Sell or Rent?

[gaffer33]

Myself and my partner both have property. We are getting married next year but are moving in together in the near future. We don't know whether to rent out the other property or sell it.

The main home we'll be living in has no mortage on it. The house for rent or sale has a mortage of 125k on a 20 year mortage and is valued at 460k-500k approx.

We have no idea what the best course of action is. All the talk in the media regarding property price fall / crash has us wondering if investing the profit from its sale would be a sounder option.

Help please!!!

 

[ClubMan]

Sell home or keep as an investment?

If the property is rented out within 5 years of purchase as an owner occupied PPR then a clawback of stamp duty will apply. You will be assessable for income tax on the rental income and some portion of any eventual resale gain may be assessable for CGT. For a rental property there may be a good reason to opt for an interest only mortgage:

Interest only mortgage

You should get independent, professional advice on the tax and investment issues involved if in doubt about anything. Have a look at the key topics pinned at the top of this forum too.

 

[monkeyboy]

We have no idea what the best course of action is. All the talk in the media regarding property price fall / crash has us wondering if investing the profit from its sale would be a sounder option.

Help please!!!

A property crash may not really affect your situation:

A. Your home, you plan to live in, is debt free and not subject to rising interest rates and the negative equity situation either.
B. Your 2nd home may be subject to CGT, but in the bigger picture it has such a low outstanding mortgage that you could fix an interest only loan for a few years and the rent should cover these and other costs. This would allow you ride any "crash" for a few years make some income on it in the meanwhile and perhaps sell in a number of years. If the price falls you just hang on for a few years for a recivery. Selling or renting B depends on whether you can afford to hold on for a while if the value does dramatically drop. Or if you would rather money now to put in a bank etc...

 

[Afuera]

B. Your 2nd home may be subject to CGT, but in the bigger picture it has such a low outstanding mortgage that you could fix an interest only loan for a few years and the rent should cover these and other costs. This would allow you ride any "crash" for a few years make some income on it in the meanwhile and perhaps sell in a number of years. If the price falls you just hang on for a few years for a recivery. Selling or renting B depends on whether you can afford to hold on for a while if the value does dramatically drop. Or if you would rather money now to put in a bank etc...

Sounds like a lot of hassle when they could make a decent amount of risk free return without any landlord duties attached. Investing the 335k profit (based on the OPs lower estimate in the propertys worth) would probably beat the capital gain on the property over the next 10 years and they wouldn't have to throw so much away in CGT when they eventually decide to sell up.

I don't see the point in trying to ride out a potential crash when they could get away from it beforehand very comfortably.

 

[KalEl]

Myself and my partner both have property. We are getting married next year but are moving in together in the near future. We don't know whether to rent out the other property or sell it.

The main home we'll be living in has no mortage on it. The house for rent or sale has a mortage of 125k on a 20 year mortage and is valued at 460k-500k approx.

We have no idea what the best course of action is. All the talk in the media regarding property price fall / crash has us wondering if investing the profit from its sale would be a sounder option.

Help please!!!

Well done...you guys are in a good position.
Personally, after looking at the stamp duty issue as Clubman suggested, I would hang onto the second property and rent it out. Your mortgage is small, rents are rising so look at it as a long term investment. Only you can decide though...you'll meet doomsayers here and optimists. I'm the latter, and won't be selling anything.
Congrats on the wedding too

 

[beattie]

rents are rising so look at it as a long term investment.

Be aware that this could be temporary, rents are still much lower than 2002 levels. If there is a downturn in construction and many of our new arrivals depart there will be a huge increase in the amount of vacant properties (to add to the amount already present)

 

[KalEl]

Be aware that this could be temporary, rents are still much lower than 2002 levels. If there is a downturn in construction and many of our new arrivals depart there will be a huge increase in the amount of vacant properties (to add to the amount already present)

Doomsayers really can be amusing...if rents were falling would you advise someone to be aware they could rise?
The OP has to weigh up all of the factors, the most important being their own personal circumstances. As Clubman said stamp duty could be a factor. Rents are rising but your yield at the moment still would not be great.
If it was me, I'd hang onto the house.

 

[ClubMan]

For what it's worth if it was me in the same position then I would certainly be seriously considering holding onto it while also diversifying into other investments to balance out the weighting towards Irish residential property. Especially since the PPR will be mortgage free and the mortgage on the other property would be relatively low (certainly low LTV). The main dissuading factors for me would be the potential tax issues, the responsibilities of being a landlord and perhaps property market issues.

 

[beattie]

Doomsayers really can be amusing...if rents were falling would you advise someone to be aware they could rise?
The OP has to weigh up all of the factors, the most important being their own personal circumstances. As Clubman said stamp duty could be a factor. Rents are rising but your yield at the moment still would not be great.
If it was me, I'd hang onto the house.

Yes I would, rental values are based on demand. I was just pointing out that if a large portion of the recently arrived immigrants (many of whom are employed in construction) leave there will be a overhang on the market.

I assume by your remarks that you believe that rents will continue their upward trajectory for the forseeable future.

 

[KalEl]

Yes I would, rental values are based on demand. I was just pointing out that if a large portion of the recently arrived immigrants (many of whom are employed in construction) leave there will be a overhang on the market.

I assume by your remarks that you believe that rents will continue their upward trajectory for the forseeable future.

To a certain degree...I don't believe they'll fall.

 

[Remix]

Doomsayers really can be amusing...

Doomsayer ?

In the interest of balance, a letter published in the UK Telegraph..

Sir,
While I concur wholeheartedly with your suggestion that the housing market is running out of steam (Smart Money Is Getting Out, Guardian 20th April, 2007) I must protest at the use of the words 'doom-mongers' and pessimists' to describe those who look forward to a correction in house prices as an opportunity for many to get onto, and indeed move up, the fabled 'ladder.'

Those who want an end to inflation, in whatever guise, are in fact optimists who see a better life without the scourge of runaway prices and the social consequences that follow.

The real doom-mongers are those that predict rising house prices forever, denying home ownership to an entire generation.

It's about time the media stopped this lazy labelling of people who are anything but pessimistic & doom-mongering and turn their attention instead to the causes of this house price bubble where they'll find many more cynical, devious and negative forces at work.

 

[bpi]

For me, you should not make this decision on whether rent rises or fall by €100 here or there. I have let a property over the last 5 years at the same rent to 3 different tenants. I know I could probably get more than Im charging but its worth more to me to know that these people will be good neighbours/wont call me every time a bulb blows/will pay on time etc etc etc. You cant underestimate the value of a good tenant.

With regard to your situation, for what its worth... I would definitely rent

 

[gaffer33]

Thanks for all your advice everyone, it really is a difficult decision. One of the reasons why we were thinking of selling and investing the money is because if house prices did drop we would be in a good podition to buy a site in order to build. We have been advised that we could make a decent income on the interest from the lump sum.
We are also aware that if rent did drop, we would still be able to cover our monthly mortage of 800 euros. At the moment we can get 1200 a month in rent for it.
Still not sure what to do!!

 

[room305]

Thanks for all your advice everyone, it really is a difficult decision. One of the reasons why we were thinking of selling and investing the money is because if house prices did drop we would be in a good podition to buy a site in order to build. We have been advised that we could make a decent income on the interest from the lump sum.
We are also aware that if rent did drop, we would still be able to cover our monthly mortage of 800 euros. At the moment we can get 1200 a month in rent for it.
Still not sure what to do!!

I'm quite bearish on Irish property but I think in your situation I might be inclined to rent the house out. There is little risk of negative equity or rental shortfall and the house can provide you with a reasonable cash flow for life. The major off-putting factor would be the stamp duty hit upfront (if it applies).