# To put house on the market in Feb or not



## elainem (9 Oct 2006)

Hi! everyone, I have a peirod property in D4, with no mortgage, earning E2,300 a month in rent, but needing about E50,000 in repairs - damp etc. I had intended to ask the tenants to leave and place in on the market in February, but the market seems to have gone belly up so quickly. Now I don't know whether to leave the tenants there - lease runs out in June - and sell next September. I am also worried about capital gains (won't be quite such a large sum now with fall in house prices), and believe that there is a likelihood that the next government will increase same. I don't want to keep the property as it is a period listed building which I find is just a hassle in terms of repairs, and a general money pit. The house was valued at E1.8 a few months ago - though I don't think I'll get near that now!! Any advice appreciated.


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## lff12 (9 Oct 2006)

I'm presuming that you bought the property many years ago for what is a song compared to its valuation now.  In fact I'm guessing that even if you bought this 10 years ago and the current price were to fall by as much as 35% you'd still have a tidy profit.

2300 a month is a pretty nice rent and even after tax would more than cover the 50k.  Presuming that a mortgage would cost you around about 500-540 a month for a 10 year term, it would be a pity to sell a property that is making you money for the sake of an expense that equates to less than 2 years rent, or 2.8% of the property value.  In fairness I know FTBs who have spent a lot more than that percentage on repairs to homes formerly let that were only a couple of years old due to tenant abuse - you should count yourself lucky that what is probably a prime property is going to cost you so little!

My suggestion would be to take out a small mortgage to cover the repair costs, as it will still break even - and maybe consider selling the house a few years down the road.  D4 isn't going to drop that much, and a house with that kind of rental yield is very good by today's standard.

As for the tenants, try to keep the better tenants (good tenants are worth their weight in gold these days) and as the others move out do the place up flat by flat.


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## Maine (9 Oct 2006)

Could still sell it now for an excellent price. Otherwise sell in spring season. IMO Q3/Q4 next year could be more difficult as SSIA spend dissapears and according to Davys/ goodbodys / lots of economists the irish economy will start to slow.

Note say sold for 1.8m net ( lets remain optimistic) . Putting this on deposit at say 3.5% would give 63,000 euros a year or about 5,250 euros per month.

It shows that your rent is really very low compared to the price of the asset.


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## liteweight (9 Oct 2006)

There have been no price drops in D4 as yet. Last weeks auction results were abysmal but D4 still did ok. Lots of those that did not sell at auction had sold signs put up at weekend, even though this is not reflected on MyHome etc. The only houses taking longer to sell (still selling) are bog standard 4 bed 1930's semis. Your house sounds like it's exactly what buyers are looking for.


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## whathome (9 Oct 2006)

I would be inclined to sell sooner rather than later.  There have been price drops in D4.  Some high profile failures at auction are now selling by private treaty.  7 Shrewsbury Park was withdrawn in May with an AMV of 3.5M and quoted 3.9M in private treaty after the auction. It has now been reduced to 3.45M.  There are quite a few other examples.

With interest rates rising, the housing market might weaken further but deposit accounts would pay higher interest.


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## fatmanknows (9 Oct 2006)

elainem said:


> Hi! everyone, I have a peirod property in D4, with no mortgage, earning E2,300 a month in rent, but needing about E50,000 in repairs - damp etc. I had intended to ask the tenants to leave and place in on the market in February, but the market seems to have gone belly up so quickly. Now I don't know whether to leave the tenants there - lease runs out in June - and sell next September. I am also worried about capital gains (won't be quite such a large sum now with fall in house prices), and believe that there is a likelihood that the next government will increase same. I don't want to keep the property as it is a period listed building which I find is just a hassle in terms of repairs, and a general money pit. The house was valued at E1.8 a few months ago - though I don't think I'll get near that now!! Any advice appreciated.


 
From where I'm standing you are 4-5 months past the point of the best gain from your property. IMO waiting until next year or the year after or even the year is futile. Your Capital Gain from hereonin is only likely to get smaller IMO. You may hear comments such as property in your area wont fall or is safe enough (D4 is immune to falls) and whilst pleasing to your ear are IMO completely flawed. Your property at present is giving an absolutely derisory (Gross !) yield of 1.5% approx. I don't know of any asset class (especially such an illiquid one as property) giving such a pitiful return anywhere else in the world - (perhaps Japanese yen cash deposits) and yet I hear some people commenting that you are getting a good rent. An annual rental income of 1/66th of your property value is a joke. The common consensus is that interest rates (which have already moved 1.25%) are only going in one direction for the next forseeable while ( years imo). This to me would make the idea of holding on to such a poor performing asset a very unwise one. Unless you are of the opinion your current rents can at least quadruple then I would ditch it for a liquid cash higher earning deposit. 3.75% on instant deposits are currently available and are likely to rise further this week.


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## whathome (9 Oct 2006)

lff12 said:


> a house with that kind of rental yield is very good by today's standard.


 
Rent of €2,300 pm on a valuation of €1.8M produces a gross yield of 1.53%. As fatmanknows pointed out, this is a terrible return. I don't know how anyone could say that yield is "very good", it's atrocious.


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## liteweight (9 Oct 2006)

whathome said:


> I would be inclined to sell sooner rather than later.



I would hold this view also. If the OP makes the decision to sell, then the sooner the better.



			
				whathome said:
			
		

> There have been price drops in D4.  Some high profile failures at auction are now selling by private treaty.  7 Shrewsbury Park was withdrawn in May with an AMV of 3.5M and quoted 3.9M in private treaty after the auction. It has now been reduced to 3.45M.



I genuinely haven't seen house price drops in the area. Good spotting Whathome, Shrewsbury Park escaped me....don't know where it is but it shouldn't be confused with Shrewsbuty Road.



> There are quite a few other examples.



Mary Harney's old stamping ground off Serpentine Avenue (2 bed) sold for approx. 1.25m....AMV 1m. Heytesbury Lane sold for 1m over it's AMV and last week one of the bog standard semis sold for over 2m. In general D4 is still doing ok particularly for period property. I don't think the OP will have a problem in securing a buyer. Nevertheless if the market collapses, or even falls 'softly', it would be stupid to think any area would remain unaffected.



			
				whathome said:
			
		

> With interest rates rising, the housing market might weaken further but deposit accounts would pay higher interest.




I agree with you here and also with fatmanknows. There is no point in holding onto something which is costing you money, unless it's for tax purposes.


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## dunkamania (9 Oct 2006)

Maine said:


> . IMO Q3/Q4 next year could be more difficult as SSIA spend dissapears and according to Davys/ goodbodys / lots of economists the irish economy will start to slow.
> 
> Note say sold for 1.8m net ( lets remain optimistic) .
> 
> ...


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## liteweight (9 Oct 2006)

dunkamania said:


> Note say sold for 1.8m net ( lets remain optimistic) .
> 
> Probably not many ppl hanging on for their SSIA's so they can buy a 1.8m home.



This is very true. Another point that a lot of people are not willing to spend this type of money on property which needs renovation, unless they feel they're getting a real bargain. 

Perhaps you'd be better to carry out repairs to the house before you put it up for sale. Ask estate agents advice re valuation (get at least 3) so that you have a better idea of where you stand.


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## liteweight (9 Oct 2006)

whathome said:


> Rent of €2,300 pm on a valuation of €1.8M produces a gross yield of 1.53%. As fatmanknows pointed out, this is a terrible return. I don't know how anyone could say that yield is "very good", it's atrocious.



Yield is calculated on the original cost of the property, not on its current value. There are numerous posts with regard to this on AAM. 

It is not simply a case of selling for 1.8m and pocketing the profit. Even if the OP paid 300k for the house, leaving a profit of 1.5m, capital gains tax would take 300k out of the pot, plus EA agents fees, plus legal costs. Personal circumstances have to be taken into account. A monthly payment of 2,300 is much more tax efficient for someone who has no other income, especially if this income suffices.

I'm not saying the OP shouldn't sell....just that all options should be considered before a decision is reached.


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## whathome (9 Oct 2006)

liteweight said:


> Yield is calculated on the original cost of the property, not on its current value.


 
You always get this wrong liteweight.   Yield is calculated on current value, otherwise there's no way to compare return with alternative investments.  If for example the OP had inherited the property, what would the yield be then?

When making a sell/buy decision on an asset, *current *valuation should always be used.


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## hmmm (9 Oct 2006)

elainem said:


> Now I don't know whether to leave the tenants there - lease runs out in June



If you've signed a lease, surely that's their decision?


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## liteweight (9 Oct 2006)

whathome said:


> You always get this wrong liteweight.   Yield is calculated on current value, otherwise there's no way to compare return with alternative investments.  If for example the OP had inherited the property, what would the yield be then?
> 
> When making a sell/buy decision on an asset, *current *valuation should always be used.



I beg to differ. You are mistaken. Yield is calculated on the original cost of the property. It is done this way in order to calculate rental returns for tax purposes.

In other threads, I have stated that there is value in comparing what the property is worth 'today' in order to decide whether your money would be better invested elsewhere. When it comes to calculating yields on rental property however, this does not stand up. You cannot calculate a 'yield' on money you do not have and might not get....you can only do it on what you spent.

Whether you inherit a property or not is a moot point. If the tax man looks at your accounts, let's take Elainem as an example:- at 1.8m cost of property and a rental income of 2,300 pm she has very little tax liability. If she inherited it then all 2,300 is liable for tax as she has little or no expenses.

With all due respect you are trying to compare two totally different things and calling them both 'yield'.

I know you have argued this case before and you were wrong then too!!


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## bacchus (9 Oct 2006)

Liteweight
Same mistake again and again and again regarding calculation of yield. See previous threads related to yield here and there

A simple [broken link removed] for calculation.


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## whathome (9 Oct 2006)

liteweight said:


> I beg to differ. You are mistaken. Yield is calculated on the original cost of the property. It is done this way in order to calculate rental returns for tax purposes.


 
Gross yield has absolutely nothing to do with tax.

You're confusing gross yield with the ability of a landlord to offset interest expenditure against rental income.  They're not related.

If I bought the house in D4 in 1980 for €80,000, it would currently yield 34% according to your calculations.  So I compare your "yield" that to a deposit account returning 3.5% and I decide not to sell.  Bad move, using your method I've based today's decision on calculations using figures from 26 years ago.  

Calculating it correctly, the actual gross yield is based on current valuation - €1,800,000 which returns 1.53%.  When making a decision to sell an asset, in order to compare returns - current valuations should always be used.


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## liteweight (9 Oct 2006)

bacchus said:


> Liteweight
> Same mistake again and again and again regarding calculation of yield. See previous threads related to yield here and there
> 
> A simple [broken link removed] for calculation.



I am saying the same thing here!! Yield on investment property for tax purposes etc. is calculated on original cost and expenses of property.

If, however, you want to ascertain what your profit might gain elsewhere  then by all means 'guestimate' what you will be worth. However, initially you  only invested X amount and it is this amount yield is calculated on!!

Bacchus are you Whathome in disguise??


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## fatmanknows (9 Oct 2006)

liteweight said:


> I beg to differ. You are mistaken. Yield is calculated on the original cost of the property. It is done this way in order to calculate rental returns for tax purposes.
> 
> In other threads, I have stated that there is value in comparing what the property is worth 'today' in order to decide whether your money would be better invested elsewhere. When it comes to calculating yields on rental property however, this does not stand up. You cannot calculate a 'yield' on money you do not have and might not get....you can only do it on what you spent.
> 
> ...


 
Lightweitht, I would think to any investor you have this wrong. Historic yields are irrelevant when making invesment decisions. The present is all that matters.

I lost you with ref to yields and tax returns. However, rent is rent and taxable as such - subject to allowables such as interest and outgoings etc . As for a visit from the taxman - the taxman's concern, if any, will be whether the gross rent declared is reflective ( current yield) of the current market value of the earning propery - for the year in question. After that he/she will look at the deductibles claimed.

A more pertinent example might be the Gilt market. Its not the coupon rate that's most relevent - its the current market rate the loan note yields.


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## whathome (9 Oct 2006)

liteweight said:


> If, however, you want to ascertain what your profit might gain elsewhere then by all means 'guestimate' what you will be worth.


 
A better approach would be to get some professional valuations as you suggested earlier.  This will allow the OP to calculate gross yield.  Our calculations were based on the latest valuation of 1.8M.



liteweight said:


> Bacchus are you Whathome in disguise??


It might feel that way to you because everyone is pointing out that you are wrong but we're different people.  I'm far better looking


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## liteweight (9 Oct 2006)

whathome said:


> Gross yield has absolutely nothing to do with tax.
> 
> You're confusing gross yield with the ability of a landlord to offset interest expenditure against rental income.  They're not related.



Are we talking at cross purposes here? The gross yield translates to rental income IMO.



			
				whathome said:
			
		

> If I bought the house in D4 in 1980 for €80,000, it would currently yield 34% according to your calculations.  So I compare your "yield" that to a deposit account returning 3.5% and I decide not to sell.  Bad move, using your method I've based today's decision on calculations using figures from 26 years ago.



I'll take your figures as correct. But you're not comparing like with like. You would only be making 34% on 80K, which is what you invested and is an excellent return on your money. 

As I've already stated (it feels like time and time again) if you wished to sell THEN you use the current market value of the property, less legal,advertising, and CGT to reach a conclusion. In a lot of circumstances even this is too simplistic, e.g. in a rising market you are making your 34% and the asset is still appreciating...better to hold on. If the market is falling...better to reassess the situation. It is not always the best solution to sell because a deposit account will yield a higher interest rate. What about inflation eroding the capital over time? What if, as some on AAM fear, the banks collapse? What about inheritance....best way to cater for next generation? 




			
				whathome said:
			
		

> Calculating it correctly, the actual gross yield is based on current valuation - €1,800,000 which returns 1.53%.  When making a decision to sell an asset, in order to compare returns - current valuations should always be used.



You're just repeating what I've been saying all along...When making a decision to sell.........


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## liteweight (9 Oct 2006)

whathome said:
			
		

> It might feel that way to you because everyone is pointing out that you are wrong but we're different people. I'm far better looking



Whathome, whathome...........why weren't you born rich instead of beautiful???


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## liteweight (9 Oct 2006)

whathome said:


> Rent of €2,300 pm on a valuation of €1.8M produces a gross yield of 1.53%. As fatmanknows pointed out, this is a terrible return. I don't know how anyone could say that yield is "very good", it's atrocious.



Just to re-iterate, it was the above post to which I was replying...Not talking about current value of house, just how *rental yields are calculated! The money ain't yours until it's in your pocket!!*


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## whathome (9 Oct 2006)

liteweight said:


> if you wished to sell THEN you use the current market value of the property


 
OK liteweight - from what you say here it looks like you're getting it.

What is the title of this thread?
Using the title of this thread as a subtle guide, how do we calculate yield?

Here's the sesame street approach to keep it simple.

- If you're thinking of buying a property, use the purchase price to calculate gross yield.

- If you're thinking about selling a property, use the current valuation to calculate gross yield.


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## liteweight (9 Oct 2006)

whathome said:


> OK liteweight - from what you say here it looks like you're getting it.
> 
> What is the title of this thread?
> Using the title of this thread as a subtle guide, how do we calculate yield?
> ...



There's no need to be patronising. I'm fully aware of the title of the thread but the comment was made that rental yield was good by some and atrocious by others. It warranted clarification IMO. Why don't you give us the Sesame Street version of how Elainem will cope with inflation, capital gains and the other things I mention. You're the one with the simplistic view...sell and stick it in a bank account


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## darag (9 Oct 2006)

> Yield is calculated on the original cost of the property. It is done this way in order to calculate rental returns for tax purposes.


With all due respect, liteweight, you are just plain wrong on this one.  Tax law has nothing to do with yield at all - revenue have absolutely no interest in the "yield" and their documents and guides doesn't mention the term at all with respect to property investment.  All they care about (for income tax purposes) is the income and allowable expenses.  They simply don't give a damn about present (or past for that matter) valuations.  CGT is a different matter but even then, "yield" is simply not used by revenue at all.

In purely financial terms you are confusing something that perhaps would be called "nominal rate of return" with yield.  The latter is always calculated on the basis of current valuations.  This is the case with bonds, shares (which pay dividends), commercial property and every other type of investment.


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## whathome (9 Oct 2006)

liteweight said:


> Why don't you give us the Sesame Street version of how Elainem will cope with inflation, capital gains and the other things I mention. You're the one with the simplistic view...sell and stick it in a bank account


 
The OP didn't ask how to cope with inflation and capital gains.

I didn't suggest selling and sticking it in a bank account. I pointed out that even a bank account would provide better returns, improving with interest rates rising.


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## room305 (9 Oct 2006)

liteweight said:


> Just to re-iterate, it was the above post to which I was replying...Not talking about current value of house, just how *rental yields are calculated! The money ain't yours until it's in your pocket!!*



I really do think you have this wrong liteweight. Rental yield is always based on the market value of the house. Otherwise it would be a nonsense figure. How can two similar houses, worth the same amount and with the same rental income have a different yield dependent on the purchase price?

When calculating yield it does not matter if the invested capital is leverage or not. Otherwise by your calculations I could lodge €1k of my own capital in Rabobank and borrow an additional €9k and lodge that in my account and calculate the yield as being a healthy 36.5% instead of an actual 3.65%.


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## bacchus (9 Oct 2006)

liteweight said:


> Why don't you give us the Sesame Street version of how Elainem will cope with inflation, capital gains and the other things I mention.


 
I have no worries that Elainem will cope very very well with inflation. Did you read the start of the thread (see extract below)


			
				Elainem said:
			
		

> I have a *period property in D4, with no mortgage, earning E2,300* a month in rent, but needing about E50,000 in repairs - The house was *valued at E1.8m* a few months ago


 


liteweight said:


> You're the one with the simplistic view...sell and stick it in a bank account


 
Again liteweight like in some other threads (do not ask me to point then out this time!), you are getting personal in your defense because you know that some of your statements are wrong and misleading.
Far simpler sometimes to accept that mistakes can be made..


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## liteweight (9 Oct 2006)

darag said:


> With all due respect, liteweight, you are just plain wrong on this one.  Tax law has nothing to do with yield at all - revenue have absolutely no interest in the "yield" and their documents and guides doesn't mention the term at all with respect to property investment.  All they care about (for income tax purposes) is the income and allowable expenses.  They simply don't give a damn about present (or past for that matter) valuations.  CGT is a different matter but even then, "yield" is simply not used by revenue at all.
> 
> In purely financial terms you are confusing something that perhaps would be called "nominal rate of return" with yield.  The latter is always calculated on the basis of current valuations.  This is the case with bonds, shares (which pay dividends), commercial property and every other type of investment.





> Are we talking at cross purposes here? The gross yield translates to rental income IMO.



I realise the Revenue don't give a damn about yield. It's the rental income they are interested in, and the sale price with regard to capital gains. Perhaps I should not have said for 'tax purposes' as I just confused the issue.


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## liteweight (9 Oct 2006)

[qupte=bacchus]Again liteweight like in some other threads (do not ask me to point then out this time!), you are getting personal in your defense because you know that some of your statements are wrong and misleading.
Far simpler sometimes to accept that mistakes can be made.. [/quote]

I wouldn't dream of getting personal with Whathome.... Mrs. WH would probably kill me. Unfortunately I replied using the 'quick reply' which doesn't have smileys. Please don't turn a debate into an argument.

I don't believe I get personal in my defence......unless you considered that to be the case when I asked if you'd been on the wine?? That too was a , which I thought was made very clear at the time. With such an accusation I think I'm entitled to ask you which threads.

I'm sure Whathome won't be crying into his cornflakes tomorrow over anything I might say to him but if I was offensive I apologise.........


No I don't until he apologises for being patronising.....


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## whathome (9 Oct 2006)

liteweight said:


> No I don't until he apologises for being patronising.....


 
What does patronising mean? 
All is forgiven - now we have explained what gross yield is, lets allow some other posters give their opinion on the OP's question


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## liteweight (9 Oct 2006)

whathome said:


> What does patronising mean?
> All is forgiven - now we have explained what gross yield is, lets allow some other posters give their opinion on the OP's question



"A patronage system has different characteristics depending on the area in which it is practiced. Generally it can be described as a system where someone in a powerful position (the Patron) offers handouts in return for support."

So where's my bribe?


"The terms *patron* or *patroness* may also be used to refer to a patron saint."


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## elainem (9 Oct 2006)

Thaks everyone for your replies - it's been a very entertaining discussion so far! Some of the stuff on yields went a little over my head - as in how it relates to the original cost of the property - though I know in terms of actual current value of the property, the yield is abysmal. I inherited the property in 2001. The value then was £500000 punts. The house is not set out in flats, it is rented as a family home. However, rental income is my main source of income at the moment. I also have another property rented for E1,400 per month. I was thinking of selling this property as the maintenance costs are large - repainting a period house is expensive, after every tenancy. Generally, the house is in excellent order. The only problem is the kitchen area where there is damp. I was going to attend to this before I went to sell it. I also want to sell it as I feel I will never live there again. It would be a great place to live if my children were going to college.  However, they are currently only two and four. The house fronts very busy main road from Upper Leeson St. to town - so it is not a suitable place to bring up young children. Capital gains does concern me, especially that the next government might increase it. Thanks again for all the replies.


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## delboy159 (11 Oct 2006)

I know this seems like a simple response - but we live in a democracy.  There is either going to be 1 of 3 possible governments in 8/10 months time

 - FF & PD, FF & some ind, FG & Labour (possible the greens)

You can be aggresive and ask the above parties what is their policy on CGT.  Be it by contacting a TD in the area or the party head office.

Based on that info and who might get in you can make a more informed decision on the CGT issue, rather than second guessing!

Anyway - when canvasers come around in Spring looking for your vote - you can grill them then aswell - it's really fun to ask them something, they are generally shocked and ill informed!


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## room305 (11 Oct 2006)

It seems to me that you could increase your quality of life by selling the house and lodging the money in the bank. The monthly interest would amount to well over €5k a month compared to the circa €2k you are earning now.

The only question then is, will capital appreciation over the coming years be sufficient to make up the opportunity cost of €3k a month?

It's possible but it's a gamble. My choice would be too sell and look at investment options for your €1.8M.


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## liteweight (11 Oct 2006)

I would agree with room 305. It's difficult when faced with a potential 250k capital gain tax bill but you'd have this anyway no matter when you sell. I'd get valuations first to see whether EA feel it necessary to get the work done in kitchen. Because of it's location you might get builders interested in it and they don't care what state it's in. It is on a very busy road but which road isn't nowadays. You never see kids playing outside anymore, at least not on the scale they used to.

An EA told me to go for either option e.g. fix it up to perfection for the brigade who just want to move their furniture in, or leave it for those who can't quite afford to go much over AMV, so that they can fix it up themselves. 

Capital appreciation is anyone's guess at the moment, just like other investments houses can go down as well as up.....just hasn't been the case in Ireland to date. I' d go for quality of life. A period house will always need some sort of repair. Even a simple paint job can cost a fortune.


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