We are a married couple and ‘accidental landlords’ of a four-bed semi in a provincial town. We lived in the house with our family for the eight years before moving out, but are considering selling next year as we don’t need the hassle that goes with tenants and rental upkeep. 

We are looking for advice as to when is the right time to sell, or does it make financial sense to hold on for a few more years?  We are not interested in holding out for a specific price and the thought of cashing in now has a strong appeal. 

We bought it new as first-time buyers in 2002 for €174,000 and its current value is about €260,000. We are on a tracker mortgage of 0.56 per cent, with monthly payments of €315.  Our monthly rental income is €1,300 and we have €59,000 left to pay.  We have to give 120 days’ notice to the tenants if we sell.

– Anonymous

Like many people in Ireland, you may be an accidental landlord, but have an opportunity to become a deliberate investor.  If you had €260,000 in cash right now, would you plough it into an investment property in an Irish town?

First: the case for staying put

There are practical and financial reasons to say yes.  At the moment, there’s a shortage of housing in many parts of Ireland, which helps drive rental income.  On top of that, you’ve managed to hang on to a cheap tracker mortgage. That helps keep your costs low.

But it’s not that simple

But investing a large part of your wealth in residential property on a rainy island at the periphery of Europe has plenty of downsides.  It demands time and money to manage, it’s hard to sell in a hurry, and is aggressively taxed.

What’s more, you probably also have a major financial stake in the home you now live in, concentrating your property exposure further.  And as we’ve written elsewhere, the long-term outlook for investment property looks a little different in the wake of the coronavirus crisis.

Returns are not world-beating

Investing in Irish property is also a wild ride. Sure, you have had some years of strong returns since investing at the start of the century.  But that almost certainly also came at the cost of some of some very uncomfortable years in the wake of the global financial crisis, when you had recently purchased the house.

Growth of 49% over nearly two decades compares poorly with many global equity funds which have produced growth of around 400% over that time (over 8% per year, compounded).

They have done this in a way which is not dependent on any single industry, country or asset type, which can be added to or sold quickly, and which requires a lot less management by you as the investor.

It’s clear there are alternatives which offer as-good or better returns, with better diversification of risk.

Should I sell my investment property?  Picture the scenarios

So picture the scenarios.  How will you feel if you experience an extended vacancy between tenants, or go through a property price collapse of the kind we went through ten years ago.

What would it be like if you invest the money and markets fall significantly in the short term?

Will you be happy maintaining your rental property in five years’ time, or would an investment in diversified funds be a more comfortable way to grow your wealth?

Deciding to sell the house you lived in as a young family isn’t pure maths, with a single right answer.  But by considering the question deliberately, you’ve already moved on.

 

This is adapted from a Moneycube column which appeared in the Sunday Times on 12 December 2021.

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