I'm considering selling a property that i own (joint own with spouse) but lack the financial knowledge to make an informed decision to do so.
Apartment bought in 2006: 310000
Mortgage: Tracker 1.63 + ECB
Rental income: 1250
Management company: 100
General maintenance + insurance: 70
Approx value of apartment 230000-240000
Mortgage remaining 235000
Remaining term 278 months
So I'm looking at a tax bill of approx 50% rental income from here on until the mortgage is paid off
The reasons for possibly selling it are, we are living in a property not suitable for our family and would like to build a house. While at the moment we can afford to get a second mortgage I am very wary of being too much in debt should another recession come about, and possibly losing my job
As mentioned, I am unable to weigh up the reasons to keep it since I cannot get a handle on it as an investment, like what is it worth and what is it costing me in relative terms.
I have a number of friends in similar positions and they never entertain selling their properties as they simply state that "it's my pension" but how can one judge that this is a good approach to having a pension? Is it considered good because property values generally rise in value with inflation? But how do you factor in how much you paid for the property in the first place and the money you put into it over the years into assessing that. How do you compare it with the alternative of putting it in a private pension?
Is one way of looking at the situation is that I have someone (i.e. a tenant) helping to pay the mortgage and so I am putting the amount I owe in a tax per year (probably going to be around 6,000 - 7,000) into it so that in the end I might have an asset worth 240,000 plus inflation? How do you determine if that is a good investment?
I know personal circumstances have to be considered when discussing investments but if anyone could offer some general advice on things to consider here, it would be much appreciated
You are looking at part of your situation in isolation so may get a skewed advice.
The status of your current residence is important too.
Are you renting it?
Do you own it outright?
Do you have a mortgage on it?
If you own it will you be selling it too?
How much is the outstanding mortgage?
Viewing a rental property as a "pension" is possibly fraught with danger.
Do you have a workplace/personal pension?
Would you be reliant on the rental income as your sole "pension" or to supplement another pension?
If you are "reliant" on the rental income then could you survive without the rental income should you have a issue with your tenant or even during a period where you have no tenant?
While you may get some useful advice from randomers on the internet you could be better off paying for advice based on your personal circumstances.
Bear in mind that any advice you get will only be based on the totality of the information you share and what your CURRENT circumstances are.
You have an asset with will in today's terms generate in income of 1250 a month, what would you need in your pension fund to get the same income. I overpaid into my pension before I had a family.. and I'll never see that kind of return, the fund was badly managed in the early days and I've not seen the growth need to have 1M+ in the pot in the next 20 years.
I should have mentioned, we rent our current residence but for a relatively low monthly rent figure. Both my wife (public service) and I have private pensions. At the moment we could survive a period of no rent, but would be considerably more sensitive to such issues if/when we build our house
I appreciate your point about getting financial advice, I did previously but I hadn't clear picture on my tax affairs at the time and didn't make the most of the opportunity for advice. I'll probably do this again shortly
You can offset
80% of the interest you pay or 100% if it's a HAP tenant - I'm going to guess at 250 a month
The mortgage insurance policy. - I'm going to guess at 30 a month
Management company: 100
General maintenance + insurance: 70
Daft fees etc 30
Total deductions 250+100+100+70+30 = 550
Income per month 1250 (if they pay every month) better to budget for 10 months rent rather than 12
Taxable income 700 * 50% = 350 tax per month to pay.
You may have an allowance for fittings and fixtures of 1/8 of the total per year for 8 years but you need financial advice for that.
Your wife has a public service job
While not as gold plated as before it would be a solid foundation for future planning.
Thanks I have a better handle on what it is costing me per month than I had a while ago, so was aware of those details but I guess where I struggle is evaluating it as an investment, in relative terms
Thanks for this, it gives me a perspective that I hadn't really considered, i.e. how much of a pension lump sum I would need to have to have a monthly gross income of 1250 or whatever the rent will be when the mortgage is paid off
Bought too high but no point closing the stable door now.
If op can afford to keep it it'll be a good pension. Plus eventually op will own it free and clear & the property itself will have real value
I'd imaging its costing you in tax, so while the rent may cover the mortgage repayment, there is no real benefit in you keeping it.
+ there's the added hassle of maintaining it.
If you can get out and make a little profit on the sale of it, that's what I would do. Unless you want to be a landlord and enjoy paying tax on an income that you're not really making a profit on.
Back of a fag packet maths looks like you're making approx €370 a month keeping it. Taking into account
-Appreciation of the asset basd on current value (at a very conservative 2%
-Rental Income after tax
-expenses maintaining/letting the property (Assuming nothing crazy happens)
draiochtanois above spelt it out quite well already.
Everyone will make different assumptions on the maths. At the end of the day you're the one best placed to make the call on whether it's worth it.
**Should probably mention if you don't take into account appreciation of the asset, you are losing money each month on this.
This times 1000.
You can't just look at the 1250 as gross income and say that's your pension, you need to look at the net figure. You also have to factor in the inflexibility in having your pension in property and being dependent on good tenants and market stability.
Yep, I am aware that the rental income is taxed and that I have other expenses too, I expect to have a approx 5000 euro tax bill each year over the next few years, but I was looking for perspectives on whether it is worthwhile to continue in this vein. I can see now from the responses that there is no right or wrong answer and that opinions vary.
And yes, the impact of bad tenants, changes in the economy and my job status, dips in rental income etc. increasing my debt via a second mortgage are all factors I'm trying to weigh up
Frankly I'd sell and invest the €350 a month elsewhere.
You seem to be asking the right sort of questions and weighing things up properly.
If I'm giving my own opinion - I'd sell. If you're intending to buy/build another home, then you're going to have all your wealth in property and be very exposed to the Irish property market. Diversification into other asset classes would be prudent. I'd also utilise the tax benefits of a pension, both in terms of the tax-free lump sum you can take at retirement and the amount you're going to be able to draw down at 20% income tax versus paying 40% income tax on with the rental income. You'd be able to build a fairly decent model of the monetary differences in a spreadsheet.