MaybeLandlord
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- 4
Age: 34
Spouse’s/Partner's age: 32
Annual gross income from employment or profession: 90k
Annual gross income of spouse: 32k
Monthly take-home pay:
6200 net between the two of us after tax, heath insurance contributions and pension contributions, including AVCs (taken from salary directly)
Type of employment: Private employers, full time
In general are you:
Saving - around 2800-3000e per month.
Rough estimate of value of home: 300k
Amount outstanding on your mortgage: 125k over 22 years
What interest rate are you paying? 3.5% , paying 679 euro per month at the moment
Other borrowings – car loans/personal loans
None
Do you pay off your full credit card balance each month? Yes
Savings and investments:
120k savings. Recently sold all investments (shares) in preparation of buying new house
Do you have a pension scheme?
110k in pension pot (defined contribution)
6% employer contributions + 5% own contribution + around 600 euros/month AVC
Only 1k in my wife's pension pot (she just started pensionable job).
11% employer contributions + 6% own.
Do you own any investment or other property? No
Ages of children: No children but planning to have from next year
Life insurance: Just the one coming with mortgage
What specific question do you have or what issues are of concern to you?
We're in the process of trading up to a new house for various reasons. We're in the fortunate position where we got mortgage approval without having to sell current house. This was initially to be able to reduce the stress of moving, by allowing a few weeks between closing on new house and selling existing house. That said, given existing market property market and the fact we're approaching winter which is a bad period to sell, we've been running into the possibility to potentially use the existing property as an investment property, instead of selling it.
We're not big spenders by nature, our ultimate dream would be to retire early - a few years before the normal retirement age.
We'd like some additional opinion here as we're completely new to being a landlord, and have been reading nightmare stories about being a small landlord... All of my knowledge is based on reading this forum, propertypin, and some books.
Existing house: Large 3-bed terraced house in Meath, it was bought in 2014 for 230k, and therefore if we hold it for at least 7 years (until 2021), we would not pay CGT on it as an investment property. Current value is 300k.
It would be going at 1800-1900e / month on the rental market at the moment based on estate agent and similar properties in the same estate.
We're either planning to sell it in the next 6-9 months, or to rent it out at least until 2021 (7 year period to avoid paying CGT).
New house (where we're moving to): 475k , deposit of 95k (20%) from savings. Mortgage: 380k over 30 years at 3.2% => 1650e per month (actual cost: interest around 1000e per month in first month).
Scenario 1: We put the existing house on rental market, at least until 2021 (and review market at that point)
Assumptions (conservative):
1. Renting for 11 months out of 12 per year (1 month vacancy per year)
2. 10% management fees (we want an agent being the main contact for the tenants to avoid any hassle, we're very busy with our jobs - I'm reading that this usually cost 10% of rent)
3. 2000e/year expenses (insurances including rental income protection, repairs, ...)
4. Tax paid at 51% on rental income.
5. Rent income is likely going to drop in a few years time as supply increase, assuming a more realistic 1500e/month, instead of current 1800-1900 e/month.
6. Average of 350e/ month in interest to simplify (actually dropping as capital repayment are made)
=> ~average of 4250 euros gain after tax per year / 12 = 354 euros net per month from renting out the house, mostly going in capital reduction through mortgage repayment. Potentially higher on short term as rent are higher.
- Actual gain may be higher, as we would put most of this money to cap AVC to 20% of our gross salary (extra 12k per year in AVC, which is almost the full gross rental income) to minimize tax intake, and this is aligned with our overall life goal of retiring as early as possible.
- Assuming a property price increase of 4% per year over next 4 years, the property would be worth around 350k (that's equivalent to an extra gain of 1041 e per month, on top of rental income).
Scenario 2: We sell existing house in next 6-9 months.
Make an immediate gain of 300-230=70k (minus fees) and free up deposit put initially in 2014 and overpayments: around 175k cash in total. Put 150k of this as overpayment on new house:
475k - 95k initial deposit - 150k = mortgage of 230k over 30 years.
Mortgage: 230k over 30 years => 1000e per month at 3.2% (actual cost: interest around 620e per month in first year).
Net rental income from scenario 1 are almost equal to the extra cost of keeping existing house in extra interest repayment on new house. The only advantage of scenario 1 vs scenario 2 is around the capital increase which would account for more than 1000e/month extra if increase by 4% per year. Obviously, if property price market drop, scenario 1 is not as attractive.
Scenario 3:
Not fully considering this until writing this post, but we could actually also leave existing house vacant until 2021 and then sell it, given that most of the gain in scenario 1 are from property appreciation rather than rent income (the 51% tax is the killer here, no wonder there is a rental crisis). Obviously less hassle with potential bad tenants, less wear and tears, and less exposed to government policies in this area, that seem to go against landlords year after year.
Scenario 4:
Put money in other form of investments, but I'm more nervous about putting 150k as ETF / stock market than in a property as this is more opaque / less tangible to me. Also I think the return on property will be higher in next 4 years than stock market.
Spouse’s/Partner's age: 32
Annual gross income from employment or profession: 90k
Annual gross income of spouse: 32k
Monthly take-home pay:
6200 net between the two of us after tax, heath insurance contributions and pension contributions, including AVCs (taken from salary directly)
Type of employment: Private employers, full time
In general are you:
Saving - around 2800-3000e per month.
Rough estimate of value of home: 300k
Amount outstanding on your mortgage: 125k over 22 years
What interest rate are you paying? 3.5% , paying 679 euro per month at the moment
Other borrowings – car loans/personal loans
None
Do you pay off your full credit card balance each month? Yes
Savings and investments:
120k savings. Recently sold all investments (shares) in preparation of buying new house
Do you have a pension scheme?
110k in pension pot (defined contribution)
6% employer contributions + 5% own contribution + around 600 euros/month AVC
Only 1k in my wife's pension pot (she just started pensionable job).
11% employer contributions + 6% own.
Do you own any investment or other property? No
Ages of children: No children but planning to have from next year
Life insurance: Just the one coming with mortgage
What specific question do you have or what issues are of concern to you?
We're in the process of trading up to a new house for various reasons. We're in the fortunate position where we got mortgage approval without having to sell current house. This was initially to be able to reduce the stress of moving, by allowing a few weeks between closing on new house and selling existing house. That said, given existing market property market and the fact we're approaching winter which is a bad period to sell, we've been running into the possibility to potentially use the existing property as an investment property, instead of selling it.
We're not big spenders by nature, our ultimate dream would be to retire early - a few years before the normal retirement age.
We'd like some additional opinion here as we're completely new to being a landlord, and have been reading nightmare stories about being a small landlord... All of my knowledge is based on reading this forum, propertypin, and some books.
Existing house: Large 3-bed terraced house in Meath, it was bought in 2014 for 230k, and therefore if we hold it for at least 7 years (until 2021), we would not pay CGT on it as an investment property. Current value is 300k.
It would be going at 1800-1900e / month on the rental market at the moment based on estate agent and similar properties in the same estate.
We're either planning to sell it in the next 6-9 months, or to rent it out at least until 2021 (7 year period to avoid paying CGT).
New house (where we're moving to): 475k , deposit of 95k (20%) from savings. Mortgage: 380k over 30 years at 3.2% => 1650e per month (actual cost: interest around 1000e per month in first month).
Scenario 1: We put the existing house on rental market, at least until 2021 (and review market at that point)
Assumptions (conservative):
1. Renting for 11 months out of 12 per year (1 month vacancy per year)
2. 10% management fees (we want an agent being the main contact for the tenants to avoid any hassle, we're very busy with our jobs - I'm reading that this usually cost 10% of rent)
3. 2000e/year expenses (insurances including rental income protection, repairs, ...)
4. Tax paid at 51% on rental income.
5. Rent income is likely going to drop in a few years time as supply increase, assuming a more realistic 1500e/month, instead of current 1800-1900 e/month.
6. Average of 350e/ month in interest to simplify (actually dropping as capital repayment are made)
=> ~average of 4250 euros gain after tax per year / 12 = 354 euros net per month from renting out the house, mostly going in capital reduction through mortgage repayment. Potentially higher on short term as rent are higher.
- Actual gain may be higher, as we would put most of this money to cap AVC to 20% of our gross salary (extra 12k per year in AVC, which is almost the full gross rental income) to minimize tax intake, and this is aligned with our overall life goal of retiring as early as possible.
- Assuming a property price increase of 4% per year over next 4 years, the property would be worth around 350k (that's equivalent to an extra gain of 1041 e per month, on top of rental income).
Scenario 2: We sell existing house in next 6-9 months.
Make an immediate gain of 300-230=70k (minus fees) and free up deposit put initially in 2014 and overpayments: around 175k cash in total. Put 150k of this as overpayment on new house:
475k - 95k initial deposit - 150k = mortgage of 230k over 30 years.
Mortgage: 230k over 30 years => 1000e per month at 3.2% (actual cost: interest around 620e per month in first year).
Net rental income from scenario 1 are almost equal to the extra cost of keeping existing house in extra interest repayment on new house. The only advantage of scenario 1 vs scenario 2 is around the capital increase which would account for more than 1000e/month extra if increase by 4% per year. Obviously, if property price market drop, scenario 1 is not as attractive.
Scenario 3:
Not fully considering this until writing this post, but we could actually also leave existing house vacant until 2021 and then sell it, given that most of the gain in scenario 1 are from property appreciation rather than rent income (the 51% tax is the killer here, no wonder there is a rental crisis). Obviously less hassle with potential bad tenants, less wear and tears, and less exposed to government policies in this area, that seem to go against landlords year after year.
Scenario 4:
Put money in other form of investments, but I'm more nervous about putting 150k as ETF / stock market than in a property as this is more opaque / less tangible to me. Also I think the return on property will be higher in next 4 years than stock market.