To sell or not to sell?

[mccaff]

Hopefully I'm posting this in the correct section. If not, feel free to move.

The situation is that my spouse and I are due to have our mortgage paid off in roughly two years. Our house is fine, but the location is a commuter town outside Dublin. We only bought there as anywhere nearer to Dublin was massively unaffordable at the time. As our entire lives are in Dublin - work, friends, etc - we would like to move back to Dublin now that prices are much more affordable.

I know there are huge debates here around the sanity of buying houses as opposed to renting. I can see the benefits of renting to a certain extent, but we bought literally at the peak of the housing bubble, we've seen the value of our current house fall by about 60% and don't want to miss out on the value that will hopefully be still in the market in two years time. We're planning on buying our permanent home. We've no intention of moving on every few years and my experience of renting in the past has always been exactly that - no security of tenure and constant uncertainty.

As well as hugely overpaying our mortgage, we've been saving for a deposit and this time two years from now we will have our existing mortgage paid off with a deposit of around €35k saved. Obviously I've no idea where house prices will be in two years time, but we'd be intending on paying no more than €250k for this next house, and hopefully less

The issue we have is what to do with our current house. The rental market in the town is surprisingly good. I realise rental markets can change rapidly but at the moment the rent we could realistically get would be around €800 per month. When I look at the costs involved in being a landlord though, I'm not sure would we actually come out with much income at the end of it all - PRTB registration, NPPR levy, whatever the future property tax will be, tax on rental income, etc. I'm really struggling to see how it could be worth the hassle of advertising, letting, managing, etc for very little income at the end of it all.

We bought for €315k (irrelevant now, I know) and would now be lucky to get €120k. Would we be better off selling at that price (or probably a bit lower) or keep the house and hope that it generates some money for us?

I know this isn't a big problem compared with the situations some people are now finding themselves in. We've worked hard to get to where we currently are. We certainly weren't as informed when we bought our house as we are now and we're desperate not to make another mistake.

If anyone has any experience of being a reluctant landlord or any wisdom to impart, that would be very welcome.

 

[Woodie]

Forgive me if I am being presumptions but on reading your post it seems to me that you are still in a relatively strong position despite being stung in the property market. You will be mortgage free in a couple of years and personally I can't see major shifts in the market in the mean time - although the next person may tell you different. You don't sound like the type of person who is into property as a commercial venture and waiting for a rise your existing home may be some time off. Even when the turn comes Dublin and other job centres are likely to be the first to benefit so any significant rising value is likely be there first. I think that you seem to be the type of person who I would put all your energy into maximizing the value in you existing home and selling it to offset against your new Dublin home and be happy to live in that with the lowest possible mortgage repayments. Just my opinion of course.

 

[mccaff]

Thanks for the reply Woodie. You're right in that, I see property very much as a home, not as an investment. We bought our current house as a home we would stay in long term. But with our own financial circumstances working out better than we expected and affordability vastly improving in the areas we always wanted to live, things have changed.

It's hard not to see things emotionally which I know is completely counter-productive in dealing with property and finance. So I'm looking for some cold, hard, objective advice. Does it make more financial sense to keep the house long-term and earn money from it, or to sell and keep our next mortgage to an absolute minimum?

By the way, our incomes would be decent, though nothing spectacular - joint income of approx. €75k with both jobs as secure as any can be in this day and age.

 

[aido71]

hiya.....just my tuppence worth but imho if you start out a reluctant landlord it will only get worse with time! We have a property rented which was agood idea at the time but now is getting tougher what with dropping rents...nppr household charges etc and we have an excellent tenant and not in financial difficulty (other than the what ifs!). I guess for us though we are living in our ideal home (similarly 2/3 years left on mortgage good incomes....have posted re this before). For you it will come down to what you want out of life. Financially staying where you are and saving seriously for a couple of years probably best but why stay somewhere if you really dont want to be there? Life is too short.....as for renting your home and renting somewhere yourself,,,,again financially could(?) work out but bear in mind what i said above re being a landlord and more importantly (and someone more informed can help on this)..if you sell your home now you wont be liable for CGT but if you rent in out you will become liable for CGT when you sell...am not sure the timeframe but i think if it is rented or if not your PPR for something like a year you become liable for CGT...am open for correction on this one....Good Luck!

 

[44brendan]

I agree with Woodie's post above. Speculating on your current property by renting it out now and hoping for a rise in the market will probably end up costing you money. There is a lot of hassle in being a single unit landlord, together with associated expenses etc. Selling now will give you >100K to put into any new property & you are therefore re-investing in the market so won't lose out on any rise in prices.

 

[Brendan Burgess]

This is the Key Point

why stay somewhere if you really dont want to be there? Life is too short....

This is the Key. Put your home on the market and rent in Dublin until you are ready to buy. Forget about the fact that you have lost €200k on the house. You compensate for this by being able to buy a really nice house now for a lot less.

If you sell your home, you will find it much easier to get another mortgage and you will be able to move fast when you see something you like.

if you sell your home now you wont be liable for CGT but if you rent in out you will become liable for CGT

This is not an issue. House prices will have to rise by 200% for you to break even, and I don't think anyone is predicting that.

 

[Macstuff]

Hi McCaff,

Firstly well done on being in such a good position, getting out of such a market slump is a real achievement. Here is my tuppence worth re your position:

1) As you will have a small mortgage on your current home you will have very little to write off against rental income. That will mean that almost all your rental income will be taxed at the highest taxation rates. Thus even if you are earning 800 euro a month you will lose a huge amt. of that on taxes.
Think about the amt. of profit you will make relative to the work you will have to put in, it's not very well paid work (speaking from experience here)!

2) It seems that you are saving very hard and or making a lot of sacrifices to get into the position you are now in. While that's a good thing just make sure that you are not letting your life pass you by as you save or make these sacrifices.

3) Think about where you life might be in two years time ie are you likely to have children, would you or your partner like to take time off work, return to college etc. These may have a huge influence on where you want to / need to live.

Best of luck with whatever you decide and well done for getting into this strong position.

 

[mccaff]

Thanks for the replies everyone. You've definitely given us some food for thought. For the last couple of years, since we realised that moving back to Dublin was a possibility, the plan has always been to rent the house out. But now that we're getting nearer to putting our plan into action, we're looking in a bit more detail at the costs involved. Macstuff, you make a very good point about what the net income would be. Taking the most optimistic hypothetical scenarios and figures, I reckon we'd be doing well to get €5-6k per year out of it. Which I know is nothing to be sniffed at, but as lots of people have said here from their own experience, being a single unit landlord involves a lot of work.

I suppose my big fear is just whether or not the house would actually sell. Although I know from reading AAM, that's largely down to pricing realisitcally. An identical house in the estate sold recently for €110,000, although it wasn't in great condition and didn't have the attic conversion our own house has. So maybe €115 - €120k isn't too wide of the mark for our own house.

Anyway, thanks again everyone. I really appreciate all the advice.