Long Term Investment

Doug Stamper

Just wondering if ye’re collective insights and experience could help steer us in the right direction.
We moved house 3years ago and decided to hold on to our previous home and rent it out.
Basically with rent coming in and the mortgage, insurance, LPT, agent fees and Revenue contributions being paid out we are putting an extra €350 (€175 each) a month in to cover our costs.

As we are new to this and don’t have any experience as investors, is this a worthwhile investment? We have 20 years left on the mortgage so if our current costs continue we will paying in an extra €5250 a year x20years= €105k.
Our long term goal would be to either be in a position to clear both our mortgages and/or buy a holiday home.
Should we stay as we are or could we invest the €350 a month (€5250 a year) in a better way?

I would like to hear the pros and cons of both if possible.

Mods feel free to move if I have posted incorrectly.

Thanks.

alexlyons

have you factored in income tax on the rent?

incentsitive

alexlyons wrote: »

have you factored in income tax on the rent?

I'd say that's what he means by Revenue Contribution?

EDIT: Sorry I completely mis-read. You are putting 350 quid into it a month, I thought you were getting 350 quid a month. How much would you make if you sold it? As in how much by the time you pay off the bank and revenue (there are CGT implications as it isn't your primary residence)?

Doug Stamper

Apologies if things are unclear-
I called our income tax ‘Revenue Contribution’
Yes we are paying in an extra €350 a month on top of the rent to keep it.
One things I don’t know how to calculate is how much it’ll be worth in twenty years. If we pay in the extra €350 a month for 20 years that is €105k and if we sell it for say €150k we would make a €45k profit. Again this is all guess work. I doubt it will ever sell for more than we paid for it at the height of the boom- at present it is still valued at €100k under what we paid for it!

incentsitive

Ohh toughie. It all depends on your attitude, personally it sounds like a case of good money after bad so I think I'd sell it and cut my losses. Could you raise 100k at a lower interest rate, or would you have the capability to just clear it and just cut your losses entirely? At least that way you are avoiding the interest.
If I thought I'd ever get my money back out of it I'd hold onto it, but it is hard to see that happening to be honest for you. Unfortunately!

Doug Stamper

Thanks for your reply... I am beginning to think we should cut our losses!

Also, sorry for drip feeding info but I’m only realising things as I type / read replies. We are not in negative equity as our mortgage is about €50k under what we would get for it now. Which is still €100k under what we paid for it. To explain: mortgage now is 150k we could sell now for €200k but we paid €300k for it! Our mortgage was low because we ploughed €60k savings onto it first day!
All very confusing!
Are there any pros to keeping it for next 20years??

incentsitive

I'm no financial expert by the way, just an idiot musing at your posts!!
If you can avoid having a hangover to pay off, I personally would.

The only advantage I see is that you'll have a pension pot (although the condition of the property could be questionable and will require an overhaul in terms of paint, kitchen, etc, etc after that length I suspect which will reduce the benefit).

If you put it into a pension say (plus you get tax relief on it so if you are a high-rate tax payer you'd get almost twice it put into your pension pot) roughly 350 x 2 (tax relief) x 12 x 20 = 168000 in a pension pot over the same time. And that will inflate (hopefully) as your pension should go up over that time, so you could be looking at a decent pension top-up instead of a property which needs constant maintenance.

But there are people better positioned than me to advise. I'd go to a financial advisor and explain - a couple of hours with them, for a couple of hundred quid, would be the best money you'd ever spent. Just go to an independent advisor who you've to pay rather than a free one - the free ones will have a vested interest in selling you certain products, investments, etc. Now I need to take my own advice and do the same!

Doug Stamper

incentsitive wrote: »

If you put it into a pension say (plus you get tax relief on it so if you are a high-rate tax payer you'd get almost twice it put into your pension pot) roughly 350 x 2 (tax relief) x 12 x 20 = 168000 in a pension pot over the same time. And that will inflate (hopefully) as your pension should go up over that time, so you could be looking at a decent pension top-up instead of a property which needs constant maintenance.

Thanks, that makes good sense-let the money do the work in a pension rather than worrying about tenants, maintenance etc... the whole thing is a mine field!
I will take that advice and sit down with a financial adviser and see what they say. Would just like to know how others think so I can make an informed decision! Much appreciated

scheister

Few ways to look at it

You sell the house today you have a 50k lump sum tax free (small tax loss as well.) This could be put into your pension along with the €350 per month. Means 218,000 into a pension. If you use this to buy an annuity how much is it worth?

Keep the house for 20 years the 350 a month may decrease over time if rent increases. But overall you will need house prices to increase by 9% in 20 years to match the amount that went into the pension. The value of the property need to increase to over 300k before any CGT will be due which over 20 years may be possible.

The above two are general ramblings on the two but as someone said talk to a financial advisor who will give the advice

Doug Stamper

Thanks for outlining the two options- I now know what to ask etc an advisor. Will do some online research to see who is in my area!

Doug Stamper

Just to update:
Spoke to two advisers and was very disappointed. The ‘independent’ adviser too tried to just sell me things! Waste of money.
Decided to sell up in the end and just focusing on LT savings and getting debt free ASAP.
Thanks for your advice and for engaging.

kisugem

Doug Stamper wrote: »

Just to update:
Spoke to two advisers and was very disappointed. The ‘independent’ adviser too tried to just sell me things! Waste of money.
Decided to sell up in the end and just focusing on LT savings and getting debt free ASAP.
Thanks for your advice and for engaging.

I would try to remortgage that house if you can and use the extra money to pay off bigger chunk of your own house mortgage instead as you can claim mortgage interest relief against rental income for that house: so the bigger the mortgage, the less tax payable and less to supplement. Plus your own mortgage expenses would be lower.

badboyblast

I always wondered this ? Can you remortgage your rental property and do this ?