# Is having a 2nd home worth the stress



## milly123 (11 Apr 2006)

We bought a second home and have been renting our old house to family for the past few months - nightmare, late paying rent, not paying bills etc.... anyhow, they have given their notice and I'm trying to persuade hubby to sell rather than hold onto to it and rent it out.

It is now worth double than what we paid for it, so selling it now (after clearing mortgage, top up loans, legal fees etc.) would net us about 40K cash.  Hubby thinks we would be mad to sell with the SSIAs coming out shortly.

I'm worried about getting new tennants, security etc.  We also have to put about €250 to the rent each month to make the mortgage.  To add to it, we could do with spending about €1000 to get it painted .  To top things off, we have our first baby on the way and I can't help worrying about interest rates rising etc. etc.

Sorry if this is all over the place but just want to hear your opinion...  is it better to hold onto the house or get out now and keep my sanity.

Cheers

Milly


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## ClubMan (11 Apr 2006)

I had to move this from _Mortgages and Home Buying _to _Property Investment _where it more correctly belongs.

Why/how did you decide that property investment was the most appropriate investment option for your specific needs/circumstances in the first place?


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## Howitzer (11 Apr 2006)

Well this one at least seems pretty clear cut. Sell, sell, sell.

The financial merits/demerits of this scenario have been debated in numerous other threads but from a purely personal point of view it sounds like YOU want to sell.


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## milly123 (11 Apr 2006)

Hi Clubman,

We only paid 125K for the house 4 years ago and they are now selling for €250 Plus and they are in big demandso i would imagine we would have it sold in a few weeks.

We decided to hold onto it because we had a net income of approx 4K per month with outgoings of only 1K (inc mortgage & bills), so we were effectively blowing 3K a month on rubbish and thought it would be a good savings plan or a pension.  Now between the two mortgages, bills etc.  we have about 400 spare cash per month plus any rent received.

But with a baby on the way and the interest rates rising i'm having second thoughts


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## tiroileain (11 Apr 2006)

> We also have to put about €250 to the rent each month to make the mortgage.


You say the house is worth double what you oringinally paid? So if you were to buy a similar house in today's market, you'd be covering even more of a shortfall, as your mortgage payments would be even greater. Doesn't sound like a good investment to hold on to, to be honest. You could always put it on the market anyway, and if you get an offer in excess of what you think it's worth, might that also please the hubby?


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## milly123 (11 Apr 2006)

Hi Howitzer,

Thanks for your reply. Yeah I would like rid of it to be honest, i'm not a risk taker - too much of a worrier. Hubby was told by some estate agent to hold off cos property prices will rise a lot next year with the SSIAs.

Milly


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## ClubMan (11 Apr 2006)

milly123 said:
			
		

> We only paid 125K for the house 4 years ago and they are now selling for €250 Plus and they are in big demandso i would imagine we would have it sold in a few weeks.


 Did you pay the stamp duty clawback liability on it when you rented it out within five years of purchase as an owner occupier? Have you factored taxes (_SD_ clawback, income tax on rental income, _CGT _on some portion of the eventual resale gain of a property that was both a _PPR _and a rental property etc.) into your calculations/analysis?


> Hubby was told by some estate agent to hold off cos property prices will rise a lot next year with the SSIAs.


 An estate agent is not qualified/authorised to give investment advice and may have a vested interest in telling porkies.


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## Howitzer (11 Apr 2006)

ClubMan said:
			
		

> _CGT _on some portion of the eventual resale gain of a property that was both a _PPR _and a rental property etc.


 
CGT won't be liable if she sells within 1 year of it becoming an investment property (1 year - "a few months" from now).

I don't think this is a financial decision however. Quality of life anyone?


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## milly123 (11 Apr 2006)

Hi Clubman,

We didn't pay any stamp duty, we actually got the FTB grant, just before it was abolished.  I figure we will owe about 2,000 - 3,000 tax on rental income each year.


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## Theo (11 Apr 2006)

As i've stated here before on another thread, forget the opinions, emotions, what people think  etc, look at the numbers.

Clearly, you're "investment" is a loss maker.  Its costing you money to keep a hold of it.  Currently, you justify losing over 200 a month on the premise that prices will keep rising.

Maybe they will, maybe they won't, but you as an investor are exposed to the risk of these prices not going up.  And that is not what real investors do.

If the house doesn't pay for itself, get rid of it yesterday.

Forget all the emotional nonsense, the numbers tell the story.


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## bacchus (11 Apr 2006)

milly123 said:
			
		

> We only paid 125K for the house 4 years ago and they are now selling for €250 Plus
> ......
> (after clearing mortgage, top up loans, legal fees etc.) would net us about 40K cash


 
How can you only make €40k net ?


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## ClubMan (11 Apr 2006)

milly123 said:
			
		

> Hi Clubman,
> 
> We didn't pay any stamp duty, we actually got the FTB grant, just before it was abolished.  I figure we will owe about 2,000 - 3,000 tax on rental income each year.


If you buy as an owner occupier and then rent the property out within 5 years of purchase then you are liable for a clawback of stamp duty. This means that you pay the difference between what you originally paid (0% in this case) and what an investor would have paid on the same property. Seems to me that this liability is still outstanding and you need to discharge it as a matter of urgency. Also seems to me that you need independent, professional advice on the tax and possibly other aspects of this situation.


			
				Howitzer said:
			
		

> CGT won't be liable if she sells within 1 year of it becoming an investment property (1 year - "a few months" from now).


I stand corrected assuming that the property has been rented for less than a year.


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## milly123 (11 Apr 2006)

Thanks everyone for your replies.  I am going to print all of this out and show it to hubby, hopefully i can get him round to my way of thinking

Cheers !!


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## ClubMan (11 Apr 2006)

milly123 said:
			
		

> GVA, i wasn't aware that I could be liable for stamp duty  - its just another reason to sell as far as i can see.


Selling does not obviate the need to discharge the _SD _clawback liability. _GVA's_ post encouraging tax evasion has been deleted by the way.


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## milly123 (11 Apr 2006)

hi Clubman,

I just checked the revenue website and it seems that because the property was bought for less that 127K, there is no liability for stamp duty for investor or owner occupier or FTB. - I could be wrong.


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## ClubMan (11 Apr 2006)

OK - I missed the earlier point about it being under the _SD _threshold even for investors in which case you are indeed in the clear as regards an _SD _clawback liability. Apologies for any confusion caused.


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## milly123 (12 Apr 2006)

Thanks to everyone who replied yesterday.  Spk to my sister last night and she has offered to buy the house including contents for €250K, it just so happened she is a FTB and looking for a house in the area.  I spk to an estate agent friend of mine who said it is a good price, but prices in that area are still increasing rapidly and she recommended that I try out the leasing for maybe six months.

If we accepted the offer from my sister, after clearing outstanding loans, and legal fees (€198K approx) we would have 52K profit to take off our PPR.

As I don't think i am cut out to be a landlady - i think perhaps this is the way to go.  Have also spoken to hubby about it and he agrees that the money we save each month, could go towards a pension plan for him - i have one with work already.

what do you guys think ?

Milly


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## alalalal (12 Apr 2006)

hi milly,

Someone said the numbers speak for themselves...

The way I see it you spend 250 per month for an annual return of 25k+ (the capital appreciation in your property thus far),  that sounds like a great savings scheme to me. 
Remember, the SSIA's have people saving 254 per month for a 25k return after 5 YEARS !!. you get the same return every year ?.

Your mortgage repayments can't be much on the 125k (€750ish C&I @4% over 20 years). where is the house ? and what rent do you get ?.

You need to look at it as a saving plan, if you can afford the shortfall then hang onto to it, wait 20 years and give your kids a helping hand onto the property ladder or keep the cash yourselves and enjoy.

Lastly think about using a professional to Let & Manage, it's where the real work is in investment property.


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## ClubMan (12 Apr 2006)

milly123 said:
			
		

> I spk to an estate agent friend of mine who said it is a good price, but prices in that area are still increasing rapidly and


Don't expect independent, professional investment advice from an estate agent - friend or not. They are not authorised to give such advice and, in most cases, are not qualified to do so either. 


> she recommended that I try out the leasing for maybe six months.


I thought that the property was already rented out?


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## milly123 (12 Apr 2006)

hi there,

Alalalal, we did originally buy for 125K but remortgaged and the loan now stands at 195K, good point about the savings scheme though !!.  The mortgage repayments are 950 per month (fixed for 1 year), rental income 750 per month at the moment - 

Clubman, it is rented at the mo to family who are moving out in a few weeks, so its really only now that we have to advertise it for rental tennants that we won't know.  So up until now it wasn't really like I was a landlord.


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## Glenbhoy (12 Apr 2006)

alalalal said:
			
		

> Someone said the numbers speak for themselves...
> 
> The way I see it you spend 250 per month for an annual return of 25k+ (the capital appreciation in your property thus far), that sounds like a great savings scheme to me.


But as we all know investments can fall in value as well as rise - at this stage even the banks are saying there's not much upward growth left for the forseeable future.  You have to live and enjoy your life too and as you rightly point out being a landlord is additional stress that you probably don't need - there are just too many variables.  As I told someone last night (who has just sold one an investment property), there is no point in trying to time the market, whilst there might be more gains to be made - why be greedy - sometimes you just got to sit back and smell the roses (or the nappies)!!


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## asdfg (12 Apr 2006)

> could go towards a pension plan for him - i have one with work already.


 
You could put the profit or some part of it into a pension over a number of years subject to revenue rules and receive up to 48% tax refund. (only effictive provided you are both paying tax at the higher rate) You need to crunch the numbers. You can do this for both yourself and your husband. You can contribute by may of AVC. 
In addition you can contribute against income for last year up to 31/10/2006.


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## alalalal (12 Apr 2006)

What about changing to an interest only mortgage when your fixed period is up, that way repayments will be less than rent, leaving you some cash to pay for professional letting & mgt agent. You'll then have a property that is pretty much paying for itself and growing in value each year, every landlords dream.....

Good luck.


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## JohnBoy (12 Apr 2006)

..but with an interest-only mortgage you still have the minor matter of the loan principal to repay. The investment is not paying for itself - the rental income is only paying for the funding...


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## ClubMan (12 Apr 2006)

alalalal said:
			
		

> What about changing to an interest only mortgage when your fixed period is up


 This thread might be of relevance here:

Interest only mortgage


> that way repayments will be less than rent


 Assuming 100% occupancy/no vacancy periods and that the market bears rents in excess of the mortgage repayments.


> You'll then have a property that is pretty much paying for itself and growing in value each year, every landlords dream.....


 That dream may not be reality since non of this is guaranteed - it may not pay for itself and it may not appreciate in value. Nobody can say for sure a priori.

I still feel that you need to crunch the numbers to check the viability and potential risks/rewards of this property investment and get independent, professional investment advice.


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## alalalal (12 Apr 2006)

Hi All
We could debate the merits of this till the cows come home....

I'm biased, bottom line is I believe property is a great investment option, better than a pension or a bank. I buy in Dublin only, strongest demand and strongest capital appreciation. Have been at it for 4 years, have 4 investment properties, with plans to keep on buying at last 2 a year.

Milly if you can afford it, hang on to it. Remeber to think of it as savings.  At the end of each year sit down and work out what it's cost you, ie voids, repairs, shortfall in rent and weigh that up against the capital appreciation.   If it costs you 5k per annum and rises by 25k great, however if your costs are 20k and it only rises by 10k then think about getting out. 

I agree with the independent advice bit, but try to pick someone who's actually bought some investment property personally and knows what their talking about it.

Good luck


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## ClubMan (12 Apr 2006)

alalalal said:
			
		

> We could debate the merits of this till the cows come home....
> 
> I'm biased, bottom line is I believe property is a great investment option, better than a pension or a bank.


 Well at least debate the *facts *would be better than a hunch.


> Milly if you can afford it, hang on to it.


 I would take such advice coming from somebody with a self confessed bias towards property and does not consider the individual's overall circumstances with a grain of salt.


> but try to pick someone who's actually bought some investment property personally and knows what their talking about it.


 As opposed to what exactly? 

Also - treat advice from those with an explicit bias towards one form of investment over another with caution. If I told you that property was a dead end and pork bellies were the future I would hope that you would tell me where to go (second word "off"). Ditto for others simply insinuating that one asset class is "better" than all other options.


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## Afuera (12 Apr 2006)

alalalal said:
			
		

> have 4 investment properties, with plans to keep on buying at last 2 a year.



Sounds like quite a few eggs but I only see one basket!



			
				alalalal said:
			
		

> If it costs you 5k per annum and rises by 25k great, however if your costs are 20k and it only rises by 10k then think about getting out.



Following this reasoning, if it costs you 10k and it gains no value in a year should you start heading for the exit?

I'd say that it could quite possibly be too late at that stage to reach the exit with your shirt. If prospective buyers feel that prices will remain the same or ease off in the future you'll find a lot of people adopting the "wait and see" approach. At that point a loss making investment that can't be easily shifted will certainly start to feel like some dead weight.


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## Theo (12 Apr 2006)

alalalal said:
			
		

> Hi All
> 
> I'm biased, bottom line is I believe property is a great investment option, better than a pension or a bank. I buy in Dublin only, strongest demand and strongest capital appreciation. Have been at it for 4 years, have 4 investment properties, with plans to keep on buying at last 2 a year.
> 
> Milly if you can afford it, hang on to it. Remeber to think of it as savings. At the end of each year sit down and work out what it's cost you, ie voids, repairs, shortfall in rent and weigh that up against the capital appreciation. If it costs you 5k per annum and rises by 25k great, however if your costs are 20k and it only rises by 10k then think about getting out.


 
I agree that property can be a great investment but your reasoning is flawed.
Comparing costs (which are factual and are actually occurring) against cap appreciation that you believe is happening in the market is akin to fooling yourself.
The capital gain will only be realised and therefore real on the day you sell it.  There is no guarantee about cap appreciation either now or in the future.  
Secondly, costs need to be compared with income, not asset values.
P&Ls do not subtract costs from the appreciation in asset values.  There is no financial statement that mixes a P&L with a balance sheet as you are effectively trying to do.  It displays a lack of understanding of how the numbers work.

I also have investment properties, but i certainly do not invest by comparing my costs against possible increases in asset values that may or may not have been achieved (Remember, they're only achieved the day you sell and your money is in the bank).  
To date, you have done well and my congrats to you.  But i'd be concerned that if you persist assessing properties in that manner, the day will come when the appreciation stabilises or worse, falls, and unfortuantely, the costs will still exist, unlike the price appreciation.  I would suggest to anyone reading this who is going to invest in property, PROTECT THE DOWNSIDE before investing.


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## redo (12 Apr 2006)

milly123 said:
			
		

> hi there,
> 
> Alalalal, we did originally buy for 125K but remortgaged and the loan now stands at 195K, good point about the savings scheme though !!.  The mortgage repayments are 950 per month (fixed for 1 year), rental income 750 per month at the moment -
> 
> Clubman, it is rented at the mo to family who are moving out in a few weeks, so its really only now that we have to advertise it for rental tennants that we won't know.  So up until now it wasn't really like I was a landlord.


Did you release 70k in equity for a car or something? I am confussed


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## milly123 (12 Apr 2006)

Hi Redo,

a variety of things, wedding, stamp Duty & deposit for new house, clear credit union loans etc etc.


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## redo (12 Apr 2006)

Congrats then Milly.


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## Winnie (12 Apr 2006)

It appears that every Tom dick & harry in Ireland now considers themselves property tycoons at the moment.  There is money to be made from property but you need to know what you are doing, access the risks etc and go from there.  I think a lot of people see other people doing it, making loads of money & thinking it is as simple as that.

I know people who are mortgaged up to the hilt on loads of investment properties & will either be loaded or bankrupt in the next few years depending on how the market goes & on how they handle their investment.  

For me - I prefer an easy life but would consider one investment property but only if knew I could well afford it in the long term - ie not keep it for a few years just to sell on to make a profit.  & even then you have to get the right tenant in to make it easy.

You need to ask yourself if you can afford to pay the full mortgage should you be without a tenant for a few months? If not then..........


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## KBR (18 Apr 2006)

Milly,  I'm in a very similar situation to you.  We have rented our first house out now for 2 years to 2 different tenants & the experience so far has been fine.  If you really want to look on this as a long term investment you have to block out all the positive and negative predictions about the rise or fall in the asset until coming close to the time you want to sell.  If you are going to sell in 20 years time it doesn't matter too much if you see a fall of say 10% in a couple of years, it is likely to come back over such a long term.
There has been some breakages in our house, but if a tenant spends €10-€12k with you in a year I think it's reasonable to allow for €500 to repair a washing machine or similar.
The key I have found is to take your time & be very selective with your tenants.  Also you didn't mention location, but if it's Dublin city or a reasonably good suburb it's hard to see you having an empty house for prolonged periods.


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## gearoidmm (18 Apr 2006)

Edited - similar post above


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