Sell or keep existing property?

S

scallywag

Registered User
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Age old question...

I live in a great one-bed apt in central Dublin, but I'm buying a new 2-bed one. I'm trying to decide whether to sell the one-bed, or keep it and rent it out.

One-bed value - 320,000
New two-bed value - 600,000
My Savings - 120,000
Projected rent - 1,000 (for 10 months = 850 per month).

It seems I could get an interest only loan for 280,000 on the one-bed (in addition to a repayment one for the new place), in order to "keep" it.Repayments on this interest-only would be about 730 per month. Plus 200 maintenance fee, and 100 general expenses. This means the (conservatively calculated) rent doesn't cover the costs:
Rent - 850
Costs - 730 + 200 + 100 = 1030.

Also, if I factor in a point or two interest rate rises, then having TWO mortgages really seems to increase the risk.

So although the one-bed is really nice and eminantly rentable, I'm not really sure what to do.
 
Have you read this thread? There are also several others dealing with this sort of query which you should be able to find using the search or by browsing through this forum.
 
Thanks Clubman, looks like I posted that on the wrong forum.

I've read this forum alright, and understand most of the issues. It's just my personal situation seems fairly borderline, so if anyone has any opinions I'd be glad to hear them.

Basically, I think I'd be losing out initially, but keeping such a well-located property could be very good in the long run.
 
When did you buy the first property? If you rent it out within five years of purchase then I presume you know that a clawback of stamp duty applies?
 
Bought it 11 years ago, brand new. So I've payed no stamp duty at all. There were tax incentives with it, but they expired after 10 years. I've still got
25,000 outstanding on it, but that's not much in the overall figures.

Getting an interest only loan for the 1-bed, plus a 220,000 repayment loan for the new place, pushes my overall monthly payments close to the max I can afford (again assuming conservative rental income). After that, if interest rates rise I think it could get very tricky...
 
scallywag said:
Getting an interest only loan for the 1-bed, plus a 220,000 repayment loan for the new place, pushes my overall monthly payments close to the max I can afford (again assuming conservative rental income).
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Have you factored in the possibility that there will be no rental income during periods of vacancy between lettings?

If you are securing a mortgage on the rental property in order to buy a new PPR then I don't think that the interest can be written off against rental income in case you were assuming that it could be. As far as I know you can only write off interest on the outstanding €25K mortgage on the first property once it becomes a rental property.
 
can you afford say to pay at worst € 400 a month to keep the property? if so well the risk is covered, just because a property is not quite paying for itself well the value may go up to cover this

other side is do you want the hassle that comes with renting? ( i rent myself and findit easy enough tho! )
 
Clubman, I was assuming (and was advised) that the interest on the interest-only loan COULD be written off against the rental income. Anybody know if this is really true?

I suppose the basic question is: if I leave my current home and rent it out, and take out an interest-only loan to help me buy a new property, is that loan considered to be used for buying an investment property (with the associated tax benefits)?

If this is not the case, then I really think I cannot do it.

gar123, good point. I'm trying to decide whether I want the hassle of renting. In a way I think it could be a bit of craic! It's a real quality apartment so I'd like to think I could get professional tenants who wouldn't wreck the place - or am I being naive?
 
To be honest you have stated 1K rent... that equates to 3.75% rental yield.


Not good.
 
scallywag said:
Clubman, I was assuming (and was advised) that the interest on the interest-only loan COULD be written off against the rental income. Anybody know if this is really true?
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I don't see how the fact that it's an interest only loan is relevant if the equity release/top-up is actually used to purchase a PPR and not to buy or renovate the investment property. Who advised you on this matter?

I suppose the basic question is: if I leave my current home and rent it out, and take out an interest-only loan to help me buy a new property, is that loan considered to be used for buying an investment property (with the associated tax benefits)?
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No - because you are using the mortgage top-up secured on the investment property to buy a non investment property.

If this is not the case, then I really think I cannot do it.
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If in doubt get independent, professional advice from somebody authorised and qualified to give taxation advice.

gar123, good point. I'm trying to decide whether I want the hassle of renting. In a way I think it could be a bit of craic!
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I'm not sure that choosing an investment based on the amount of craic that it yields is the most prudent approach but each to his/her own.
 
You will only be able to offset against rental income, the interest you pay on the original amount of the loan you took out to buy the property (or what's left of it at this stage). You will not be able to offset the interest you pay on any top-up to your mortgage to fund your new purchase. For you, that probably means little or no tax relief on interest paid.

Have you also taken into account that you will start to pay capital gains tax on any subsequent sale (in proportion to the amount of time the property has been rented). This is problematic as most of the capital gains on the property have been made to date (and hence if you sold now you would pay no capital gains tax).
 
2 questions

1. When tenants fill out rent relief form to get tax credit, do revenue cross reference this to tax records ?
2. If you are 4.5 years resident in your house when you rent it out, will revenue expect full amount of stamp duty difference ? If so, do they send a demand or is it self assessment ?

Thanks in advance
 
john_kelly said:
1. When tenants fill out rent relief form to get tax credit, do revenue cross reference this to tax records ?
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I would assume so since the landlord's PPSN is normally supplied.

2. If you are 4.5 years resident in your house when you rent it out, will revenue expect full amount of stamp duty difference ?
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Yes - the stamp duty clawback is an all or nothing liability and not calculated pro-rata over the first five years or anything like that.

If so, do they send a demand or is it self assessment ?
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It is self assessed.
 
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