Which property to sell?

[butterfield]

Property 1 - Home - value approx 850/900.000 - mortgaged 550,000. Repayments presently and for past 30 months interest only = 1500. Reverting to 3900 per month

Property 2 - Rental - No mortgage. Value approx 300,000. Income 1300 per month.
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On property 1 - home -(mortgage is tracker @ 1.95%), have been interest only for 30 months as we cannot afford to pay full amount (self employed and income down). We are couple mid 50's and cannot extend mortgage because of our age. We have offered to pay part of principal (one third) to bank and waiting for reply. We are reluctant to sell this house as was purchased in 2004 for 1.2m and refurbished at cost of 200,000 = total investment of 1.4m, this would be huge loss. If we choose this option we will need to buy another home and are worried about getting another mortgage. Although in long run we do want to sell this property, was always our plan but hoped we could take capital out of it when we traded down.

If we sell property 2 we estimate we will have maybe 200/240,000 profit after CGT - we would then pay off part of mortgage 110,000 which would leave mortgage repayment of approx 3000 per month, which is possible as we are now paying 1500 per month and would use balance of capital to fund the other 1500 per month on ongoing basis, untill we can sell home and trade down.

Which decision is best ... any advice welcome??

 

[Brendan Burgess]

Hi butterfield

This is a difficult one. The prices you paid for your home and the fact that you are selling at a loss is irrelevant. You could sell it now and have €200k with which to buy a house. Presumably not the scale of trading down you were planning. If you sell both properties, you will have €500k with which to buy a property.

Could you live in your investment property? If so, you could rent out your home and claim the interest paid as tax deductible.

However, I would be slow to sell your home as the very cheap tracker is so valuable. I would also be very slow to offer a capital repayment on such a cheap tracker.

If you sell your investment, put the proceeds on deposit and feed the repayments. You can earn 3% interest on deposit which, even after DIRT would be more than you are paying for your mortgage.

If you do want to pay money off your mortgage, insist that it is for payments in advance and that you get a payment break for some years.

 

[Bronte]

As BB said forget about the loss you would make on selling. This is made up for by the fact that you can now buy for less.

I guess you're clearing about 800 a month from the rental property (1300 less about 500 = 800 rough guess) so you have 1500 + 800 = 2300 towards a full mortgage still leaving a shortfall of 1600 so that's no good as you said you can't afford it.

If you sell both properties you clear 500K, that will surely buy you something very nice with no mortgage and think of the relief that would be. The status of where you think you are going with the self employed income having come down, will be something you have to consider when you decide how much you should spend on a purchase. If 500K doesn't buy you something nice, then a 10 year mortgage of the amount you can repay/afford (presuming a 55 year old can get a mortgage of 10 years(can't see bank having problem with this if you are investing 500K).

If you want to why don't you do the moneymakeover thread to see where you can make savings. Maybe you're paying a large amount into a pension that could be used for the mortgage as you do have one heck of a shortfall. Maybe now is the time to consider the downsizing for retirement option in a different cheaper location.

 

[goingforgold]

Folks, the OP's second property is worth 300K and he has between 300-350K equity in his principal residence. Therfore he has up to 650K equity if he were to sell both houses. I think that should/must buy you a very nice debt free house in any part of the country these days. If it were me I would be thinking of spending 400K and putting the other 250K on deposit, especially as you are unsure of future income potential.

You essentially have a cashflow situation that hopefully can be rectified by selling one/both of your proertites, thus leaving you in a comfortable situation.

 

[niceoneted]

I would be thinking along the lines of forgetting the loss and disposal of both properties - unless of course one of them is your forever home which I don't seem to pick up from your post.

I would dispose of property 1 first. Then move into property 2 make it your PPR and sell it then when it would no longer be subject to CGT if thats possible - don't you think you have made enough of a loss without having to shell out big sums on CGT.

I would in that whole interim period (while selling the houses) decide where you want your forever house and have it found for yourself. Limit the purchase on it so as you have couple K left over from both sales.

Your 50's. with such value in the two houses why are you worrying about paying a mortgage. You are in the youth of old age so should be really enjoying yourself. I personally aim to have my mortgage cleared well before 50 and retire in my early 50's.
Just my tuppence worth.

 

[Bronte]

Moving into the rented property does not mean he will not have to pay CGT. It will be apportioned.

Going for Gold - OP said he owes CGT on the investment property, also better to err on the side of the low figures in these things.

 

[butterfield]

Thanks for all replies and advice, really appreciated. Our situation might have changed slightly as at posting yesterday only had one valuation on our home of 850/900,00. Today had another agent who valued the property at 1m to 1.1m. Now I don't understand the difference as the two are top estate agents ?? My own thoughts are somewhere in middle is right price. Anyway have one more coming next week so will see what they say. If we can get more for this property we will not need to sell investment property and intend to move to cheaper location and maybe get small mortgage over 10 years.

If we sell investment property will probably do as Brendan says and feed mortgage while placing the money on deposit and then sell home when things improve.

Thanks again for all advice and niceoneted I like your saying "youth of old age" and agree with you about not having hassle of this, so hopefully we can sort it out and start to live without the stress.

 

[Brendan Burgess]

had one valuation on our home of 850/900,00. Today had another agent who valued the property at 1m to 1.1m. Now I don't understand the difference as the two are top estate agents ??

The reality is that no one knows. Also some auctioneers will value it higher so that you will give them the job.