Should I sell my house?

Issac

Hi all,

I need a bit of advice on whether it's worth holding onto a house I inherited some years back, or if I should sell it.

Basically, there are no outstanding loans on the property and it is rented out for €450 p/m. I'm guessing it's worth around the €130,000 mark.

I myself am also renting at the moment (in another part of the country to my own house) and will want to buy my own place, again in another part of the country to the house I inherited.

So should I sell the inherited house and put that money towards buying a house I myself want to live in, or should I keep the house and the associated rental income?

I am currently working with an income of approximately €46,000 gross and my OH earns around €30,000 (again gross).

We will have some savings (around €40,000) for a house deposit of our own but obviously we would have a much larger deposit for our own house if we sold the house I inherited.

Any advice much appreciated!

Brussels Sprout

If you can reduce the mortgage on your future house by the value of the house that you own then that sounds like a good idea to me. It means less hassle having to worry about maintenance and ensuring that it's rented out etc. There will be fixed costs incurred in selling the house so it's up to you if they are worth it.

Just make sure that you're comfortable making the repayments on the future house within your current salaries.

Eldarion

It's a big choice with pros and cons for both sides. It comes down to what you want to do.

By not selling, you'll be in a position where your more than likely 2 biggest assets by a large margin are completely exposed to one market, the fickle Irish property market. If you speculate that house prices will continue to increase for a number of years then by all means hold on to your existing and purchase another, this comes with quite a lot of risk but could stand to see quite a lot of return if it works out for you. All the while you'll have a performing asset generating revenue for you.

By selling you'll be reducing your credit requirement significantly, it will put you in a much less exposed position and you'll immediately benefit from a lower cost of credit. You'll lose the revenue stream and any potential future increase of the asset value but you'll also lower your outgoings.

Personally, were I in your position, I'd sell the inherited house, try to get as low as possible loan for the new house and then seek to diversify away from the property market with other investments.

Issac

Thanks for the replies. I think you are right and I will probably end up selling the inherited house. It is difficult managing it from a distance plus with all the charges and levies currently being tacked on - it's probably financially more beneficial too. If I was to sell the house for €130,000 what kind of costs am I likely to incur?

How much would a mortgage worth €130,000 cost per month? I guess if I did have to borrow that amount for my own house it would cost a lot more than what I'd make from the rental income of the inherited house?

I don't really want to be snowed under with a large mortgage either when I buy my own place so I guess the lower the repayments the better.

Thanks for your help.

Mrs OBumble

Eldarion wrote: »

Personally, were I in your position, I'd sell the inherited house, try to get as low as possible loan for the new house and then seek to diversify away from the property market with other investments.

That would be my approach too. Increasing your own deposit by that much would make an enormous difference to the amount of interest you will pay over the life of a mortgage, and open a lot of possibilities for you.

Exception:- are there any family expectations about keeping the home-place for future generations? Who might you upset by selling, and is it worth it?

Personally I wouldn't give any credence to these: if relatives had such expectations, I'd be delighted to sell the property to them for market value, or tell them to shove their expectations where the sun don't shine. But some people aren't as hard-assed as me, and it's worth at least thinking about the question before you decide.

ted1

Issac wrote: »

How much would a mortgage worth €130,000 cost per month?

It's around 500 a month per 100k

FloatingVoter

Unless you're planning on betting on a property bubble (and we all know where that goes). Flog the dead horse and invest in yourself and your future happiness.

Issac

Well it seems pretty unanimous then! I have held onto the house for almost 20 years, mainly because of other family members, but that's not really an issue anymore and the face that I wasn't ready to buy myself yet.
TBH it would be a relief not having to deal with tenants and tax returns etc. as well.
At around €500 per €100,000 borrowed for a mortgage, I would be saving myself a lot more by selling the house as well as I'm only taking in €450 gross p/m and the house is now, since the upswing in property prices, worth more than €100,000. Now when to sell?!?!

Thanks for all the replies!

amen

I'm not sure selling is the obvious answer.

At 450pm you have a rental income of 5,400 per year.

Say it costs you 1,400 a year in charges, repairs etc.

That means you have an income of 4,000 per year on a house worth approx 1000,000 which is like a deposit rate of 4% which is very good.

A better bet would be to take this 4,000 per year and use it to reduce the monthly payments on your new property. At the end of the mortgage on your new house you will still have two houses and the 4,000 a year income.

The_Conductor

amen wrote: »

I'm not sure selling is the obvious answer.

At 450pm you have a rental income of 5,400 per year.

Say it costs you 1,400 a year in charges, repairs etc.

That means you have an income of 4,000 per year on a house worth approx 1000,000 which is like a deposit rate of 4% which is very good.

A better bet would be to take this 4,000 per year and use it to reduce the monthly payments on your new property. At the end of the mortgage on your new house you will still have two houses and the 4,000 a year income.

He has a salaried job elsewhere- on which he has exhausted any tax credits- so this rental income is subject to the taxation at the higher level- inclusive of PRSI- so 52%........ So- its actually 2k he'd be netting- which while better than the rate of inflation- certainly isn't worth the hassle of dealing with the maintenance and upkeep of the property- and any hassles the tenants may encounter.

It really is a no-brainer in this case.

OMD

Don't forget there will be capital gains tax to pay when selling. You won't get €130,000

The_Conductor

OMD wrote: »

Don't forget there will be capital gains tax to pay when selling. You won't get €130,000

Hmmm- if he could live in it- or establish residence in it- for the required duration- he could fulfill the criteria for this- providing the proceeds went towards another PPR- which is what he proposes to do anyway.......

OMD

The_Conductor wrote: »

He has a salaried job elsewhere- on which he has exhausted any tax credits- so this rental income is subject to the taxation at the higher level- inclusive of PRSI- so 52%........ So- its actually 2k he'd be netting- which while better than the rate of inflation- certainly isn't worth the hassle of dealing with the maintenance and upkeep of the property- and any hassles the tenants may encounter.

It really is a no-brainer in this case.

You are ignoring inflation. Assuming 2% inflation rate it means after 1 year he will get the 2k in rent after tax plus an extra €2,600 in the cost of the house. After tax it should earn around 4k a year.

quadrifoglio verde

amen wrote: »

I'm not sure selling is the obvious answer.

At 450pm you have a rental income of 5,400 per year.

Say it costs you 1,400 a year in charges, repairs etc.

That means you have an income of 4,000 per year on a house worth approx 1000,000 which is like a deposit rate of 4% which is very good.

A better bet would be to take this 4,000 per year and use it to reduce the monthly payments on your new property. At the end of the mortgage on your new house you will still have two houses and the 4,000 a year income.

A yield of 4% is rubbish, but he isn't even getting a yield of 4%.

You'll never get rich on a yield of 4%.
If he was getting 14%, id be telling a different story

OMD

The_Conductor wrote: »

Hmmm- if he could live in it- or establish residence in it- for the required duration- he could fulfill the criteria for this- providing the proceeds went towards another PPR- which is what he proposes to do anyway.......

Which basically means he can't sell now.

Have to say, while it is speculation I know, personally speaking, if the house is in a good area I would not sell now. The market is rising after 7 years of falls. I would keep it and see how the market reacts. A 7% rise in next 12 months is realistic which means an extra €10,000 plus the years rent
(PS the guy looking for 14%!!!! Get real)

The_Conductor

OMD wrote: »

You are ignoring inflation. Assuming 2% inflation rate it means after 1 year he will get the 2k in rent after tax plus an extra €2,600 in the cost of the house. After tax it should earn around 4k a year.

I never ever, under any circumstances, enumerate any possible increase in the value of the property, as a tangible asset- until such time as its sold. If you want to go down that road- he has owned it for 20 years- it peaked in value @ perhaps 200k (maybe even higher)- and is now 140k- so he is nursing a loss of 60k+ Of course this is nonsense......

The big issue for the property- as a rental property- is it doesn't have a mortgage on it, against which the taxable income could be offset. The big thing for most landlords to use a tax deductible cost- is mortgage interest. That just doesn't apply here.

The rental yield is paltry given the value of the property- I'd be looking into how I could possibly divest of the property- minimising any tax due on the transaction- and to do this I'd suggest the OP sit down with a good tax accountant.

The_Conductor

OMD wrote: »

Which basically means he can't sell now.

Have to say, while it is speculation I know, personally speaking, if the house is in a good area I would not sell now. The market is rising after 7 years of falls. I would keep it and see how the market reacts. A 7% rise in next 12 months is realistic which means an extra €10,000 plus the years rent
(PS the guy looking for 14%!!!! Get real)

Yes- 14% is completely nuts- never gonna happen.

Anyhow- good area or otherwise- unless its in the greater Dublin, Cork or Galway areas- just get shot of it- its never going to see the increases our major population hubs are experiencing. Sure there may be a minor residual correlation in price rises- but thats the extent of it- to suggest a sustained 7-8-9-10% per annum price rise for anywhere other than Dublin/Cork/Galway- is a very dangerous suggestion.

OMD

The_Conductor wrote: »

I never ever, under any circumstances, enumerate any possible increase in the value of the property, as a tangible asset- until such time as its sold. If you want to go down that road- he has owned it for 20 years- it peaked in value @ perhaps 200k (maybe even higher)- and is now 140k- so he is nursing a loss of 60k+ Of course this is nonsense......

The big issue for the property- as a rental property- is it doesn't have a mortgage on it, against which the taxable income could be offset. The big thing for most landlords to use a tax deductible cost- is mortgage interest. That just doesn't apply here.

The rental yield is paltry given the value of the property- I'd be looking into how I could possibly divest of the property- minimising any tax due on the transaction- and to do this I'd suggest the OP sit down with a good tax accountant.

I never said he made a loss of 60k. The issue he has is that he has an asset worth €130,000. Is it financial sense to sell it today or should he keep it for 12 months. I see more logic in keeping it for 12 months than selling it today. In 12 months time it may make sense to keep it longer. Of course it is a gamble and prices can rise as well as fall but if I owned the house I would bet the house will be worth more next year and therefore he stands to get more money for the assert by not selling it now. That is my opinion. The rental income is only one thing to look at. Over 30-40 years it is the most important. Over 1 year it is almost totally unimportant.

quadrifoglio verde

OMD wrote: »

Which basically means he can't sell now.

Have to say, while it is speculation I know, personally speaking, if the house is in a good area I would not sell now. The market is rising after 7 years of falls. I would keep it and see how the market reacts. A 7% rise in next 12 months is realistic which means an extra €10,000 plus the years rent
(PS the guy looking for 14%!!!! Get real)

If I'm going to go risking 100k....it's going to have to be worth it. Quite frankly I'd rather leave my money on deposit or state savings and not have to do anything than be a landlord for a puny 4%.
This house isn't in a good area if it's renting at 450 a month.

leeroybrown

OMD wrote: »

Don't forget there will be capital gains tax to pay when selling. You won't get €130,000

OP. Get some tax advice on the issue of Capital Gains Tax. The probate process should deal with Capital Acquisitions Tax (Inheritance Tax) and provide a valuation for the property. I think (double check this) that the capital gain would only be measured based on the difference between the valuation for CAT and the sale price. If I'm correct the capital gains tax on a sale right now would be relatively small.

kjbsrah1

ted1 wrote: »

It's around 500 a month per 100k

I got a mortgage last year of €187k - over 25 years this starts off at €1050 per month. The mortgage repayment amount depends on how long the loan is for....

Issac

The_Conductor wrote: »

Hmmm- if he could live in it- or establish residence in it- for the required duration- he could fulfill the criteria for this- providing the proceeds went towards another PPR- which is what he proposes to do anyway.......

Is there a way to establish residency if I'm working many miles from the property? I could always use it as a weekend base I suppose before selling (if i was to sell). How long does it take to establish residency?

OMD wrote: »

Which basically means he can't sell now.

Have to say, while it is speculation I know, personally speaking, if the house is in a good area I would not sell now. The market is rising after 7 years of falls. I would keep it and see how the market reacts. A 7% rise in next 12 months is realistic which means an extra €10,000 plus the years rent
(PS the guy looking for 14%!!!! Get real)

The are isn't a bad area, the property is being rented comparatively cheaply to other local properties for reasons I won't get in to here. However, I doubt it will experience the kind of growth forecast for the "big 3" of Dublin, Cork and Galway. This is actually another reason I'm thinking of selling - I would be buying in one of the areas with more of a chance of higher property price increases.

leeroybrown wrote: »

OP. Get some tax advice on the issue of Capital Gains Tax. The probate process should deal with Capital Acquisitions Tax (Inheritance Tax) and provide a valuation for the property. I think (double check this) that the capital gain would only be measured based on the difference between the valuation for CAT and the sale price. If I'm correct the capital gains tax on a sale right now would be relatively small.

Yes, it looks like I will need to do this regardless. I didn't realise all of my rental income would be subject to tax at the higher rate because of my other earnings.

kjbsrah1 wrote: »

I got a mortgage last year of €187k - over 25 years this starts off at €1050 per month. The mortgage repayment amount depends on how long the loan is for....

Thanks for this info - I think I would be looking at a 25 year mortgage too. If I sold the inherited house my mortgage would be for a similar amount.

So to be clear: if I was to sell the inherited house (and put all that money into a new house for myself to live in) is it not just a case of which amount is larger - the net rental income V the cost of a mortgage for the amount I would have sold the inherited house for?

pwurple

You can't establish Principal Primary Residence of a weekend or holiday home. It needs to be your primary residence. Your main base.

Talk to the solicitor who handled the probate on what you would be liable to pay on selling. It depends on the previous valuation. How it works is that capital acquisition tax (CAT) is paid at time of probate. So for example: say the property was valued at 80k for probate and CAT was paid at the time. then some time later is now valued at 130k, there would be capital gains tax due on that difference... So 33% of 130k -80k = 33% of 50k (Not entirely sure that's the current cgt rate). However, if CAT was paid at 130 or higher, then no CGT is due at all, unless the property rises above that amount.

On waiting to sell, Remember any rise in the value on this property will possibly be hit by that CGT above. Also remember, property in the area you want to buy will probably also be rising, so by waiting and hoping for a rise, you could come out net worse-off.

On your current income, yes,rent is taxable at 52%.

This asset may not be worth as much as you hope once you try to use it. The rent is low, and will be taxed at a high rate. It will cost you in management and maintenance, plus fees and property tax. 450 per month is worth about 2k a year after taxes.

In your position, I'd find out what the capital aquisation value was taken to be, as that's the only way you can figure out the potential costs.

ted1

kjbsrah1 wrote: »

I got a mortgage last year of €187k - over 25 years this starts off at €1050 per month. The mortgage repayment amount depends on how long the loan is for....

I said around 500. That's a good average figure to use.

murphaph

Is 450 the market rent?

The_Conductor

murphaph wrote: »

Is 450 the market rent?

Apparently not- the OP has said he is letting it at a significant discount to the open market rent- for reasons he'd rather not go into on thread.

murphaph

ah ok, missed that. Then the yield is only artificially low which needs to be taken into serious consideration when running the numbers.