To sell or keep own house as rental investment as we buy family home

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SorchaH

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We are in the process of buying 2nd family home - will cost us 380k to buy. We have 190k savings in cash.
My question is should we sell our 1st home or keep it as rental investment?
Own house would sell > 200k (old small cottage needs alot of work -would need to put up to 50k in to refurbish as rental). We would pay future Capital gains if sold in future above 75k as valued when we got it.

Option A: If we keep both houses we need @ 250k mortgage over 18yrs at cost of @ 1800p/m. Rental income net @ 650p/m. We can afford to pay full mortgage repayments if we need to. Mortgage will be in name of my husband earnings 100k per year age 52 yrs with full civil service pension on retirement. I have no private pension but will have state pension.
I'm am self employed 1yr earning @ 30k per year age 51yrs. We have a 9yr old child.

Option B: If we sell our 1st home we won't need a mortgage just @ 50k home improvement loan at some stage for 2nd house.

Question: Is it good in retirement to have rental income? What are thoughts around selling or keeping our 1st house?
Thank you.
 
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Hi Brendan, I have edited above to make a bit clearer and here are answers to your questions.Thank you for your time.

Cash at present is 190k (no other investments + mortgage 250k =
440k = 380k buy house + possibly max 50k refurbish rental cottage
(refurbished of house to buy is non urgent and will do in time)
Option A : keep cottage and rent @ 1200pm (will get @ 650pm net)

Option B: Sell cottage for 200k or more : 190k cash + 200k from sale of cottage = 390k so no mortgage needed for buying house of 380k (it will be possible to get refurbishment loan of @50k sooner)
 
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You are taking out a mortgage of €200k to buy your new home and €50k for the refurb.
So the only interest relief you might get would be on the €50k. But I think it's safer to assume that you won't get any interest relief as you would probably be using your cash to pay for the refurb.
 
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So, assess the investment.

If you keep it as an investment:
House worth €250k
Rental income: €8,000 (€650 x 12)
Expenses - 20% €2,000
Profit before tax: €6,000
Profit after tax: €3,000

If you sell it, you will not have a mortgage of €250k
So you will save mortgage interest of €250k @4% €10,000

It's not even close. In fact, the decision is so clear, I wonder are my figures wrong, but I don't think so.
 
So my figures are correct.
You are getting a rental yield of only 3.2% before expenses and tax. ( €8,000/€250,000)

So after expenses and tax, it's a lot lower than what you would be paying in interest.

Brendan
 
The CGT situation is another argument for selling.

You have €125k of unrealised Capital Gains now. If you sell it, you won't pay any CGT.

let's say you have it 10 years and sell it after another 10 years, and the value does not increase.
So you sell it for €200k.
The Capital Gain will be the same, but now half of it will be subject to CGT.

Of course, this works both ways. If it increases by more than €125k, you will benefit from it having been your home.

But why take the risk when you don't need to? Sell.
 
SorchaH said:
My question is should we sell our 1st home or keep it as rental investment?
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Sell it & realise any gains free from CGT.
I wouldn't take on being a landlord in Ireland if you paid me.
Enjoy your new home hassle free of needy or deviant tentnat & a prejudiced rental tenancies board- easy peasy.

Edit - just read Brendan's analysis (hats off @Brendan Burgess ) - this reads like a closed case - sell it & good luck in your new home. :)
 
should asset allocation be a consideration? if already heavy in equities in pension or directly maybe having an amount in property may not be a bad idea?
 
yellowmoose said:
should asset allocation be a consideration? if already heavy in equities in pension or directly maybe having an amount in property may not be a bad idea?
Click to expand...

Not really for a few reasons.

1) They get a clearly better after-tax return on their investment by clearing their mortgage
2) They will have €380k in property when they buy their new home and sell their old home.
3) To achieve the diversification you are implying, they would have to borrow €250k. Borrowing increases risk - especially to invest in an unattractive investment.
 
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