Buying a home while keeping the one you currently own

Hello

I am hoping one of you can give me some guidance here, I want to find out if it is possible to buy a new family home but keep the one we currently have and use it as a rental.

Myself and my husband owe €136k on our current home and the property is worth approx €650k, if this was to go on the rental market we would get €3k a month.

The house we are interested in is on the market for €595k

We have approx €90k in savings

My income is €50k plus €10k bonus and my husband earns €120k

We have 2 kids and with crèche fees of €540 per month and a car loan with €15k owing it is costing €420pm

We have no credit cards or short term debts

Any advise is very much appreciated.

Why have €90k in savings and paying a car loan of €15k? Clear it.
Have you approached a bank to see what you can borrow?

Your total borrowings will be 136 + 520 = €650k

Your combined salary is €180k

Why would you want to put yourself under such financial pressure?

Sell your home and you will have a mortgage of about €150k and an easy , low risk life.

Brendan

ash26 said:

the property is worth approx €650k, if this was to go on the rental market we would get €3k a month.

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Gross yield before any costs or tax of what? 5.5%,

Not making any sense to me and then factor in all the pro tenant regulatory burdens and it just doesn't seem to make any sense to me at all.

You need to clear the €15k car loan and there will be costs involved to buy your new PPR so you should be keeping at least €25k back for this.

That leaves you with €50k as a deposit and requiring €545k of a mortgage.

CB Lending limits:
Your base salaries are €170k.
Your total borrowing would be €681k (136+545)
Your LTI is 4.0, well above the 3.5 limit
Your are also below the 10% deposit but you could probably meet this by depleting your savings (bad idea)
One of the properties will need to be furnished which is not factored in above.

CGT:
I'm assuming you are sitting on a large gain for your current PPR. All of this existing gain starts to attract CGT if it becomes a rental. This can significantly impact the return on your property and is a one of the main reasons why keeping existing PPRs as rentals makes little sense

Income:
You are estimating 36k gross rent
Gross yield of 5.5% is not great
But you will have costs, let's say €6k (interest and expenses)
You are in the higher tax bracket so the €30k profit is roughly €15k net

Cost of borrowing:
So many don't understand this but you are,in effect, borrowing on your new PPR to retain your old property as a rental. So you have to factor this into your net income.
You would otherwise be mortgage free if you didn't try to keep this property so the entire mortgage is a cost to you.
€545k at 3% is €16k so your net return is negative. It is costing you money to keep it and the interest rate may be higher than 3%

You are taking all the risk for a rental that is not profitable and is accumulating CGT on existing gain. You also don't meet the lending rules for LTI or LTV.

It would be a really really bad idea to keep this as a rental.

If you really want to be a landlord then sell your PPR, buy the property you want and then look at BTL's that are much cheaper but have better gross yields.