Sell a house to buy a house?

tis me

Hello. Just wondering what opinions people have on the following.

I've recently returned to Dublin after a number of years living in continental Europe. I'm currently looking to buy an apartment in the city around the 250 - 300k range and have a number of options on how to finance this purchase.

- I have about 150k cash in savings
- I own an apartment in a major European city with a 250k mortgage but currently valued at about 400k (booming property market currently)
- The apartment is now rented out and yielding me about €1,000 a month above the cost of the mortgage
- Decent paid job currently - 70k p.a.

Option 1: Sell the Euro apartment and use the proceeds along with savings to purchase the Dublin apartment in cash - i.e. live mortgage free but most/all savings and rental income and capital from euro apartment gone

Option 2: Buy apartment with a 'regular' Irish mortgage - half savings gone on the deposit - but keep rental income to cover large chunk of monthly mortgage payments (along with keeping capital gain on Euro apartment, if it maintains its value)

The temptation to buy the apartment in cash is very appealing but I'm reluctant to sink all my savings and capital into it. Although building up my savings again should be easy with no mortgage.

But using the euro apartment rental income to cover the Irish mortgage is kind of the equivalent of living 'mortgage free' - although no guarantee of maintaining future rental income but keep a potentially very valuable asset.

Really stuck in two minds currently with these options.

What would you do?

Thanks for any input!

elperello

Mortgage free all the way.
Leads to a happy stress free life.

tis me

elperello wrote: »

Mortgage free all the way.
Leads to a happy stress free life.

Rental income and capital appreciation can also help to lower stress levels, particularly later in life (additional retirement income)

Or am I mad to want to take on a second mortgage...

exaisle

If you sell your other property, you may fall liable to Capital Gains Tax and if you dont, you will probably have an Income Tax liability on the foreign rental income.
Damned if you do and damned if you don't....

daheff

well you need to live somewhere, so you are committed to a monthly outgoing to cover rent/mortgage.


forgetting about your property abroad for a minute. You have a good salary and good savings.

New property is valued at 300k (ish). 80% mortgage on this would be 240K. 3.5times your salary would be 245K. So on this information alone you could (theoretically) afford to buy for only 60k or so of your savings.

Realistically you'd probably put in 80k+ or so after everything is done.


Now looking at your property abroad. This is yielding 1K in cash a month. Its about 60% positive equity.

Personally I think you would be mad to divest of this investment.

But that said, buying another property means that all your investment is in property (assuming you have no other investment assets?). You are then exposed to a future market fall....which will be doubly as bad as you may then have 2 properties.


All that said, if I were in your shoes I'd be holding the property abroad for a while at least as well as buying an apartment where you live. To my mind, an investment that is servicing/paying back the loan that was taken out to buy it AND more is a good investment worth keeping....unless you can find one yielding more?? To which I'd be doubtful you can at the moment.

wordofwarning

Look at it this way, Irish mortgages are among the most expensive in the EU. By buying an apartment here for cash, you are immediately saving 3% on interest. Don't forget this is tax free and riskless. It is a good return on investment paying for a property with cash rather than a mortgage with a high rate.

One option is leveraging the property you have abroad, which I am sure has a lower rate of interest than Ireland and you can likely fix it for a long term eg 15 years. Taking that money and buying a property here in Ireland "for cash". The interest on your foreign mortgage can be offset against your 'profit' on the rental income.

I am not a tax advisor, so you need to check this. But I have heard of it being done by others ie borrowing in a low mortgage interest rate country against a property in that country

dr.fuzzenstein

tis me wrote: »

Rental income and capital appreciation can also help to lower stress levels, particularly later in life (additional retirement income)

Or am I mad to want to take on a second mortgage...

If you're still young, go for the second mortgage if it's sustainable for you and you have rental income to at least partially offset it.
Now is the time of cheap enough credit if you can get it (well, Ireland maybe not so, because instead of following ECB rates Irish banks prefer the "fcuk you" approach to charging). In 20 years you will reap the rewards.
If you're heading for the wrong side of 45, think carefully, do you want to retire with debt hanging over your head?
The plan is that you retire with property and some cash on the side.
If you live abroad right now do everything you can to get a mortgage there and cut your cost by 50% compared to thieving Irish banks.

Of course always be ready for future price crashes.

tis me

Thanks for the detailed replies. Really useful to hear how other's view this scenario and helping me see the opportunities/risks.

I'm 34 so a bit of time on my side I suppose.

I should mention that the mortgage on the property abroad is interest only - 10 yrs into a 25 year mortgage and very low interest rate to begin with (about half of current Irish rates). I'm kind of viewing it as a 'cash cow' at the moment and potentially using the rental income to pay off an Irish mortgage. And hoping the value remains or keeps rising (150-200k rise in value in last 10 years). Lots of risks in this option I think.

Or cash in on that 150-200k now and plough it into an Irish purchase. Safest bet I think. And very much like the idea of not paying the extortionate interest rates to the Irish banks.

Or use the rental income to start paying off the principle on the foreign property. Nice pension/asset in 15 years.

I'm thinking of seeking (paying for) professional financial/tax advise on this matter. But wondering if they can tell me much more than what I hear here and can research myself.

Any other opinions on this are much appreciated. Thanks!

tis me

wordofwarning wrote: »

One option is leveraging the property you have abroad, which I am sure has a lower rate of interest than Ireland and you can likely fix it for a long term eg 15 years. Taking that money and buying a property here in Ireland "for cash". The interest on your foreign mortgage can be offset against your 'profit' on the rental income.

I am not a tax advisor, so you need to check this. But I have heard of it being done by others ie borrowing in a low mortgage interest rate country against a property in that country

This sounds like an interesting option. Didn't occur to me. Must look more into it. Thanks for the suggestion.

Tim_2011

Honestly cant tell if OP is trolling here or not.
OP I have to tip my hat, on both your level of savings and also being 34 and 10 years into a mortgage and luckily or cannily have invested in a strong market.
Cant help wondering why your looking for advice here!
Go write a book on property and savings, get your own show on rte!

tis me

Tim_2011 wrote: »

Honestly cant tell if OP is trolling here or not.
OP I have to tip my hat, on both your level of savings and also being 34 and 10 years into a mortgage and luckily or cannily have invested in a strong market.
Cant help wondering why your looking for advice here!
Go write a book on property and savings, get your own show on rte!

Ah, nothing canny about it. A bit of luck perhaps. Just happened to buy an apartment in the city I was living in at a time when the market was depressed. Makes me wonder if I should be buying in Dublin at all these days. But I need somewhere to live now and don't want to continue paying rent here.

I would also like to avoid paying any interest to an Irish bank so I'm very tempted to go with the 'safe bet' and cash in the foreign property and buy in Dublin.

But will definitely look into that 'leverage the foreign property at low interest rate' option.

dr.fuzzenstein

I have once attempted to obtain a German mortgage for my Irish property.
In the end it failed because the house in Germany that was going to be used as collateral has one small business unit in it, otherwise I would have succeeded in getting a mortgage at 2%, rather than the nearly 5% the Irish thieving scum banks where taking from me.
But now looks like I might get my Irish tracker back and a nice dollop of money, but that is another story and nicely illustrates how Irish banks blatantly and openly stole money from their customers with a big grin in their face that said "what you gonna do, huh?". Scumbags.

Prezatch

tis me wrote: »

Just happened to buy an apartment in the city I was living in at a time when the market was depressed.

Out of curiosity, what city was it?

tis me

Prezatch wrote: »

Out of curiosity, what city was it?

Coming back to this thread a bit late...

My euro apartment is in the centre of Amsterdam (currently experiencing a very similar 'housing crisis' as ourselves).

I'm coming close to sale agreed now on a Dublin house in the 300-350K price range. And I've decided to hold on to my Amsterdam apartment.

So my dilemma now is how much of my savings to put into the Dublin house purchase. I have about 150k sitting in cash in the bank and wonder what is the appropriate amount to use for this purchase. I'm thinking maybe half this amount (i.e.75k) into the purchase and keeping the rest for other investments, rainy day fund, nice to have etc.

Or should I be looking to get the lowest mortgage amount possible to save on interest payments (e.g. put 100-120k into the purchase and keep the mortgage at about 200k).

Any thoughts or 'what you would do' opinions would be much appreciated. Cheers!

MrFinance

tis me wrote: »

Coming back to this thread a bit late...

My euro apartment is in the centre of Amsterdam (currently experiencing a very similar 'housing crisis' as ourselves).

I'm coming close to sale agreed now on a Dublin house in the 300-350K price range. And I've decided to hold on to my Amsterdam apartment.

So my dilemma now is how much of my savings to put into the Dublin house purchase. I have about 150k sitting in cash in the bank and wonder what is the appropriate amount to use for this purchase. I'm thinking maybe half this amount (i.e.75k) into the purchase and keeping the rest for other investments, rainy day fund, nice to have etc.

Or should I be looking to get the lowest mortgage amount possible to save on interest payments (e.g. put 100-120k into the purchase and keep the mortgage at about 200k).

Any thoughts or 'what you would do' opinions would be much appreciated. Cheers!

I would highly recommend always having a bit in the kitty in the case of the economy taking a dip, which is inevitably coming in the next year or so in my opinion.
If it was me, I would put in 90k, have a 210K mortgage, and sit on 60k for a 'rainy day'.
Ps. It's worth noting that regardless of the market dipping, Amsterdam will still be in the same situation in 4/5 years. People always need a place to sleep!

badboyblast

You are on a winner with Amsterdam, property is crazy money. I would be a big believer in hanging onto your money and use the banks money , you will never get to borrow money so low and money makes money

Deub

I would say keep a nice chunk of cash. Worst case scenario is: Your tenant stops paying. How long would it take to have the tenant moving out?
During this time, you will pay both mortgages + eventually pay to fix the damages once the tenant moves out.

Diarmuid

Surely your tax exposure should be a large part of this equation? A lot of countries exempt PPR from CGT which means you could bank your 150k gain now, tax free. Hold onto it and move, and you'll be liable for CGT when you do eventually sell it.

You say you are earning 1k above the mortgage, can you put that in rental yield percentage for 100% and 80% occupancy post expenses (LPT, repairs, monthly charges etc...)? Hard to tell if it's really the cash cow you think it is. From experience property charges and taxes on the continent are far higher than here. It's not unusual for property tax to be 1 months rent, charges another month etc...

I also wouldn't assume the capital appreciation you have seen so far will continue for the full term of your mortgage. The opposite. I'd work on the assumption that the property price increase will revert to long term normal rate (whatever that is where you property is)

I'd be inclined to sell, then separately decide if you want to invest that 150k in a different investment option or just put it towards your own home.

Poor_old_gill

Saving 150k on 70k per annum is impressive without a mortgage!
How the heck did you manage that