Buying a home while keeping the one you currently own

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ash26

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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.
 
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
 

Key Post - Keep property as Rental or Sell?

Updated May 2020 The question regularly comes up on AAM whether somebody should keep an apartment that their family has outgrown as a rental or whether they should just sell up. Borrowers often run projections on the anticipated rental income from an apartment with a cheap tracker and conclude...
www.askaboutmoney.com
 
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.
 
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