Young Male seeking a loan

F

fondu

Guest
Hi All,

Age 21
I inherited money over the past 2 years.
I have 2 houses valued at around 400k total. Each earning 10k pa.
At the moment i have 125k in deposits.
I am starting a contract where i will earn around 23k for less than a years work. I wont be kept on after it but i will take it for the moment.
I intend to save around 40k for the next year bringing my total up to 165.
I live at home so cost is minimal plus there is 3 or 4k from work and letting that can cover me for a year.

I intend on buying a third rental property for around 200k..What are my chances of getting a loan of up to 50k to be repaid within 3-5years.
 
Sorry but your chances of getting a loan of 50,000 towards a third property without permanent employment are slim to none.

Besides, with 400,000 already invested in property, why would you want to borrow to increase your exposure to property? No asset class is a sure thing.
 
Contract making 23k a year, and you intend on saving 40k in a year? Do you own the two houses outright?
Even still on a max income of 43k, saving 40k doesn't add up.

Still, as Liam says, diversify out of property. Out of Ireland would be even better with the amount of net worth you have.
 
I own the houses outright..
My earnings for this coming year will be 45,100
I forgot to deduct taxes so id say ill be able to save about 30k instead
 
I live in my parents houses so costs are very low. I dont pay any rent or money for food, bar when i go out.

Do you think if i used one of the houses as a guarantee, they would be more inclined to offer the loan?
 
They may use the unencumbered properties as collateral, but I think this practice has mostly stopped. Minimum mortgage amount is usually 50k as well. Suggestions from other threads are to ask at least 50k, or sometimes more, then just immediately pay off whatever amount to bring it down to what you intended on borrowing.

Biggest thing they will look for is a savings record. If you can show consistent savings over the last 12 months not including inheritance they'll possibly consider it. However they will definitely look at sources of income. It is currently very difficult and expensive to repossess a house in Ireland, and the banks just don't want to do. For that reason, they are unlikely to look at the second house as a way to pay of the load.
 
You are in a very fortunate position, although I realise only through unfortunate circumstances. You are very young, invest some of your wealth in independence. Be it education, travel, setting up a business, moving out and housesharing either in one of your houses or somewhere else. Don't forget to spend some on hedonistic pleasures. Therein lies memories of the early 20s. You have your head screwed on, I'm sure you wont be silly, but money is for spending and living too.

No point being asset rich in the bedroom of your parent's house.
 
Where are the current houses located and what type or condition are they in? They are only earning a gross rental yield of 5% before tax and maintenance. If the "value" estimate is indeed correct, it might be worth investing some of your surplus in maintenance and upgrade of the houses to get that yield up a bit.
 
I agree with the last post by Spear.

fondu, have you looked at the real value of your return on equity after you take into account the time spent, other costs involved including any maintenance or repair costs or the fact that you have to pay tax on the rental income.

It seems to me that 5% gross return for the effort involved is poor to none. Could you do better if the properties were sold and the proceeds invested safe and secure without volatility

It seems to me that 5% gross return for the effort involved is poor to none.

If you are working - ask yourself - can you truly be the landlord dealing with all or any of the issues on the current properties?

Although holding onto the two properties should give you a nice capital gain should the housing market ever turn around - or maybe it will keep on sinking lower, thus reducing your capital valuation.

On the basis of your OP and that you can show 100% that you own the current two properties outright (no partners or co-owners), then simply get a written valuation on the properties, draw up a small business plan, a one-two pager showing capital equity that you have (houses plus anything else), income and expenses. Add to that that you are employed (even on a contract) show this income and any copies of cashed cheques. Have all the paperwork back up to show what you have put in the statement of equity, liabilities, income, expenses and cash flow.

The result should be positive equity and cash flow that a bank manger will understand that you are easily able to pay a 50k loan.

I would suggest that you go to at least three banks or a mortgage broker with this info and ask them for a home loan using the properties as equity plus how you have income from employment as well as the houses and what you will be doing with the money.

On the basis the 125k mentioned in your OP is still available to use as payment towards to new purchase, what is your real ability without working to be able to service (pay the total interest) on the debt without having to worry also that any of the income stream will not change ever. A lender will want your answer to this question

Try to look at your question as though you are the person handing over 50k to someone else - would you feel safe and secure that the 50k + interest is going to be paid back to you.

In a perfect world where nothing goes off the rails your expectations maybe OK, however think about 'what-if' any of the properties are vacant, or are not paying rent. Will there be any costly major repairs, roofs, plumbing, electrical etc which can happen - even if you are unemployed ... will this effect your ability to pay the loans?

Without working you have mentioned in your OP the real gross income is only 20k/year - less property expenses, personal expenses, living costs and going out - you are probably close to 10k -12k net income. Can that pay back the loan, with out considering any net income from the third property?

Last point - is there a family member or anyone else that would co-sign the 50k loan?

Good luck to you
 
Why not, you are earning good wages shouldn't you be contributing something to your parents?

My parents are fine with me staying with them and they would prefer if i used my money for a long term investment rather than give them money every month..
 
Where are the current houses located and what type or condition are they in? They are only earning a gross rental yield of 5% before tax and maintenance. If the "value" estimate is indeed correct, it might be worth investing some of your surplus in maintenance and upgrade of the houses to get that yield up a bit.

I have recently invested a substantial amount in upgrading one of the houses. The other house was built in the past 15 years and was upgraded about 5 years ago so both houses are modern.
 
I agree with the last post by Spear.

fondu, have you looked at the real value of your return on equity after you take into account the time spent, other costs involved including any maintenance or repair costs or the fact that you have to pay tax on the rental income.

1)It seems to me that 5% gross return for the effort involved is poor to none. Could you do better if the properties were sold and the proceeds invested safe and secure without volatility

It seems to me that 5% gross return for the effort involved is poor to none.

If you are working - ask yourself - can you truly be the landlord dealing with all or any of the issues on the current properties?

2)Although holding onto the two properties should give you a nice capital gain should the housing market ever turn around - or maybe it will keep on sinking lower, thus reducing your capital valuation.

3)On the basis of your OP and that you can show 100% that you own the current two properties outright (no partners or co-owners), then simply get a written valuation on the properties, draw up a small business plan, a one-two pager showing capital equity that you have (houses plus anything else), income and expenses. Add to that that you are employed (even on a contract) show this income and any copies of cashed cheques. Have all the paperwork back up to show what you have put in the statement of equity, liabilities, income, expenses and cash flow.

The result should be positive equity and cash flow that a bank manger will understand that you are easily able to pay a 50k loan.

4)I would suggest that you go to at least three banks or a mortgage broker with this info and ask them for a home loan using the properties as equity plus how you have income from employment as well as the houses and what you will be doing with the money.

5)On the basis the 125k mentioned in your OP is still available to use as payment towards to new purchase, what is your real ability without working to be able to service (pay the total interest) on the debt without having to worry also that any of the income stream will not change ever. A lender will want your answer to this question

Try to look at your question as though you are the person handing over 50k to someone else - would you feel safe and secure that the 50k + interest is going to be paid back to you.

6)In a perfect world where nothing goes off the rails your expectations maybe OK, however think about 'what-if' any of the properties are vacant, or are not paying rent. Will there be any costly major repairs, roofs, plumbing, electrical etc which can happen - even if you are unemployed ... will this effect your ability to pay the loans?

7)Without working you have mentioned in your OP the real gross income is only 20k/year - less property expenses, personal expenses, living costs and going out - you are probably close to 10k -12k net income. Can that pay back the loan, with out considering any net income from the third property?

8)Last point - is there a family member or anyone else that would co-sign the 50k loan?

Good luck to you

1)For me this is a long term investment in which i dont intend to sell for at least 10 years. The houses i have in mind are in a good location in which all of the houses are built in the past 20 years. The amount of work will hopefully be little to none bar setting up new tenants etc.

2) I intend to hold onto all of the properties for a number of years so current house prices although important, do not impact me in the short term.

3) Yes i can show them copies of the deeds of the house, My credit card history is perfect and have always paid on time, i have monthly bills such as billpay,upc and o2 coming out of my account for a few years now as well. So hopefully these will help to show them that i have the ability to repay loans.

4)What banks would you recommend, Since i have just graduated from college, banks will start charging me fees. I have decided to open a step account with ulster for this coming years income( i have already been with them for 4 years however the account only had a few thousand and i used my credit card with them.) Does anyone know if Ulster are good at giving out loans?

5) This time next year i should have around 160k to purchase a new property. I intend on using most if not all my earning on paying back the loan. I will be looking for a loan that allows me pay back surplus amounts every month without getting fined. One of the houses have have had the same tenant for the past 2.5yrs, and the other has just received a new tenant. I hope the third house will have the same luck as the houses have never been vacant for more than a month.

6) The "what if" factor is hard to determine, yes the above events can happen but thats life, everyones plans can change. Yes if tenants stop paying rent that will impact my payments however i think i will be paying a modest amount of what i will be earning.I think 20k pa would be fair leaving the rest as backup incase of problems such as these arise.

7)When i will be applying for the loan, i will not have a job, my money is tied up in a deposit account until next summer and at that stage i will have left the job.I hope this will not affect my mortgage approval. I want to take out a loan for 5 years and intend on using all of the rental income from all 3 properties to pay for it.Even using 2 of the properties over 5 years should be close to paying for the loan.

8)I would prefer not to ask any of my family members as this is something i want to do on my own. I would also prefer for my business affairs to be kept private rather that extended family or friends finding out about it.
 
Since time appears to be on your side - my suggestion to you based on your last post and given the state of the economy/Euro - is to wait out the next 12 months purely on the basis that you'll have more money from earned income and that you'll have time to further search for properties which you could probably pay 160k cash for (125k from savings + 35k+ from other)

It does appear it will continue to be a buyers market for the not to distant future, or does it?

That said, 12 months from now you may also find yourself another job, hopefully you wont be sitting idle or still living at home on 30k of income from three rental properties.

That is all that I can add - I'll come back and look at this post 12 months from now.

Good luck to you
 
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