Trading up dilemma

Hi there,

I've been a regular browser of these forums and this is my first contribution...sorry it's a question, but I've got a real dilemma on my hands and was hoping somebody with some experience might be able to give me some advice or point me in the right direction for same.
My wife and I have lived in our first house (h1) for the past four years and now have the opportunity to move to what I would consider a house for life (h2).

I'll try not to be vague so I'll give all the figures involved. h2 will cost approximately €450k. h1 was purchased for €190k but is now worth in excess of €350k.

My dilemma is this....should we (a) trade up, ie. sell h1 and purchase h2, or (b) rent h1 and purchase h2. We have been provisionally approved for both options but are finding it difficult to decide.
The rental income that we would get from h1 would be well in excess (approx €300 per month) of our current mortgage repayments. I know there are tax issues here however (and costly maintenance issues also!).
I should also add that ideally we'd like to spend about €50k upgrading h2 should we buy it.

Any advice on this matter would be greatly appreciated. I'd really love to hear from someone who has had the same choice to make and stands by/regrets their decision.

Thanks for reading.

I had the same choice a few years back when I was moving back from London. On that occasion, I sold and have had no regrets...the increased capital allowed me to purchase higher up the ladder on a lesser mortgage. At the time I had no interest in investing in property.

There are a couple of schools of thought on property and one is to never sell. You seem to be in position to move without selling. If you have the €50k for improvements and your deposit for h2 and would be comfortable making repayments then go for it.

There are plenty of accidental landlords out there, it seems that everybody was trading up and keeping H1, but those same people would probably never have got into the property game by purchasing a buy to let – so why keep H1?

I was in a similar position but I manipulated the figures for the bank to allow me keep H1 – I had no spare cash for improvements on H2 and missing two months rental income on H1 would have been a pain. We didn’t have the spare cash to do exactly what we wanted with H2 and it became a regret very quickly, that coupled with the fact that being a landlord is not suitable for everyone we cashed in and now have the house exactly as we want and go about our day to day lives without the hassle of tenants, two mortgages etc.

Note that if you keep H1 for more than a year and then decide to sell there will be a CGT issue.

The key issue is timing. You don't need to make the decision about selling now. Your in the happy position of being able to take either option. Take the one that is most advantageous for you. You can change your mind if things don't work out.

I was faced with the same dilemma a couple of years ago. I thought that the whole thing was just a little to tight for comfort, sold the first house - but have no regrets.

The option of selling may be an option now, but will it in a couple of months if there is a downturn. I'd say, sell now. There are too many properties out there to rent.

Also - if you rent house 1 within 5 years of purchase as an owner occupied PPR (Principal Private Residence) then you will be liable for a clawback of stamp duty.

I was in the same position just a couple of months ago. I bought H1 for €188, owed €90K, sold for €360K and bought new for €420K.

I was considering keeping and renting out (rents were quite good in the area) but in the end decided not to go for it for various reasons.

1. I am buying on my own, so there would be more pressure on me. I might have felt different if there were two earners.
2. I am the first to admit that I am a fusspot, so coming back and seeing my home wrecked or damaged would drive me (and probably my tenants) up the wall.
3. The guy who eventually bought my house was an investor. He told me I was mad not to hold onto it. He now has 3 in the estate. Even while he was meeting with me, he was getting calls from tenants about something broke, here there and everywhere. I would hate that.
4. A girl in work did the same in Navan about 2 years ago - she only rented out for a year and the tenants drove her demented. She took about €10K less than other houses on the road because hers was an obviously rental. She only sold this month and is glad to be shot of it.
5. Tax - interest only allowable against original mortgage(mine was €90K, so I would have had a substantial tax liability.

In the end, I decided it would be too much hassle, as I think you need to be a certain type of person for to be a landlord.

Just make sure you do your figures before you decide one way or the other. I was originally going to buy another house for rent about 10 years ago(IR£50K!!!!) and I am sorry I did not go for it then, but I think the market is more unsteady now and its difficult to read which way things will go.

Best of luck with it.

Really appreciate all your comments (and sorry admin for posting on wrong forum initially!).... I was leaning towards selling the old place and your comments have probably reinforced this tendency.

The hassle of having tenants is something I can definitely do without and having two properties would definitely take up a significant amount of time we realistically don't have.

I'll post to let you know the outcome of this situation...hopefully we'll make the correct decision.

Thanks all again.

MandC, I can relate to your points.
I have two places rented and last Summer was unreal for the amount of Complaints etc that I was getting from tenants and occasionally neighbours. I think that it is very wise in your sitaution to keep out of the rental market.

I was in the very same situation earlier this year. We decided to sell after trying out the landlord thing for 3 months (nightmare) and then we had a new baby on the way, so we didn't want to have the worry of putting money to the rent to make the mortgage repayment.

I don't regret selling we got a very good price for the house, it sold immediatley and we had peace of mind and spare money to do up our new house and still have a social life.

Given that Galway house prices haven't even kept up with the rate of inflation since May 2006, I doubt if many people who sold since May have had any regrets.

In an environment of rising interest rates, only extreme optimists could hope for prices during the next 5 years to increase above their long term trend.

On the other hand, the 81K Stamp Duty (9% of 900K) is a major factor in your decision. If I was intending to live in the house in 5 years time, then the 81K tax involved would cause me not to sell. But since you want to live elsewhere when you return I'd quote Michael O'Leary from earlier this year "I don't know if it's a good time to buy, but its definitely a good time to sell!". Well ... that was true in May anyhow. Now it will just take a bit longer.

I'd hold onto the first house. As a long term investment. If you organise things well in the beginning renting can go easily. one tip is to have a list of tradesmen that you know and trust to use in emergiencies.

Gosh, general view seems to be sell h1. Havent fully formed my opinion on issue yet but only in last few days ive been thinking of same - holding h1 and renting also as there, too would be extra €300 in excess of mortgage, which would then pay into my new mortgage. I dont see what's so bad with having someone else help you pay your mortgage??? So long as you can factor into account say only 10 months rental income, reduced rental income, increasing interest rates (is 2% enough??).

In my situation, was originally thinking of selling house to build etc but would have wanted the luxury build/house so would prob be left with say 80K max mortgage anyway = €456 per month, 25 years.

Whereas if I rent h1, derive min. rent €600 pm, coupled with child benefit €515 (which Ive never used anyway), Im left with mortgage of €497 pm, 25 yrs. Difference only €40 bet both options. Cant see here how selling house could benefit me. I would be minimising on new house then though.

Yes, I realise, tenancy headaches etc, effect of incr int rates but if I consider h1 as my pension/long term savings/retirement then it should hurt a bit.

As I said, Im not fully decided but my figures are jumping out at me suggesting hold the house!!

We had same dilemma last year. Sold home last summer. Renting out at the moment. Very happy. No regrets. Thought it might be hassle renting with young family but we are more than happy to rent for another year or so until we see what's happening with property market.
Will probably purchase site to build house with sustainable features particularly in light of building energy regulations and rising energy costs in the long term.
Of course, renting does'nt suit everybody but it is an attractive option for us before we decide to purchase again. Everytime ECB puts up interest rates, we are increasing our savings while not having to put more money into mortgage repayments.

One factor that would be a decider for me would be the location of H1. In the event of a downturn, marginal areas will fall faster and further pro rata than homes in very desirable areas.

If H1 is in a former or current local authority area, or in a sprawling estate that has too high a density and is likely to revert to a renters' ghetto in bad times, it would be best to get shut of it now while prices are reasonably buoyant. If it is in a good and well establisged area, it might be worth holding for a while as long as rent returns are strong. You would need a reasonable expectation that the gap between what you paid for H2 and the price you expect to get for H1 will narrow further. If not, you should sell H1 now.