Should I sell this rental property

I have a rental house it has a mortgage of 170000

I am getting 800 a month rent good tenant for the last 2 years

The house is now worth 100000 if I wanted to realistically sell it.

I am paying 1250 a month fixed rate over 5 years ( am I right in assuming that I will have to pay penalty if I sell) (22 years left)

I have around 50 grand I could use to pay the negative equity and get a term loan for the 20 grand

Should I cut my losses.

House is costing me a fortune every month.

I am also looking to buy another house but I I sell the house I will wipe my deposit.

My income is 85000 a year.

Any pinster analysis appreciated.

It would seem to me that you are undervaluing the property at €100k if it is capable of generating a stable income of €800/month. Perhaps €120k might be closer to the mark?

How do you see the situation improving? Do you see a possibility of higher rents over the next few years to ease the burden? Or demand for housing in the area raising the capital value? What risks do you see?

I am in a somewhat similar position. The time for getting out is past now. This was a discusion for 2006-2008 at the latest. In for a penny in for a pound at this stage, I tell myself.

I am pretty sure 100 grand is a fair price if I wanted to get rid. Going by the PPR site.

It is in a good area for rental I am sure of good rental income at 800 as its the cheapest rental in the area and a nice house. (great tenant I am happy with him although I could get 900 in open market.

Capitial appreciation minimal TBH.

Other risks are TAX TAX TAX and loss of tax allowance on interest.

I agree.

Prices will undoubtely go lower once the bankruptcy laws are passed and banks start repossessing en masse (and they will).

But at this stage it’s probably too late.

If I sell the house its not too late, so I don’t know what you mean?

how much is the other house

and did you buy two years ago

This is a great example to Mahrud about why costs do not matter when it comes to setting the rental price. You are lucky that you have savings to cover most of the negative equity and have the option of dropping this investment at quite a loss. There are many small time investor landlords out there who do not have this luxury and will have to absorb any increases in costs.

Maybe to some limited extent with BTL’s, but not a hope of that becoming the norm for family homes.

One option is to pay down the mortgage by €50K. You should talk to the bank and ask them what is the best they can do for you in that regard to see if you can avoid penalties. the banks want to deleverage so it may be attractive to them. I am not saying it is necessarily a good idea. However, you should check it out so you have all your options available to you.

Just off the top of my head: The house is costing you at least 450*12 + 200 (property tax) = 5600 per year, without taking into account any maintenance.
You’re making total mortgage payments of 15K per year, of which I guess at least 12K is interest as you’re early enough in the mortgage.
So let’s say 3K per year comes off the mortgage, meaning 2.6K that you’ve subsidized is lost on interest payments.
For simplicity, I’m assuming the house retains its value, but that’s not a safe assumption.

Cost to walk away: 100K from house sale, 50K from your savings, 22K term loan (20K plus interest) = 172K, of which 72K is fungible.
Cost to keep per year: 2.6K per year + maintenance costs + any increase in property tax - interest earned on 50K savings (1.5K?)

With 22 years left to run, I’d be looking at whether “cost per year” X 22 <= 72K
You also need to put a value on the mental cost of being a landlord, and the possible problems in finding a second mortgage.

I would not be in favour of handing anyone 50k in hard earned savings. Keeping that money to hand has to be your best option, at the very least it is 10 years of carrying costs, a lot can happen in 10 years.
Is there an option to move into the property yourself?

I think ex-patrick’s advice is good. I would just add that while it might just about be more financially beneficial in the long run to hold on to it, the emotional wear and tear/stress it could cause you might be too severe to be worth it. If you do decide to hold on to it, I’d recommend googling Jon Kabat Zinn who has written some excellent books about reducing stress through Mindfulness meditation. Your overall well-being should be your ultimate priority, imho.

+1.

This logic omits the fact that if you hold til maturity of the loan (22 years) you will then have a property with no mortgage on it.

I think you should keep it if you can afford to, the cost of transacting in the property market is very high. I don’t think you win to closing at these levels in the long run.

Yes, I should have made that explicit.

22 years + Free years with Taxes… if that happens in earnest. So how much could that be then?

Tough cookie.

Why do you think repossessions will be limited in the BTL sector? With bankruptcy laws changing what makes you think family homes won’t be included in repossessions?

I was thinking about trying to extend the term to 30 years. But As I am on a fixed residential mortgage, I dont want to really alert the bank that its an investment mortgage. now the rate is the same 5.7 for both but that could change and I will be stung again in 5 years with an investment rate rather than a residential rate.

Another thing is a got a 12 page document out to fill by the bank when I enquired, but the document is for someone in arrears, I am not and wont be. But its still a big strain on my finances every month and is becoming sticky when trying to get a mortgage for another property

Interesting observations from posters thanks.