Sell investment apartment or keep it?

The Irish Property Bubble (2006) Sell, Buy or Rent?
1

Hi

I’m not great at mathematics so perhaps you can help me solve a little riddle. I have a mortgage with kbc on my PPR, I think I pay 4.2% variable rate or so. I also have an investment apartment yielding me aproximately 6000 euros net after taxes not including void periods, the cost of my own time etc. I could sell the aprtment for around 105000 euro after CGT. If I invest this in my current mortgage the savings will be close to 7000 euros a year in the cost of my mortgage. Obviously I could re-invest this money but if I continue to rent the apartment at the end of the mortgage I will still own the apartment. My question is, assuming no fluctuations in the price or the asset or the yield, what option will be financially better say, in 20 years time?

Thanks in advance

2

Is there any mortgage on the apartment? Would you be in a position to reduce the term, instead of just the amount of the mortgage on your PPR. In other words, keep paying the same amount as at present on your PPR but on a reduced term which could save you considerable interest over the life of your mortgage. Would need to know what the remaining term is and amount outstanding.

3

Assuming you are bad as you say at math.Putting cash against mortgage will reduce your Loan to Value ratio on your PPR. This should in turn enable to reduce your mortgage repayments further through a better rate. You might go from 4.2 to 3.2 with another bank.

4

No brainer for me if you don’t need the 6K a year rental cashflow.

Saving 4.2% a year on mortgage cost vs getting maybe 1% after DIRT if you saved the cash from apartment sale.

5

If selling the apartment gets you 6K after tax on 105000 then you’re getting a 5.7% return on it.
With a mortgage interest rate of 4.2% you’re better to hold onto the apartment and put the 6K as an overpayment against your mortgage.

However, your mortgage interest rate is high.
Look at re-mortgaging either immediately or if you’re close, as soon as you can get down a band in LTV ratio.
You should be able to get your rate down saving you an extra few hundred a year.

6

Thanks everybody for your answers. I was tired last night and not thinking straight. I can see it clearer now, it’s a 5.7% yield if I keep the investment versus aprox. 3.9% yield if I reduce the term of the mortgage.

For your questions: I am paying 3.89% on 340k that’s outstanding on my PPR. I haven’t asked but I’m pretty sure I’d be able to reduce the term outstanding rather than the monthly payment. I can go down and pay less than the 3.89% even if I do not invest the 105k on the mortgage, because we’ve overpaid the mortgage in the last while and we’re now under the 50% ltv. The apartment is abroad, gives me no end of hassle and the 105k is the final ammount I would be able to put towards the mortgage discounting cgt and transaction costs, the apartment is valued at 130k. I don’t expect its value to go up or down greatly over the coming years.

7

You want to sell it the way I have read your two posts.

Using Karl Jeacle’s mortgage calculator and assuming 30yr present rate, you could keep paying your morgtgage at current rate and bring it down from 30 years to 16 years.

240K @3.2% at 16 years = 1600pm. Total Interest paid 67K.

340 @3.9% at 30 years = 1600pm. Total interest paid 237k.

Finish your mortgage 14years early and save yourself 170K in interest payments. Implies that, after 16years, you will be 170k - 100k(apartment) = 70k better off and able to save 1600pm from there on in. After 30 years, you could be 70k plus 269k (14yrs or, 168months x 1600pm = 269k plus nominal savings rate) better off.

8

Wait a second if you admit you are not great at maths then why the hell did you get into so much debt? And what was the bank thinking

Isn’t this exactly the type of carry on that got us all into a deep hole in the first place?

9

Not really, we don’t know how much he earns. Sounds like he owes €345k on his PPR and maybe €25k on the foreign property, so €370k all in. For all we know his household income is €200k, making €370k of mortgage debt very manageable and a ‘small’ amount of debt from his perspective. Even if the household income was €100k a bank would nearly loan that based on the 3.5x rule. Lots of people who are useless at maths own properties and multiple properties - hell, half the country is financially illiterate. The difference is that someone with no clue these days can’t get themselves in as much trouble as they could have 10 years ago thanks to lending restrictions.

10

Now, that’s judgemental. The apartment has been paid off years ago, no outstanding debt on it. The current PPR is owed jointly with my OH who is better at maths than I am but was not really in the mood for my questions late last night. And I am not that bad at maths, it was a manner of speaking, it was late and I was tired and I wasn’t thinking straight. And whether I am great at maths or not I could still be making a quarter of a mill yearly in a job not related to mathematics!

11

Thanks everybody for taking the time to reply and for crunching in the numbers for me. I have to have a think and put everything into consideration, the pure figures in it and the fact that the investment apartment takes so much of my time and energy, partly because it is abroad.

12

Financial literacy has nothing whatsoever to do with how much you can borrow. Where on a mortgage application form are you required to state your leaving cert maths result? This guy has said he’s not great at maths, gets tired & doesn’t think straight, his foreign investment is a hassle (is he fully tax compliant??). His choice should be determined on his ease of management of his investments, and not seeking advice over the internet. He needs to pay for professional financial advice.

13

Nah, doesn’t need to pay for professional advice.

Over the short, medium and long term he would be better of both financially and without the stress of dealing with an oversea’s investment. Not much to it.

14

Not so sure about that; property looks like a sure bet to me. Look at all this advice;

telegraph.co.uk/finance/prop … naire.html
huffingtonpost.com/pauline-p … 23400.html
investopedia.com/articles/mo … estate.asp
blog.hannesdreyer.com/18-ways-to … -property/
thisismoney.co.uk/money/mort … y-let.html

16

Ok I think pueyso’s question has been answered so I am not hogging her thread

I have a similar question…

Should I buy a 200k apartment, for cash or should I pay off mortgage on ppr, outstanding loan is 125k, rate 3.35%

Gross yield expected on apartment is 6%. Reasoning to buy is future income, basically it feels like a least worst option compared to a lot of other asset classes. I’ve two other btls already, both with 50% ltvs and practically interest free financing, very very cheap tracker loans.

Objective of Btls are for income in future years, only cause I have cheap financing too

If I proceed with apartment expected net rents will pay back loans on properties in 7 or 8 years ignoring major tenancy issues.

Pension contributions maxed out too for tax relief purposes and reasonable past provision. All. Invested in equities and alternatives.

To me it seems fairly marginal decision. And Not very diversified I know… But other,than investing in a business I certainly don’t fancy bonds and it’s income I’m really after. Equity income fund only other option but haven’t actually looked into too much

I have high tolerance to risk and have thought of investing in narrow basket of equities but I find this very distracting from my day to day job. Plus I find capital gains tax liability very off putting. I take the risk and pay up,if,I make money but get feck all if,I lose

Each property in good rental locations in south Dublin

Any thoughts especially lateral thinking appreciated.

Thanks

P.s. I miss your posts pueyso agonising over houses you were considering

17

@Conflicted - What’s the benefit of paying 200k for an apartment v say 170k? Rental income difference probably small and you could use the 30k spread to knock off PPR.

18

I think you need to get out the excel and work out your total interest paid (across all BTLs) - if you did buy another apt with leverage. The interest generated would bring down the tax rate of your other investments so you shouldn’t look at it in isolation.

that said you’re not well diversified etc but sounds like you’d still have good repayment coverage. The leverage on the existing BTLs is good but the tax treatment isn’t

19

I guess I’m going for location location location a little. Don’t plan to sell but liquidity should be better and less price volatility… I agree could definitely get higher yield elsewhere

20

there is nothing wrong with the tax treatment - unless of course he wants to reduce his net income :slight_smile:

ps bringing down the tax rate as suggested results in a higher amount paid in interest than the resulting reduction in tax passed to revenue.

21

Thanks for comments. I think I need to get my spreadsheet out and check my numbers.

Reminds me doing a range of scenarios about 4 years ago for my old ppr when deciding whether to keep or not. Rent inflation has been about 20% p.a. Rather than my 2.5% assumption :open_mouth:

Feels like rents ain’t going to go up too much from here