Need advice on selling or not.

Hi all,

Hoping for some objective advice on whether to sell or not.
We have had to move from our home due to a change of jobs.
Our home was one we built ourselves over five years ago in a tourist region in the West.
We thought we would live there forever and put the best of materials into it.
It is in a very scenic area on a large site and is a fairly big house with five bedrooms.
It is a very pretty house and has always attracted a lot of compliments.

When we knew we had to move we had it valued.
That was last April or so and even then the market had stalled.
The valuers said it was probably worth 650 ish but one said market it at 550, another at 450 hoping to get more.
To date no sale, we are renting where we are now living and our old home is vacant.
There was minimal interest and we decided to rent it out for summer lets.
Huge interest in this and after just a couple of weeks it was booked for about three months continual lets at 900 per week.
We could probably hope to let it for about another four weeks for sure and possibly pick up another few lets here and there.

It costs us 100 a week it is let, so net the rent is 800 per week.
We don’t know as yet if it would cover the mortgage, taking into account the costs and income tax.
We thought it might though and decided, since there was no interest anyway, to give it a trial.

However now there is someone interested. We now are undecided as to what to do.
This house is fairly unique in that it is in an area where it is extremely hard to get planning, you can walk right down to the beach, there are a lot of tourist attractions in the area etc.

However, meanwhile we are renting ourselves, and if we did sell we would probably realise a net of 265k.
With this we were thinking it might be a good idea to buy another property - in the region of 250 where we now live, with a mortgage of 140, live in it until we source a site and obtain planning and build a new house.
Sites in the area are from 85 to 100, and we would plan to spend about 150 to 200 on building again.
We would then rent out the other house.
This house would rent at between 650 to 750 comfortably.

Would be grateful for advice, sorry for long post.

GB edit: formatted for easier reading

If it’s as unique as you say and you want top Euro for it, then is your agent or yourself advertising it in the UK, Germany or Holland?
What demographic would be most likely to buy that property? That way you get an idea of their income and can price accordingly.
Is broadband available? Is there potential as a guest house if extended? If you wanted to run it as a self catering type business then the asking price is too much based on current rental yield and seasonal factors.

If you don’t have the resources to hold out for the highest price (which could take years), then drop the emotional attachment and sell it ASAP. In the current market there are few buyers so you need to cast your net as wide as possible. Also the more isolated a property is from the main population centres the less likely it is to sell.

There are specialised ea’s for this , Kinght Frank Ganly Waters does a lot of (genuinely) unique properties internationally .

Its also (seemingly) relatively lettable from what I can see , 12 x 900 weekly lets is more than most houses will pull in in 12 months , can you winter let too ??

How much are they willing to pay?

How much is the outstanding mortgage? What does it cost per month?

How much are you spending on rent at the new location?

What do you mean by “It costs us 100 a week it is let, so net the rent is 800 per week.”? What does that 100 cover? Not the mortgage surely?

What’s your attitude to risk and being in business? would you like the comfort of having 100K in the bank, or would you like the idea of having it invested in your old house maybe making a profit, maybe not.

How secure are you on your new location? Is there a chance that you’ll want to move back to your former area any time soon?

Sorry, lots of questions, but I think if you answer all of these the answer to your original question should be a little clearer.

-Rd

I’ve no doubt that your property is unique but it is valued at minimum 15 times the average national income. If you are in a rural area, it is highly likely that wages in that area will be lower than that. Planning might be hard to get in the area but locals with the finance available to buy it will be even harder to get. How low can you afford to go? The bust is the reverse of the laddermania during the bubble because if you don’t get rid of the property now, it could be worth even less next year.
Cast your net wide and suss out people who might possibly have the finance & inclination to buy it, i.e. non-locals. That said credit is tight everywhere and I’m seeing savage cuts in places like west Cork.
Good luck.

Our estate agent has marketed it in the UK and in Ireland only. They felt it would be bought as a holiday home- albeit a rather expensive one! Interest has mainly come from couples wanting to retire from the UK and two couples who were interested as a family home. No bids from any of these. The person now interested appears to want to buy as a family home, but we don’t know much about them. As for how much they will pay that is a good question! My 265k figure was based on them paying 550 but of course this is entirely uncertain.

I suppose one of the reasons I started this thread was to find out if we should, for financial reasons, reduce our asking price and if so by how much. IE is there a point at which we should sell and how to gauge that price. I don’t, in fact, have an emotional attachment to this house. I do recognise however that it is a fairly unique property which in other times might command a premium but with the market the way it is, it is just not selling. That makes me wonder if we should hold on to it for 5 to 10 years and wait out the market.

The mortgage on the property currently is 278k over 17 years. This includes a top up of 65k taken out for a business debt. We currently have a net income of 5400 monthly and pay rent of 1100. Childcare is 610 monthly and we have a rental property abroad which we bought two years ago. We bought it for 140k, and it is now worth at least 210k. It is rented out on a longterm lease for 550 monthly and we pay another 350ish per month for the mortgage. Our income is reduced as my spouse is working parttime only while he goes to college. He was previously on a salary of 65k and would expect to go back to this kind of salary once finished his course in 3 years.

The 100 per week( only when let) is a payment to a local person to supervise, clean, manage the lettings as we live too far away to do it ourselves.

Once my husband is finished college we may remain where we are or we could well move again. It is unlikely we will move back to our old home though.

My attitude to risk? A difficult question. We are both in our late thirties and if we were 10 years younger I might be more inclined to risk. We also have children to think about. I really would like to approach this matter from a strictly financial point of view. At what point is the property worth keeping?

It is very rentable. Two weeks after being on two websites there were 3 months booked. However these are the prime summer months. Will it rent in winter/spring? I don’t know the answer to this.

Just a little point but there are pretty serious Tax implications and anyone in your possition should take proper advice before letting it out or not having it as your primary residence for more than a year. It could lead to Capital Gains Tax.

Outside the Pale it is common to list your properties with multiple agents this isn’t as good an idea as you might think. If the agreement is joint agency then they should work together and not chop the legs from under each other so that they get to sell your house. maybe split the fee between the two agents in a 70:30 or 60:40 split, in favour of the person that finds the buyer, this will insentavise the EA to sell your property but won’t make them jepordise the sale of the other agent so that they get to sell it.

I am aware of the cgt implications.
It is with one agent only.

If you are aware of the full CGT implications and those implications do vary depending on who you speak too, why rent it out?
Worst case: presuming that the property currently stands you €200K - €300k should you accept an offer from your interested party and that the net income from the rental will be somewhere about 10k by renting it you stand to loose between €30 and 50 k and while renting it you take it of the market and watch the price go down further.

Obviously before rallying in 2009 and then climbing masively in 2010 and 2111.

Good to hear you only have one agent I wasn’t sure. If you do decide to get a second I seriously would say go joint agent. Most of them don’t like it but it is better for you.

Cgt would be proportionate to our period of occupation worst case. It is all somewhat of a gamble.

That depends on who you speak too. I was given three different answers from three different tax consultants on a very similar situation:

1, CGT is only chargable upon the property during the period that it is not your primary residence. (ie put as high a value as possible on it the day it stops being your primary residence)

2, CGT is proportional to the time it is not your primary residence

3, If you rent it, you become an investor hence CGT is payable on full amount

If I were you, it is good to stay on the side of caution and ask for some further advice from more than one tax specialist or go to the Revenue and ask them. there is some light reading on www.revenue.ie

Hmmm, I’m not sure what you mean by no.1 but if you mean what I think you mean then no cgt at all, sure that’d be a negative result! No.2 is how I understand it and this is what my accountant has confirmed to me. No.3 would be horrendous and not what I understood at all- and not my accountant either.

I really have to question this. How on earth is this possible in **any **property market over the last two years?

Your claim to have achieved ‘at least’ 50% capital appreciation on your offshore property is dubious in the extreme (in my eyes) and makes me wonder about the rest of your post. Details please!

Yes, I can see how this would appear dubious. We bought in France, a two bed apartment off plan for 140k. Our apartment is on the second floor. It was something we were told about by a friend living in the area, targeted at locals, not a leaseback or anything like that. It is near a hospital and other large employers. A year later when completed a ground floor apartment ( not as attractive for obvious reasons) sold for 210. All the rest of the small block were sold prior to this. Our friend is a mortgage broker in France and kept an eye on the market for us when we were thinking of investing. We seem to have done a fairly good deal but of course you do not really know until the day you try to sell. None of them are on the market at present.

Number 3: is not a nice case at all, and I didn’t think this was the case either until I was informed by one tax consultant that it was. and it has to be said that it was in relation to an almost identicle case to yours.

number 1: is the way I thought it worked and was the way that one very reputable tax consultant explained it to me: you get a valuation carried out on the day it stops being your primary residence or a back dated valuation carried out. you only pay CGT on the amuont it increases from that point. So if you hang on to the property and it goes back up to that price in two years you pay no CGT but if you stay sitting on it and it increases above that level you then pay CGT.

Unfortunitely you can’t recieve CGT should there be a negative Capital Gain

On the basis of the information supplied, if I were in your position (i.e. currently renting) I would sell the holiday home and bank the profits. If the foreign home is in France which has relied heavily on Irish and UK investors over the last five years I would also take profits now, as this group is headed for multiyear hibernation.

In a bear market for most assets, the ideal posture is to be short the market through the down cycle. That’s difficult with property but it can be done by renting while shorting equities whose performance is primarily linked to property. A more conventional option is just to rent, avoiding any exposure to property.

So, I would not purchase any property right now but would continue to rent until interest rates had appeared to peak and the economic clouds begun to lift. I estimate this is at least two years away. According to your information your spouse should have completed his studies by then and be back in fulltime employment. This would seem like a good time to consider putting down permanent roots, by which time sellers should be thoroughly disillusioned and more realistic. In the meantime, you can thoroughly research those areas where you would like to settle permanently and carefully monitor pricing levels.

If I was uncomfortable with renting then I would switch out of existing property investments and purchase something permanent for the next ten to fifteen years right now, because the trade-up premium is not going to contract that much over the coming years and I would have the benefit of being able to forget about property and get on with living a life. When selecting a property I would concentrate only on tangible benefits (location, schools, build quality, garden size, running costs, commuting distance). But I would never make the mistake of buying a property now while holding on to existing houses. That, I think, would the the worst possible course of action. And I’m sorry to say I know far too many people doing just that.

From the children’s point of view, the only consideration I would give to timing would be to have them settled by the time they are ready for secondary school.

When the property market improves as someday it will, and if either I or my spouse were self-employed or a company director, and I still wanted to play the property market, then I would shelter any new investment property purchases inside a Self Administered Pension Plan (foreign properties are also allowed here, by the way) so that I could benefit from 40% marginal tax relief on contributions along with freedom from tax on rental income and CGT on disposals. Your accountant can give you the full picture.

Maybe you should contact someone who specalises in property tax or a really good property law firm such as John Gore Grimes or Tom Fox

You’ll find a lot of people on this board that are very negative about property (including me). Only time will tell whether it’s a permanent affliction, or whether it’s based on the current market. What it means for you is that you’re likely to hear a lot of “Run for the hills” advice.

You’re looking for a purely financial answer to your question which is difficult because a purely financial answer isn’t possible without taking into account where we think the market is heading (opinion) and your attitude to risk (opinion) but here goes:

To Summarise:

You have a house. We don’t know how much it will sell for, you hope 550K, could be as little as 450K, could be less. You want to know how low you can go for it to make sense.

You say you’re unlikely to return to the previous house to live in, so let’s forget about your new living arrangements, and focus on what’s best in terms of the old house. You have a certain amount of equity tied up in it and the question is “Can I deploy that capital better elsewhere, or should I keep it where it is?”

On the house there is a mortgage of 278k with 17 years remaining.
(I’m not sure whether you mean the remaining balance is 278K, I’m assuming you do).

So, if you sell you’ll pocket anything over and above 278K less expenses.
For the sake of argument, selling at 550K you’d walk away with about 272K. I’ll ignore CGT and expenses just for the moment.

The house currently is capable of pulling in about 10K in rent. from this you have to take Income Tax, the cost of maintaining it and paying for it to be looked after etc. You have some experience of rental properties, so this might not be too much of a burden.

If you put 272K on deposit you could earn about 10K in interest even after DIRT. You wouldn’t have the hassle of finding tennants, or maintaining a house etc.

So, now we get into opinion.

Opinion 1 is how much equity do you really have in your house? is it really 272K? Ironically the less equity you have in it the more attractive renting it will seem compared to putting your equity in a deposit account. this is due to the fact that your equity in the property is geared up using the mortgage. Makes the returns look attractive, but leaves you more vunerable when the market drops.

Opinion 2 is the market going to continue falling. A falling market gobbles up your equity, and will probably push down your rents too. A double whammy.

Opinion 3 If the house and a deposit account gave you exactly the same return, which would you take? Let’s say you need the house to pay a little more to make things worth your while. How much is enough?

The best I can do in terms of giving you a completely financial way of figuring out what the house is worth (to you) is the following.

Work out how much equity you realistically have.
(include costs, CGT etc here) Let’s say you come up with 200K

Work out what you could earn by putting that on deposit:
let’s say 5% - DIRT, do search for the best rates out there.
That’s 8K a year cash into your hand for no work.

Now, ask yourself if 10K a year from your house with a risk of the value dropping, and with the work involved is worth more to you than 8K a year cash for doing nothing.

When someone makes an offer that will remove one of the uncertainties (the value of the house). You can plug that figure into your calculations to work out exactly how much cas you can walk away with.

Remember also that having 200K in the bank in cash leaves you in a position to move quickly if other opportunities arise. That has a value too.

I know you wanted a straight answer but really all this comes back to questions you can only answer yourself.

-Rd

Nothing is impossible. A remarkable performance to be proud of here
bovale.com/past.html

Thanks to all who replied. I might not have obtained a definitive answer but certainly some good advice.

I am worried about the CGT aspect but I suppose since we did not move out of the house until March then I really only have to worry if we rent beyond next March? Ie that first 12 months I can ignore?
For what it is worth my accountant is with a fairly big and reputable firm and I would have thought he knew his stuff but I will query this with him again.

Daltonr- thanks for summarising the position for me. It helps to clarify things. And Septic Crank- thanks also for showing me another possibility which in my naivity was bypassing me.

As for the French property I would prefer to hang on to this long term if possible. It is in a place that down the road I would consider retiring to. I note what has been said as regards investors from abroad making artificial highs but this area has little or no foreign investment, although it does attract Parisians so I would be hopeful that not too much of this artificial high here- or is that also naive?