Hi moj
The only variation on this would be to use your €90k as the deposit on a new house. Then when you have moved into the new house, sell your own and pay down your mortgage.
Gordon, are you assuming that the investment mortgage would be interest only? If it's not then the OP has to factor in the cost of full mortgage repayments, ie 12 X €1250.
Gordon, are you assuming that the investment mortgage would be interest only? If it's not then the OP has to factor in the cost of full mortgage repayments, ie 12 X €1250.
Nice to see some difference in opinionWe haven't made any decision, I just want to tease this out and see where it goes.
Isn't the capital payment academic Andarma?
Were I to liquidate the investment after 12 months, what would the return be?
- Any surplus (or deficit) after all costs and the mortgage had been paid (let's assume in this instance it's neutral, break-even)
- The capital repayment which the mortgage covered (€6.3k)
- The difference in the value of the house between selling it in 2017 vs selling it in 2018 (let's assume 2% gain = €8.6k less CGT @33% + €1.27k exemption giving approx €7k)
Okay, it's worth €430k and it cost you €365k. You probably have total costs of around €12k in total for buying and selling. So a tax-free gain of (say) €53k if you sell today. That gain will be tax-free for 12 months after you move out. Thereafter, its tax-free nature starts to dilute. If you move out in mid-2017, by mid-2019 4/5ths of any gain will be tax-free. In mid-2020, it's 4/6ths, and so on.
Here's our situation, married couple both 34, one baby. Have a house which we like, but which is ultimately too small for our needs. Net income of €7,600 p/m (excl. annual bonus), mortgage of €1,250 p/m (155k equity / €275k remaining @ 3.1% over 28 yrs), no other borrowings, only other major expense is childcare @ €1,000 p/m. 90k in savings & liquid investments. We're considering moving to another house close by.
Want to explore some options, one of which is to keep and let our current house. A neighbour did similarly and achieves a rent of €2,300 p/m on their identical house. Would require a second mortgage of 500k for the new house, with payments of €2,300 p/m.
There's a lot of hassle with being a landlord, which is well documented on this forum, so I'd to focus on the financial side of this.
Over 10 years, my calculations show a potential return of €150k, based on the following assumptions:
The downside is that all capital is tied up and of course the risk that my assumptions turn out to be incorrect.
- Income tax @52%
- Interest relief @80%
- CGT @33%
- No other changes to reliefs available (eg: allowance of property tax)
- Average rental increases of 2% p/a
- Average expense increases of 2% p/a
- Average property appreciation of 2% p/a
- 90% occupancy rate
The alternatives would return the following:
- Sell current house, use capital towards new house and over-pay the mortgage to a similar level as the second mortgage above = €100k in interest savings / additional capital, with no risk but illiquid capital
- Sell current house, invest equivalent amount annually in a liquid investment portfolio with 4% ROI after taxes, charges & dividends = €100k with some stock market risk but liquid capital
Sorry Brendan, but I disagree;
I just couldn't bring myself to give up a 5.1% yield (after tax) in the current low interest rate low return environment.
Here are the revised figures using Sarenco's estimates.
View attachment 1760
It means you are taking all the risk and all the hassle for no current financial benefit. Although this might be compensated for by an increase in property prices over the holding period.
Brendan
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