should I sell or rent holiday home valued at 275,000

hi

I have a holiday home valued at 275,000. I'm looking to buy a bigger house valued at 380000. I wondering which makes the most financial sense.

1]sell the 1st house and borrow the difference. There is no mortgage on 1st house.
The house originally cost 129000.

2]keep the 1st house and rent it out [ it would yield 750 to 800 euro p/m] which means I need to borrow about 330000.

Any advice would be great.

thanks

L

Re: should I sell or rent

Where is the holiday home? If it's in one of the ghost estates in the west of ireland or bulgaria etc. might be worth getting out while you can!

Also, as you have no mortgage on the first house you wont be claiming any interest expense. This will mean that a lot of your rental income (after other expenses) will be liable to tax, presumably at the higher rate. This should have a major bearing on your decision on whether its profitable to keep it.

Assuming you are can manage to get the full €800pm, manage to rent the place for 12 months every year and have absolutely no costs associated in the up keep of the place then you will get €9,600pa.

That gives you a very optimistic (and slightly unrealisic) gross yield of 3.5%.

If you put the money in the bank you would be getting a return of at least 4% RISK-FREE.
Or you could use the money to reduce the mortgage on your new property which would be saving you over 5% per year.

I think you should sell up. Unless the property is yielding at least 6% it's not worth keeping in my opinion.

It's in Rosslare. I was wondering if I should wait to sell until the seller's market is better but looking at the percentages given by New Buyer...

Rental yields are not the only thing to consider as capital appriciation is also a factor. Your age and family situation are also a factor. You may want to hang on to it as a pension or to help kids onto the property ladder. The market is low slow at the moment but property is historically cyclical, so there will probably be growth again. Having that sort of cash sitting in the bank will lose money as inflation will eat away the interest gained, you'd neecd to take some risk to get better gains. Though if it is a holiday home are you really going to get €800 every month?

sam h said:

Having that sort of cash sitting in the bank will lose money as inflation will eat away the interest gained

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Having that sort of money sitting in property will also lose money as inflation will eat away at the value of the investment. Capital appreciation on a property should be calculated as:
rise in value - inflation
to give the monetary investment value (i.e. the return on investment).

Current interest rates for deposit are above underlying inflation (goods and services excluding mortgage payment costs), so a high interest deposit account is currently safe.

sam h said:

property is historically cyclical, so there will probably be growth again

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This may be true, but where do you think the cycle is at the moment?