Apartment owners - how to trade up?

Lyndan

Hi All,

Looking to hear from people in similar situations.

I own an apartment in SCD and am looking to trade up to a house. The apartment is in a small development and renting it out wouldnt be a problem - our neighbours had someone within 2 weeks. The rent would cover mortgage and management fee.

I am hearing conflicting information about how best to trade up...sell apartment and cover the loss and reapply for mortgage. Rent apartment and rent a house therefore showing we can afford both payments, keep apartment and get a top up mortgage but are any banks doing that anymore.

Would love to hear peoples thoughts?

Thanks

mathie

Lyndan wrote: »

Hi All,

Looking to hear from people in similar situations.

I own an apartment in SCD and am looking to trade up to a house. The apartment is in a small development and renting it out wouldnt be a problem - our neighbours had someone within 2 weeks. The rent would cover mortgage and management fee.

I am hearing conflicting information about how best to trade up...sell apartment and cover the loss and reapply for mortgage. Rent apartment and rent a house therefore showing we can afford both payments, keep apartment and get a top up mortgage but are any banks doing that anymore.

Would love to hear peoples thoughts?

Thanks

Hi Lyndan

What is the mortgage on the apartment and how much would you get?
Have any sold recently? If so for how much?

A lot of people bought apartments as investments or as a 'starter home'.
After all the dust has settled people with buy a 'home for life' and not a 'starter home' - the lie that was fed to us. Did our parents or grandparents buy starter homes to get on the ladder?

Personally I would get rid of an apartment as it'll be a drain.
It may be right now that you could rent it to cover the mortgage but what about when rent reliefs are cut and rents fall? Will it cover it then?
Also you'll have to pay tax on the rent you receive. It could be more of a drain than you think.

Can you present us with any more figures?

D3PO

Lyndan wrote: »

I own an apartment in SCD and am looking to trade up to a house. The apartment is in a small development and renting it out wouldnt be a problem - our neighbours had someone within 2 weeks. The rent would cover mortgage and management fee.

...sell apartment and cover the loss and reapply for mortgage.

need to bring you back to reality here. If as your post implies you are in negative equity there is

a) very little chance your rent would "cover your mortgage" with the way rents have gone in the last few years and the number of properties available.

b) no chance a bank will give you a second mortgage until you reduce the LTV ratio on the apartment significantly.

Reading posts like this make me realise why so many tennants also have problems with landlords. You have clearly put little thought into this.

Its very easy to see that you havent considered the costs associated with renting, tax returns, NPPR fees, switch to investment mortgage interest rates, unoccupancy, etc etc.

if you want a house sell , pay off your negative equity and then buy a house. You pretty much need to hit the reset button.

This might be blunt but its reality

Lyndan

D3PO - your reply is quite blunt yes and maybe had I given you more information you would know that I am well aware of the rental implications having rented the property while I lived abroad for 2yrs. Rent would cover mortgage as I payed a large lump sum when buying apartment.

An you are right I havent put much thought into this its a discussion forum and I am asking for other peoples thoughts on the best way to go about it. If I knew all the answers I wouldnt be looking for advice.

Mattie -

Mortgage is 210k, I think we could get between 180-200k if we sold. Apartments was 320k when I purchased off the plans. None have sold recently, there are none up for sale.

I agree on your 'starter' home comment, it was all we could afford at the time and we thought this was the best way to get on the ladder!

Cheers!

howamidifferent

Lyndan wrote: »

Mortgage is 210k, I think we could get between 180-200k if we sold. Apartments was 320k when I purchased off the plans. None have sold recently, there are none up for sale.

Cheers!

Therein lies your problem. Even if you find an interested buyer, I doubt any bank will give a mortgage today on an apartment as the country is awash with them.

Also, given that falls of 40% seem to be the accepted rate from the peaks of 2007, that would put a maximum value of 192k on your property.
Unlikely any one looking to buy will pay that. They will want to insure against further falls so you would be very lucky to get any offers in excess of 150k in my opinion, if you can get an offer that is....

Lyndan

So sell for what we can get for it then? Is it best to just get rid and cover the loss out of savings and start afresh...

mathie

Lyndan wrote: »

So sell for what we can get for it then? Is it best to just get rid and cover the loss out of savings and start afresh...

If you have savings to cover the difference then it's something to consider.
But bear in mind, as howamidifferent says, an offer in excess of 150K and you'd be lucky. It could be less than that. Could you cover it if you got an offer of 120K or 100K?

I speak from experience.
We sold our starter home in 2009 and we sucked up the difference from savings.
It hurt to have to see our savings disappear just to walk away.
But we rented a tiny for two years and saved like hell and just got our 'dream home' (another phrase I don't like )

I hope things work out for you too.

Lyndan

Yes it would hurt like h*ll to have to pay out our savings like that, I know its all part of the bigger picture.

What are your thoughts on renting? Keeping the apartment and renting it out long term and just renting your home...Id have to get my head around never owning the dream home?!

Tea drinker

Well, are you just feeling it out or have solid reasons to go through this?
It's going to be a lot of work and will cost a lot of money too. Are ye moving to start a family or already started?

I wouldn't feel too bad about the Neg equity, you got the tax relief on mortgage payments, and even people who were renting could be down similar amounts, depending how long your mortgage is running for.

D3PO

Lyndan wrote: »

Yes it would hurt like h*ll to have to pay out our savings like that, I know its all part of the bigger picture.

What are your thoughts on renting? Keeping the apartment and renting it out long term and just renting your home...Id have to get my head around never owning the dream home?!

why so. IF and I still think its a big IF you belive you can cover the apt mortgage with rent after filing tax returns (despite you saying you have done it for 2 years) rents are falling and interest rates are rising now which wouldnt ahve been the case then I suspect.

And you can rent a house in an area that you would like to buy in, plus continue to save.

You might be in a position down the line to reevaluate and get that dream home. It might be 5 - 10 or even 15 years down the line, but depending on how the housing market continues to go it could be significantly less.

mathie

Lyndan wrote: »

Yes it would hurt like h*ll to have to pay out our savings like that, I know its all part of the bigger picture.

What are your thoughts on renting? Keeping the apartment and renting it out long term and just renting your home...Id have to get my head around never owning the dream home?!

I know a few people who have tried this ... Keep the investment property and rent it out.
Every few months the amount that they have to hand-out to cover the mortgage just keeps going up.
Renter wants a reduction, interest rate goes up.
It gets to a point where it's too much and they sell.

It might be an option for you - it all depends on the sums.

Lyndan

We have a 1yr old baby so the need to trade up is becoming a reality now. We have quite a big 2 bed apartment so its not a huge issue right now but Id like to be making a decision either way in the next 6 months.

Maybe you are right about just putting off buying the house for 5-10yrs. We could rent out the apartment and rent a house big enough for us and just keep saving. I do understand the negative sides to renting and I know the apartment could be empty, I know there is a cost of maintaining it and I know I have to pay tax on any rental income. And I know interest rates are going up, we are lucky enough to be on a tracker, I have heard that they might take us off this once we rent it out (anyone know about this?)

Keep the ideas, comments and opinions coming - would love to see what others in the same situation have done.

Thanks!

Theboinkmaster

Lyndan wrote: »

We have a 1yr old baby so the need to trade up is becoming a reality now. We have quite a big 2 bed apartment so its not a huge issue right now but Id like to be making a decision either way in the next 6 months.

Maybe you are right about just putting off buying the house for 5-10yrs. We could rent out the apartment and rent a house big enough for us and just keep saving. I do understand the negative sides to renting and I know the apartment could be empty, I know there is a cost of maintaining it and I know I have to pay tax on any rental income. And I know interest rates are going up, we are lucky enough to be on a tracker, I have heard that they might take us off this once we rent it out (anyone know about this?)

Keep the ideas, comments and opinions coming - would love to see what others in the same situation have done.

Thanks!

I'm open to correction but i think probably under the T&Cs if you moved out of your apartment and rented it, and you rented another house, you'd lose your tracker mortgage.

However i think many people doing this just don't tell the bank, and thus keep their tracker rate.

Ardent

I'm in almost exactly the same situation and my point of view is that that's better to rent elsewhere than to take a hit on your savings as a result of selling your apt. If you're confident you can rent the place out reasonably consistently, and if the rental income goes a long to covering the mortgage repayments, I would go down that route. Then it's just case of paying a little more than you currently do to live in a bigger place.

You'll have the apt for the long term with this approach. What are the management fees like?

ricman

theres older houses going for 100k,120k, in dublin,if you are handy at decorating,painting,
usually says needs modernisation, eg redecoration,the furniture ,fittings would be from the 80s. eg basic i see n 1 in estate agent today ,as i was leaving fairview.
most of the furniture would need replacing.i think it had 3bed rooms.

eclectichoney

Ardent wrote: »

I'm in almost exactly the same situation and my point of view is that that's better to rent elsewhere than to take a hit on your savings as a result of selling your apt. If you're confident you can rent the place out reasonably consistently, and if the rental income goes a long to covering the mortgage repayments, I would go down that route. Then it's just case of paying a little more than you currently do to live in a bigger place.

Too many people make this decision without realising they could be paying their marginal rate of income tax on a significant portion of the rental income (at 50%+ when you factor in the USC) and the costs in fixing and maintaining the property, not to mention the hassle of it (getting calls at all hours / weekends if there's an urgent problem for example!)

The_Conductor

ricman wrote: »

theres older houses going for 100k,120k, in dublin,if you are handy at decorating,painting,
usually says needs modernisation, eg redecoration,the furniture ,fittings would be from the 80s. eg basic i see n 1 in estate agent today ,as i was leaving fairview.
most of the furniture would need replacing.i think it had 3bed rooms.

Just like to point out that any property I have seen that specified 'in need of modernisation' normally had to be replumbed, new bathroom(s) and kitchen, new heating system, insulated and of course rewired......... You are damn lucky if you get a place that simply needs new furniture and a lick of paint.......

The_Conductor

Theboinkmaster wrote: »

I'm open to correction but i think probably under the T&Cs if you moved out of your apartment and rented it, and you rented another house, you'd lose your tracker mortgage.

However i think many people doing this just don't tell the bank, and thus keep their tracker rate.

Yes- you are supposed to make the lender aware that the property is no longer your Principal Private Residence.

You are moved from your current mortgage onto an investment mortgage (normally about 1-1.5% higher than for an owner occupier).

You loose your TRS on the mortgage (however up to 75% of the mortgage interest may qualify as an allowable expense for deductions before calculation of tax due on the rental income (note: its still pencilled in to phase this out by 2017)).

Banks have started chasing customers who have neglected to inform them of these arrangements- its best to keep all of this above board (not least- because you don't want problems with the revenue commissioners re: TRS etc)

The_Conductor

Lyndan- we're in a not dissimilar situation ourselves, and on investigation of our options, have decided to do so work on the townhouse to try to make it as habitable as possible for 2 young kids. No property has sold where we are in over 3 years, though rental opportunities are good. A local estate agent here has said the rental market is good- however sales are becoming rarer than hens teeth. We sat down and did the sums. We would be paying 56% of any rental income in tax- no matter how we played with the sums- we couldn't make it work. Unfortunately there are many many people out there like you and I who are going to be stuck in unsuitable accommodation for the foreseeable future.......

ricman

Of course if you buy an old house ,it,ll need rewiring,new presses etc insulation in attic etc but its still cheaper than buying a 3bed semi for 180k.
and you can do it bit by bit,.I,d prefer to live in an old house than live in a brand new apartment,and you get at least on street parking,if you have a car.Average rewiring cost is 5k for a 3bed.
i thought the tax on rental income would be around 2o per cent, minus insurance,service charges,depends on what tax bracket you are on.
For some people,buying a 100k, house,then renting the apartment might be a solution,depending your income,savings,expenses etc

antiskeptic

Lyndan wrote: »

We have a 1yr old baby so the need to trade up is becoming a reality now. We have quite a big 2 bed apartment so its not a huge issue right now but Id like to be making a decision either way in the next 6 months.

It might be a long shot but is there any way to leverage the two bargaining chips you have to prise a new mortage out of your lender if paying off your old. Notwithstanding what I assume would be an unfavorable LTV at that point?

You would be planning on giving the bank 210k at a time when banks are cash poor. You would also be handing in your tracker at a time when trackers are costing the banks a fortune. Assuming you're solid enough in the ability-to-meet-your-repayments dept, they might be willing to talk.

D3PO

antiskeptic wrote: »

It might be a long shot but is there any way to leverage the two bargaining chips you have to prise a new mortage out of your lender if paying off your old. Notwithstanding what I assume would be an unfavorable LTV at that point?

You would be planning on giving the bank 210k at a time when banks are cash poor. You would also be handing in your tracker at a time when trackers are costing the banks a fortune. Assuming you're solid enough in the ability-to-meet-your-repayments dept, they might be willing to talk.

That would assume that he would be talknig to rational, financially astute people. They are pretty thin on the ground in the Irish Banking system