Should I sell my rental property at a loss?

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Q. I currently owe approx €300,000 mortgage on 2 houses. €130,000 on my own house and €160,000 on the house that is rented. My net pay is €2,000 a month plus €1,100 rent. Mortgage repayments are €2,000 a month. I am 57, single and work full time in the public sector. I had intended to retire at 60 in 2013 when I will have 40 years service, though I cannot see that happening now.
The rent doesn’t meet the full mortgage but the bank is willing to take what I give them. I am making full repayments on my own house. I only took the mortgages out in 2007

The problem is there doesn’t seem to be any chance of house prices rising by the time I want to retire.

Should I cut my losses now and sell the house that is being rented? I would only get €220,000 at most for this house now whereas a few years ago it was €500,000 +. My main worry is how to pay the mortgage on my own house, with increasing costs and the possibility of more pay cuts.

It would be easier to pay €70,000 or so than €130,000. I would hold on to it if there was any hope of house prices increasing in the next few years, but that does not look possible now.

Deirdre

A. Without knowing how much you paid for the houses, it is difficult to give a straight answer. But if you bought the houses in 2007 as you say in your email, it is likely that you had to put a large portion of equity of your own into the houses, given your age.
We spoke to personal debt adviser Frank Conway from moneycoach.ie.

“I would say that I would say that quality of life is more important to this person and I would think that if they could find an exit strategy for the rental property, it may be the right option for them as it may give them back the quality of life they seek.

“The property owner is very uncomfortable with where they are now and I also sense that they are very uncomfortable about the the future,” he says.

As Frank says it takes a certain mindset to be a landlord and if you don’t have it worrying about the future, property prices, interest rates, increasing property tax, accounts, is likely to erode your quality of life.

The bank stress tests recently conduced by Blackrock Solutions for the Central Bank had quite a lot of data on house prices and although they did look at the worse case scenario they really don’t see house prices increasing significantly over the next 10 years.

Look at the house price graphs here in the stress test reports – they are on page 60 to see what BlackRock think.

 

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6 Responses to Should I sell my rental property at a loss?

  1. Gemma says:

    I don’t think house prices will ever ever bounce back to the levels they once were. When you think about property in parts of Ireland was more expensive than Manhatten and London, which was obviously daft.

    But I do think you have to be philosophical and look at the next 5/10/20 years. If in five years you’re not going to get your money back and in 10 years you haven’t much chance either, then it’s a question of whether you swallow the medicine now or in 10 years.
    Either way you lose out financially, but you might win some peace of mind

  2. Riocard says:

    If you aren’t going to make your money back in 10 years, then it’s a matter of when you take the hit. Maybe it’s better to take it now, but you could also look at pacing it a bit and just paying off your capital as you go along.

    You don’t say if you are paying off the capital on the rental property.

    If you are then it doesn’t really matter if you’re covering the rent. Look at it as a long term investment.
    Ricky

  3. Chris says:

    Unfortunately i would have to agree with everyone and say cut your losses and have the better quality of life but i hope you have learned not to be greedy again. I must make this point, as a person that's single and on one income, you bought two houses, you should have well known that the property market was to decline at some stage, as the saying goes "what goes up, must come down".

    A lot of people are in your situation but that's because everyone was trying to make a quick buck or set up a pension for themselves but this is what caused the market to shoot up and cut off most first time buyer from being able to afford to pay the above priced houses/apartments.

    House is for living and not for profit.

  4. Ben says:

    Those bank stress test graphs are scary. It basically says there will be little growth in house prices (bar presumably inflation) for the next 20 years

  5. Sean says:

    In the short/ medium term, house prices will decrease but rental prices will increase. Although you are 57, I wouldn't go panicking yet. There are options open to you. Perhaps consider renting a room. This is not as bad as it sounds. My neighbour, a woman in her late 60s has taken in 3 lodgers that stay from Monday to Friday. Up to 10k per annum tax free can be earned from this.

    In addition, I would highly recommend investing in some professional advice from a reputable accountant and a solicitor. Although it sounds expensive, spending €500 on qualifed and experienced advice would be money well spent.

    And don't even consider taking on board the I told you so advice from the likes of Chris. Comments like these are about as helpful as getting a wet sponge in the face. Yes, you made a poor choice of investment but hindsight is 20/20 vision.

    Best of luck.

  6. seamus says:

    The fact that you're toying with the idea indicates to me that you haven't the stomach for the hazzle of renting and being a landlord. I'm in a similar situation myself, and thinking strongly of cutting my losses just to get some headspace.
    It is a very unfortunate dilemma to be in, my advice is to seek the best advice before rushing to sell, but if you feel the whole situation burdensome then let the property go. Peace of mind is a priceless gift, and life is just too short for inner turmoil.

    good luck

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