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Invest property - sell or let in current market

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  • 31-05-2007 10:13pm
    #1
    tudy68
    Closed Accounts Posts: 2 ✭


    hello,

    just last year i bought a 1 bed apartment as an investment property. - interest-only mortgage. now monthly repayment installment is slightly higher than the rent I receive.. (ie. interest = 1100 and rent receive = 1000). This was purely bought in assumption of high capital gains... Looking at the trend of the property market in ireland now, it seems it is unlikely to gain much in terms of capital increase.. say even after 5 years or so... what are your views?? sell now or keep ...?
    appreciate your opinion...

    td


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    #2
    Zambia
    Closed Accounts Posts: 7,333 ✭✭✭Zambia


    Hi

    Well depends on what you want from your investment.

    When you brought you had a planned date of sale I presume or merely wanted to hold on to it like cash in a high return account. The answer to this all depends on what you can afford.

    If you can afford to pay for it over the next 5 years well then like all slumps this one will pass. At the other end of the slump you will have a nice little nest egg.

    If it will put you in financial jeopardy (consider a few interest rate hikes) I would dump it as soon as possible.

    Buying when you did was unfortunate as you brought at the peak of the boom.

    I would wait and see what some of the other posters say but I cant see you not losing some money on this by off loading it now. Sorry I cant be more positive.


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    #3
    Mailman
    Closed Accounts Posts: 1,571 ✭✭✭Mailman


    the expectations are that property prices will continue to fall
    the expectations are that interest rates will continue to rise for a while more.
    you don't own this asset as you have an interest only mortgage so every month you are no closer to owning a wealth producing asset.
    dependent on location the rental that the apartment can achieve will drop
    Selling regardless of whether you take a loss or not may be wisest move now.


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    #4
    The_Conductor
    Moderators, Society & Culture Moderators Posts: 32,285 Mod ✭✭✭✭The_Conductor


    Zambia232 wrote:
    Hi

    Well depends on what you want from your investment.

    When you brought you had a planned date of sale I presume or merely wanted to hold on to it like cash in a high return account. The answer to this all depends on what you can afford.

    If you can afford to pay for it over the next 5 years well then like all slumps this one will pass. At the other end of the slump you will have a nice little nest egg.

    Well, the OP is in an interest only mortgage- so there is no 'nest egg' prospect- its a small millstone at the moment, now that interest repayments exceed rental income- but it will get even worse as the rates increase even more.

    Unfortunately- from the OPs perspective, if he tries to sell in the current market the selling price is likely to be below the original cost price- which would put him in a negative equity position (particularly as FTBs borrowing capacity is so much reduced from where it was even 12 months ago- they say each 1/4 % rise in rates reduces a FTBs borrowing capacity by 30k). As the property is no longer a new build, on the second hand market it will attract a higher stamp duty rate for anyone else.

    Two options:

    1) Accept that you have no (or negative) equity in the apartment and offload it asap. This will mean that you no longer have to meet the difference between rental income and interest payments (and of course you have all the other costs of ownership- management fees etc). Its quite possible in the current climate that you may get significantly less for the property than you originally paid for it. Put it down to experience and move on.

    2) Seriously look at your finances. Accept that interest rates are going to rise at least another 50 basis points (this year and more depending on the state of the continental economy- which looks rudely healthy at the moment). Reprioritise your personal expenses and put more and more money aside to cover the shortfall in rental income and other costs. While all your costs as a rental property are tax deductable, if you have no net income on which to deduct the tax, its pretty irrelevant......

    Are you in a position where you can carry the extra monthly cost? Yes or no.
    Are you in a position where you can accept that you have made a capital loss on the property (note: depending on the property this capital loss may be tax deductable- depending on your circumstances- check with an tax accountant). Yes or no.
    Which position is most tenable to you? An ongoing drain on your finances or a single once off hit (of an indeterminable amount).

    Your timing for the purchase was most unfortunate.


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    #5
    Zambia
    Closed Accounts Posts: 7,333 ✭✭✭Zambia


    Yes smc is correct I shoud have made myself clearer you would really need the market to come back very strongly to cover the initial mortgage + the interest over the years.

    I mean if the flat was to come out of the slump well then as the OP still owns it and the selling price will cover the mortgage and interest payments. And give a return.

    That said I personally would try and sell it.


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    #6
    uberwolf
    Registered Users Posts: 7,580 ✭✭✭uberwolf


    where is it located?


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    #7
    aphex™
    Closed Accounts Posts: 2,338 ✭✭✭aphex™


    Can you not offset the tax you pay on the rent income against the interest loss? Or have you already taken that into account?


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    #8
    uberwolf
    Registered Users Posts: 7,580 ✭✭✭uberwolf


    I would imagine that has been taken into account.


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    #9
    The_Conductor
    Moderators, Society & Culture Moderators Posts: 32,285 Mod ✭✭✭✭The_Conductor


    aphex&#8482 wrote:
    Can you not offset the tax you pay on the rent income against the interest loss? Or have you already taken that into account?

    For buy-to-let properties, the entire interest is tax deductable *against rental income* for the landlord. He/she unfortunately cannot offset this interest against other income (for example PAYE income). If the landlord had other rental income- this could be factored into the equation. This is unless the property is of a special tax designation (for example the well known Section 22 & 40 designations)-where all income earned may be taken into account (depending on the particulars of the schemes in question).


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    #10
    tudy68
    Closed Accounts Posts: 2 ✭tudy68


    the apt is in ashtown, off navan road. it's a good location. letting seems not a problem at that location. however, prices seems to have gone down there by 10K in the last 6 months so if I sell it now I may be in loss of 3-4k (not sure..).

    But on the other hand if i keep for long term say...5 years, still I don't think there is any gain i.e.
    { (monthly loss for 5 years due int rate increase + loss of interest on equity) > 5% capital appreciation each year).

    It is quite surprising how investers invested in south dublin area apts are still surviving in this market conditions....

    td


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