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The Money Doctor: Residential Investment Property

Q I bought an investment property four years ago for €380,000, borrowing €270,000 at the time, but it is now worth about €250,000. The rent (€800pm) does not pay the mortgage interest -- 5.25pc currently -- and I am soon to go on a capital and interest repayment schedule. I'm tempted to just hand back the keys. What do you advise?

Stephen, Rathmines

A I really empathise with your situation. It is difficult as you bought at the top of the market and the property is currently not attractive to owners or prospective buyers with the yield (the annual rental income as a percentage of the current value of the property) at 3.6pc per annum.

The first thing I would do is look for breathing space. Go to your lender armed with your fully documented income and expenditure computations. Look for at least a 12-months interest-only extension, as it really is not worth selling at this point, and repaying the capital at this point might be the straw that breaks the camel's back.

If interest rates rise, that value may further reduce and you may have an even greater deficit/loss. By handing back the keys, your name will not only be mud now but forever, a judgment will be taken against you by the lender for the loss (after they have sold the property for whatever they can achieve) and that judgment will be on record in the Irish Credit Bureau (ICB) forever.

Any future loans or credit facilities (even current accounts, credit cards) will be checked out with the ICB before approval by prospective creditors. Anyway, if you believe in NAMA, you will also believe in the upturn in values over time -- hopefully sooner rather than later. Guard your good name!


Q I've been told An Post's two investment bonds are better than the National Solidarity Bond. Is this true and are there any other better deposit offerings?

Cliona, Stillorgan

A Quite simply, over the shorter term the two An Post investment products -- the Savings Bond (three years, offering 10pc tax free, equivalent to 4.71pc gross per annum, maximum investment €120,000 per person) and the National Savings Certificates (five years six months, offering 21pc tax free, equivalent to 4.71pc gross, maximum investment €120,000 per person) -- are better both in the short and long term.

The National Solidarity Bond (minimum €500, maximum €250,000 per person), if you only invest for three years will return 2.25pc or 3pc gross, for five years, 13.75pc net or 15pc gross while it is only if you continue the investment for the full 10-year term, will you then receive 7.5pc (1pc per annum less DIRT tax of 25pc) plus 40pc tax free, totalling 47.5pc -- which is equivalent to 4.14pc gross or 3.96pc net.

So yes, these two An Post investments are better, even though all three are managed by the same government agency, the NTMA. As regards better investments, if you are restricting your choice to the deposit market, then the above investments are the best currently on offer in the Irish market.

John Lowe, Fellow of the Institute of Bankers, is founder and managing director of Money Doctor, regulated by the Financial Regulator, and author of The Money Doctor Finance Annual 2010 and 50 Ways to Wealth (both Gill & Macmillan), is now available for seminars and consultations: email seminars@moneydoctor.ie or consultation@moneydoctor.ie or call 01 278 5555