Moneymakeover Sell former home while living rent free with dad?

stayorgo said:
on paper we should have savings it just doesn't seem to happen
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so now you know why you seem to be "bad with money".

The money is going somewhere.

I'll double down on my Dave Ramsey's Baby Steps recomendation.

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On the old family home, there will be no CGT as you can have inheritance up to 400k tax free. So this does not need to be taken into account.

Rental bought at €265k and lived in for 10 years (+1 added for tax), rented for 8, then the cgt will be 33% of 45% of the gain, so circa 15% (€18k)

I can see both angles - pain for a few more years and then move to the original house and use inheritance to pay off mortgage and at that point aggressively contribute to a pension to avail of the tax advantage of doing so.

Or free yourself of debt which would allow contribution to a pension fund of at least anything you are paying high rate tax on and allow you make improvements to your dad's place.

I'd probably go for the latter especially if the current tenants wish to buy as it would be near hassle free.
 
Clearing your debts and making an effort to save, plus some maintenance on your dads house might put you in a better place in say 10 years time. Then reassess and see if you want to move.
A lot could change, kids might be away at college, so your housing needs will be very different. Your credit rating will be a lot better if you do want to get a new mortgage and move. And maybe your career will have shifted gears too, you’ll have a lot less childcare then anyway.
 
Everyone thank you so much for your replies. Its given us much food for thought over the last few days. Reading other money makeovers there are people making so much money every year and seem to be so well versed and have made such good decisions, I feel a little bit overwhelmed. Could I just ask your opinion on money that we may gain from sale of the house. After we've paid off short term debt if we were to have approx €90-€100,000 how would you invest/use it. What way would you split it up re pension/emergency fund/kids education/investing. Also would you speak to a financial advisor? Just anxious to make the right decisions. I've absorbed so much info in the last few days I feel a bit frozen and like a pendulum swinging forwards and back to the same decisions without making any decisions. If that makes sense. Thank you all again for your help, it is so very much appreciated.
 
You should consider the fact if your father needs to apply for Fair Deal in the future that his house will be assessable and will be required to pay for his care with a 3 year cap (€350k x 22.5% = c €78k).
 
stayorgo - you are doing absolutely fine. You will do even better in the future because you have taken the first steps to start analysing your finances in a clear objective way.
  • A few people here have mentioned Dave Ramsey (edited for the right person !) and this is a good place for you to start. This is something that you should look at/listen to with your husband because this is a joint journey.
  • A few people have suggested a money diary. This is a very good idea for you because it will show you where everything is going and will make you aware of your overall finances. Again, this needs to be a joint journey. You can use a spreadsheet or even start out initially with the old fashioned envelopes for every expense method. You can then visually see that every expense has an allotment including christmas and birthdays and holidays etc. Separate envelope/bucket for each not just a general savings bucket. Be ruthless initially until you get a grasp on things.
  • Educate yourself on Financial Fair Deal or the Fair Deal Scheme as it is also known. A few people have been giving you advise about this but you need to get up to speed. You may well be able to look after your father at home and this would be great. If you are not able to (for whatever reason) have your ducks in a row now (by reading and understanding it) so you have options.
  • Start the conversations with your tenants about whether they would like to purchase. If you decide to sell this is potentially the easiest route and the most pain free route (provided you get the market rate for the house). Confirm what your options are first before deciding anything.
Breathe, and try to release some of that stress. As many people on here say regularly - comparison is the thief of joy. You are doing fine and because of the steps you and your husband are now taking you will do even better.
 
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Hi All

Again thank you so much for your replies, it is very much appreciated. Without going into detail my inheritance of the family home will be in jeopardy if I sell the rental property. Keeping the sale secret will be impossible in my locality and my dad, in his all knowing head says that anyone who ever sold a property never had anything. I understand that this will sound absurd to all of you. Our living situation is difficult enough without drawing his wrath on this issue on us. Also my inheritance could be pulled from me so we could be effectively homeless. Do we just hope that from March we will be able to rent the house at a new rent to a new tenant. Also if someone could be so kind as to tell me how the bank calculate interest on mortgages. I would like to be able to calculate what the remaining mortgage will be in 5 years, 8 years, 10years ect.
Mortgage balance (APOLOGIES I HAD IT WRONG): €228,000
Remaining term: 27 years 5 months
Interest rate: fixed until next year at 3.9%
 
Have you considered moving back to the house? You mentioned several times that your living situation is difficult. With an income of 5900 and a mortgage of 1200, it should be financially feasible.
 
Thanks Premos,

Yes we have discussed this many times and in an ideal world that is what we would love to do. We moved here in dire straights as the bank were going to re-possess the house and we wanted to hang onto it. The bank agreed to let us rent it out for a year, pay full mortgage for a year and then they would re-structure, which they did. We didn't have a bob to do a granny flat or divide up this house in anyway so here we all are now, lumped in together. My dad is opinionated and would go ballistic if we sell the rental and could easily dis-inherit me. That would make the living situation here un-bearable and we would be effectively homeless.
In our head our "plan" was to inherit this house and sell/rent it out at that time and move back to the house we currently rent. Its a much newer house so we felt we would be spending less money than on my family home which was built in the 70's and will need the roof re-slated, re-wiring, heating overhaul, windows ect. This isn't a Dermot Bannon job its just maintenance things on an old house. I felt if we sold this house once I inherited it would be tax free as its our PPR and then move back to the rental - if we sold the rental in time that would be out PPR so no tax again.
We are in a situation now where my dad is elderly and it would be awful if we left now (I don't know if I could deal with the guilt) and also I don't know if I left now would I still get my inheritance of the family home.
We live in a very small area and keeping the sale a secret [from my dad]would not last long. We would be found out very quickly. Please everyone don't come at me, I know this sounds ridiculous that a grown woman can't do as she pleases with her own property.
 
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I don’t think money is your main issue, your family relationships with your Dad are. Although he was very kind to take you in when it looked like you could loose your home he is now holding a potential sword of Damocles over your head. He has you living rent free in his falling down house. You pay all the bills and his grand scheme is to leave you the house, maybe, when he dies. And he exerts a bullying control over what you should/should not do with your own house, for whatever reason he thinks as logical. And he also knows that you are guilted into staying with him at his home until he dies.

The money problems with all of this are:

1) it is costing you money to hold on to the house. At the most basic, you get rent of €14000 pa, you pay 45% tax on this, while leaves you with €7700 but your mortgage payments are €13576.20 per annum, costing you a minimum of €490 per month. (This is wrong, I did not allow for the interest costs), Brendan has the correct calculations in the next post. But with LPT, insurance, maintenance it is costing you more.

2) why is your Dad not maintaining his house. If you are paying all the household expensed what is he spending his income on? Why is he not spending now on the heating and windows etc.

3) While you may inherit your Dads house he may end up in a nursing home and have to pay 21% of the value of the house in fair deal payments. If you have no cash you may need to sell his house to pay that debt. I know you said you want to nurse him at home when he becomes infirm. But it is impossible to predict and you may find there is no option but a nursing home due to increased care needs.

4) Your dad needs to seriously look at why he is dictating what you do with your home. Does he fear being burdened with your family forever? Does he think he can control you as a family because you live with him. Is it another fear that he has? The financial issue with no 4 is that you are at risk of being homeless if you decide to sell your home, pay off your debts, and look after your Dad until he dies. He holds this possibly potential gift of his house over you and you have no control over whether it will happen or not. And it is a gift that brings a financial burden as the house is becoming unlivable.

Your options are
1). Continue as you currently are bleeding money paying for your own house and paying “rent” in your Dads house in the form of paying all the household bills.
2). Sell your house, pay off your debts, and risk being homeless when your Dad dies.
3) move back to your own house now, give your Dad what assistance you can and plan financially around your current house and family. Assume you will inherit nothing. Drop the guilt, focus on your own family and do the best you can for your Dad within those boundaries.

Given the info you have provided I would recommend no 3 but ultimately you and your husband need to decide the next steps together focusing on what is best for the two of you as a family group with your kids.
 
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stayorgo said:
Rental property: €400,000 just a guesstimate on equivalent properties recently sold in the area
Rental property Mortgage: €220,000
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stayorgo said:
Rental income of €14,400 per annum
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Your loan appears to be with Bank of Ireland. What interest rate are you paying? You could fix at about 3.5% so make sure you are paying the lowest available interest rate and that you have not defaulted to a high variable rate.

€220k @3.5% = c €8,000 per annum in interest or €700 a month.
Add other costs to bring it up to €10,000
That means that you are making a taxable profit of about €4,000 a year or around €2,000 after tax.

Your repayments are presumably higher than €700 per month. Any excess is a repayment of capital. So if you are paying €1,200, it means that you are reducing the mortgage balance by €500 a month or €6,000 a year.

If you lived in your own home which you owned outright or with a mortgage, the correct financial decision would be to sell your investment property as it would allow you to clear your other loans and contribute to a pension.

However, that is not the situation here.

Your father does not want you to sell your investment, and if you do sell it, there is a chance that you would be disinherited. So there really is no debate on it, you need to hold onto your investment. And as it happens, it's not a very bad investment.

Furthermore, you prefer your investment property as a home to live in and will move back when your father dies. So I don't really know why we are even discussing the potential sale. It's just not on the table for discussion.

Forget about pension contributions for the moment. Forget about your children's education for the moment. Focus on paying down your expensive debt if you can. When your father dies, sell his home, clear your debts and mortgage and you will be in a solid financial position.
 
stayorgo said:
The current house that we live in will need some improvements i.e new windows, insulation upgrade and I don't know how we are going to finance this
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When this has to happen, you will need to sit down with your father and discuss it. It is not your house so be careful about spending your money on upgrading his house, which he may not leave to you.

A few options. He can take out a Spry Finance Lifetime Loan to finance any improvements.

Key Post - Spry Finance Lifetime Loans

I find the Spry Finance website complicated so this is my summary of it. If you are at least 60, you can take out a Lifetime Loan from Spry Finance. There are no other providers in the Irish market which is a pity. You do not have to make any repayments, they will roll up the interest. The...
www.askaboutmoney.com

If you spend the money yourselves, make sure that it is documented as a loan to him to be repaid from his estate. This is very important. If you spend your own money on his house and it increases the value of it, you could end up paying CAT (Inheritance Tax) on money that you have spent.

It may also be a good time to talk to him about signing the house over to you. He probably should not do this. It puts him in a very precarious position if your husband and you split up or you die before your father. But if you are spending your money on it, you need some reassurance that you will benefit from it. Of course, you might argue that you are getting the benefit in living rent-free in his house.
 
stayorgo said:
My husbands job is very physically demanding and he will probably need major surgery on his hips in the coming years
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Has he got health insurance to cover getting this done privately? As cover won't kick in for an existing condition for 5(?) years, he should take out this insurance now.
 
stayorgo said:
Even if the current tenants leave I will still have to follow this 2% rule for a new tenancy.
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Is the current tenant thinking of leaving?

If he leaves, and you relet it before next March, you are limited to the 2% rule.

But if you don't relet it until after next March, then you can charge the new tenant the market rent.

You might have to do airbnb or something for a few months if he leaves before next March.
 
Depending on your father's age, you have to consider - can you live like you are for the next ten years?

The house is either being left to you or it isn't.

Have you siblings? This is the crux of this matter.

If it's not written down anywhere then you are fabricating a life and sorting your finances around a "maybe". Don't continue to be in denial about that.

Other siblings might see it that you and your family continue to be provided with with free lodgings in the family home.

Paying all the bills and caring for Dad might make you think and feel your current life of servitude are contributing to a future entitlement, but legally it's meaningless if your Dad dies and hasn't willed the house to you.

Those things are hard to allow yourself to see.
 
Let's be practical here.

You are getting €14,400 a year rent. You are paying €2,000 tax. So if you moved back into your home, you would lose €1,000 a month in cash-flow.

This does not seem to be an option while you have an option of living rent-free with your dad.

Brendan
 
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