Pay off the mortgage or buy second property?

The_Conductor

OP- you have two very similar threads- I've merged them together.

LaLa2004

Will €250k buy you a forever home?

If you sold the apartment, you would be in a position to buy a house either with less of a commute or nearer to transport links.

When buying in Dublin you may need to look at how nice the area is.

Are you looking at duplex or terraced or semidetached?

Lumen

You currently have 36k of net debt. On a salary of 52k your maximum debt load is 156k before exemptions. You therefore have only 120k of spare debt capacity which is insufficient to buy a house in Dublin.

So keeping the apartment and buying a house is not possible, the equity doesn't help in this case.

ouxbbkqtswdfaw

Don't become a landlord. It's a nightmare scenario. You have no rights. The tenant takes over your property. Pay off your mortgage and have an easy life.

py

My main concern around you taking on a 2nd property is that your base income isn't a lot so if you run in to trouble with a non paying tenant, it's going to seriously impact your day to day life. If your income was double what you currently earn then it would be a different scenario. At this point in time, I'd suggest paying off your mortgage.

Rackstar

Spidereq wrote: »

80k in savings should convince the bank.

You didn't mention that in this thread. It was in your separate thread, which was merged here.

I'd sell up and buy a nice house.

adam88

tobsey wrote: »

Are you married? Your combined income is about 15k short of reaching the top rate of tax so very little of your rental income would be taxed at 50% so from that point you wouldn't have the highest of tax bills on it. However once you rent it out you're no longer eligible for the capital gains tax exemption on the increase in value on the apartment. You might be exempt up to the current value now because it has been your principal private resigned until now, but you'd want to check that out.

If I were you I'd sell, take your profit and live happily with a very small mortgage.

Are you sure this is correct. I thought the only stipulation was that you had to keep it till 2019

AmberGold

I’d sell, buy the house you want now to take advantage of the rising prices. I’m a reluctant landlord and can’t wait to get out.
You’ve made some good moves so far, is there any way of getting your incomes up?

The Student

Spidereq wrote: »

80k in savings should convince the bank.

Can I suggest a slightly different slant on this. Buy a property with a garage, convert the garage to a self contained unit. Avail of the rent a room scheme you earn tax free income. Then either sell apartment, rent it to council under long term leasing.

Spidereq

The_Conductor wrote: »

OP- you have two very similar threads- I've merged them together.

Thanks. Didn’t want to mess up the forum, just thought that one topic is related to financial decisions while other to rather personal preference. Thanks for the cleanup

Spidereq

LaLa2004 wrote: »

Will €250k buy you a forever home?

If you sold the apartment, you would be in a position to buy a house either with less of a commute or nearer to transport links.

When buying in Dublin you may need to look at how nice the area is.

Are you looking at duplex or terraced or semidetached?

I’m thinking to move out to somewhere in Kildare area. The total amount I could avail to fund a forever home is (24+29)*3.5+80(savings)+94(from apt sale) = 360k but I’m far from idea of increasing debt to the limit. I could increase a bit as selling apartment will get rid of management fee 1700 per year that can be used to pay as bigger mortgage. Semi detached, end of terrace, detached would be on my search list.

Spidereq

AmberGold wrote: »

I’d sell, buy the house you want now to take advantage of the rising prices. I’m a reluctant landlord and can’t wait to get out.
You’ve made some good moves so far, is there any way of getting your incomes up?

We could both switch jobs. Recently all the leavers in the company I work in got approx 5k more for jumping ships and taking their experience with them

But this will delay things for a minimum of 6 months to please the bank with a permanent contract

evolving_doors

Sell.. buy... save like the clappers, try to pay mortgage off quickly at same time. Move up ladder. Easy life.
2 mortgages with no safety net esp. if market changes or tenant gives trouble. Not easy life.

For 250k in dublin it sounds like you might be buying something that'll need a bit of upgrading... think twice about throwing all yer savings into a deposit. Although if yer handy enough with some things and ye don't mind upgrading very slowly then it might be doable.
That'd give you a good sense of achievement when it comes time to sell again.

Remember that people might pay €300k for the same house whether it's immaculate or in a bad state so keep an eye on all the money yer putting in vs. how much it'll get you. e.g. spending 80k on a swish extension might only net you an extra 60k when you sell. Have a look at how much different quality houses sell for on the same road.

The_Conductor

adam88 wrote: »

Are you sure this is correct. I thought the only stipulation was that you had to keep it till 2019

Depends on *when* you bought it- you have to hold it for 7 years- so if you bought it in 2012- then 2019 is appropriate. 2019- is not a magic year- other than its the earliest the first people who availed of the CGT exemption can sell their units (the scheme was launched in 2012).

The CGT exemption on property- ended on the 31st December 2014- and there were more properties bought under the exemption between 1st March 2014 and 31st December 2014- than in the 2 and a half previous years. Thus- the bulk of units that are being held onto for tax reasons- could reasonably be expected to hit the market in the period March 2021 to December 2021- and not from the get go in 2019.

Edit: Scheme formally came in on 7th December 2011- so units under the scheme will drip onto the market from 8th December 2018.

Grumpypants

It is an easy choice, sell the apartment and buy your forever house and have a small mortgage.

In theory, it sounds great to have the apartment rented out. In reality when the tax man takes up to 60% on the rental income, with a mortgage of 6k, around 4K on management fees and maintenance, and 1k on insurance and other random bills. You are prob looking at a 3-4k loss per year.

Granted you are building equity, but anything you build in the apartment is offset by the interest on the 250K mortgage on the house.

Sell the apartment and pay down the mortgage on your house. Get rid of that and live rent/mortgage free and start building cash.

evolving_doors

You could do rent a room for up to 14k tax free every year OP!

Lumen

evolving_doors wrote: »

You could do rent a room for up to 14k tax free every year OP!

Only while the current tax regime prevails. It's not a great idea to make a 20+ year financial commitment on the basis of an annually reviewed scheme, particularly on a marginal income.

"Have we learned nothing!" is screaming in my head.

__..__

I'd sell. I've been a landlord for more years than I can remember and up to this year I would recommend it. But since this year I'm getting out altogether. Seriously you don't want to be a landlord now.

ouxbbkqtswdfaw

Totally agree with the above. Being a landlord with a few properties, I can tell you it's a mugs game now.

Lumen

Lumen wrote: »

Only while the current tax regime prevails. It's not a great idea to make a 20+ year financial commitment on the basis of an annually reviewed scheme, particularly on a marginal income.

"Have we learned nothing!" is screaming in my head.

Current trends would show it's far more likely to increase this amount than reduce or get rid of it.

In any case the rent a room scheme is here for good. It would be a pointless exercise getting rid of it as people will still do it and just not declare the income (in fact many doing it now don't bother to declare it as it's all cash). The government brought in the scheme to try encourage people to declare the income but they know well if they got rid of the scheme people would still rent rooms and still pay no tax so it would be a waste of time.

elperello

The Student wrote: »

Can I suggest a slightly different slant on this. Buy a property with a garage, convert the garage to a self contained unit. Avail of the rent a room scheme you earn tax free income. Then either sell apartment, rent it to council under long term leasing.

Don't forget that the self contained unit must be attached to the house under current rules which are of course subject to change.

__..__

elperello wrote: »

Don't forget that the self contained unit must be attached to the house under current rules which are of course subject to change.

Stay in the garage yourself and rent out your rooms

Pawwed Rig

David Bumpy Crayfish wrote: »

In any case the rent a room scheme is here for good. It would be a pointless exercise getting rid of it as people will still do it and just not declare the income (in fact many doing it now don't bother to declare it as it's all cash). The government brought in the scheme to try encourage people to declare the income but they know well if they got rid of the scheme people would still rent rooms and still pay no tax so it would be a waste of time.

It was brought in to increase the stock of rental units. Once there is adequate stock this relief will disappear like previous reliefs (section 23, CGT exemption, LOTS etc)

The_Honeybadger

Sell up and buy a nice house for yourself. If you have spare cash to invest after that there are better places to put it than in to property.

Maybe visit a well regarded independent financial advisor before doing anything, could be money very well spent.

The Student

Pawwed Rig wrote: »

It was brought in to increase the stock of rental units. Once there is adequate stock this relief will disappear like previous reliefs (section 23, CGT exemption, LOTS etc)

With the current crisis I am not sure the scheme will end within the next five yrs. The scheme was really designed for students (the old digs style). Because of the housing situation it is being used more and more. You could build a granny flat and it would be paid for in three yrs and completely tax free. At the same time you have increased the value and size of your home.

bilbot79

While interest rates are low you money goes a lot farther when paying down the mortgage as soon as possible. You will pay this off in the 2 years and then when you start saving the interest rate environment will be raising and you will get better value from your savings.

Think about that in terms of the interest rates differential. There is money to be made in this option as well as it being incredibly safe and making you look like a saint in front of the bank.

However if rates rise and you're in a ton of debt you'll be paying it off and getting nowhere. Now is the time to get rid off the mortgage!

elperello

__..__ wrote: »

Stay in the garage yourself and rent out your rooms

You may have spotted a loophole there.
On the other hand maybe not.
Better to check it out and seek professional advice before making financial projections.
If revenue decide different after a few years you will end up with a bill and loss of income.

__..__

elperello wrote: »

You may have spotted a loophole there.
On the other hand maybe not.
Better to check it out and seek professional advice before making financial projections.
If revenue decide different after a few years you will end up with a bill and loss of income.

I said that in jest, but I do know of a person who stuck a bed in their attic and claimed they were using the attic as their bedroom and rented out the rest of the rooms on rent a room. Most of the time he stayed in his girlfriends house though and only when they had a fight or he was too drunk to go to her house would he stay in his own attic .

evolving_doors

David Bumpy Crayfish wrote: »

Current trends would show it's far more likely to increase this amount than reduce or get rid of it.

In any case the rent a room scheme is here for good. It would be a pointless exercise getting rid of it as people will still do it and just not declare the income (in fact many doing it now don't bother to declare it as it's all cash). The government brought in the scheme to try encourage people to declare the income but they know well if they got rid of the scheme people would still rent rooms and still pay no tax so it would be a waste of time.

It also serves the TEFL industry very well in Ireland especially during the summers. Student digs. (Not much but the Bean an Tí gig in gaelteachts too).
It would be a big step to do away with it or start taxing it.

Pawwed Rig

Pawwed Rig wrote: »

It was brought in to increase the stock of rental units. Once there is adequate stock this relief will disappear like previous reliefs (section 23, CGT exemption, LOTS etc)

It's been discussed on here before and the reality is it was brought in to bring visibility to the money changing hands in room renting.

Room renting has gone on long before the rent a room scheme was introduced and there was never a cent of tax paid by anyone doing it. Getting rid of it will not stop people renting rooms nor will it make people pay tax on the income so it would be pointless to get rid of it as it would serve no purpose.