Buying 2nd home. Sell or Rent 1st one?

Hooked

Hi all

I'll try keep this short.

I own a house. Tracker mortgage, very affordable payments, though its worth a lot less than I paid for it 10 years ago. But I'd owe just about what the house is worth. 140K

I'm married now. We want to move. Nothing crazy... round 200/220K mark. We've sat with the bank. We have 2 options. Both have been approved in principle. Sell or Rent house A. FYI - No kids. Approx 75K combined salaries. No other loans etc... Not rich. But comfortable.

I can sell my house - and avail of a "tracker portability" for this portion of the new mortgage. So 140K at my tracker plus 1%. House should sell quick enough. But I'd be selling one, while buying another.

Here's my issue. I can rent my current house - and we get a new mortgage for the other. The rent, being VERY realistic would be 300 per month more than the existing mortgage, at the current ECB+tracker rate. The house could be viewed as an investment. The longer its rented (in theory) the mortgage is paying itself, plus us 300 per month to us. And hopefully would be worth more in 5, 10, 15 years time.

I'd love some advise - in either direction. Scenarios. Pro's/Cons.

Thanks all

elephant85

AS an accidental landlord myself, I would sell..
The rent I receive covers my mortgage with a little left over.. but then every November approximately 40% of all rent received goes on tax.. (40% is a very rough estimate.. I've an accountant who calculates the amount for me taking into account all taxable deductibles)
I rent by the room which gives me a better rental income but that leaves me having to deal with a turnover of tenants, calls from tenants requesting new items from a new mattress to a new headboard..
ITs hassle.. and I've been lucky. I've always had tenants that pay the rent.
For me though its the tax bill. I'm not rich and feel like any savings I make each year go on my tax bill. its a vicious circle. I will be selling as soon as property prices rise enough to make it viable.

intheclouds

Hooked wrote: »

The rent, being VERY realistic would be 300 per month more than the existing mortgage, at the current ECB+tracker rate. The house could be viewed as an investment. The longer its rented (in theory) the mortgage is paying itself, plus us 300 per month to us

You pay massive tax on rental income plus there are other costs associated with being a landlord. You can write certain things off as deductible on a yearly basis (75% of the mortgage interest, depreciation, accountant fees, certain repairs etc...).

Speak to an accountant and get a handle on how much it would cost you. Then think about the time you will need to put in managing a tenancy.

Only after you know all of the above can you consider whether or not it is viable.

BionicRasher

elephant85 wrote: »

AS an accidental landlord myself, I would sell..
The rent I receive covers my mortgage with a little left over.. but then every November approximately 40% of all rent received goes on tax.. (40% is a very rough estimate.. I've an accountant who calculates the amount for me taking into account all taxable deductibles)
I rent by the room which gives me a better rental income but that leaves me having to deal with a turnover of tenants, calls from tenants requesting new items from a new mattress to a new headboard..
ITs hassle.. and I've been lucky. I've always had tenants that pay the rent.
For me though its the tax bill. I'm not rich and feel like any savings I make each year go on my tax bill. its a vicious circle. I will be selling as soon as property prices rise enough to make it viable.

I echo this
We have 2 properties rented (again accidental landlords) and the tax bill is nothing but stress each year. After a certain amount of years also the amount you can write off gets less so essentially it is costing me money each year to cover the bill whereas 5 years ago I was making a tiny profit.
Our current tenants are exceptional (one tenant has been in the house for 15 years and the other even painted the inside of the house for us this year so we knocked 300 off his rent) but there is always something to fix or replace like microwave and even a 600 euro water pump last year.
My advice don't rent

Hooked

Thanks for your reply elephant85...

I guess my thinking is that I'd be renting to a couple or small family. 3 bed house. So "1" tenant. And even if (roughly speaking as you say) I'm taxed at 40%, its still 180 of the 300 coming in. My mortgage is being paid, and (fingers crossed) with the right tenant, I'm up 180 a month.

I know, it all sounds a little too simple on paper...

The flip side is that the new mortgage (in full) is at a higher rate - IF - I keep the first house. Tough decision ahead.

elephant85

Hooked wrote: »

Thanks for your reply elephant85...

I guess my thinking is that I'd be renting to a couple or small family. 3 bed house. So "1" tenant. And even if (roughly speaking as you say) I'm taxed at 40%, its still 180 of the 300 coming in. My mortgage is being paid, and (fingers crossed) with the right tenant, I'm up 180 a month.

I know, it all sounds a little too simple on paper...

The flip side is that the new mortgage (in full) is at a higher rate - IF - I keep the first house. Tough decision ahead.

No its not.. you're taxed on the total amount of rent received...

Hooked

Hooked wrote: »

Thanks for your reply elephant85...

I guess my thinking is that I'd be renting to a couple or small family. 3 bed house. So "1" tenant. And even if (roughly speaking as you say) I'm taxed at 40%, its still 180 of the 300 coming in. My mortgage is being paid, and (fingers crossed) with the right tenant, I'm up 180 a month.

I know, it all sounds a little too simple on paper...

The flip side is that the new mortgage (in full) is at a higher rate - IF - I keep the first house. Tough decision ahead.

I believe you are taxed on the entire rental income, not just your profit.

tommythecat

This is simple. Sell and transfer the extremely valuable tracker to the far more expensive loan thus saving you a fortune on intererest over the course of the loan.

Hooked

elephant85 wrote: »

No its not.. you're taxed on the total amount of rent received...

BOOM! Now it's hit me! I'm thinking like a 'business' that I pay tax on my "profits" but I'm actually paying tax on the full rental amount. Christ!

Hooked

tommythecat wrote: »

This is simple. Sell and transfer the extremely valuable tracker to the far more expensive loan thus saving you a fortune on intererest over the course of the loan.

Thanks Tommy. I guess I was stuck in the mindset that I'd be taxed on the 'profit' made from the rental. And holding on to it for a few years might yield a lump sum. But as you say, the same lump sum will be gobbled up by handing back the tracker once sold.

Really appreciate all the advice here!

draiochtanois

This post has been deleted.

CIARAN_BOYLE

Hooked wrote: »

BOOM! Now it's hit me! I'm thinking like a 'business' that I pay tax on my "profits" but I'm actually paying tax on the full rental amount. Christ!

well its profits but you can't claim capital payments (ie mortgage capital) and only 75% of mortgage interest.

scheister

Hooked wrote: »

Hi all

I'll try keep this short.

I own a house. Tracker mortgage, very affordable payments, though its worth a lot less than I paid for it 10 years ago. But I'd owe just about what the house is worth. 140K

I'm married now. We want to move. Nothing crazy... round 200/220K mark. We've sat with the bank. We have 2 options. Both have been approved in principle. Sell or Rent house A. FYI - No kids. Approx 75K combined salaries. No other loans etc... Not rich. But comfortable.

I can sell my house - and avail of a "tracker portability" for this portion of the new mortgage. So 140K at my tracker plus 1%. House should sell quick enough. But I'd be selling one, while buying another.

Here's my issue. I can rent my current house - and we get a new mortgage for the other. The rent, being VERY realistic would be 300 per month more than the existing mortgage, at the current ECB+tracker rate. The house could be viewed as an investment. The longer its rented (in theory) the mortgage is paying itself, plus us 300 per month to us. And hopefully would be worth more in 5, 10, 15 years time.

I'd love some advise - in either direction. Scenarios. Pro's/Cons.

Thanks all

Renting can be an idea but be aware of everything before you commit to buying.

As people have said you will be liable on the rental profit rather then the rent received.

What you are allowed take from the rent to make rental profit include the following:
75% of mortgage interest assuming your registed with the PRTB
Any bill that you personally cover for the house such as bins or sky
PRTB registration fee is allow
Property tax is not
Any costs that are linked to repairs of equipment in the house
The buying of any new large equipment will be seen as capital and written off over 8 years.
Normally smaller equipment is just wrote off in the year as repairs. ie a new kettle or toaster.

Dixie Chick

I was an accidental landlord for a year...the stress of it. Yes, it met my mortgage but I had a fine tax bill at the end.

Also, you would need to check if your tracker is still viable when it is not for your own residential property.

You should also look through this forum and see the trouble people have with tenants who will not move on, pay rent or do any level of simple maintenance. I think you should sell.

April 73

If you keep the first house to rent out do you have a 20% deposit for the next house?

draiochtanois

This post has been deleted.

April 73

draiochtanois wrote: »

Not required as the central bank rules don't apply to people in negative equity

Is he in negative equity though? The initial post says the property is worth what is owed on it.

April 73

April 73 wrote: »

Is he in negative equity though? The initial post says the property is worth what is owed on it.

He also said he has discussed it with the bank and both options are approved in principal. So regardless of the details he is obviously able to go for either option as far as the bank is concerned.

evolving_doors

April 73 wrote: »

Is he in negative equity though? The initial post says the property is worth what is owed on it.

Edit: sorry he said he'd just pay off the balance of the mortgage if he sold it!

Maybe consider hanging on for a little bit more to get more of positive equity and a better deposit together to reduce amount borrowed/repayments. But would have to save like a ###### (and of course prices could rise for the place he interns to move). Cancel nights out/pension on hold/ look for extra work /better bank savings rate /cycle to work. A friend of mine did this for 2 years.. Turned into miser/hermit for a while but it paid off for him.
Cash is king!

Quandary

scheister wrote: »

Any bill that you personally cover for the house such as bins or sky

Maybe I'm wrong here but I'm pretty sure you can't write off a bill like Sky TV as an expense.

scheister

Quandary wrote: »

Maybe I'm wrong here but I'm pretty sure you can't write off a bill like Sky TV as an expense.

As far as I am aware if you cover the cost of sky in a property you are renting out as a landlord its an allowable expense similar if its the esb or internet

intheclouds

scheister wrote: »

As far as I am aware if you cover the cost of sky in a property you are renting out as a landlord its an allowable expense similar if its the esb or internet

According to the Revenue:

The following are examples of expenditure you may deduct when calculating your rental income or losses. As advised in the introduction, a separate calculation must be made for each letting.........the cost of any service or goods you provide and for which you do not receive separate payment from your tenant, e.g. gas, electricity, central heating, telephone rental, cable television, water and refuse collection,

D_D

I think losing the tracker rate would be the biggest obstacle financially in this, as with this not being his principal private residence but an investment property, he could lose this rate.

April 73

Zayne Long Sometimes wrote: »

He also said he has discussed it with the bank and both options are approved in principal. So regardless of the details he is obviously able to go for either option as far as the bank is concerned.

The question about the deposit relates to more than just what the bank will or won't approve.
Without a deposit the OP has to borrow 100% of the value of the second property while also owing pretty much what the first property is currently worth.
That adds up to a debt of €340k to €360k on a joint salary of €75k.

Hooked

Zayne Long Sometimes wrote: »

He also said he has discussed it with the bank and both options are approved in principal. So regardless of the details he is obviously able to go for either option as far as the bank is concerned.

To the above few posts... We are qualifying under an exemption for a 90% mortgage in a 'sell' scenario. We have received AIP In both scenarios. We'd probably just fall into the 'negative equity' category if we sold.

We'd have the 20% but to be honest, it'd leave us with little savings, so we're comfortably ready with the 10%.

I'm still a tad confused as to what I'd owe the revenue each year if we rented house A. It's looking less and less like the option I thought it was this time yesterday.

Thanks again everyone

Hooked

D_D wrote: »

I think losing the tracker rate would be the biggest obstacle financially in this, as with this not being his principal private residence but an investment property, he could lose this rate.

Surely the mortgage adviser at the bank would've had to mention this to me, when we discussed the option of keeping it?

intheclouds

Hooked wrote: »

Surely the mortgage adviser at the bank would've had to mention this to me, when we discussed the option of keeping it?

The mortgage on the rental property would convert to a buy to let I imagine?

And the tracker would move with you to the new property?

mitresize5

In very general terms the availability of property in the rental market in Ireland has gone through the floor in the last few years.

One of the major reasons for this is small landlords leaving the sector and selling up due to the hassle associated with renting.

Between the onerous tax implications and the legislation stacked heaving in favour of the tenants (try getting a non paying tenant out).

If you can avoid it at all sell up and be done with it.

lawred2

Won't be a second home if you sell the first one.

Hollister11

It depends on what your yield is rental wise.

If it's less than 5%, get rid. Otherwise keep it.

intheclouds

Hollister11 wrote: »

It depends on what your yield is rental wise.

If it's less than 5%, get rid. Otherwise keep it.

Allow me to expand on this by actually providing the info of HOW to do it.

http://www.wikihow.com/Work-out-a-Rental-Yield