Moving job - sell house to get positive equity or don't sell to avoid capital loss?

Age: 38
Spouse’s/Partner's age: 30

Annual gross income from employment or profession: 56,500 approx
Annual gross income of spouse: stay-at-home mother

Monthly take-home pay = 3200 + 130 child benefit

Type of employment: public servant, no future increments

In general are you:
(a) spending more than you earn, or
(b) saving? Saving 800-1200pm.

Rough estimate of value of home: Paid 278k, spent about 40k on renovation, worth maybe 180k
Amount outstanding on your mortgage: 87,000
What interest rate are you paying?

Tracker mortgage, started in 2005, ECB + 0.5% = 1%

Other borrowings – car loans/personal loans etc
Interest-free family car loan 400pm recently paid off, allowing monthly savings to rise from 800pm to 1200pm

Do you pay off your full credit card balance each month? YES
If not, what is the balance on your credit card?

Savings and investments: approx. 75k-80k on deposit, 5k in shares

Do you have a pension scheme? Yes, normal PS occupational pension scheme

Do you own any investment or other property? No.

Ages of children: 2

Life insurance: MPP costing 100pa, and joint life cover of 300k costing 520pa


What specific question do you have or what issues are of concern to you?


Job may move 150km away. Two options –

(1)sell house, take positive equity of 90k approx, buy house in new city with 80k savings + 90k equity + new mortgage

But, suffer a capital loss of (278 + 40 - 180) = 140k approx

(2) keep house and become a (reluctant) landlord, avoid 140k capital loss, but no positive equity to carry to new house

Get a bigger mortgage + savings to buy new house



Dilemma - I really, really don't want to crystalise a 140k capital loss, but I don't want the hassle of being a landlord. Has anybody any advice??

Protocol said:

Dilemma - I really, really don't want to crystalise a 140k capital loss, but I don't want the hassle of being a landlord. Has anybody any advice??

Click to expand...

I understand your predicament but in some ways it's a good one because you have the choice to make.

You have to decide how you see the property market going and if your property can rise in value by c.140K over a reasonable timeframe.You'll also have to be a landlord in this timeframe. Or you could decide to twist rather than stick and take the positive equity, add it to your savings and live mortgage free or with a very modest mortgage in your new home.

You seem to have accumulated a lot of savings over your life given the purchase and renovation cost of your home, your low mortgage and good savings, so you could have your new home (debt free/small mortgage) and accumulate savings for the future, ie be very stable financially.

The choice is yours

In my mind the capital loss is a perception issue - your house has dropped in value and theres a 140k paper/sunk cost.

Every house in the country has dropped in value - therefore your purchasing poiwer remains largely the same.

I am assuming your role is moving away from a large town - in which case theres a chance you will actually be getting a bigger house for the same money.

my concern if I were you would be giving up on the tracker mortgage as you have probably the best one that was offered. However since you have equity you are in a great position and can also add savings to this - 170k should buy you an equivalent house without a mortgage - so again the mortgage like your percieved capital loss is an irrelevant point.

paddy

There is no capital loss, you have positive equity. There's no point thinking well if I'd sold then I'd have made this much. You're going to be buying in a depressed market, think on the positive side - I'm getting this new house for 200k when it was worth 450k 6 years ago.

We're not in Kansas anymore.....

This is classic loss aversion. it is perfectly natural to prefer to continue a situation rather than realise a loss, however that does not make it the most prudent or logical course. The money is spent, the house has served you well, unless you really want to become a landlord you and your family would be better off going forward with the equity released by the sale of it.

paddyodoors said:

In my mind the capital loss is a perception issue - your house has dropped in value and theres a 140k paper/sunk cost.

Every house in the country has dropped in value - therefore your purchasing poiwer remains largely the same.

I am assuming your role is moving away from a large town - in which case theres a chance you will actually be getting a bigger house for the same money.

my concern if I were you would be giving up on the tracker mortgage as you have probably the best one that was offered. However since you have equity you are in a great position and can also add savings to this - 170k should buy you an equivalent house without a mortgage - so again the mortgage like your percieved capital loss is an irrelevant point.

paddy

Click to expand...

Thanks for the advice.

I am moving from a provincial town to a city, with more expensive house prices.

I do not accept that there is no capital loss. It is a real, cash loss.

If I buy shares at 10, and all share prices fall by 50%, I have still lost 5. OK, all the other shares have also fallen by 50%, but my loss is still real.

The value of my main asset has fallen by 140k - that is a capital loss.

OK, yes, people will say that house prices have fallen everywhere, so my "purchasing power" is the same.

True, but in my case I am moving from a less prosperous town to a city, with more jobs and higher incomes.

A similar house would cost at least 100k more, maybe 120k more there.

dereko1969 said:

There is no capital loss, you have positive equity. There's no point thinking well if I'd sold then I'd have made this much. You're going to be buying in a depressed market, think on the positive side - I'm getting this new house for 200k when it was worth 450k 6 years ago...

Click to expand...

There is a capital loss.

Yes, I do have positive equity.

Yes, true, house prices have fallen everywhere, but are still substantially dearer in my destination city than where I own now.

Protocol said:

There is a capital loss.

Yes, I do have positive equity.

Yes, true, house prices have fallen everywhere, but are still substantially dearer in my destination city than where I own now.

Click to expand...

Well then, you've answered your own question.

Hang onto the current house, become a reluctant landlord at a distance with all the hassles and uncertainty (of unoccupied months) that involves, get a much larger mortgage with higher repayments than you would if you sold the house in which you have positive equity and bob's your uncle, simples.

Being a landlord is no fun. I have 3 rental properties and 3 excellent tenants who pay on time and in full and look after the houses. All 3 properties are paying for themselves but even despite this very lucky and unusual situation it's not enjoyable for me. It's a lot of work and like having a second, stressful, poorly paid job.
While you would realise your capital loss you will be buying a house that's also cheaper than it would be in a more buoyant market. If you wait for your current property to get out of negative equity before you sell it, then you will more than likely end up paying substantially more for the property you want to buy ie it will also have gone up in value. I don't see the advantage of waiting.

The facts are:

On paper, you are, fortunately, in the +

In your head, you are in the -

The reality is you either suck up whats happened to all property owners, sell still in the + or keep the house become a landlord, and (unreality part)hope the property rises 140k in your lifetime.

Capital loss is not the correct way to look at this for a PPR.

Yes, the house is worth less than you paid for it, but if you sell and buy elsewhere you will do so at a lower price no matter where you go. So your loss is offset 100% against the fall in prices. You sell at Market price and buy at Market price.

That you will move to a city, where prices may be higher, is irrelevant to your capital loss argument. If you had no loss, you would have to pay more to buy in the city. The premium applies whether prices had risen or fallen.

The share arguement is different and not so relevant to a non investment property. You can offset the loss in your example against any future gain in shares or other taxable gains. So even there, the loss is not a full loss if you are lucky in future investments of course.

Luternau said:

You can offset the loss in your example against any future gain in shares or other taxable gains. So even there, the loss is not a full loss if you are lucky in future investments of course.

Click to expand...

Does that apply to PPR's?

Protocal you are in an excellent position to move to a city. You have about 165 in cash to put into a property (equity of 90K plus savings of 75K, and based on your suggestion that it will cost 280 in the city for a property you'll have about 100K mortgage which is not much above what you are currently paying. Is there any way for you to bring your tracker with you, as the rate is so low. Even if it's not possible, based on your current mortgage repayments, plus the large savings you are well placed to be able borrow easily, with a great big downpayment. So pick something nice.

You need to think about what you are saving for, once you've made the move etc. Some of it will go on the in out costs of moving.

Another advantage to a city is that maybe the stay at home mum will have more opportunities for employment, particularly as the kids get older.

Sounds like you're not cut out to be a landlord and your only motitivation for suggesting it is to chase the magic number of your original purchase price, 278 + 40K = 318K. Do you really really foresee an other bubble soon? There are parts of Ireland that might take 20 years or more to go back up to those kinds of prices. You couldn't be buying at a better time, unless it's Dublin, which is now constrained by lack of building.

Macstuff, there is no NE, the value of the property is worth more than the mortgage.