate the better.

With the anti landlord sentiment out there if your tenant did not pay rent for any length of time or decides to leave. You are stuck with the lower rent and the next tenant may not be as good as your existing one.
 
The Horseman said:
Ultimately the decision is yours. One piece of advice I would give you is to treat the apartment and the tenant as a business.

If your tenant is on HAP, ras or rent allowance I personally would raise the rent to the limits allowed by law. For every €10 increase in rent your tenant may only have to pay 50c towards it with the state covering the difference. At least the loss in the value in your property may be reduced somewhat by the rental level. Remember an investor looks at return on capital (ie the interest rate they receive on their investment). The higher the rate the better.

With the anti landlord sentiment out there if your tenant did not pay rent for any length of time or decides to leave. You are stuck with the lower rent and the next tenant may not be as good as your existing one.
Click to expand...
Thanks Horseman
The Tenant is not on any type to social welfare payment.
All the best of luck with your own property.
 
@Brendan Burgess
Thanks for your great replies.
AIB sold mortgages that were not preforming and preforming, mine was preforming.
I had a call from the new lender and the guy said if i was in a position to pay of the mortgage i would get deal.
This is not in writing so when the bond matures ill see how i get on.


To summarise your comments.
As the interest rate is 0.95% it is profitable so keep it. RY 10.15% please see below.
When the bond matures pay this off my PPR which is at 0.75% to reduce the Balance from 145,000.
The apartment is costing me the management fee, life insurance and the low interest rate. The rest of the money i add is really a saving.
The management fee and life insurance are set off against tax so this cost is reduced.

Is there any template i could use to see exactly my return on investment for the apartment.
My limited understanding is as follows.
Mortgage 140,000@1% interest 1,400
Management fee and MP cost PY 3,646
Tax about 4,000.
Cost 7,646.

Rent 15,000 PY -cost 7,646 ( this would be the max cost)= 7,354 in terms of a saving.

Rental yield Mortgage outstanding 140,000+7,646=147,646. Rent 15,000 . so 15,000/147,646= 10.15%
Or is it 15,000-Cost 7,646= 7,354 so RY 7,354/140,000= 5.2%


Thanks again for your advice.
 
Last edited:
Blackwexford said:
@Brendan Burgess
Thanks for your great replies.
AIB sold mortgages that were not preforming and preforming, mine was preforming.
I had a call from the new lender and the guy said if i was in a position to pay of the mortgage i would get deal.
This is not in writing so when the bond matures ill see how i get on.


To summarise your comments.
As the interest rate is 0.95% it is profitable so keep it. RY 10.15% please see below.
When the bond matures pay this off my PPR which is at 0.75% to reduce the Balance from 145,000.
The apartment is costing me the management fee, life insurance and the low interest rate. The rest of the money i add is really a saving.
The management fee and life insurance are set off against tax so this cost is reduced.

Is there any template i could use to see exactly my return on investment for the apartment.
My limited understanding is as follows.
Mortgage 140,000@1% interest 1,400
Management fee and MP cost PY 3,646
Tax about 4,000.
Cost 7,646.

Rent 15,000 PY -cost 7,646 ( this would be the max cost)= 7,354 in terms of a saving.

Rental yield Mortgage outstanding 140,000+7,646=147,646. Rent 15,000 . so 15,000/147,646= 10.15%
Or is it 15,000-Cost 7,646= 7,354 so RY 7,354/140,000= 5.2%


Thanks again for your advice.
Click to expand...
Return is net after tax income on your purchase price. ( this excludes any capital growth until you sell the property at which point you will know what capital gain you have made). Purchase price is what you paid for the property including all cost eg legal fees etc.
 
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