Sell my home or rent it out?

A

arry

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Hi,

I am looking for some advice on whether to sell my house or rent it out. Background, I bought a small house when I was single close to city center. In the meantime I married and had two kids. We built an extension and have the house in great condition, however there is no back garden or other children near us.

At the moment I could not afford to move house, but should be able to in a couple of years. We are thinking we could sell or rent our own house and we could rent for a couple of years where we want to live.

So I am faced with a choice:

1) Stick where we are - quality of life would not be what we want. We could be in the house for another four years with kids just getting bigger.

2) Sell house - have equity in the house. Invest money somewhere and rent for few years. Negative here is that it may not be the best time to sell as there is a site near us which is about may was sold to builders. Probably building a few houses on it. Would probably make sense to sell after the building complete (year or two).

3) Rent house - Easily could rent house. Concerned that the house is in very good condition, would it be wrecked? Also when we go to sell it the CGT would be pro-rata between PPR time and rent (I could be wrong here)? Would make a profit on sale so that could be a pain. I would also be giving up a tracker mortgage which is worth something I think! Also I may not actually need the money in a few years, so I could rent this out long term.

I've never been a landlord so I'm not sure if it will be pain.

I would appreciate any input from persons with good financial brains as I'm not sure what to do.

Thanks
 
arry said:
I would also be giving up a tracker mortgage which is worth something I think!
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This is the key. Which lender are you with?

Most of the lenders will allow you transfer your tracker to a new home, subject to an increase of 1% in the rate.

So probably stay in the house as long as possible, sell and move the tracker.

Brendan
 
We are with EBS.

One thing I forgot to mention if we rent out our place, we would need to pay a good bit on renting a bigger home.
 
arry said:
I would appreciate any input from persons with good financial brains as I'm not sure what to do.
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Well figures would be a mighty good help !

- Not everyone is cut out to be a landlord
- Life is short, move out if it makes sense, it apparently does from a family point of view
 
Some figs:

I would rent it out for about 2k and would need to spend up to 3k to rent a house.

I have a mortgage of about 200k. 50k of it is at a variable rate (for extension) the 150k is on a tracker.

I would get about 550k for the house if I sold it, but I don't have the money to move so I would need to rent, as I still want to be near my kids school.

I am hopeful that is a few years I would have the money to buy again.
 
Need more figures, interest rate, years left, ages, savings, debt, equity ... (have a look at the money makover to see what is needed)
 
You could sell now and free up 350k towards a new house, right. Cracking deposit on a new house. What type of house are you planning to buy and what would it cost roughly?

You'll end up paying significant tax on rental income in the next few years. Back of envelope calculation - tax will be 10 grand plus or minus a bit.

Without even running the detailed numbers I know that it makes no sense to keep a house with a value of 550k, and renting for 2k per month, if the result is that you then borrow 550k at variable rate to buy another house (ie the first 550k borrowed to buy another is due to not having the 550k from the sale here, so in effect you are really borrowing 550k at variable rate to rent a house out at 2k per month? Makes no financial sense. (I might look at it differently if you were not borrowing 550k for another house, not sure final view would differ though).

And that's leaving aside all the hassle of being landlord, etc, that you don't seem to really want.

One other consideration, I generally think it is a good idea to sell and buy in the same market, a sort of natural hedge against price inflation. If prices continue to increase and you sell now your new house will end up costing a higher difference in the future. If you held at least your current house is also likely to move in the same direction price wise.
 
Do you know what you would be mortgage approved for right now? Add that to the 350k and it will give you some idea as to what you need to save. Then can you save that amount over the next few years + maybe another 10% for any rise in value?
 
Age: 41
Spouse’s/Partner's age: 40

Annual gross income from employment or profession: 68000 (Self Emp)
Annual gross income of spouse: 65000 (Public Servant)

Monthly take-home pay: 6300 combined

Saving 800 a month

Rough estimate of value of home 575K
Amount outstanding on your mortgage: 200 K
What interest rate are you paying? Most on tracker

No other borrowings

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

Savings and investments:

Do you have a pension scheme? Yes Self admin

Do you own any investment or other property? No

Have shares in private company worth 1m+

Ages of children: 5 & 7

In relation to buying. The house I would like buy might cost about 850k I guess. More than I can afford at the moment.
 
arry said:
I would also be giving up a tracker mortgage which is worth something I think! Also I may not actually need the money in a few years, so I could rent this out long term.
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While the tracker is a consideration, in relative terms I don't see it as critical in your situation. Not saying I would give it up lightly, I would certainly look to see if the bank would allow you to take the tracker with you to a new property. You're saying that a new house is 850k so the tracker max would only be 150 of that.

In overall terms you seem pretty well set up financially at the moment, so I would certainly advise significant caution in not overburdening yourself with debt for the next 20-25 years. You are in a house, low mortgage, two kids, good jobs, etc. You mention the shares in the private company, any way to realise part of that to assist with a house purchase perhaps or would you want to even do that? Is it a family business, how easy would it be to realise some of that money?

Guessing your income is stable. What about your partners income? What does he do, is there potential for significant increase in his take home for example? You would need this in my view to buy at 850 based on your circumstances, and to fund the required mortgage. Might you want to reduce your hours as the kids get a bit older and other family considerations become important?

Concern I would have for you is that you seem very far short of the price of the new house that you want. Seems to me you have a borrowing capacity or around 300k give or take, may get a little more based on incomes and size of deposit were you to sell. That would leave you with 650 perhaps even 700. But you're still short by 150. You are currently saving 10k (800 per month), even if you saved a little more you won't get anywhere near bridging the gap. There is also the risk that even small house price increases will run ahead of your savings ability. Example - a 1% increase in the 850k house more or less equals what you are saving at the moment.

As an FYI a mortgage of 500k at 3.5% would cost 2,750 per month over 25 years (3,200 for 20 years). You're at retirement then, is that what you want?

I really think you need to reflect on your situation carefully, what you want in a house, family, life, etc. Appreciate you want the bigger more desirable house, do you really want the demands and sacrifices that go with it? It may tie you up for 20-25 years financially, reducing flexibility to scale back hours to spend with kids as they grow up, etc? Is there a cheaper option for another house that will meet your needs and is compatible with your lifestyle and finances?
 
Thanks for the detailed observations Gerard123.

I can't argue with much of what you have said, that is why we are not thinking of buying in the next few years.

We had (almost) settled on renting. The money in the business maybe realised in 3+ years. I didn't really want to wait that long to move, hence move out of our place and rent another house, with the choice of renting our place out for a few years or selling it now.
 
arry said:
Background, I bought a small house when I was single close to city center. In the meantime I married and had two kids. We built an extension and have the house in great condition, however there is no back garden or other children near us.

At the moment I could not afford to move house, but should be able to in a couple of years.
Click to expand...

arry said:
Rough estimate of value of home 575K
Amount outstanding on your mortgage: 200 K
What interest rate are you paying? Most on tracker

...
In relation to buying. The house I would like buy might cost about 850k I guess.
Click to expand...

Option 1 - stay where you are until you can afford to trade up to your ideal house
This seems clear to me. If you know that you will be moving to your ideal house after two year, this will make it a lot more tolerable.

Option 2 - Sell and buy another house for €575k
Surely you can get most of what you want for €575k?
The downside of this is the costs and risks of buying and selling houses.
You will also lose your tracker when you trade up again after a few years but that is not a huge issue as Gerard pointed out.

Option 3 - sell and rent until you can afford to buy a house which would cost €850k today
Not really a good idea. This is risky. If house prices rise, the €850k might climb out of your reach. You could end up rushing to buy a house inferior to your current house for a higher price.

You will lose your tracker.

Option 4 - rent out your current home and rent the house you want
Horrible from a tax point of view.
The tenants may well devalue your house.

But, you keep a significant stake in the housing market, so if house prices rise, they won't go quickly out of reach.
And you will probably be able to port your tracker when you do buy.

Brendan
 
Thanks for the information guys. I see the advice leans away from our idea of renting out our place and renting a bigger house. We might go back to either selling or staying put.

Thanks for taking the time to respond!
 
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