Looking for opinions on continuing to rent or sell

sunnyday1234

Hi Everyone
We have a rental house that we bought during the boom and lived in for several years. Its costing 300 a month to pay the mortgage on top of the rent we are getting . There is about 18 years left on the mortgage and its currently just over 200k .
I was looking for some opinions on keeping it or selling it.
1. We can afford to pay the difference easily enough (would change if i lost my job)
2. Rents are high at the moment and may decrease which would affect the situation
3. Our tax bill is low as mortgage is high but the tax bill will increase in future as the interest reduces on the mortgage
4. It has been cost free up until now but its 8 years old now and issues will start to appear i suppose
I suppose i am asking is it advisable to keep a second house if you can afford it, are there any benefits at all these days to owning a rental house ?

we currently live in our forever home with a small mortgage of about 130k.

sunnyday1234

sunnyday1234 wrote: »

............. Its costing 300 a month to pay the mortgage on top of the rent we are getting . There is about 18 years left on the mortgage and its currently just over 200k ...........................

I suppose i am asking is it advisable to keep a second house if you can afford it, are there any benefits at all these days to owning a rental house ?

we currently live in our forever home with a small mortgage of about 130k.

Is the €300/month representative of the total cost the property is to you after all income tax etc paid or is it just the shortfall?

If you sell now what price would the house fetch, would there be profit left after paying the mortgage?

How much lower rent were you getting before ?

sunnyday1234

the 300 is just the mortgage top up. Tax bill is low but will be increasing as time goes on. This ammount doesnt count for any repairs etc (impossible to estimate). It also doesnt count for any month where the property isnt rented
Rent was 100 less just a few months ago and would have been 300 less during the crash ( we probably wont see this ammount for a long time again though)
If we sold now, there would be no profit left, just break even i would imagine

Im just tempted to sell it, use the extra money to pay off our own mortgage and be done with houses and mortgages

Then again i have an 11 month old and it would be a nice inheritance for him

Michael D Not Higgins

sunnyday1234 wrote: »

If we sold now, there would be no profit left, just break even i would imagine

Im just tempted to sell it, use the extra money to pay off our own mortgage and be done with houses and mortgages

Can you explain these two sentences? They seem to contradict each other.

antoinolachtnai

I don't think rents will fall much. Tax relief will increase over the next few years (according to the government). But it is good to be cautious and conservative.

If things go on as they are it will cost you 54k (300*12*18) more. At the end you will own a house worth 200k outright.

How do you feel about the day to day work of managing the property? If you don't mind doing it, and if the property is well located, it's not a bad investment. It's a hedge against inflation. It is something you know a fair bit about.

It depends what you would do with the 300 euros a month if you didn't have this.

It is also quite personal. If the property feels like a weight then maybe you should sell it. If you sold it would it make you happy?

Mr McBoatface

Are you in negative equity or not ?

It really comes down to what you want. If you don't want to be a landlord and can afford to sell it then sell it and move on.

If you've a notion that by keeping it you might make money as its value rises just weigh up is the risk v benefit worth it.

Nobody can answer those questions for you as it's very personal.

All that said if I was a reluctant landlord in your position who would break even by selling I'd sell and the money I was using topping up the shortfall in rent income to pay the mortgage would then be used to pay off my forever home quicker.

exaisle

sunnyday1234 wrote: »

Then again i have an 11 month old and it would be a nice inheritance for him

More importantly, it might make a nice pension for his parents. Measure the cost to you over the years against the cost of buying a pension of equal value and it might turn out to be a good investment....

Grolschevik

When you say your "tax bill is low", what do you mean specifically? I'm assuming you'd be paying tax on all your income at the higher rate?

sunnyday1234

Michael D Not Higgins wrote: »

sunnyday1234 wrote: »

If we sold now, there would be no profit left, just break even i would imagine

Im just tempted to sell it, use the extra money to pay off our own mortgage and be done with houses and mortgages

Can you explain these two sentences? They seem to contradict each other.

I mean if we sold the rental house now then the mortgage would be paid off with no profit. When i say "the extra money" i mean the 300 a month we are currently topping up the mortgage by etc and any repair money that we wouuld need for the rental property
We have a letting agent managing the property, its hassle free for us at the moment.
We are not in positive or negative equity at the moment - its just about breakeven

antoinolachtnai wrote: »

I don't think rents will fall much. Tax relief will increase over the next few years (according to the government). But it is good to be cautious and conservative.

If things go on as they are it will cost you 54k (300*12*18) more. At the end you will own a house worth 200k outright.

How do you feel about the day to day work of managing the property? If you don't mind doing it, and if the property is well located, it's not a bad investment. It's a hedge against inflation. It is something you know a fair bit about.

It depends what you would do with the 300 euros a month if you didn't have this.

It is also quite personal. If the property feels like a weight then maybe you should sell it. If you sold it would it make you happy?

Your figures of 54k are too optimistic. Its 54k just for the mortgage top up. We have to pay tax on the rental income also (small at the moment but will increase). 54k doesnt account for a decrease in rent or any period of time when the property isnt rented. It also doesnt account for any repairs or upkeep whatsoever which could run into tens of thousands over the 18 year period
I am looking at it like this :
54k mortgage top up, round up to 75k for no occupancy periods , rent decreases etc
25k tax on rental income
20k repairs and upkeep
This comes to 120k for the cost of the property which is prob worth around 200k now. What will it be worth in 18 years time though :-)

sunnyday1234

Grolschevik wrote: »

When you say your "tax bill is low", what do you mean specifically? I'm assuming you'd be paying tax on all your income at the higher rate?

It is low at the moment because i can write off 75% of the mortgage interest against it. As the interest comes down on the mortgage then the tax bill will increase

Michael D Not Higgins

sunnyday1234 wrote: »

I mean if we sold the rental house now then the mortgage would be paid off with no profit. When i say "the extra money" i mean the 300 a month we are currently topping up the mortgage by etc and any repair money that we wouuld need for the rental property
We have a letting agent managing the property, its hassle free for us at the moment.
We are not in positive or negative equity at the moment - its just about breakeven

Right, get you now. I'd be inclined to give it a couple of years to see which way the market is going. In that time you will have also built up some equity which if you decide to sell then can be put into your PPR mortgage.

sunnyday1234

Michael D Not Higgins wrote: »

sunnyday1234 wrote: »

I mean if we sold the rental house now then the mortgage would be paid off with no profit. When i say "the extra money" i mean the 300 a month we are currently topping up the mortgage by etc and any repair money that we wouuld need for the rental property
We have a letting agent managing the property, its hassle free for us at the moment.
We are not in positive or negative equity at the moment - its just about breakeven

Right, get you now. I'd be inclined to give it a couple of years to see which way the market is going. In that time you will have also built up some equity which if you decide to sell then can be put into your PPR mortgage.

Yeah you are probably correct. We are paying down the mortgage on our forever home with extra monthly payments anyway so we are in a good place financially. I just dont want to be putting thousands every year into something that might not be worth it but thats the risk i suppose

Michael D Not Higgins

sunnyday1234 wrote: »

Yeah you are probably correct. We are paying down the mortgage on our forever home with extra monthly payments anyway so we are in a good place financially. I just dont want to be putting thousands every year into something that might not be worth it but thats the risk i suppose

One way to look at it could be to compare the cost against the return. Since you said you bought in the boom and it's basically zero equity, you've just about gotten out of negative equity following the crash. The market is very unlikely to drop again anytime soon (in fact quite the opposite).

If you sell now, you're breakeven. If you continue, it could cost you 3-4k per year in top ups plus any maintenance cost, while you build equity of about 8-9k per year not including any house price inflation. That's a very basic calculation based on the numbers you mentioned earlier but should show that you're making a decent return on your investment into the property. Your own mortgage isn't going to be saved by the same amount when overpaid by the 300/month (probably closer to 20k saving over the life of the mortgage vs. 4k gained each year on the investment).

Again, this is all about risk. It's a higher risk to continue with the rental property. A bad set of tenants could cost you 20k in unpaid rent and damage if it came to it. But from your own calculations, you could have a property worth 200k plus 18 years of inflation for 120k investment.

Fian

sunnyday1234 wrote: »

the 300 is just the mortgage top up. Tax bill is low but will be increasing as time goes on.

you're absolutely right - interest component of mortgage payment will reduce and tax bill will therefore increase as time goes on. However this is sufficiently long term that you can be confident that rent will also increase in nominal terms and outweigh the added tax. Despite recent years inflation can generally be regarded as a virtual certainty over the longer term (not over short term though!) - not least because it is the policy of central banks to target 2% inflation and they can print money to achieve inflation if they choose to.

Essentially I am suggesting that you should not be overly concerned about the decreasing mortgage interest component, because this will almost certainly be outweighed by inflationary effects over that timeframe, so that your after tax mortgage payments will be more affordable by the time that has a real impact.

Furthermore as your interest payments reduce your equity will be increasing as you reduce the principal outstanding.

Whether you should keep the property is a much more complicated question - all I am saying is don't worry too much about the mortgage interest component reducing in reaching your decision.

antoinolachtnai

sunnyday1234 wrote: »

Your figures of 54k are too optimistic. Its 54k just for the mortgage top up. We have to pay tax on the rental income also (small at the moment but will increase). 54k doesnt account for a decrease in rent or any period of time when the property isnt rented. It also doesnt account for any repairs or upkeep whatsoever which could run into tens of thousands over the 18 year period
I am looking at it like this :
54k mortgage top up, round up to 75k for no occupancy periods , rent decreases etc
25k tax on rental income
20k repairs and upkeep
This comes to 120k for the cost of the property which is prob worth around 200k now. What will it be worth in 18 years time though :-)

That is a good way to look at it.

I don't think you will see many rent decreases and I don't think you'll have that level of rental voids. Overall it is not far off at all though.

Any alternative investment would also have tax implications and costs. You cold be topping up the pension I suppose and that would be tax effecient. But still there are costs for getting into any new investment.

One other thing you could do is to lengthen your rental property mortgage (lower payments) and shorten your home loan (higher payments). The reason this makes sense is that the interest in the rental is tax deductible and the interest on the home loan is not. This depends on the rates you are paying and on the bank agreeing of course and you would need tax advice.

What it will be worth at the end is a good thing to think about! Would the rental income be a significant boost in your retirement?

athtrasna

sunnyday1234 wrote: »

It is low at the moment because i can write off 75% of the mortgage interest against it. As the interest comes down on the mortgage then the tax bill will increase

That 75% will increase over the next three budgets though until it hits 90%

riclad

You get tax credits for any repairs
needed,
do you think it,ll be worth alot more in 10-15 years time,
Do you wish to have a rental income in 15-25
years , when you are near retiremant age .You could hold onto it, for 5-10 years until the interest payments are reduced .
Your main tax credit now is 75 per cent of the mortgage interest.
You can claim a tax credit for agents fee,s and accountants fees .
An account will charge 300 euro approx to do your tax retuns as a landlord.
Your tax bill will increase in 10-15 years as the interest part of your loan decreases.So it depend,s on how you feel ,is it worth the 300 euro every month to hold onto it.
IF the house is in dublin or another urban area it could rise in value by 3 per cent plus every year.

Idbatterim

I suppose another big enough factor is the interest rates, that you are paying on both properties...

Graham

The €300 a month you're currently topping up your mortgage sounds like a fairly good deal to acquire an unencumbered asset worth €200k - €400k in a few years time.

OK, your tax bill will go up as your interest payments decrease but this will be at least partially offset by the increase in interest allowances, inflation, rental increases and the increasing value of the property over time.

Unless you're finding the property particularly troublesome for any reason or you're expecting a sudden changes in circumstances, personally I'd leave as is.