Keep or Sell?

bamayang

Hi, hope this is the right area to ask, just looking for opinions on the following:

Bought an apartment 6 years ago for €40K. €36K Mortgage of €200/mth over 15 years. Couldnt afford much more in repayments at the time.
Has consistently been rented at roughly €6/700 per month.
Have a mgmt company looking after it and i dont get much or any hardship from it or the tenant.
Someone approached me to see would I sell it for €110K, which is probably on or about €5K above market value.

I have my 'forever' home mortgage of €300K for next 28 years.
I could make plenty of uses of the money, but i dont have anything aside from home mortgage that desperately needs the money towards.


What would you do?

JimmyMW

bamayang wrote: »

Hi, hope this is the right area to ask, just looking for opinions on the following:

Bought an apartment 6 years ago for €40K. €36K Mortgage of €200/mth over 15 years. Couldnt afford much more in repayments at the time.
Has consistently been rented at roughly €6/700 per month.
Have a mgmt company looking after it and i dont get much or any hardship from it or the tenant.
Someone approached me to see would I sell it for €110K, which is probably on or about €5K above market value.

I have my 'forever' home mortgage of €300K for next 28 years.
I could make plenty of uses of the money, but i dont have anything aside from home mortgage that desperately needs the money towards.


What would you do?

Assuming your in the high tax bracket and paying approx 50% tax on that €6/700 per month, I would personally sell it. Then put money into mortgage and put the surplus monthly money from your lower mortgage payments and elimination of second mortgage into a pension, which is tax free upto 20% of your income I believe. You may have had no issue so far with renting, however you could get an awful time in the future with it, you never know, and you have over doubled your money which is a great return, just note you will need to pay CGT tax on the €70k of 33% assuming it is has never been your PPR.

Based on the above and a very rough calculation you would be better off somewhere between €0/100 per month not accounting for the tax free pension contribution. Also note I have not accounted for management fees or maintenance and repairs of the property in the above rough calculation which will increase the above figure to well over that in my opinion.

Browney7

bamayang wrote: »

Hi, hope this is the right area to ask, just looking for opinions on the following:

Bought an apartment 6 years ago for €40K. €36K Mortgage of €200/mth over 15 years. Couldnt afford much more in repayments at the time.
Has consistently been rented at roughly €6/700 per month.
Have a mgmt company looking after it and i dont get much or any hardship from it or the tenant.
Someone approached me to see would I sell it for €110K, which is probably on or about €5K above market value.

I have my 'forever' home mortgage of €300K for next 28 years.
I could make plenty of uses of the money, but i dont have anything aside from home mortgage that desperately needs the money towards.


What would you do?

Based on the dates, are you eligible to have full CGT relief on the gain? If so, after you do the maths, selling may be the economical action as the longer you keep it, the more your CGT relief will get diluted.

riclad

you can claim 100 per cent tax credits for all repairs, accountants ,agents fees,management fees ,prtb fees
100 per cent of mortgage interest .
i,d hold on to it,
as you are making a profit every year.
make sure the tenant is registered with the prtb as required by law

JimmyMW

Browney7 wrote: »

Based on the dates, are you eligible to have full CGT relief on the gain? If so, after you do the maths, selling may be the economical action as the longer you keep it, the more your CGT relief will get diluted.

Im not aware of that CGT relief, can you expand on that please?

OP if you do qualify for that relief its a complete no brainer IMHO

JimmyMW

riclad wrote: »

you can claim 100 per cent tax credits for all repairs, accountants ,agents fees,management fees ,prtb fees
100 per cent of mortgage interest .
i,d hold on to it,
as you are making a profit every year.
make sure the tenant is registered with the prtb as required by law

IMHO that still does not stack up, 100% relief on those will still only be small change in comparison to the tax free pension contribution and if CGT relief is available it completely sways the argument to sell

Mad_maxx

bamayang wrote: »

Hi, hope this is the right area to ask, just looking for opinions on the following:

Bought an apartment 6 years ago for €40K. €36K Mortgage of €200/mth over 15 years. Couldnt afford much more in repayments at the time.
Has consistently been rented at roughly €6/700 per month.
Have a mgmt company looking after it and i dont get much or any hardship from it or the tenant.
Someone approached me to see would I sell it for €110K, which is probably on or about €5K above market value.

I have my 'forever' home mortgage of €300K for next 28 years.
I could make plenty of uses of the money, but i dont have anything aside from home mortgage that desperately needs the money towards.


What would you do?

Its a no brainer , keep it , its an incredible yield

if fearful about encountering a problem tenant down the road , you could lease it to the local authority for twenty years , guarenteed rent and no dealing with tenants

Browney7

JimmyMW wrote: »

Im not aware of that CGT relief, can you expand on that please?

OP if you do qualify for that relief its a complete no brainer IMHO

Sorry, it's pre 31 December 2014 so would now be 7 years so dates probably don't align.

Noonan brought in an investor relief for property that if the property was bought and held for 7 years the gain would be CGT free (7 year period later changed to a min of 4). On the Revenue website under CGT

Manion

You'll need to pay capital gains tax on the difference between what you paid and the value of the property now. This should be a pretty straight forward financial calculation. What would 80K off your home mortgage do for you over the mortgage term in reduced interest repayments? Would it brink you into a lower mortgage interest rate bracket as your loan to value ratio has improved?

Over the next 15 years, you'll spend roughly 100K on interest @3.0 APR given a 300K mortgage versus 60K if you pay off 80K from your mortgage today. A saving of ~40K over the period. On the flip side if you pocket 700 euro a month over 15 years (which seems unlikely as you'll have cost over those 15 years) that's ~72K in revenue and 24.5K in profit after tax and mortgage repayments (this is very rough)

Adjust numbers as appropriate based on your own mortgage. Now during that 15 years, you'll have paid off your mortgage on the rental property so potentially so that should be factored in. At the end of the day, if you sell you'll be better off financially month on months based on what you've outlined, if that's something that is important.

JimmyMW

Browney7 wrote: »

Sorry, it's pre 31 December 2014 so would now be 7 years so dates probably don't align.

Noonan brought in an investor relief for property that if the property was bought and held for 7 years the gain would be CGT free (7 year period later changed to a min of 4). On the Revenue website under CGT

Thanks, I remember that one alright, however I had it in my head you had to hold for 10 Years, either way its prob not relevant to the OP

3DataModem

Once the mortgage is paid off, you have about 7k per annum passive gross income for life (allowing for costs), starting in about 8 years once the mortgage is paid off.

Yes, you are paying income tax on it. To me that is worth WAY more than 70k now. A 60 year old man could get a life annuity for 7k per annum and it would cost him about 200k. You have that in perpetuity from the moment your 30k mortgage is paid off.

Retiring early is all about passive income, imo.

bamayang

Thanks for the feedback. I’m still unsure as to what to do. It really doesn’t provide me with any hardship and therefore is a nice income.
I’m leaving towards a sale, mostly on the gut feeling that there is going to be some form of a recession in the next 2-4 years and it is unlikely to ever be worth more.

I am aware of the CGT ruling from 2014, just missed that one

Manion

Tbh it's hard to advise you on what to do as there as specifics to your goals and situation which you probably don't want to share publically. This is where independent financial advice comes in.

Browney7

bamayang wrote: »

Thanks for the feedback. I’m still unsure as to what to do. It really doesn’t provide me with any hardship and therefore is a nice income.
I’m leaving towards a sale, mostly on the gut feeling that there is going to be some form of a recession in the next 2-4 years and it is unlikely to ever be worth more.

I am aware of the CGT ruling from 2014, just missed that one

Just to flip the psychology of the situation around for a minute: if you had 110k extra in your bank account in the morning, would you buy the apartment to rent out long term?

bamayang

Thats a good question, I dont think I would invest in it as I dont think it has that much room to appreciate.


Something to note, which I didnt include in original post (just to keep things simple) is:
I bought it at an auction, and it was a pack of 2 identical units. I have the second one next door with same return and technically same value. Would that impact your original judgement/thoughts?

AnRothar

bamayang wrote: »

Something to note, which I didnt include in original post (just to keep things simple) is:
I bought it at an auction, and it was a pack of 2 identical units. I have the second one next door with same return and technically same value. Would that impact your original judgement/thoughts?

Apartment 1 mortgage "40K"value "110K" and apartment 2 mortgage "40K" value "110K"?

This is a different kettle of fish to having just one.

Your "exposure" is shared across both.
Chances of having 2 dodgy tenants at the same time is statistically remote.

bamayang

AnRothar wrote: »

Apartment 1 mortgage "40K"value "110K" and apartment 2 mortgage "40K" value "110K"?

This is a different kettle of fish to having just one.

Your "exposure" is shared across both.
Chances of having 2 dodgy tenants at the same time is statistically remote.

Ya everything identical. In the 10 collective years of renting I’ve had one bad tennant for 6mths who left very promptly. Otherwise been pain free apart from interviewing about 50 candidates.

Mad_maxx

bamayang wrote: »

Thats a good question, I dont think I would invest in it as I dont think it has that much room to appreciate.


Something to note, which I didnt include in original post (just to keep things simple) is:
I bought it at an auction, and it was a pack of 2 identical units. I have the second one next door with same return and technically same value. Would that impact your original judgement/thoughts?

you dont know whether or not it has more room to appreciate , no one does

I didnt know you had two when i posted earlier , maybe selling one of them is a wise enough idea , you get to keep one and see for yourself whether or not it appreciate more

JimmyMW

If it were me id be selling both, the theory in Ireland regarding rentals i always find to be seriously flawed, IMO you should sell when prices are high and buy when prices are low, rent should only be seen as money to service the investment between the two stages.

AnRothar

To qualify my statements I am no financial expert. Nor do I work in finance, real estate or taxation.
My comments are based on observers and own opinions only.

You have 2 properties.
Both are held for approximately 6 years.


Based on the figures you quoted earlier it would appear that after costs they are turning a profit.

All figures are approximate based on the numbers quoted in post 1.
€200pm out vs €600pm in leaves €400 or so left over. Assuming a rough 50℅ of the income for tax (this is approximate for the purposes of illustration only) so allow €300.
I have no idea what the management costs are.

Rough profit is €100 per apartment per month or about €5000 per year for both.

Allowing one dodgy tenant for 6 months in one apartment is a "lost" income of €3600 in a 6 year period.
So a "rainy day fund" soul need to cushion this and have a buffer for unexpected things.

You should have made over €25000 during the 6 years you have owned the properties.
And for the next 9 years you should clear approximately €37500 (9/6 =1.5: 25*1.5=37.5).

Or if you sell just one the future potential income reduces by 50℅.
But the likelihood of a problem tenant costing you is no longer shared by 2 separate units so must be a factor.
Any other economies of scale are also gone.

Now the offer is €110,000. So potential gain is €110,000 - €36,000(less whatever has been paid down over the 6years).
I know very little about capital gains so cannot include it.
€74,000 now less tax and selling costs is what you could potentially get.

Whatever your domestic situation is or long term plan's are just also be considered.
So too is the location and likelihood of been able to rent both consistently.
2 apartments at €40,000 at an auction 6 years ago leads me to suspects that they may not in upmarket neighbourhoods.
There are a multitude of factors involved.

Random strangers on the internet can give some useful suggestions but it might be better to sit down with someone who will ask you some pertinent questions.
Remember you only raised the fact that there is 2 apartments in post 15.