Am I Crazy buying house with cash with mortgaged property

[cee_the_atheist]

Hi

So context here . Im 26 Y/O earnig around 75k annually and I bought a house last year worth 215k and have a 185 k mortgage on it

Currently im using the rent a room scheme rentig 2 rooms covering my mortgage payments of 1250 for a 15year mortgage . So essentially living mortgage/rent free

So essentially able to save around 2-2.5 k a month and have 73k in savings currenlty ( Most of it invested in Vangaurd fund )

Here is my idea and 2 options

Option 1 Im thinking of trying to save around 120-130 k ( should take 2 years im guessing ) and buy a doer upper house in the south east with cash and tip away at it myself as i know alot of tradesman. Then i can keep renting my house atm

Option 2 Overpay my mortgage every year an have it cleared in 2-3 years?

I prefer option 1 as its more exciting and ill have 2 assets and essentially own my house with cash that i can do my own work on and then have the rented property

But i know option 2 will be alot less stressfull but i find boring and i like the idea of buying a house with cash and if anything happened and i wanted to move abroad could just sell my mortgaged house or keep renting it ( I know there will be tax implications)

 

[blessbrenda]

@cee_the_atheist If youre covering your mortgage repayments of €1250 per month from Rent A Room Relief then you are making €15000 a year and the whole amount should be taxed at your marginal rate.

If you take a cent above 14k everything is taxed.

 

[blessbrenda]

On the topic of clearing your mortgage early vs buying a 2nd property. The interest savings on paying off your mortgage that much quicker would likely far outweigh the investment potential of a second property in the short term. Why not pay off the mortgage, and then use that additional €1250 per month to save up for the second property even quicker?

 

[cee_the_atheist]

@blessbrenda No im charging 600 for double and 500 for single room so covers 90 % of it

 

[megj]

@cee_the_atheist Personally, I’d overpay the mortgage, the psychological benefits of knowing you don’t owe the banks anything would be worth it’s weight in gold to me. Having a house paid off by your early thirties is a dream for most.

 

[james343]

@cee_the_atheist Fair play

 

[echodreamer]

@cee_the_atheist I’d clear the mortgage first and then buy the house. You’ll end up having option 1 and 2 done in 5 years and then the rent from the Rent a Room will pay for the renovations of the new house. Also, you are over the threshold for the rent a room. Might want to watch that.

 

[cee_the_atheist]

@echodreamer

he mortgage, the psychological benefits of knowing you don’t owe the banks anything would be worth it’s weight in gold to me. Having a house paid off by your early thirties is a dream for most.

Surely my savings would be wiped out if i payed the mortgage early? and take me ages to save back up

 

[eveandrews]

@cee_the_atheist if you can save 130k in 2 years then wipe out your savings, you'll save in interest and very quickly be able to have enough to invest again. you're going to pay more mortgage interest in the next 5 years then you can probably gain by investing and being taxed on those investments

 

[echodreamer]

@cee_the_atheist You said that you could save €120-€130k in 2 years. So based on that it would take you 3 years to save the price of the fixer upper. So for the next 2-3 years you overpay the mortgage and then for the 3 years after that you save for the fixer upper. 5-6 years and you’ve got both options.

 

[cee_the_atheist]

@echodreamer No I could get my savings to that in 2 years as i currently have 72k. so 70 plus the 60 in 2 years . But ye i get you

 

[eveandrews]

@cee_the_atheist that makes more sense, still though I'd reccomend paying down the mortgage, start paying into your pension and leave property/other investments as a lower priority over those because the last option is taxed to bits and higher risk

 

[adriennesays]

@cee_the_atheist Get another mortgage in a few years time when rates and normalised

 

[starofthe_0cean]

@cee_the_atheist What’s your interest rate on your mortgage and is it fixed? If it’s variable pay it off. If it’s low and fixed, keep your savings in VG

 

[cee_the_atheist]

@starofthe_0cean its 3% and its fixed for another 4.5 years . I have been told by everyone here to pay the 70 k off it ? im torn now. I think if i can reduce the term ill probably pay the lump sum off

 

[starofthe_0cean]

@cee_the_atheist I mean most people are risk adverse. If you have a steady job and are confident it’s fairly recession proof I’d keep investing. You have a nice low rate compared to what people will be borrowing at now and in the future

 

[resjudicata]

@cee_the_atheist Here's how I'd approach this.

1. Write down each scenario and add the constraints e.g. if you invest what would be the conservative interest? What would be the tax? Inflation? If you're on a variable mortgage what would be the mortgage rate increase?
2. Fire open excel/Google spreadsheet, open calculator.net and work out the scenarios in terms of monetary difference.
3. Factor in how risky each scenario is and how you feel about it.

For example, if inflation is at 3% and you make a conservative 5% interest in investments then paying down a 3.8% mortgage with signs of rising might be less risky and better long term.

Also consider your age. Would you have the time/energy in 5 years to do a fixer upper?

 

[fellipe]

@cee_the_atheist Smart move is Option 2 but Option 1 is probably long term a better play BUT Pharma Sales is not as stable as it might seem.

 

[cee_the_atheist]

@fellipe Oh i agree not stabe at all as especially as im in a small company 80-100 employees . But ill always find work in the area as its great margins and lots of companies looking for skills adn knowledge in biochemistry and also sales

 

[everydaylily]

@cee_the_atheist Can i ask what do you do that pays £70k+ at age 26?