Need advice deciding what to do

[PByrne0101]

Age: 38
Spouse’s/Partner's age: 42

Annual gross income from employment or profession: 85k+ bonus(~10K)
Annual gross income of spouse: 35K

Monthly take-home pay : 6.5K

Type of employment: employed

In general are you:
(a) breaking evening at the moment mainly due to refurbishing old house current house bit by bit

Home:
Rough estimate of value of home: 360K
Amount outstanding on your mortgage: 235K
What interest rate are you paying? 3%

Other borrowings – car loans/personal loans etc
car Loan: 13K - 280/month
Personal Loan: 10k - 200/month

Do you pay off your full credit card balance each month? Yes


Savings and investments: around e3K

Do you have a pension scheme? Yes

Do you own any investment or other property?
Rental Property (50% share):
Rough estimate of value of home: 280K
Amount outstanding on your mortgage: 220K
What interest rate are you paying? ecb+0.95%


Ages of children: 4 and 1 (creche fees 1.6K)

Life insurance: yes

Our house is an old Dublin 1930s house. Over the past 2 years we've spent about 30K in upgrading works. The house will need a lot of further rennovation and an extension if we are to stay in it long term. Although the street where we live is not child friendly, we are quiet happy with the location for work etc..

My spouse also owns a 50% share in another 1930s rental property nearby that has long term tenants in it. The property doesn't pay for itself since we need to pay out about 2-3K in tax each year. We have been toying with selling both properties and buying a slight bigger property nearby in a more family friendly area rather than extend and renovate the current property. Currently these properties sell for between 420-480K.

As I see it we have 3 options:

1. Keep both properties: Pros:rental income will provide a pension, tracker rate. Cons: rental hassle, yearly tax payout of 2-3K, will take longer to save for extension/refurbishment of current home, may need refurbishment in the future

2. Sell rental and stay in main home: Pros: no more yearly tax payout, pay off loans, easier to remortgage property to refurbish property. Cons: lose a tracker rate mortgage, lose future pension

3. Sell both properties: Pros: Buy a house in a quieter, more family friendly location, near better schools. Cons: Hassle of moving

I'm looking for advice from others. I think option 2 makes the most sense financially -however we both like the idea in living in a quieter estate. Have I missed any potential options?

 

[elcato]

Is selling the rental a runner ? Does the other 50% holder concur with this ? If it's a runner I'd say option 2 is correct. Are either of you in the public sector ? The cons you mention - pension: The best investment is to get your home paid for first (imo). Tracker: Rates can and probably will rise at some point.

 

[michaelm]

I guess the answer is subjective. What makes most sense for you and your family may not fully map over what makes most sense financially. It's hard to put a precise value on quality of life and time. If it was me I'd start with option 2 in that it would simplify my situation, and I wouldn't let the notion of a 'tracker' weigh too heavily on the decision. Once the rental is gone you could clear your loans and pay down the mortgage a bit and then decide whether to move house.

Having moved or decided to stay (meaning new mortgage is drawn down or not required) I'd crunch my numbers to see if becoming a single-income family was a runner. It's not for everyone it can provide a step change in quality of life, depending on the priorities and outlook of the people involved.

 

[PByrne0101]

Is selling the rental a runner ? Does the other 50% holder concur with this ? If it's a runner I'd say option 2 is correct. Are either of you in the public sector ? The cons you mention - pension: The best investment is to get your home paid for first (imo). Tracker: Rates can and probably will rise at some point.

Yes, the other part-owner is open to selling next year. Neither of us are in public sector. The con in selling the investment property is that we would lose future rental income that could be used when we retire.

 

[Codogly]

For me the issue is the fact that you have pretty much all of your assets in the one asset class " Property " ... I would diversify into alternatives just to reduce your exposure. Plus your family needs will change shortly , better to maximize the enjoyment of family life in a suitable HOME over the next 20yrs than to exist in a location and property that are not your ideal when you have options.

 

[elcato]

I concur with Codogly and the first thing to do is to sell the rental. Is there any chance the rental is better suited to your needs and you could move there ? You could wait a while and move later as well.

 

[PByrne0101]

For me the issue is the fact that you have pretty much all of your assets in the one asset class " Property " ... I would diversify into alternatives just to reduce your exposure. Plus your family needs will change shortly , better to maximize the enjoyment of family life in a suitable HOME over the next 20yrs than to exist in a location and property that are not your ideal when you have options.

Agree completely regarding property exposure. I think we'll almost certainly sell the investment property.

I concur with Codogly and the first thing to do is to sell the rental. Is there any chance the rental is better suited to your needs and you could move there ? You could wait a while and move later as well.

The rental property is smaller and there is less scope for extending so we've ruled that out.

My concern with extending the current house is that we'll probably never get the investment we make back if we were to sell the property in 5 years. E.g. If we remortgage and save - e100K for extension/refurbishment it may not add 100K to the property price if we were to sell in 5 years time to move to the other area.

 

[LS400]

I wouldn't be too quick to sell the investment property. What I dont understand is why its at worst, not breaking even, but costing you €2-3k per year. Thats what I would be focusing on.
I dont know the area or your rental income, but have trouble seeing why you are making a loss on it. The cons to me is the fact you have 50% equity in it, and for me, thats the bitter/sweet.
I have said before here, you need to be able to put an investment property to the back of your mind for it to reap rewards in future years.

If this is not possible, then I would suggest sell up.

As regards the extension, most extensions although add value to a property, do not increase in value to the same extent.