To sell or bear it out?!>

chanpan

Hi all,
There is alot of talk on this forum about greedy landlords raising rent, well I must be one of those few generous gems or is it stupidity? I have a small 2 bedroom cottage in the burren and a great tenant who has been there for 2 years. When he first moved in I set rent quite low as the cottage is in quite a "rustic" condition and I was delighted to have a tenant at all in such an isolated spot. (great for holiday rentals but not long-term) Following the recent hikes the rent no longer covers the mortgage let alone all the extras like insurance. Basically it is costing me about 1000 a year to keep.

I have recently relocated to New Zealand and would love to buy over here, but that means selling up at home. I am considering 3 options. The first is to hang on for an upturn in the property market - if it's going to happen?! The second is to cut my losses and sell straight away for a lowish price with won't make me much money. The third is to borrow further and expand the property, hopefully realising a higher sale price.

Anyone got any opinions or suggestions on what to do.

Thanks

mathie

I was in a similar position and was told not to do 'major' renovations to a property and then sell it.
Sure tidy it up, paint a little but adding an extension etc isn't meant to be worth what you'll make.

If I were you I'd increase the rent and if the tenant chooses to bail either find another tenant at the higher rate or sell up

m_stan

You've two discreet issues here. 1). Your income on the property isn't covering your costs and 2). you need/want some capital to fund another property elsewhere.

First things first, up your rent to cover your costs at least. You are not a charity and should be at least covering your costs so you can rely on capital appreciation on the property. Ideally you'll be making a small profit monthly too. Recnt rate increases should justify an increase in rent. Don't feel bad - you are running a business.

Your second issue is a seperate one. Your options there can only be evaluated based on what prices in the area are like, and looking into that all-elusive crystal ball so you can tell what will happen to property prices in the future If you aren't going to get a big enough price by selling at the moment, and you're going to pay full rate for extending in an isolated location, you might be better off hanging on in there - esp if your tenant agrees to pay an increased rate. Only a property expert in this specific area can truly advise on this one.

Good luck !

Calina

m_stan wrote:

....Recnt rate increases should justify an increase in rent. Don't feel bad - you are running a business.

except they don't. The only justification for raising rent according to current legislation is prevailing market conditions: ie he can only raise in line with prevailing market rents for a similar property. What the landlord's costs are are irrelevant. If the current tenant decides to move, how hard is it going to be to replace him/her? This is a key problem. Just one months' vacancy might wipe out the potential gains for at least 12 months and given the location, the vacant period might be longer.

Ultimately - this is going to be a problem for a lot of other people as they find out the hard way - that rentals are not set by landlord costs but by supply and demand. Currently there is a slight increase in demand versus supply but it's starting to swing back again.

Why keep a property in Ireland if you are planning to live in New Zealand? I wouldn't do it myself. The location is nice yes, but I'm not all that convinced that Clare is short of property and whether you'll be able to make a lot of money it depends on waht people in Clare want to buy in the future. My money is rustic cottages will sell but with a big discount compared to other property.

You really need to talk to a property investment expert. You should consider the wisdom of having so much capital tied up here in what is an increasingly illiquid asset particularly if it has associated costs which are not guaranteed to be offset.

bugler

I'm definitely with Calina on the rent issue. It's all well and good saying raise it, but what if the tenant leaves? I can't imagine the demand for year round rentals in the Burren is that high. What if it takes 3 months or more to get someone in?

Before you consider upping the rent make sure the prospect of getting someone in to replace the tenant is realistic.

chanpan

It took me 7 months to find this tenant originally and almost went bankrupt in the meantime. I know for sure he can't afford a raise in the rent.

It was never my intention to be a landlord but ended up with a partially renovated property after a bad split with my ex partner (I supplied the deposit - he was meant to supply the renovation money!) I had to borrow to the guills in order to make the cottage liveable but wasn't prepared to live in it myself without human company. Thankfully my financial (and personal) situation has improved. I currently only owe about 100,000 on the cottage and it was valued at 200,000 but I'm sure with a bit of work it could reach 300,000 even in the current conditions. I just I don't know if I can go through the stress again, and I'm sure it will be worse doing it from this side of the world.

Saying that with 150,000 I could afford to buy 2 appartments out right over here in New Zealand, One to live in and one with guaranteed rental of 600 PM They say the prices here are going to increase in the next year and with mortgage rate over here at 11% and rising I don't fancy borrowing to buy.

mikemac

It's quite a jump from 200,000 to 300,000 and imo, 300,000 is mad money for a 2 bedroom cottage in rural Co. Clare.
But then it's a nice area so you never know.

Please share how you would add that kind of value to your home as I'm sure everyone would like to know.

Not having a go, just interested to find out:)

tHE vAGGABOND

sorry but I would just sell it - sounds like its far more hassle than its worth and with the money you could get a couple of places [and some cute sheep!] over there in kiwi land .

chanpan

There are a few options I am considering. There is a large loft space which is suitable for conversion into a third bedroom. The original stone dwelling is on the 2 acre site and the restoration has been started on it (by my ex) if this was finished it would be a separate 1-2 bedroom chalet. Our original plans involved building an extension with a second living room with outside decking area and master bedroom ensuite.

I am not comtemplating trying to sell a ramshackle 2 bedroom for 300,000, I am not money hungry or mad :rolleyes: But I would like to see some profit from my investment. If I paid out 50,000 or so in improvements then the asking price could be raised.

As a by the way, there are mad people out there which is why house prices in Ireland are now so high. In 2006 an identical cottage to mine (although without any renovations at all and on only 1/2 an acre plot) 1 mile down the road went on sale for 320,000! There was an article about it in the Irish times entitled "Is it worth it?" and the outcome was "Yes it is!!!" It since sold for the asking price to an international buyer?!:eek:

delboy159

Be careful of "reading that rents are going up".... Yes, in areas where there is a lack of rooms - the cities, employment hot spots etc. However there are many places where there are estates of houses in rural Ireland where they can't rent them for any money!

patrickolee

Lots of unknowns in this question I'm afraid. Don't know exactly how much you would get. How much would the tax man want out of the profits? And could you get a mortgage in NZ with you employment situation etc over there?

But I do think you're better off owning the place you yourself are living in, so if you intend to stay in NZ long term, then thats the direction you should head in. Neither a tenant nor landlord be. Sell up and buy over there. Although it might be harder to sell that you imagine and you might not make as much money as you anticipate.

Good luck with it either way.

Victor

Does the property have any sentimental value?Will you ever want to live there?

chanpan wrote:

Basically it is costing me about 1000 a year to keep.

Can you afford this? What are the implications of having a tax liability in Ireland and NZ?

I would seriously consider selling. In a falling market, buyers will bide their time and will be more willing to buy a property in need of renovation. By all means point out the strong points, but don't expect buyers to have the same requirements or tastes as you.

I would strongly consider selling

antoinolachtnai

I wouldn't sell unless you have a really good reason to sell. 1000 a year to keep an appreciating asset going, including finance is not a lot. The rent will cover that in a few years, and the mortgage will run out eventually.

If you didn't have this property, what would you put the 1000 euros into that would give you a better yield? Is NZ property really a better bet? Could you buy a property in NZ and keep this one?

Hopefully the tenant or agent is aware that you are a non-resident landlord and is witholding 20 percent of the rent and submitting it to the revenue.

Bluehair

antoinolachtnai wrote:

1000 a year to keep an appreciating asset going, including finance is not a lot.

But a thousand euro a year to keep a depreciating asset going seems insane. Sell it now while the goings good and use the capital to help set yourself up in New Zealand.

antoinolachtnai

It depreciated once. So what? If he'd were holding shares, they'd depreciate once in a while too.

It's definitely not insane. It's a better investment than putting 1000 euros a year in a deposit account, for instance.

It would be different if he owned 100 houses in Clare, but he only owns one.

If he really wants to sell it, the thing to do might be to decide what price he needs to get for it, put it for sale quietly, and wait to get that price.

Bluehair

antoinolachtnai wrote:

It depreciated once. So what?

Good grief :rolleyes: I don't even know where to begin here. It depreciated 'once'?? Quote this thread in years to come but i think any reasonable investor is well out of property these days...

antoinolachtnai wrote:

It's definitely not insane. It's a better investment than putting 1000 euros a year in a deposit account, for instance.

He doesn't mention what the property value is but let's be conservative and say 200 grand. Best estimates say he's lost over 5 grand on that so far this year plus the 1000 euros he's putting towards the property. Sticking the grand in a deposit account would probably net him around an extra thirty or forty quid at the end of the year.

Using your 'better investment' i make him minus seven grand at the end of the year versus the deposit account.

antoinolachtnai wrote:

It would be different if he owned 100 houses in Clare, but he only owns one.

What difference would scale have to do with it? If this is the only investment he has he's dramatically over-exposed to one asset class regardless of your opinion about the future of property.

antoinolachtnai wrote:

If he really wants to sell it, the thing to do might be to decide what price he needs to get for it, put it for sale quietly, and wait to get that price.

The market will decide the price he gets and no amount of 'waiting to get that price' will change that. 'Putting it for sale quietly' seems like a sure-fire way to limit your market

antoinolachtnai

Bluehair wrote:

Good grief :rolleyes: I don't even know where to begin here. It depreciated 'once'?? Quote this thread in years to come but i think any reasonable investor is well out of property these days...

There are plenty of people holding property. Many of them are reasonable people.

He doesn't mention what the property value is but let's be conservative and say 200 grand. Best estimates say he's lost over 5 grand on that so far this year plus the 1000 euros he's putting towards the property. Sticking the grand in a deposit account would probably net him around an extra thirty or forty quid at the end of the year.

Using your 'better investment' i make him minus seven grand at the end of the year versus the deposit account.

So what? It's a long-term investment. How much did it gain in the 10 years before that? And remember, the gain was geared. If the property is worth a notional 200k, he bought it five years ago for 160k, and he got an 80 percent mortgage, then his total investment to date is only 32k +1k/year = 37k. So for his initial investment of 37k, he's made a gain of 40k, that's the equivalent of 16 percent per year, 5 times the risk-free rate of return over the period.

Also, it depends on the particular property. There are properties going up in value this year, and there are other properties going down by more than the number you read in the newspaper. Are they throwing up new houses all round the Burren and thereby eroding his value? Maybe they are, but I doubt it.

What difference would scale have to do with it? If this is the only investment he has he's dramatically over-exposed to one asset class regardless of your opinion about the future of property.

He has other income, obviously.

Diversifying a small portfolio is not necessarily a good idea. It increases the complexity and cost of management. It is one of those things you read about in investment books alongside discussions of volatility and betas. It doesn't necessarily have a lot to do with real life.

He can always offload one house in a hurry if he needs to. Offloading 100 houses is a whole different deal. Refinancing one house in an area is a lot easier than refinancing 100.

If he tries to sell this now, he will end up with a capital gains bill and he will have to pay the switching cost of moving the money into a different investment. That could easily cost him 20k, based on your notional value.

The market will decide the price he gets and no amount of 'waiting to get that price' will change that. 'Putting it for sale quietly' seems like a sure-fire way to limit your market

He only needs one person to buy his house at the price he wants. A cottage in the Burren is quite a special thing, and that person will find the property if they really want to find it and really want to pay the price. They may not be in the market today, but they might be in the market in a year's time.

The OP is not in a fire sale situation. If the OP can wait, he will be in a position to get a better price.

If you manage to induce panic selling of property, then this advice might turn out to be wrong.

SMH

chanpan wrote:

There are a few options I am considering. There is a large loft space which is suitable for conversion into a third bedroom. The original stone dwelling is on the 2 acre site and the restoration has been started on it (by my ex) if this was finished it would be a separate 1-2 bedroom chalet. Our original plans involved building an extension with a second living room with outside decking area and master bedroom ensuite.

I am not comtemplating trying to sell a ramshackle 2 bedroom for 300,000, I am not money hungry or mad :rolleyes: But I would like to see some profit from my investment. If I paid out 50,000 or so in improvements then the asking price could be raised.

As a by the way, there are mad people out there which is why house prices in Ireland are now so high. In 2006 an identical cottage to mine (although without any renovations at all and on only 1/2 an acre plot) 1 mile down the road went on sale for 320,000! There was an article about it in the Irish times entitled "Is it worth it?" and the outcome was "Yes it is!!!" It since sold for the asking price to an international buyer?!:eek:

This thread has raised some very interesting points, if I may offer my tuopence worth on your situation :

THE TENANT : A good tenant is worth their weight in gold ... but of course the benefit gained by keeping a good tenant happy should not be outweighted by the financial cost to you of keeping them happy ! Perhaps there is a compromise that helps you and helps the tenant ? You know your tenant best, and it depends on the type of person they are ... but could you have a conversation with them, tell them that it is costing you to keep the place going at the rent being paid and tell them that essentially the rent has to be raised or they can help you with organising the rennovations etc As you are overseas, it is going to be nigh on impossible to organise rennovations without someone on the ground ... maybe the tenant is both a problem and an opportunity.

RENNOVATIONS : Some rennovations will add hugely to the value of a property in the long term but often the cost of the rennovations is not immediately born out in the rise in valuation of the property. Just because you spend €50,000 on rennovations does not mean it will raise the value of the property by a similar amount. It usually does in the long term, but not always in the short term. The key question here is why are you doing the rennovations ? If you are doing them to purely to sell the property immediately after ... then it is best to focus on one thing and one thing only "WHO ARE MY TARGET POTENTIAL BUYERS AND WHAT DO THEY WANT ?" ... If your key target potential buyers are international buyers looking for an "authentic irish rustic retreat" then you spend money only on the things that will add to the rustic charms of the place ... if your target potential buyers are looking for ultra modern chic, then you spend money there and so on. It may seem like an obvious point, but it is worth spending time on figuring out in order of priority who are the key target buyers your property will appeal to. Naturally as with most properties there are a few things that are off putting to most buyers and it is worth spending a few euros to sort those few items out. The room that sells most houses is the Kitchen ! Generally I would not rush into adding major extensions and major structural work without considering very carefully if this is what your buyer wants ... they will not pay extra for something they don't want ... and often with the style of property you describe they want the opportunity to rennovate and make their own mark on the place.

TO SELL OR NOT TO SELL : If I understand your postings correctly, it seems that you would like to sell, but think that the market as it stands may not result in the best price for your property. That may be true to an extent, but your property sounds like a unique property and it will appeal to a certain type of buyer and they may not be as affected by the negative sentiment of the market as you would think.

The market for semi-detached homes in some outlying suburbs of our major cities might be "in the toilet" at the moment, but your market is possibly not affected in the same way. Similarly when those self same semi-detached homes were flying out the door, your property may not have sold half as quickly. Essentially, I think if your property is well presented and targetted at the right market it will sell. Don't expect overnight results because I think the market you are probably aiming at is smaller than the general market. However if you can manage to keep your tenant on board for the duration of the rennovation/sale ... who cares how long it takes, and stick to a fair price, market it well on the internet yourself to international buyers and put it with a very good local agent and I'm pretty sure you will get a good result.

All the very best with whatever you decide.

Zambia

Hmm interesting here are the points that strike me

1 : 100,000 Euro is a good return, your estimate of a 200,000 euro return for a 50,000 upgrading investment is in my opinion not worth the extra return. As you know the renovation will cost you that and do not know the return for sure. If you can sell I would do this.

2: You live in New Zealand the idea of keeping tabs on a building project in the Burren is too far. The sale will be hard enough at that distance.

3: If it goes on the market and does not sell you will have lost your tenant. (trying to sell with a tenant in situ is not a good idea)

4: 1000 a year for an investment that could go up by several thousand in one year in any upturn may not be a bad option. If you can afford this imposition (+ further possible rate rises) financially for a few years it may be a handy retirement package for you. Consider renting in New Zealand safe in the knowledge you have a nest egg in the costa del Clare.

Sorry I see no thorn free option.

Best of luck.

Z

chanpan

I want to thank everyone for their suggestions and opinions - it was an interesting debate. I thought you'd like to hear what I've decided. After speaking to the auctioneer whom I originally bought the house through in 2002, he recommended I sell, and in fact has a few buyers in mind. He has told me the Interest in doer-uppers in the burren, especially old style cottages has increased as planning permission is now nearly impossible to get in the area. Even better news he has valued the cottage "conservatively" at 245,000!

I want to be fair to my tenants so have written to them giving them 4 months notice before I put it on the market. I have also them offered them first refusal on buying the cottage and taken the gross amount of the rent they have paid off the asking price for them, I don't think I can do much more.

After paying off my mortgage, bills and taxes I should be left with a decent lump sum, enough to buy a house outright over here in New Zealand where prices are significantly lower than in Ireland and are destined to rise. Happy days

Thanks again

Zambia

chanpan wrote:

Thanks again

Your welcome this seems like a good plan.

IMO opinion you are being very generous in your notice period , however that is too your credit. Just bear in mind you will be in January then and a bad selling period. Be prepared for a long sale at that time. I would (if you can offer the standard month and first refusal) This would have the property on the market in October.

The price if the EA can get it does indeed seem a god send especially without the work being done.

Best of luck

z

If the feeling takes you could you PM me a link to the sort of apartment you would pick up in NZ for 75,000 yo yo pure interest like.

Raskolnikov

Well done, it sounds like you've taken the correct course of action.

Victor

Just watch you tax situation, with you being out of the country.