Re-Locating :possiblity of keeping our existing house

K

keen

Guest
Hi my husband has changed jobs, and we are going to be relocating after xmas. I am looking for some advice as we want to look into the possiblity of keeping our existing house, value 350-370, outstanding mortgage 100k approx. We will be purchasing a new home when we re-locate. We would be looking to purchase something in the region of 380 to 400k, more if we decide to sell our own house. We have approximately 90k in savings. Would it be wise to try and keep our exisiting property, re-mortgage and rent it out for the long term. My husband's salary in his new job will be 50k basic plus commission (which will be substantial).
Any advice would be most welcome.
Thanks.
 
Re: Re-Locating

Hi Keen there are lots of things to consider when 1) taking on more debt eg mortgage 2) the work involved in maintaining,dealing with and looking after a rental property 3) is your husbands work guarenteed (don't stretch yourselves too much. 4) Are you estimates on what your house is worth right? are houses selling in your area for that?
If it was me I'd write down all the options, costs, pros and cons and see what would happen if you have extra expenses (eg children, sickness etc) can you manage with both debts, just a starting point!
 
Re: Re-Locating

What pc7 says is correct. You have to weigh up all the options. A good quick way of seeing if its viable is to work out the rent you'll get from your house (be conservative) divide by two as you'll have to pay tax, insurance etc then subtract the mortgage you'll be paying and see is it a positive or negative figure.
The above is a very guide as there's wear and tear, interest etc you can use to reduce your tax bill but you'll still have to pay tax.

One thing you could do is rent it out for a year and see how things go. In the current climate you'll probably find it hard to sell the house quickly anyway.
 
Re: Re-Locating

This is more of a property investment query. If i was in your situation I'd remortgage your existing house up to the point where the mortgage repayments equal rent and go interest only on that mortgage. That might raise an extra €150k. Combine this with your savings and the mortage required on the new place will be only €150k. So you basically are paying a €150k morgage and the upkeep of two houses. If that's not a stretch go for it.
 
Re: Re-Locating

DerKaiser said:
If i was in your situation I'd remortgage your existing house up to the point where the mortgage repayments equal rent and go interest only on that mortgage.
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Bear in mind that only the interest on the existing 100k can be written off against tax.
 
Re: Re-Locating

You can't do that, or not quite as easily as described. There is a big tax hole in the middle of your calculation.

The OP can offset only the outstanding 100K against mortgage interest relief if they were to rent to house. You can only get relief on what the loan is intended for. If the OP were to remortgage their currant property and use the money to buy another property to live in then they couldn't offset that against the rental income on the property.

As ever, people can choose to ignore their tax liabilities but making financial decisions on this basis, well, it wouldn't be my recommendation.
 
Re: Re-Locating

keen said:
Would it be wise to try and keep our exisiting property, re-mortgage and rent it out for the long term.
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Sell home or keep as an investment?

Bear in mind that if you remortgage the original property then you cannot offset the interest on the topup against rental income unless the money is used to purchase or renovate this or another investment property.
 
Re: Re-Locating

Completely unrelated to the question asked, but is your husband's new employer giving him any tax-free relocation expenses? If there is a package, he should enquire about getting the stamp duty on your new home paid, tax free, by his new employer.
 
Re: Re-Locating

apologies for the bum steer. Funny how the property is worth a lot less (as an investment) just because the mortgage is almost paid off, you'd probably be better off selling it and buying it back with a 100% mortgage (even with the stamp duty hit) than renting it with little or no mortgage.
 
Re: Re-Locating

well yeah gearing is always risky. It would just seem a shame to have a large mortgage on a residential property with little or none on the investment property. The other way round would be much more tax efficient for the same total level of borrowings.
Or alternatively just having one house with a low mortgage isn't a bad idea either!
 
Re: Re-Locating


I think that's a bad idea. Now is a bad time to sell. Put it on the market and you will have difficulty and pay either 2 mortgage or one mortgage + rent.

You have the option to rent it for a year and wait for the market to pick up. If it does'nt then you will either have to accept the bad price or continue to rent.

As regards buying another house, I would'nt necessarily advise (anyway not allowed talk about whether we've hiy bottom yet)..you will have to weigh that one up too.
 
If you are sure that purchasing a second home isn't going to put a real strain on your finances then you are in a strong position. You could put your current house on the market and hold out for a suitable price. If you feel capable of dealing with the demands of a rental property whilst living a good distance away from it and you are sure that your husbands jobs is reasonably solid, I would use your current home as an investment property. My reasoning is simply speculative, but I would feel that given the current uncertainty, you definitely will not get a high price if you sell your home, but if you can hold it for a further 5+years, you will be able to monitor how the market is set and should it increase again it puts you in a position for a greater return. Considering the fact that you say if you sell now you will increase your buying budget I would go with the 2 properties.

Alternatively, would you sell now and buy an investment property close to your new home?
 
Re Howitzer's point about the tax hole, If you borrow additional money to retain the original home as an investment property surely you are in effect purchasing an investment property. Presumably the revenue have some kind of a pracitice statement concerning how they deal with this situation, which is not to allow you all of the mortgage interest relief. I was considering doing something similar myself, rent paying interest, then putting money in a pension fund to pay off the capital. Annoyingly the equity release on the existing property will be paying the stamp duty on the new one ! Looks like I will just have to sell up.
 
ramble said:
If you borrow additional money to retain the original home as an investment property surely you are in effect purchasing an investment property.
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Not really the case - the revenue look at what the money is used for and if you are using the mortgage to invest in a pension fund/ppr then you cannot argue that you are purchasing an investment property.
 
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