Moving to Dublin should i sell old house or rent out

S

sullynew

Guest
I am Thinking about renting out our old house and buying a new house in dublin. What would be the costs involved?

I will need to remortage old house @ 85% to release capital for a deposit on new house. Is there banks offering more than 85% and is the term limited to 25 years? What are the costs involved in remortaging?

Here is a brekdown of the rental oppurtunity.

The rental market isn't that great but i still reckon i could rent the house for about €800 pm.
However my repayments on the remortgage will be about €900 p/m
and the usual expenses after that

Cheers,
Sullynew
 
Banks will lend based on the total value of your properties and will lend over 85% if your income will stand up to a few % point increases. The term can be up tp 40 years depending on your age.
The costs will include;
Furnishing one of the houses, (since you only have one at the moment).
Paying the larger mortgage and you can't rely on having your rental property let all the time (base it on 10 months rent a year).
Paying an accountant to do a tax return.
Paying a letting agent if your don't fancy the travel to look after the place yourself.
House insurance for the rental property.
You also have to accept that furniture and fitting won't last as long in a rental property.

The costs of re-mortgaging are probably not as high as the costs involved if you sell the house you are in since an estate agent and solicitor won't be taking their cut.

Your personal circumstances should be the major factor when making this decision. Your age, current employment status, pension situation and level of short to medium term debt should all be taken into account.
Returns on investment are very low at the moment in the rental market but the economic and demographic indicators seem to be good for the long term IMHO.
 
Another question to consider is if concentrating (presumably) a significant proportion of your overall wealth in a single asset class and geographic region (viz. Irish property) is appropriate for your needs and circumstances. An alternative might be to sell the property (and, as an owner occupier, taking any gain free of CGT) and look for other investment opportunities in order to diversify your wealth over a more varied array of asset classes and risk/reward profiles.
 
Yes Clubman, I should have put the whole CGT issue near the top of the list.
 
Thanks for the reply puple and clubman,

If i sold the house, i would expect to clear 50-60K. I didn't think of the CGT point so thanks for raising that to me.

However I was trying to decide whether to buy a more expensive house in dublin around the 500k if I sold the current house. or if i would be better off buying a more modest house around 350k and holding onto the other property as an investment. If I do go the investment route, it would be with a long term view. I just turned 30 and married with no kids, little or no pension, no big debts besides mortage and maximum ssia's.
Currently I am self employed and mrs sullynew is fulltime employed and we bring in about 90-100k between us. however we expect this to increase in the next couple of years(3 probably) as wife will also be self employed and hopefully earning approx 80-100k which doubles her current salary.
 
However I was trying to decide whether to buy a more expensive house in dublin around the 500k if I sold the current house. or if i would be better off buying a more modest house around 350k and holding onto the other property as an investment.

There's no easy answer. Personally I would not be inclined to concentrate so much of my overall wealth in a single asset class/grographic region and would seek to diversify my investments a bit more.
 
Hi Sullynew,
Going on your last post I would go for the rental option. I am biased though; I have rental properties and know sweet F all about shares etc.
I would be looking at a pension for both of you though, it's a bit risky to bank on rental property keeping you in the lifestyle you would like to be accustomed to at retirement age. Both being self employed would give you a lot of options on the pension front as well. Others on AAM would be able to expand on that one for you a lot better than I could.

Good luck whatever you decide.
 
Hi Rainyday,

I read that post and i am more confused now as to whether i should or not, I suppose i really dont like the idea of paying about 10-15k in removal costs with solicitor ,autioneer, removal van etc etc. especially when that would be a sizeable part of the equity release.

The thing is, i know i would be taking a hit and have to subsidise the rental property mortgage but i would hope after 20 years or so that it would be all worthwhile and am looking at more of a longterm picture on this.

ie i would make roughly €800 pm in rent and would have to pay about €1000 on the mortgage. which means i would have to subsidise by 200 a month.

We could handle repayments of 2k a month handy enough in total. new house mortgage would be about 1500 and subsidising the mortgage of 200 and this would leave us with about 300 to overpay or to account for in interest rate rise.

Am i right in assuming that you can rent out a property for up to a year and still sell the original house and not be caught for cgt?
 
ie i would make roughly €800 pm in rent and would have to pay about €1000 on the mortgage. which means i would have to subsidise by 200 a month.

Have you done a detailed cost/benefit analysis that takes into account stuff like , costs allowable against rental income (including mortgage interest) etc.?
 
Hi Clubman,

what other details should i take into account, because maybe doing a full cost/benefit analysis would answer a lot of questions for me. Is there a list of all these? or any handy calculators to do this sort of thing?

Cheers,
Sullynew.
 
You should at least cover the things mentioned in Brendan's FAQ linked above. I don't know much about this area but in general would imagine that you need to consider and estimate (conservatively if possible) each of the following: incomings (i.e. rental income), vacancy periods (e.g. unlikely to have 100% occupancy all of the time), costs, costs that may be offset against rental income, maintenance/wear & tear costs, time spent managing the property (unless you outsource this), tax issues, insurance (e.g. any owner occupier policy will need replacement), mortgage lender issues (e.g. if changing an owner occupied property into a rented property then chances are the terms & conditions of your loan agreement require you to inform the lender who may or may not apply investment property rates) etc.
 
Don't look at it in cashflow terms (i.e. the amount you'd have to subsidise the mortgage by) - Look at it in terms of return on your investment - What return will you get as a percentage on your investment.
 
When looking at return on investment you have to take into account the tax relief on rental income that your mortgage interest gives you. In effect if you are paying a large mortgage on the property that you rent out, which it seems that you will be doing, then your income will in effect be tax free. If you invested in stocks and shares you would pay 20% on the return. If you invested in a business you would pay income tax etc.
I know rainyday has a problem with this relief and considers it unfair (and I am inclined to agree with him) but it is there so use it and factor it into your equations.
 
In effect if you are paying a large mortgage on the property that you rent out, which it seems that you will be doing, then your income will in effect be tax free.

Can you just clarify the outline figures here based on what went before?
 
Ok here are the figures, i hope this is enough!

house value approx 220k
Remortgage 190k
Rental income €800
Mortgage repayment for 25 years at 3.5% is €955

I would be getting out of the house 40k in the remortgage and i put in 22k in mortgage and desposit.

Anything else needed.

Ps can you take out an investment mortgage and get a tracker rate of 3.1%?
Can you haggle with the bank concerning the interest rate(s) if i used the same bank for both mortages?
 
Sorry - my previous comment was directed at purple as I don't immediately see how the rental income is tax free and just wondered if there were summary figures available to illustrate this.
 
Hi Clubman,
Good point and having read back over sullynews question I'm not sure if I'm correct.
If the mortgage was raised against, and to pay for, the rental property then the rent can be offset against the mortgage interest. That doesn't seem to be the case here. The mortgage is being raised against the property that is being rented out but to pay for a new PPR. I don't know if the rent can be offset against mortgage interest in this case (and suspect it can't).
Hi Sullynew,
Have you any mortgage outstanding on your current PPR?
 
If you invested in stocks and shares you would pay 20% on the return
Click to expand...
Actually, you'd probably be paying 42% on any dividend income. You'd be hit with 20% CGT when you come to actually sell the shares.

But of course, you'd have other advantages, i.e. lower transaction costs, diversification, gr
 
Good point and having read back over sullynews question I'm not sure if I'm correct.
If the mortgage was raised against, and to pay for, the rental property then the rent can be offset against the mortgage interest. That doesn't seem to be the case here. The mortgage is being raised against the property that is being rented out but to pay for a new PPR. I don't know if the rent can be offset against mortgage interest in this case (and suspect it can't).

Thanks purple - I just wasn't sure how you arrived at the "tax free income" conclusion.
 
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