Moneymakeover Sell retirement property now or hang onto it

S

stayorgo

Registered User
Messages
14
Hi All

I would really appreciate your advice on the below.

Many thanks,

Personal details

Your age: 43
Your spouse's age: 42

Number and age of children: 2 children aged 11 and 8

Income and expenditure
Annual net income from employment or profession: €27560 - no childcare as I work remotely around the kids hours
Annual net income of spouse/partner: €40040
Children's allowance: €280 per month
Rental income of €14,400 per annum but I'm going to increase rent to €1600 per month - €19200 - worried about tax implications of this but currently rent is barely covering mortgage (€1131.35 per month) let alone insurance, LPT, repairs and extra tax due to rental income.

Monthly take-home pay for household: €7113

Type of employment - both employees
Employer type: Private company

In general are you:
(a) spending more than you earn. yes
(b) saving - saving for holidays, Christmas, things for kids, but no substantial amount put aside for rainy day


Summary of Assets and Liabilities
Family home value: €350,000 we live with my dad who is in his 80's in my family home which I will inherit. Living here since 2016
Mortgage on family home: N/A

Rental property: €400,000 just a guesstimate on equivalent properties recently sold in the area
Rental property Mortgage: €220,000

Cash: €0

Family home mortgage information
We bought a house in 2006 at height of the boom for €265,000. We were 24 and I was just finished college - mad stuff, 100% mortgage. My husband is in construction and from 2007 - 2013 he was mostly unemployed except for sporadic bouts of work. He was entitled to no social welfare as apparently my income put us over the threshold. We had the mortgage + 5 short term debts at the time. We worked with MABS and paid down 3 of the debts but during this time 2 of the loans went Legal. One with BOI which is still with solicitor's Ivor Fitpatrick (current balance of €11,700 and we pay €50 monthly) and one with GE Money now Cabot Financial (current balance of €8,000 and we pay €25 monthly). We have never had a lump sum to get rid of these balances. Also while my husband was unemployed we got into mortgage arrears of approx €25,000. AT the time (2016) it seemed crazy to me to let the bank repossess the house when we had paid 10 years into a mortgage so we decided to move in with my dad, rent the house out and after a year of full repayments BOI capitalized the arrears and now our mortgage will run until we are 67.
We were thinking that this rental property could be a pension for us. My husband has a small pension and I have none. We have had the same tenant's since 2016 and they now want to buy a house and were wondering if we would sell. We have made so many mistakes with money and are not good with money I'm just petrified of making mistakes all over again.
In my head if the house remains rented for the next 20+ years the mortgage will cover itself and we should have €500,000 approx (depending on house prices) of a lump sum if we sell it then.

If we sold the house now: Would hope to get €400,000 for the house. Pay off mortgage of €220,000 and fees ect of €10,000. €170,000 balance minus the €45000 we can get tax free as the initial purchase price was €265,000. Balance of €125,000 to pay CGT on ???? Would we still have to pay full 33% as we lived in the house for 10years from 2006 to 2016??? If we do have to pay full 33% then balance left of €83750+€45,000 from above = €128750 would be the money we would get now for the sale of the house. Pay off Cabot and Ivor fitpatrick loans - balance of €109050 left.

If we invested this €109050 into a pension I don't think we would have a €500,000 when we are at retirement as we would have if we kept this house to sell. I realize that we are dealing with a lot of variables: will the house be rented all the time, house values continuing to rise ect. I also worry about the future (kids college and if 1 of us got sick) and think that having the house to sell if we needed to whereas if money is in a pension we cant draw down until we are at retirement.

Other borrowings – car loans/personal loans etc
Car finance €460 per month

Do you pay off your full credit card balance each month? No - €6000 OWING


Pension information
I have no pension - should I enroll in this government one that's coming up or get my own?
Husband has a small pension started about 2 years ago - construction workers pension

Buy to let properties
N/A

Other savings and investments:
None

Other information which might be relevant
Life insurance: we are insured for €150,000 each and we have a separate policy to cover the mortgage on the rental property if one of us was to die. We also have serious illness but nothing in place to cover our salaries if either of us were to get sick.


What specific question do you have or what issues are of concern to you?
I'm unsure as to whether it would be better to sell the rental property now or hold onto it. 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. I feel we've messed up so many times in relation to money that I'm just terrified of making more mistakes. My husbands job is very physically demanding and he will probably need major surgery on his hips in the coming years - he may not be able to continue with his current profession so he may need to change jobs so that's a consideration.
I'm also worried about the cost of college and how much should we be putting aside for this.
As I have no pension I'm interested to hear what you would all advise - I feel that we need all our current income so a reduction in net wage for pension contributions would be difficult. We don't live an extravagant life and I feel we have decent money coming into the house but we just never seem to have any extra.

I am open to any suggestions, thank you so much in advance for taking the time.
Edited, apologies
 
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stayorgo said:
Rental income of €14,400 per annum but I'm going to increase rent to €1600 per month - €19200
Click to expand...
I don't know when was the last increase
However, the property is now in a rpz zone so I would be surprised that you could do that. You should go to the rtb calculator and see what increase is possible
 
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stayorgo said:
Monthly take-home pay for household: €7113
Click to expand...
Based on the information given, I come to a monthly income of 5913 net (inclusive of the child benefit without taking in consideration the rental). What does the 7113 include? Does it include the full rental (gross and before expenses?)
 
In your situation, I would 100% recommend Dave Ramsey's "Baby Steps".

I can live without his biblical references, but on clearing debt & making solid financial choices he is excellent.
 
stayorgo said:
I'm going to increase rent to €1600 per month -
Click to expand...
Bit of a bore to have to repeat post.

Anyway.

1. Your proposed rental increase is in the region of €400 per month. Have you checked this against the RTB calculator?

2. In my view your no. 1 goal should be to clear debt. Once you've cleared your debts you can start thinking about pensions & investments.

3. Dave Ramsey's "Baby Steps" are clear & easy to follow, though I can do without his biblical stuff. Its a common sense approach.
 
I don't see why you consider keeping the rental with such a low yield and substantial debt if you have somewhere to live and if you know that you will never need to live in the house again.
stayorgo said:
- I feel that we need all our current income so a reduction in net wage for pension contributions would be difficult.
Click to expand...
Based on the low rent, the mortgage, the expenses and the tax due, selling would increase your monthly cash-flow I would think as your currently rent is only 1200 and your mortgage is 1131.
 
It's a no brainer. Even when you increase the rent your gross yield is only 4.8% which is not enough to wash it's face. Sell and get rid of all your other loans. Also check whether you have any tax liabilities on the rental income that you are not declaring. High probability that you do potentially at 40% which makes your rental income paltry.

Then Invest any income that either of you can get 40% income tax relief on in a pension.
 
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stayorgo said:
Pay off mortgage of €220,000 and fees ect of €10,000.
Click to expand...

If you sell to existing tenant you will have no estate agent so fees should be substantially less, also no cost or hassle in preparing the property for sale. I would agree with previous advice to sell now, but ensure you get a fair price from existing tenants bearing in mind the above. Otherwise put on open market with estate agent.

stayorgo said:
Would we still have to pay full 33% as we lived in the house for 10years from 2006 to 2016??
Click to expand...

No, you will get relief for the years as your ppr so will have to pay less than half of the cgt otherwise due. As time passes the proportion relieved will decrease, another reason to sell now, in my opinion.

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.
Click to expand...

It would be worthwhile using some of the surplus from a sale to do this. Would your father consider passing ownership of the house to you sooner rather than later to enable this? Improvements should give him more comfort in his later years and reduce bills for yourselves.

Going forward you should look to keep tight control of your spending and never borrow again. And of course to maintain or increase your income. Can your husband look to retrain at something now, while still working, rather than waiting until he needs surgery and may not be able to work in his current role any longer? For his health and well being as much as anything else. This might cost something financially but could be a very worthwhile investment, though there are lots of training options out there at little or no cost.

Can you increase your hours as the children are getting older?
 
Hi All

Thank you so much for your replies. I don't know if we will live in the house where we currently are forever. The rental property is much newer so will require less work i.e €€€€€ going forward. Where we are will need to be re-slated in the not so distant future and needs new windows and an insulation upgrade. Also we feel that we might be happier long term moving back to the rental property. At the moment we live with my elderly dad and the house is willed to me. As the house is in my dads name selling now is not an option but we feel that we may be happier to sell this house rather than the rental in the future. My dad has no problem signing over the house but I wouldn't then sell it as he wouldn't want to live anywhere else. I haven't gotten the house signed over yet as we would have to pay solicitor and I think stamp duty so I felt this was wasting money as it doesn't change our situation greatly?
With the above in mind what do you think would make the rental a viable option i.e what should we increase the rent to? We are not in a rent pressure zone so we can increase the rent and our house is currently a steal based on properties that are being rented currently in the area. Its a 4 bed, 3 bath in walking distance of the town and this morning there's a 2 bed, 2 bath on DAFT in the countryside that's €1600. I know an accountant through work who does our tax return for the rental income every year so I'd really hope that we should be 100% correct in the tax that we pay on the rental income.
I have kind of fallen into a job where the money had been the same for years but it has been very good in relation to flexibility with the kids/childcare. Looking to the future I will probably need to become the higher earner in the marriage and move jobs to something that pays more.
 
Your monthly net take home is 7k.
You've no mortgage.

How are you not saving every month?

Set up a savings account and at least put the childrens allowance in.
That might partially cover braces on their teeth if they need them.

Does your Dad contribute to utilities?
Do you have expensive holidays every year?
 
Is there a possibility that your dad will need nursing home care? He might need his house then to pay for his care. And giving it you within a few years of needing care won’t work in terms of accessing state support.

Are you paying all the household bills?
 
Thanks all

Sadie we do save but its always for things that we do need to use it for like Christmas. We pay all bills. We are going on 1 weeks holiday this year and we haven't gone since 2019. I get what you're saying - on paper we should have savings it just doesn't seem to happen and we do not have an extravagant lifestyle.

Annieindublin - I don't envisage dad needing nursing home care as we cared for my mam at home until her death but I cant say for certain. If I was to get sick for example then it might happen. These are all the concerns that worry me.
 
stayorgo said:
With the above in mind what do you think would make the rental a viable option i.e what should we increase the rent to?
Click to expand...

Your opening post looked for advice on whether you should sell the rental or not. Despite the consensus amongst posters being to sell, you've moved on to this. It is impossible for anyone here to answer that question reliaby with the information provided.
 
Taking into account the tax on your rental, your net income is probably around 5.5k.
Outside the rental decision, I would look in details at all your expenses as if you don't pay rent or childcare, they are quite substantial. Money diaries can be a good tool.
 
Thanks to you all for your replies I really appreciate them.
I thought that the changes to the RPZ were coming into effect next year - I didn't realize that it was immediate so I wont be able to increase the rent to €1600 - I will only be able to increase by 2%. Even if the current tenants leave I will still have to follow this 2% rule for a new tenancy. This is a real blow to us, I'm just off the phone with the Residential tenancy's board.
I'm sorry if I have given mixed messages. Even though you all have said to sell the property it would be our wish to return there to live once my dad has passed away. Selling my old family home at that time, avoiding CGT as it is our PPR. We have ended up with my dad because of circumstances, its not something we would have chosen and it feels like a failure to sell our accidental investment property. It has taken a real toll on my husband and kids and our marriage to live in a small home with someone in their 80s. We make the best of it but that is the straight, honest truth. The rental has always looked like our eventual getaway if that makes sense. Thanks yo you all for your replies, you have given us a lot of food for thought.
 
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