2ND HOUSE:KEEP RENTING IT OUT OR SELL UP?

[Male Doon]

My wife and I (both in our early sixties) have been renting out our original family home for over ten years now. The house, mortgage-free and located in Dublin, has an approx market value of 220k. Rental income 1200 euro pm., no trouble with tenants. With tax, repairs etc, net income would be region 7k.
The house we live in has approx market value of 250k outstanding mortgage amount of 130k, with about 7 or 8 years left to clear. Tracker, current repayments 1200pm, overpaying about 40 euro pm.
On the face of it, it is costing us about 5k a year to rent out the house. Not under any immediate pressure financially, and, in the event of selling, wary of having any substantial amount of cash on deposit. On the other hand, the rented house is getting older (like us all!) and maintenance costs will likely increase. So should we sell or keep renting? Any opinions greatly valued, thanks.

 

[44brendan]

It's not costing you 5k per year! Assuming tracker rate of c1.3% your total costs are <9k pa leaving you with a 5.5K after tax income from the property. Interest is a cost. Capital payments are not a cost. This is a very good investment and assuming some continuity of capital appreciation and the continuing loan reduction holding on to the property is a "no brainer" on the basis of return on investment!

 

[Sarenco]

The return on the rental property is ok (approximately 6.5% gross yield) but it's nothing spectacular. The tracker on your PDH is obviously good value in terms of your financing costs. There's no "right" answer to your question but if it was me, I'd want to simplify my life by selling the rental and repaying the mortgage in full. What you do with the balance would depend on your retirement savings/pension situation.

 

[44brendan]

6.5% gross yield

But!! Gross yield is not the only relevant figure here. If the house is sold the client will have the net equity only to invest. Both the gross yield and the relevant cost of funds are relevant to this decision. I.E If you can borrow at 1% and invest at 6% it still classifies the decision as a "no brainer"!

 

[Sarenco]

But!! Gross yield is not the only relevant figure here. If the house is sold the client will have the net equity only to invest. Both the gross yield and the relevant cost of funds are relevant to this decision. I.E If you can borrow at 1% and invest at 6% it still classifies the decision as a "no brainer"!

If I'm reading the OP's post correctly, the rental property is mortgage free - the tracker mortgage is on his PDH. If that situation was reversed, then I would share your view.

I'm certainly not suggesting that the gross yield is the only relevant consideration or even that the rental property is a "bad" investment. I simply gave an opinion as to what I would do if I was in the OP's shoes - others may well take a different view.

 

[44brendan]

My mistake

 

[Eithneangela]

I was in a similar situation last year - and after 8 years of good tenants, ended up with a 'not-so-good' one and it ended up costing me quite a bit on replacing/repairing most of the household fixed gadgets (fridge, washing machine, dishwasher, hob, oven, showers......) due to careless use by tenant and family. I sold the house (it was not mortgage-free), paid off the outstanding mortgage, and felt a huge weight lift from my shoulders.

Similar age to OP, retired - and not needing the hassle from the rental situation.

Monies left over after paying off the mortgage, CGT and associated vendor costs, have been invested as per Ciaran_T's regular posts re best buys.

 

[elcato]

Why not compromise slightly for now. As long as the current tenants are staying and not wrecking the place leave things as is. When the tenants leave then sell up.