Buying or Selling a second house

B

Beau&Jodie

Registered User
Messages
8
Hi. I am just looking for some advice or a point in the right direction around seeking more professional advice.

Personal Situation

My Salary - 140-180k per year (May struggle to replace income quickly if job lost) - Age 38
Wife Salary - 70k (Safe job in public sector) - Age 33


Current Situation

Home owner - 3 bed semi detached house. I purchased in 2021 for 175k (actual cost with HTB was 157.5k). I probably spent around 20k on the house to furnish it. The house is now worth 250k based on recent sales for near identical houses in the estate. I cant sell the house due to HTB 5 year timeline until the middle of next year which is the timeline that works for me anyway. My outstanding amount on the mortgage then will be 97k (over 10 years).

I am currently in the process of building a house which will likely have a mortgage of 400k (over 20 years) when finished. The value of the house will be close to 550-600k.

Options

1 - Sell current house and reduce mortgage size to approx 250k
2 - Rent current house

My view

I like the idea of keeping the house as for me it is a safety net if something goes wrong in my job. I see it as future planning for retirement aswell. While I appreciate that this route gives me a tough 10 years of payments things will begin to get pretty good after that.

Id like to get other views on this and I am happy to answer any questions that would give more insight.
 
This is not really a financial question. It's about life choices.

25 years ago I was in a broadly similar position, although my wife was planning on giving up work to stay at home with the kids.

I went for property in a big way. My employment didn't thrive so I was glad to have the property, though if I hadn't gone into property I might have done better career wise. So I am interested in your situation.

I think that you have to take a view on the economics of it. Back then Ireland was joining the Euro, so I took the view that interest rates were going to fall. I was right but I was also lucky, that happened to a greater extent than I could have hoped. We don't speculate on property prices here but you would need to take a view and back that view.

What are the prospects for your career. Will the attributes that brought you to a good position at a (relatively) young age continue to be strengths. Mine weren't, I was energetic, technically skilled and aggressive. Technical skills count for less the more senior you become in most professions, people skills and patience become more important than energy and aggression.

These are vague questions and you won't know if you have the right answers for at least 20 years.

Two things you can say. Renting out property is a pain, don't underestimate that aspect. Your wife has a secure and well paid job, does she plan on spending the next 20 years there.

You don't mention if you have children.

I would focus on the career, your wife's job de-risks that, but then I am not as energetic as I used to be.
 
Sell all day long.

As a very rough example, if you managed €20k rent (8%), you would have interest of €3k and other costs of €2-3k. Profit of €15k and €7.5 net of tax

All sounds good until... you have to to account for the €150k of unnecessary PPR debt that you take on just to keep your existing property. €150k @ 3.5% is €5.25k. This has to be subtracted from your net profit above, leaving you with just €2.25k net.

And the real kicker...The €75k gain is currently protected by the PPR exemption. If it becomes a rental , you slowly start to lose this.

If house prices were static and you sold in 2033 (12 years ownership), roughly half of your gain would have CGT. So a bill of €10-12k for CGT.

Considering it is only providing €2k a year in income, the ever increasing CGT bill is very significant to any decision to keep it.

If you are interested in being a landlord, pay off your PPR early and then look to buy one in 5-10 years. It doesn't make any sense to keep your existing property as a rental, mainly because of the significant gain already on the property.

Beau&Jodie said:
I like the idea of keeping the house as for me it is a safety net if something goes wrong in my job
Click to expand...
This doesn't really make sense. Keeping it (while barely profitable) and having 2 mortgages with relatively short terms is your problem. Your spouse's public sector income is the safety net.

What you should do is take out a 25-30 year term on your self build at €250k, having sold your current property. This gives you a much smaller monthly commitment but you can overpay as much as you want to reduce the term. Don't lock yourself into a short term to begin with if you have concerns about your future income.

Beau&Jodie said:
I see it as future planning for retirement as well.
Click to expand...
Keep it simple, sell this property, reduce your PPR mortgage and most importantly, use a pension for your retirement planning.
 
I guess in the space of 10 years I went from 21k to 100K so I always feel like I am just getting lucky. I managed to get a job 2 years ago after getting a redundancy for the same 6 figure salary I was on. The current salary is a new job I am about to start and there is a strong possibility that there is growth in this new job. There is also some new skill sets that make me more employable if I can even last 1-2 years in this job.

cremeegg said:
Two things you can say. Renting out property is a pain, don't underestimate that aspect. Your wife has a secure and well paid job, does she plan on spending the next 20 years there.
Click to expand...
I plan to have this managed for 10% of the rent. Yes, although she may reduce the amount of days she works slightly. She currently works 4 days but gets paid for 5 days (longer hours).
cremeegg said:
You don't mention if you have children.
Click to expand...
Likely we will have soon.
cremeegg said:
I went for property in a big way. My employment didn't thrive so I was glad to have the property, though if I hadn't gone into property I might have done better career wise. So I am interested in your situation.
Click to expand...
I dont see how owning one rental house would have any impact on my career.
 
_OkGo_ said:
This doesn't really make sense. Keeping it (while barely profitable) and having 2 mortgages with relatively short terms is your problem. Your spouse's public sector income is the safety net.
Click to expand...
I guess the way I am looking at it is if I lose my job and struggle to get a job in the short term I have a decent chunk in equity that I could release. I am guessing you would suggest selling the house and investing the money would probably make more sense.
Ok, that is probably good advice about the term. I think I will always fear my future income.
_OkGo_ said:
Keep it simple, sell this property, reduce your PPR mortgage and most importantly, use a pension for your retirement planning.
Click to expand...
I think your post has probably started to push me towards selling.
 
I am not sure how important it is but I will likely inherit a house with a value of 350k-400k and possibly a reasonable amount of land. The total inheritance could be 1m. The timeline on that would be anywhere up to 25 years. I understand that is a pretty big safety net that most do not have.
 
Beau&Jodie said:
I guess the way I am looking at it is if I lose my job and struggle to get a job in the short term I have a decent chunk in equity that I could release.
Click to expand...
Again this is how a lot of people think about it but in reality it doesn't solve your problem.

You are concerned with losing your income for an extended period of time. This is essentially a cash flow problem and not a wealth problem.

If you follow through on your initial plan, you will have 2 mortgages of €2.3k/m (self build, €400k, 20 years) as well as the existing mortgage of €1k/m. A monthly commitment of €3.3k

In the event of you losing your job, you will be back in employment before you could sell the property. It would take several months to evict tenants and then at least 2-3 months to sell (best case). The equity in the rental is essentially useless to you for a short term problem

Your actual solution of selling now and borrowing €250k for 30 years means your mortgage is only €1.1k per month. This would be very manageable on a single income. And it would likely be even less as you have capacity to sigincantly overpay in the next few years

And think about it, you would probably get a redundancy, you would be able to apply for the enhanced job seekers benefit and your spouse has a pretty much guaranteed public sector salary. You would be totally fine out of work for 6-12 months

And finally, your fears are probably unfounded. I find it hard to believe that someone capable of earning €180k would be out of work for long. You may not get the same salary but you could surely get something that is still very well paid

Beau&Jodie said:
I am guessing you would suggest selling the house and investing the money would probably make more sense.
Click to expand...
No, keep it simple and clear the mortgage before investing it anywhere else
 
Can i ask a related question, I'm interested in the last comment to pay off the mortgage before investing money. I'm in a situation where that's an option but have been advised to keep the mortgage, a tracker, and invest since mortgage is low rate and is covered by life policy. Do you not agree?
 
What is the base rate and margin on your tracker?
Who advised you to effectively borrow to invest?
 
Positively said:
I'm in a situation where that's an option but have been advised to keep the mortgage, a tracker, and invest since mortgage is low rate and is covered by life policy
Click to expand...
This does not sound like advice...it sounds like a sales pitch.

There are multiple factors to consider. Your mortgage rate plus allowance for CGT/exit tax and fees means you would need to have a return of at least 6-7% in most cases plus just to match the net return of clearing the mortgage.

There is obviously a chance that performance is better in the long run but you are taking the risk of poor performance.

The confusion with trackers is that this did make sense while they were very low. The rate increases in the past few years means it's not as sensible anymore.

As for the life cover, this pays out regardless of whether you still have a mortgage or not. So it is not a reason to invest.
 
You must log in or register to reply here.
Menu
Log in
Register