To sell or not to sell: Couple own three houses - a little out of our depth

Hi everyone

Please be patient, this is my first post!

Scenario: Myself and my boyfriend have 3 houses between us, One each in our own names and one held jointly. His is worth 300K with an o/s mortgage of 90K. Mine worth 180-200K with o/s mortgage of 90K. We just bought a third house between us for 340K (tracker for 30 yrs) but is worth 450-500K (bought from parents). All three mortgages together amount to 520K. Both his own house and my house are rented and covering the respective mortgages.

We feel that with the third mortgage (340K) which is EUR1,800 per month, we are a little below out of our dept and the pressure is on.

We want to sell one of the houses take the pressure off a bit but really have no idea which house to sell and what the tax implications would be.

There are a few options that we have thought about

1) sell my house and use 100K to pay off his mortgage and then have rent money from his house to help with repayments on larger mortgage

2) Sell my house and use 100K to pay off some of the 340K mortgage.

3) Sell his house and use 200k to pay off larger mortgage?

Has anyone any advice? We will go to an independant advisor anyway but any thoughts on this or any advice at all would be greatly appreciated.

Thanks

Re: To sell or not to sell

Do you live in any of the above houses? What rents are yours and partners achieving?

Re: To sell or not to sell

No, We dont even live together yet, as I work and rent in Dublin and he lives in his family home down the country, I plan to move home shortly and live together in one of the houses, not sure which one, probably the one we own jointly, we are a bit all over the place really!

Re: To sell or not to sell

forgot to say, rent on mine EUR440 pm and his EUR600 pm.

Re: To sell or not to sell

Rental yield on your partner's house if taken at value of 300k = 2.4%, if taken at mortgage owed 90k yield = 8%.

The yield on your house if taken at value of 200K =2.64%, if taken at mortgage owed 90K yield = 5.86%

Personally I'd sell your house to bring down the mortgage on your future home. The reason I'd do this is that the yield is higher on your partner's house and therefore, more money coming into the coffers each month! Of course this would depend on whether the 100K would bring down mortgage enough to be manageable.

Capital gains tax will be paid on the sale of either property (20%). Also if you were a FTB, exempt from stamp duty, there may be a clawback if you did not live in the property for 5 years. However, I take it from your post that you never lived in the property and therefore paid stamp duty at investors' rates.

Re: To sell or not to sell

hi
have you considered going interest only on everything and weather the "interest rate storm" for as long as possible ? even if you managed to last another two to three years owning all three properties, think of the additional equity you would have then earned from all three properties!
best of luck

Re: To sell or not to sell

cathalbrenna said:

hi
have you considered going interest only on everything and weather the "interest rate storm" for as long as possible ? even if you managed to last another two to three years owning all three properties, think of the additional equity you would have then earned from all three properties!
best of luck

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Only if they keep rising in value that is..Capital appreciation is far from certain especially given how far the Irish market has come. You have the opportunity to cash in and get you hands on circa €100k (before tax) - how often do you come accross this amount of cash in your daily life?

I agree with liteweight.

If you sell one of the rental houses then I think it is better to put the money off the mortgage for your primary residence instead of the other rental house as you can deduct interest paid on the rental house mortgage from rental income when calculating tax on rental income which means less of your rental income would be taxable.

you will have capital gains tax on any profit you make on the rental property that you sell. AFAIK this is pro rata so if it was not rented out the whole time you owned it you pay less CGT.

Baloney said:

you will have capital gains tax on any profit you make on the rental property that you sell. AFAIK this is pro rata so if it was not rented out the whole time you owned it you pay less CGT.

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Whether the property was rented out or not has no bearing on CGT. Rental income refers to Income Tax and selling your house refers to Capital Gains Tax.

Broadly speaking CGT is calculated on the difference between Buying Price and Selling Price. Things like annual exemption, indexation(mainly for older properties), legal fees can reduce your liability but I can't see how rental income plays a part.

no longer applicable

I've now merged it with this one and deleted the duplicate first post.

Dee81, please don't duplicate or reply to your own recent posts just to "bump them up" to the top of a topic list.

Thank you everyone for all your advice, I will discuss the different options and see which is best, I think we will probably try bring down our big mortgage with the money made from the sale of my house. I did'nt know a lot about the CGT etc so thanks for that!

Re: To sell or not to sell

liteweight said:

Rental yield on your partner's house if taken at value of 300k = 2.4%, if taken at mortgage owed 90k yield = 8%.

The yield on your house if taken at value of 200K =2.64%, if taken at mortgage owed 90K yield = 5.86%

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The yield on mortgage owed (whatever that means?) is absolutely meaningless... Why do you mention that ?

liteweight said:

Personally I'd sell your house to bring down the mortgage on your future home. The reason I'd do this is that the yield is higher on your partner's house

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It is the opposite.. the yield on hers is 2.64% vs 2.4% on his...

Did we not already have a discussion in another thread about how to calculate the yield?

Yes we did Bacchus..no need to get your k*****rs in a twist. As I recall, I was correct in my calculation of yield on that other thread!! I mentioned the yield of 90K in this scenario because in Dee's case she wants to make a judgement on the best use of her money. Normally I would calculate the yield on the cost of the property but as I said this case was different.

Don't have time to go over figures at mo but my opinion on what OP should do remains the same.

Dee81 said:

bought a third house between us for 340K (tracker for 30 yrs) but is worth 450-500K (bought from parents). All three mortgages together amount to 520K.

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Did you declare this gift (as that is what it effectively is) from your parents?

liteweight said:

Don't have time to go over figures at mo but my opinion on what OP should do remains the same.

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No need to go over the figures again.. you already did the calculation correctly but contradicted yourself in your advice., that's it.

liteweight said:

As I recall, I was correct in my calculation of yield on that other thread!!

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Hard to tell as you contradicted yourself (again ?).
The thread is here for reference, interesting reading from Post#15 onwards...

Anyway, considering that the yields are fairly similar, i would look more into potentiel future capital growth based on location to decide between selling house 1 or 2...

Sherman said:

Did you declare this gift (as that is what it effectively is) from your parents?

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If there was SD liabilities they should have been calculated on the market value of the home at the time of purchase even if they bought it for less than market value at the time.

bacchus said:

Hard to tell as you contradicted yourself (again ?).
The thread is here for reference, interesting reading from Post#15 onwards...

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I don't get what you mean Bacchus...either I'm losing it or you've been at the wine again!

Dee thread title suggests that they are out of their depth. Therefore I analysed the figures in relation to which option would give them most peace of mind. An ethereal figure of what the houses may possibly be worth is of no use when calculating yield from an investor's standpoint unless.........

"The only reason I can see that you'd do the math on current property price is to ascertain whether, if you cashed in, your money would make more elsewhere."

...which is what I said on the other thread. This was taken out of context in the quote. I said this in reply to another poster who believed yield should be calculated on the value of the property at current prices.

In fact yield = annual rent divided by cost of property, including fees, stamp duty etc., multiplied by 100. I think the general concensus on all threads relating to this is that the above is correct.

Sherman makes a good point re gift from parents. Parents can gift a child up to approx 478K without tax liability arising but the gift should be declared. Also, if this was not your parent's PPR, they may be liable for capital gains tax on the full value of the sale, not on the reduced price to yourself.

room 305 said:

If there was SD liabilities they should have been calculated on the market value of the home at the time of purchase even if they bought it for less than market value at the time.

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I wasn't aware of this but anything is possible unfortunately . Is this information on Revenue website?