trying to sell and buy again..

womble

Registered User
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Hello folks,

My first post.. looking for a bit of advice/opinions please..
Myself and my husband bought our house in Dublin in 2007 for 472K and put a lot of money into it. it is a 3 bed terrace. We have had 3 children since and would like to move and have wanted to for some time. The difficulties (like numerous others) are:

-negative equity. Last year the house was valued at 290. Two estate agents valued it yesterday for 370k approx. Our mortgage is at 380K so we're getting there!

- pay cuts in salary coupled with 3 babies has meant a radical change in lifestyle and things are tight. We both work fulltime and our mortgage is 2K a month. We save very little and in fact have eaten into our savings when things crop up with cars, insurance etc.

- I am 42 so the length of any mortgage we get is shortened(hence more expensive every month).

- our oldest child is starting school in Sept so ideally would like to move before then.

-we have found a place to rent for €1300 a month where we would like to ideally live. It is a bargain.
- So question is (bearing above in mind!) should we sell and rent and save for a few years (both getting older) or do we just try and buy now? With houseprices going as they are we are quickly being priced out of the market..then there is 20% deposit malarkey..

Thanks for reading. Any views much appreciate. Our heads are melted trying to make a decision!
 
Hi womble

You can't have everything and you will only make yourselves miserable if you try.
  • Both working
  • two cars
  • three kids
  • The ideal house
What is wrong with your 3 bedroom house for three babies? By far the best long term financial plan for you is to remain in your current house. With a mortgage of €370k@ 4.5% interest, you are paying €17k interest. This means that you are repaying €7k capital every years. By the middle of next year, if house prices remain the same, you will be in positive equity through paying off the loan.

It is usually cheaper to rent than to buy. The interest you pay on your mortgage is usually a lot less than the rent you would pay for a similar house.


If you absolutely must move home, then I suggest you consider renting out your current home to keep a stake in the property market. This also keeps your options open. You see a house now for rent at €1,300 a month. It will be a bargain only for a year. Next year it might be more expensive. And you might find yourself renting in a far worse location than you are at present.

Brendan
 
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Have you gone to a mortgage advisor recently? To see what sort of mortgage you could get. This would be a great idea because they will tell you what you will be eligible to borrow or not borrow if you keep your old house. Then you will have that information as well. Do not rely on a conversation over the phone, actually make an appt with a mortgage advisor at a local bank and go in to talk to them.
Not sure I'd agree with keeping the old house. If your mortgage is 2k, there is no way you will rent out your house out for that? So there will always be extra top-up needed if you keep and rent. That will wipe out any savings in the future most likely. It can also a considerable burden managing tenants at this point in your life, unless you are used to that sort of thing.
The selling process will approx 3 months or so before you have the house sold, even if you got an offer next week. So you will be paying mortgage and rent at the same time for a few/couple of months no matter what.
How secure are your jobs? This is a factor.
Selling and then renting with kids can be a massive upheaval, but if you have a long term plan that you know is achievable you can manage it. And moving house and location is easier for them the younger they are.
And if you know you need to move areas for school then it's got to be done.
 
If your mortgage is 2k, there is no way you will rent out your house out for that? So there will always be extra top-up needed if you keep and rent. That will wipe out any savings in the future most likely.

We don't know the figures to say that one way or the other.

At the moment she is paying around €1,400 interest a month and €600 capital.

If she sells and rents for €1,300 a month, she will have a cash flow benefit of €700 a month. But this is not a saving as such, because the mortgage payment includes a capital repayment.

Or in simpler terms, if she rents, she will never own the house. If she continues with a mortgage, she will pay more now, but will own the house, mortgage-free after 25 years or so.

Brendan
 
yeah but brendan you were suggesting that she rent out her home, and then rent another place to live in. she admits to buying at the height of the boom... and has been in negative equity ever since...are you seriously suggesting she will be able to pull that off? young growing family...trying to upsize and to become an investment landlord? you cant have it all, you own words!

just admit when you give bad advice... only part of it was bad.
 
Hi Trustmeh

By far the best long term financial plan for you is to remain in your current house.

If you absolutely must move home, then I suggest you consider renting out your current home to keep a stake in the property market.

The best approach to arriving at the correct decision is to set out all the options and evaluate them.

Renting out her current house might or might not work for her, but she absolutely should consider it. If the figures don't work out, then she rejects that option.

I often find that I provide what I consider to be a good answer on askaboutmoney, and then someone improves on the answer by raising an option, which I had not even considered.

Brendan
 
I'm not so sure that I would agree that remaining in the current house is necessarily the best long term financial plan for the OP. Renting a more suitable house for less than the mortgage interest payments on their current house looks like an entirely rational decision to me.

As regards retaining the current house as a rental property and renting elsewhere, I would be surprised if a terraced house in Dublin with a fair market value of €370k could achieve a rent of €2,000 per month (I suspect a monthly rent in the region of €1,500-€1,750 is more likely for this type of property).

It is also important to budget for the myriad of costs associated with maintaining a rental property, over and beyond the financing costs. I would suggest allowing for a minimum of 25 per cent (33 per cent to be conservative) of the reasonably achievable annual rent to cover these costs (to include voids, over holding periods, advertising, letting/management agent commissions, LPT, PRTB, maintenance, repairs, accounting, legal, etc.).

You also need to allow for the fact that 25 per cent of mortgage interest payments and the full amount of LPT are not deductible expenses for income tax purposes.

While it is worth running the figures, I think it is highly likely that retaining the current house, while renting elsewhere, would represent an unaffordable drain on the OP's cash flow. All it takes is one bad tenant who decides to stop paying their rent and/or destroys the house and the OP could find themselves in real financial trouble.

Staying put is obviously an option but selling and renting looks like a perfectly rational decision to me. I can't see how the OP could sell and buy elsewhere on the figures presented.

As for the point that the OH will never own their own home if they rent - well, so what? If it's cheaper to rent from a landlord than to rent money from the bank, then I would rent from the landlord every time. I do understand that many people put a premium on the security of tenure that comes with owning over renting, whereas others value the flexibility that comes with renting. However, leaving these soft considerations to one side, renting often trumps owning from a purely financial view point.
 
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Hi Sarenco

Agree with most of what you say. But the problem is that it's usually cheaper to rent money than to rent property.

-we have found a place to rent for €1300 a month where we would like to ideally live. It is a bargain.

This rings alarm bells for me. It is a bargain today. Will it be such a bargain next year when the lease is up for renewal? All I hear is of people unable to find accommodation at any price.

It makes good long-term financial sense to own your own home. The tax and social welfare system hugely favours it. They are on the housing ladder. They can sell and rent, but from the figures, they may never get back on the housing ladder.

Of course, if they have a nice landlord who keeps the rent down at €1,300 a month for the long-term and if house prices fall and if interest rates rise, they would be far better off selling now and renting.

Brendan
 
Hi Brendan

You may well be right that the monthly rent may increase in the future but equally mortgage rates could rise in the future. Nobody has a crystal ball and I think you just have to look at the figures as they stand today.

I think you also need to take account of the fact that the OP says that the potential rental property is ideally where they want to live whereas they want to move from their current house. In other words, there is a lifestyle aspect to this decision.

A lot of family homes in Dublin are currently on the rental market at a gross yield that is less than the rate at which you could finance the purchase of a similar property. When you take account of all the other costs associated with home ownership (that a renter does not have to bear), then the financial advantages of renting over buying become quite stark in many cases.

Frankly, I don't agree with the default Irish position that it always makes good long-term financial sense to own your own home. Countless posters on this forum have seriously undermined their long term financial position by chasing the home ownership "dream". I don't agree that being "on the housing ladder" is necessarily a good thing - it's certainly not the place to be if prices are falling!

I'm also not so sure that it is still true to say that the tax system in Ireland favours buying over renting. The CGT exemption for PPRs remains in place for now but the phasing out of MIR and the introduction of the LPT changes this position materially in my opinion.

I am acutely aware of the deep-seated desire of most Irish people to own their own home. Nothing wrong with that, of course, but I think people should always run the figures and make a conscious decision to pay a premium over renting - if that's what the figures are showing. Simply lapsing into default thinking is unwise IMO.
 
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Thank you so much for all your advice. For the first time I actually had a wee giggle about the situation. I got such a sense of relief that it is in fact a complicated decision and not simply just us not able to commit either way to a decision!

We haven't made a decision. My husband would tentatively be on Brendan's page and simply stay where we are. Convert the attic, maybe put on a small extension in a few years out the back and just suck it up. We are where we are. We simply cannot take on any more debt in upgrading. He's not happy about it but he will live with it.

On the other hand...(for me particularly) as Sanerco says it is a lifestyle choice. We live in the city (d 9- certainly not the most desirable parts of D9 but still a good location) and the good and bad that that brings. We are not from Dublin and a schools are an issue. The house we are thinking of renting in North county Dublin in a nice area is beside a good school and the girls can walk there when they are older. I don't think the rent is going to rise at all. They are happy to rent it long term for that price ( or so I understand but I take the point that this could change).

I would like to own our home that the girls would grow up in and the security that that brings for them and for us. Whether that means staying where we are or buying eventually again.

We might actually rent ours out for a year and rent the other one. If it doesn't work out then we will just have to go back. - It is a risk but sometimes they are worth taking? I might be able to rent our house out to a cousin which might assist matters.

Brendan can I ask you to elaborate on this quote:

" Of course, if they have a nice landlord who keeps the rent down at €1,300 a month for the long-term and if house prices fall and if interest rates rise, they would be far better off selling now and renting".

Are you saying from the above that if the rent stays as it seems that we should sell, simply rent and not buy again? or see what happens with the market and perhaps buy if house prices were to fall again with any monies we would have saved?

Our bank will lend us approx 377K if we sell for 375. We are on a 4% interest payment. This would rise to 4.5% with a new mortgage - more debt...

I fully appreciate that while we bought in the boom we still have options - clearly not all the options I would like but options nonetheless.

Thank you for reading my mail and taking the time to reply. I really do appreciate it.
 
" Of course, if they have a nice landlord who keeps the rent down at €1,300 a month for the long-term and if house prices fall and if interest rates rise, they would be far better off selling now and renting".

Are you saying from the above that if the rent stays as it seems that we should sell, simply rent and not buy again? or see what happens with the market and perhaps buy if house prices were to fall again with any monies we would have saved?

Hi womble

What I am saying is that the future is uncertain, so it's not possible to give the right answer. All we can do is set out the options and the pros and cons of each.

1)Stay where you are for a few more years and reduce your mortgage

2)Sell and rent a place for €1,300 a month

3) Rent out your home, and rent another place

4)Sell and buy another place

If you can rent for €1,300 a month long term and if house prices fall and if interest rates rise, then Option 2 would work out great for you.

If rent rises, house prices rise and interest rates stay the same, then Option 2 could be a disaster. You would end up renting a house worse than your current house (which sounds ok)

Option 1 is the least risky and seems even more obvious in the light of your reply. There is nothing wrong with where you live apparently. If you were living miles away from work and schools, you might have to move. But that does not seem to be the case.
Option 4 does not look affordable
Option 2 is the most risky
Option 3 allows you to keep your options open. It will be more expensive, but you keep a stake in the housing market. So you can revert to your current situation if the rent in your new place goes up.

Brendan
 
We save very little and in fact have eaten into our savings when things crop up with cars, insurance etc.
This indicates that you do not have a proper budget in place. Car maintenance costs, insurance etc. don't just crop up; you should sort out your budget.
- our oldest child is starting school in Sept so ideally would like to move before then.
You are putting yourself under pressure to make a decision by setting a tight deadline. Your best option could be to forget moving, renting or extensions but rather overhaul your budget, get on top of your mortgage and build your savings over the next couple of years; then revisit the options re moving. Time enough moving when the eldest is going into 4th or 5th class; some banks will lend till age 70 . . of course if house prices fell back significantly and you were back in negative that might leave you stuck where you are or in a rent and rent situation.
 
Thanks Brendan and Michaelm. Very helpful. I have to admit my husband is a fantastic one for budgeting...things that we can predict are budgeted for. We certainly spend very little outside what is necessary but there is room for improvement on my side.

I have put myself under pressure.;) but because of the children and schools and wanting the best for them. Posting on this site has made me sit back and evaluate things a bit. Always a good thing.
 
For balance, if I was absolutely convinced that selling my house and renting elsewhere, within my means, would offer a better standard of living for my children, then that's exactly what I would do. I wouldn't even think twice about it - money is replaceable, a childhood isn't...

As Brendan points out, there is no absolutely risk free option here. But what's the worst that can happen with the sell and rent option? It's certainly possible that house prices could continue to rise at a pace and to a degree that you become permanently priced out of the market and you become long term renters - would that be the end of the world? I appreciate that the nesting instinct is strong when kids are involved but your home is where you happen to live, regardless of whose name is on the title deeds.

Staying put is almost certainly the safest option from a financial perspective but money - and particularly owning property - isn't everything.

Retaining you current house as a rental property and renting elsewhere certainly hedges your bets in a rising property market but it could become a serious financial burden if the market moves in the other direction. If you do want to look at this option, then I would strongly recommend that you run the figures carefully - my experience is that people often hugely underestimate the costs associated with owning a rental property, over and above the monthly mortgage payment.

Best of luck with whatever you decide to do.
 
I think that it is important to stress that no one is suggesting that you make a decision to stay in your current home forever.

But you have 3 very young children in a three bedroom house in an ok location.

Make a decision to move, but just not yet. Maybe after 5 years with more capital paid off your mortgage and equity built up. So in the meantime don't spend any mad money on extensions, conversions, kitchens and the like.

Brendan
 
Fair enough Brendan, but your advice still contains an implicit assumption regarding the short term direction of residential property prices.

If property prices take another tumble, which is entirely possible, then womble's family could find themselves in exactly the same position five years from now. Not the worst outcome for sure but apparently not the ideal outcome from womble's perspective.

Five years is a long time in a child's life. If womble is convinced that her children would definitely be better off after the move then I don't see any point delaying the decision.

Obviously it's just my opinion but in an uncertain world I would always go with what I know today rather then trying to guess what way any market (particularly the Irish residential property market) might move over the short to medium term.
 
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Hi Sarenco

Fair enough Brendan, but your advice still contains an implicit assumption regarding the short term direction of residential property prices.

I think you should report my post for being in "implicit" breach of the posting guidelines about speculation on house prices.
The evidence is, indeed, overwhelming. :rolleyes: You might let me know what direction I am supposed to think that house prices are going in the short term?

By the middle of next year, if house prices remain the same, you will be in positive equity through paying off the loan.

Of course, if they have a nice landlord who keeps the rent down at €1,300 a month for the long-term and if house prices fall and if interest rates rise, they would be far better off selling now and renting.

If you can rent for €1,300 a month long term and if house prices fall and if interest rates rise, then Option 2 would work out great for you.

If rent rises, house prices rise and interest rates stay the same, then Option 2 could be a disaster. You would end up renting a house worse than your current house (which sounds ok)

Option 3 allows you to keep your options open. It will be more expensive, but you keep a stake in the housing market. So you can revert to your current situation if the rent in your new place goes up.
 
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Sorry Brendan, I was only referring to your suggestion that womble should stay in her current house for five years - I should have quoted the specific post. I wouldn't dream of accusing you of speculating about property prices!;)
 
Gosh...these new Central Bank rules now that they are finally here have thrown a spanner in the works a bit... Update is that we have decided not to rent and just stay where we are and hopefully buy again. We are still in negative equity so with the new rules we are probably better to sell and try and cobble together a deposit and buy again now? I'm hoping the market will dampen a bit.. I was on to an estate agent this morning and he said he didn't think it was going to affect house prices at all...(he would say that I suppose) any thoughts on this?
 
Everyone will have their own thoughts on how particular actions may or may not affect the housing market. Most of these thoughts will be conflicting and are likely to confuse people who are conetemplating buying/selling. This is why AAM have a strict rule on keeping posts away from speculating on the property market.
 
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