Negative equity.. what to do

mrsbeale

Hi
Bought house in mid 06 with plan to extend , planned to finance it by selling investment property, now family home is in neg equity and timing bad to sell other properties... really need to extend .. any solutions, cant sell current house as would loose too much due to neg equity and cant sell investment prop, they are currently rented out and just paying from themselves... a dilemma indeed... any ideas/suggestions welcomed !!!

Fatloss08

wait till prices goback up

just sit tight

id love to sell but lose my backside on it

rockbeer

Let the house you're living in and rent yourselves a bigger one to live in for the time being.

Senna

are the investment properties in negative equity also?

uncanny

why can't you sell the investment properties?

SimpleSam06

mrsbeale wrote: »

Hi
Bought house in mid 06 with plan to extend , planned to finance it by selling investment property, now family home is in neg equity and timing bad to sell other properties... really need to extend .. any solutions, cant sell current house as would loose too much due to neg equity and cant sell investment prop, they are currently rented out and just paying from themselves... a dilemma indeed... any ideas/suggestions welcomed !!!

In my opinion, house prices aren't going to reach 2006 levels for a decade or more. I'd expect them to level out around 2012-2013, and then climb slowly in line with inflation. Which means of course that even if you do sell them at 2006 prices, you've taken a considerable loss with inflation factored in.

I base this on the premise that house prices are not dictated by healthy supply and demand, or normal market forces, but are instead controlled by the amount of credit the banks are willing to lend out. This in effect artificially lends itself to the demand side as it creates investors from the easy money.

After the credit crunch is through with the global economy, it will be a long, long time before anything like the easy credit that existed from 2000 to 2006 ever returns.

Basically you can forget about positive equity in any useful timeframe.

A lot depends on your particular situation. If you can't repay the mortgage on one house the bank can and will seize and sell it, and you could find yourself moving out the tenants in the other one, so you can live in it! Which would leave you in the position of having to repay another mortgage straight away, without the benefit of tenants. These are the stark truths, I'm afraid. If you can't repay the mortgage in any way, you'll need to sell one.

mrsbeale

Hi
Investment prop not in neg equity, LTV has reduced but at present there is some ( not too much ) equity in both, not enough to borrow on the strength of though.
We are able to afford repayments on family home but would be too stretched to borrow what we need to do the extension, we had planned to do that work by selling off investments.
Like the idea of renting it suggested , i wonder how that would work tax wise

silverharp

mrsbeale wrote: »

Hi
Investment prop not in neg equity, LTV has reduced but at present there is some ( not too much ) equity in both, not enough to borrow on the strength of though.
We are able to afford repayments on family home but would be too stretched to borrow what we need to do the extension, we had planned to do that work by selling off investments.
Like the idea of renting it suggested , i wonder how that would work tax wise

You need to be cutting down your debt, and you need to think about how secure your other income is, seriously, planning to carry out extensions unless you have savings or very little debt is beyond risky, this is a generational property crash especially from an Irish perspective, fair value may end up being 98/99 prices.

antoinolachtnai

Tax would be an additional burdenif you rented to rent, unless you have a very high interest bill or a section 23 capital allowance. That's because you would have to pay tax on all your rental income, but you would be paying rent out of your taxed income. Still, if the right property were available, it might work for you. You just have to do them maths.

I would consider a more modest building project if I were you, and I would make sure to get the best price. It could well be that the reduction in the building cost that is possible in this climate is as big as the drop in the value of the investment property.

I do not think it is a good time to sell an investment property, but if you have to sell, you have to sell. I'm not sure if you are saying you have more than one investment property. If you have, I would say you should stick with it and try to hold on to them if you can.

ronbyrne2005

How many investment properties? If more than one you should maybe consider reducing your exposure to Irish property market as your plan for easy wealth through speculation does'nt seem likely to materialise.

ZYX

Simple question. If you did not already own your investment properties would you buy them now? If the answer is no then sell them. If the answer is yes then keep them.

antoinolachtnai

ZYX wrote: »

Simple question. If you did not already own your investment properties would you buy them now? If the answer is no then sell them. If the answer is yes then keep them.

That is not true. It depends on the properties. It also depends on the tax position. Property is or can be a good tax shelter. This particularly tends to be the case if you have more than one of them.

It may make sense to 'hold' properties even if it wouldn't make sense (or be possible) to buy them today. It costs so much to get back into property later (or to get into some other type of investment).

In fairness, the OP hasn't necessarily been speculating. She may have been buying with the longer term in mind.

The OP could use the drop in interest rates to provide some room to finance or save for the extension.

rockbeer

ZYX wrote: »

Simple question. If you did not already own your investment properties would you buy them now? If the answer is no then sell them. If the answer is yes then keep them.

Such a simplistic approach can only be misleading.

The decision to sell or not depends on loads of things: when purchased, price paid, current value, term of loan, rental income generated, tax benefits...

mrsbeale

have two investment properties, on a fixed rate interest only mortgage for the next 7 years for both of them, have not been liable to any tax on either of them yet because we have a high interest bill and with our capital allowances , have had loss to carry forward each year ( not huge amount)
One property would sell easier than the other but seems mad to sell when prices so bad, we would have to vacate the tenants and would have to pay mortgages while we try and sell, surely that would eat into any equity !
Extension could be done on a phased basis to current house but would not give us space needed even if we got good price for first stage of the job .
one of the investment prop(more risker one) is on a long term lease , paid by goverment funding, other one is really central and has not been hard to rent out.
Large part of ppr mortgage is interest and rent would not pay mortgage so maybe would not be liable to tax, that amount could be used to rent bigger house and we could put the extra amount that we could stretch to add to rent. If we saw it as a medium term solution and when interest only term 9 7 years left )on investments are near the end look at what we could do ( ie selling some of the prop !)
Even if we do scaled plan of extension it is way off what we need, at least if we rent we could get somewhere bigger ! If we did some renovations of PPR with a view to renting it can we claim capital allowances !
Or is it far to risky ... three properties rented, 2 with some equity, one with neg equity !!!! sounds mad when you put it down in b/w or is it workable.......
all these suggestions really great though
These are all still ideas.. really have to do the sums

antoinolachtnai

If you sell a mortgaged investment property and you are on a long fixed rate, then there will be big interest penalties to pay and you need to factor that in on any calculation to sell. In my experience, interest penalties are not tax-deductible (at least they weren't when I investigated the matter a few years ago, but you should check this as it will be critical to your decision).

If you have a big interest bill, it might well make sense in theory to rent a bigger house and let your own, using the interest to shelter you from the tax.

If you have significant losses carried forward for tax purposes, you may have to stay in the buy-to-let game in order to get allowed for those losses.

I am concerned though, at how leveraged your income will be at the end of all that. If anything at all goes wrong with your main income, then you will be in a serious situation.

I would not be doing any renovations to any properties you plan to rent, unless you really are sure you have the cash to do it.

This is all top of the head stuff. You really need professional advice here, any further moves could put you in a precarious situation. (You may well be in one already, depending on what your main income is.)

mrsbeale

We both have secure jobs, are not affected by current downturn (luckily).

If we did renovate ppr to let it they would be minimal.. really just to freshen up the place,was just wondering how we could claim back that expense if we went ahead.
When you say professional advice , who/what profession do you mean ?

antoinolachtnai

You probably could write it off. But the last thing you guys need is another tax write off. By the sounds of it, you are losing so much money that worries about tax bills from your properties are some way away.

On advice, I think you ideally need

- tax, accounting and financial planning advice (from accountant/tax advisor) to work out what the scenarios are and what works best for you in your circumstances

- real estate advice (from friendly estate agent) to figure out if you can actually get the rents you need to keep everything going, and if you can realistically rent what you need for the money you will have.

- you may also need some sort of retirement planning or something to figure out where you are going with all of this. You are going to be managing three properties and living in a fourth, but at the end of this, as the property pessimists will point out, you may not end up actually owning very much of anything. You tax advisor might be able to help with this.

So that's a lot of issues at stake. At a minimum I would get your accountant or tax advisor to go through the scenarios with you.