Your questions answered: “The rent of an apartment I rent out no longer covers my mortgage. Do I have to sell?’
Q: I have a two bedroom flat in Dublin which I bought during Celtic Tiger with a tracker mortgage which is 1 per cent above the ECB rate. The property is located in a rental pressure zone and the monthly rental income is €1,500. With interest rates rising, that rental income barely covers my monthly mortgage payments and management fees. I had always planned to use this property as a guest house but am now considering selling it entirely. What should I do?
Fintan, Co Wicklow
A There are many people like you who accidentally became landlords. During the boom, climbing the real estate ladder was felt to be the right thing to do, especially when lending to buy real estate was so accessible. Obviously, things turned out differently, and many people carried these legacy investments with them throughout their lives because of their negative equity.
It’s not a common belief, but most small landlords don’t make a profit. For example, your rental income is taxed like earned income. Once administration fees, other costs and the mortgage have been paid, there is often nothing left over.
Landlords are heavily taxed and this is one of the main reasons small landlords are leaving the market. They pay marginal income tax, USC and PRSI on the rental income they receive. Tax breaks for landlords are being discussed at government level, but it looks like renting is not cheap for landlords.
In addition, the European Central Bank has hiked interest rates, and there is much debate over whether tracker mortgage holders should switch to fixed rates. There’s speculation that tracker mortgage rates will settle at 4 percent, so keep that in mind when planning your finances.
It’s clear that your rental property isn’t an attractive investment right now, but you need to balance this with your overall financial planning. Can you continue to finance this property from your current cash flow? Currently the rental income pays off your mortgage debt, but when the mortgage is paid off you have an asset and this rental income could be an alternative source of income for you if you stop working later in life.
Do you have relatives? If so, could they live in the property in the future? Or are you planning to downsize yourself into the property at some point? It’s important to look past the current cons and consider the bigger picture before deciding to sell your property.
“I started my own business after losing my job as a technician. What should I put attention on?’
Q I was recently laid off after working in the technology sector for 15 years and I have a young family to look after. Luckily I now get regular commissioned work and have incorporated myself as a limited company to bill for this work. I have some savings and a pension from previous employment. Is there anything else I need to do now that I’m self-employed?
Seamus, Co. Kildare
A Incomes in the technology sector are among the highest in the country. What is often overlooked is that significant benefit packages are also offered at the same time. You now have to provide these services yourself through your own company.
The first step I would recommend is protecting your income. You can protect up to 75 percent of your income with an income protection policy. This can be taxed efficiently through your company and the policy would ensure that most of your income would be retained if you were unable to work. The state would also provide an additional benefit until you could work again.
Since you mention that you have dependents, I would suggest that you take out death on the job insurance to provide for your family if you die while you are still working. This policy can be made tax efficient.
Cash flow is hugely important to a start-up business like yours, and you’re probably only now getting to grips with the concept of income and expenses. I would recommend building up working capital so you can expand on your own terms and hire staff and office space if needed.
Once these important steps are complete, cash flow permitting, you can maximize tax efficiency around your first annual accounts by investing a lump sum in your retirement. At this point, you have an idea of your cash flow needs and can plan to invest in your annuity monthly in your second year, which is a more efficient way to invest in an annuity than making a lump sum payment once a year.
In terms of your legacy retirement, I would expect that economies of scale would mean that the cost around your tech company retirement would be lower than a private retirement plan. That doesn’t necessarily mean that leaving your pension invested as it is is the right decision. I would recommend consulting a professional advisor to review the various options available and incorporate them into your overall financial planning
https://www.independent.ie/business/personal-finance/your-questions-answered-the-rent-from-a-flat-i-let-no-longer-covers-my-mortgage-must-i-sell-42393541.html Your questions answered: “The rent of an apartment I rent out no longer covers my mortgage. Do I have to sell?’