djdarraghj
Registered User
- Messages
- 3
Ages of children: 9, 7 and 5 Month old
My main issue is the size of our 4 bed house for 5 people in years to come.
I would look to prioritise pension contributions over any major spending on your home in the immediate future.
I
Do it now: because you can afford it: because if you wait 5 years you will miss out on 5 years enjoying the new house, and your kids will miss out on that as well at this point in their lives: because in 5 years time you will be 47.
Age: 40
Spouse’s/Partner's age: 42
Annual gross income from employment or profession: 150,000 (IT Contractor and Wedding DJ)
Annual gross income of spouse: 0
Monthly take-home pay after tax: 8000
In general are you:
Saving approx 4000 per month
Home:
Rough estimate of value of home: 370K
Amount outstanding on your mortgage: 286K, 23 years remaining
What interest rate are you paying? Tracker No .75 percent
Other borrowings – none
Do you pay off your full credit card balance each month? Yes
Savings and investments: around euro 30k cash on deposit in bank, 18k in Saving Scheme at Post office
Do you have a pension scheme? Yes but not paying into one currently. 30k PRSA and some small pension pots from previous employment
Do you own any investment or other property? Yes, 3 bed End Terrace on Tracker rate also .075 percent. Purchase price €320,000 Rent €1400PM,, Mortgage €950PM (19 years left). House worth about 230K today and remaining mortgage is 186K
Ages of children: 9, 7 and 5 Month old
Life insurance: yes
Question:
I am debating whether to sell the investment property and try and trade up on my main residence. Part of me does not want to get into more debt in my early 40s. To trade up and stay in the area I am currently living in it would cost €550k + to get a 5 bed property. My main issue is the size of our 4 bed house for 5 people in years to come. The house is 1250 sq feet but the bedroom are very small and I would prefer larger rooms to give everyone some space. I could sell the rental property however it would take 4 -6 months to sell based on recent transactions and it would only yield €45k equity max. The alternative is to extend our current property into our very small back garden to give us extra space albeit eat into the garden space that we do have. I am holding off on upgrading or doing anything with my main residence at the moment which is making me a little miserable as there are a number of areas that need to be upgraded like new kitchen units etc. Would love if some of you could look at the numbers and see what you think would make most sense for me to do.
Let’s first look at the investment property in isolation
View attachment 3325
You are getting a pre-tax return of €13k - say €7k after tax - on an equity investment of €40k
Look at it another way, if you sell the investment so that if you trade up now, you will borrow €40k less, you will save interest of about €1,400 a year. €40k@3.5%
You do not give up €7k net after tax to save €1,400 a year.
So keep the investment property.
You do need to review this every couple of years. At the moment, most of your repayments are capital, so after a few years, these numbers will be different, but the above table is the way to assess it.
The Trade up decision
View attachment 3326
You might well have a "problem" in years to come. But you have no problem now. I doubt very much that you will have a problem for at least 5 years. Even then, you will be able to live with it comfortably.
Over the next 5 years, you will be saving huge amounts of money. You will be paying chunks of capital off both your home and your investment property. You will have saved a further €250k. You will probably be able to trade up without further borrowing.
The key thing is the cheap tracker mortgage on your home. Your accommodation costs at the moment are €2k a year (€286k@0.75%). The rest of your monthly mortgage payments are capital.
If you trade up now and borrow €420k, your accommodation costs will rise to about €12k a year.
Don't extend your house as you don't need to. I suspect kids of 9 and 7 need garden space more than bedroom space, but I am not a parent.
Do spend money on upgrading the kitchen. Bear in mind that you will probably move in 5 years' time, so don't go completely mad on it.
But €10k now on a kitchen is not material in the greater scheme of things.
Brendan
If I had €150k pa and was living with 3 kids in 1250 sq ft and could trade up by taking on €420k debt I wouldn't hesitate.
You are saving €4k per month, you could even repay the mortgage over 10 years with a 10 year fix at 3.2% from KBC for €4,100.
Do it now: because you can afford it: because if you wait 5 years you will miss out on 5 years enjoying the new house, and your kids will miss out on that as well at this point in their lives: because in 5 years time you will be 47.
The only question I would have is about the security of your earnings, are you confident that you can continue to earn at this level or even 80% of this level into the future.
As to the question of selling the investment property, Brendans reply is all you need to know.
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