# Buying 2 houses simultaneously...interest only



## investor100 (13 Mar 2005)

Hi
I have the opportunity of purchasing 2 houses in a large town down the country. I have actually paid booking deposits and am now getting nervous. Would appreciate some opinions.
The location is good...not far from hospital and close to town centre. The 2 houses are in the same estate and about 40% of the houses there are let. I have made independent enquiries and they appear easy to let. I also placed an ad on daft and received a reply within 24 hrs expressing interest.
I viewed about 6 houses in total and one was of immediate interest... it was in showhouse condition, a garden twice the size of the others and many extras incl nicer fireplace,wooden floors and higher spec kitchen. Cost E175,000.
Then another was of interest to me. Not in as good condition but with sitting tenants who have told the owner they want to stay. They are paying E635 pcm which is the going rate. I met one of them and she told me they were keen to stay and happy to sign a new lease for a year. Landlord reports they are excellent tenants and keep the place very well which they do. The house was very clean and I noted that for example they only smoked outside etc.
Cost incl all contents E175,000 also.
I earn E100,000 per annum and already have an investment property with a mortgage provider who have agreed to provide 100% finance(int only) on the 2 houses based on 75% on the houses and the other 25% on my current investment
property. There should be E200 left over on each property after the mortgage(rate 3%).
Of note...there are at least 2 properties for sale in the same estate with bigger price tags. One is at E180,000 and another at E185,000. Then there are about 4 for sale priced at E175,000 also.
My questions are
1) I know I'm taking a risk...increase in int rates/not being able to let etc but overall do you think this is worth a shot at. The first house is in better condition than the one priced at E10,000 more as I viewed that too. The second requires no fit out and has good tenants in situ.
2) Will I be able to offset the 25% being placed on my current investment property as an allowable expense on the new properties as it was borrowed purely to finance the purchases?
Many thanks
Apprehensive investor100


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## rainyday (13 Mar 2005)

Have you considered non-property investments for some diversification? Have a read of the Guide before doing anything.


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## ninsaga (13 Mar 2005)

*the future*

" The 2 houses are in the same estate and about 40% of the houses there are let. "..........

have you considered the fact that in many years to come, like minded investors such as yourself wil be looking to offload these properties which may prove somewhat difficult.

ninsaga


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## ClubMan (13 Mar 2005)

*Re: the future*

Have you run the numbers (e.g. conservative estimates of all costs, rental income, tax, occupancy rates, capital growth etc.) to assess the viability of this plan?


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## investor100 (13 Mar 2005)

*Re: the future*

Thanks for replies.
Costs involved are E5,000 stamp duty on each house. Local solicitor will do each house for E850 plus usual extras.E4,000 to fit out first house. Zero to fit out second.
Occupancy is never guaranteed anywhere. I realise this isn't without risks. Thats why I'm apprehensive. However I am a risk taker. I have a lot of equity in my investment property and ppr bought in 1998. My income is reasonably strong luckily enough and if both houses were unlet for 6 months I could afford to pay the interest only mortgages.
Assuming property rises of 5% per annum for the next 5 years the 2 properties should increase in value from E350,000 to E437,000 which is a net increase of E87,000. Assuming 75% occupancy over the same period my profit after mortgage payments should be E18,000.
Yes I realise interest rates may rise and property may fall in value rather than rise. Equally rents may be higher in a few years and property MAY rise at a rate considerably in excess of 5%(for example rises of 8% would result in a capital appreciation of E140,000 in 5 years rather than E87,000).
I can write off fit out expenses , mortgage interest and maintenance against tax and when I sell stamp duty and legal fees can be written off against capital gains. 
I also feel that the cost of these houses will always make them attractive to other investors and first time buyers. There are starter 3 bed semis in the same town costing E40,000 more than these.
I realise there are risks and don't mind taking one. I would just like to know if anyone out there feels there is someting I haven't spotted and that the risk is in fact much greater.
investor100


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## rainyday (14 Mar 2005)

*Re: the future*

Have you run the numbers on the yields that this investment will give you?


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## investor100 (14 Mar 2005)

*Re: the future*

hi rainyday. Yield is 4.5 %


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## rainyday (14 Mar 2005)

*Re: the future*

So is it worth the risk/hassle/time for 2% above the deposit return rate? Or for about 1% above the dividend yield that you'll get from BOI shares? BOI won't ring you late on a Friday night to get you to fix the blocked toilet!


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## investor100 (14 Mar 2005)

*Re: the future*

Thanks for ur interest rainy. However I disagree strongly with you. I said I was willing to take a calculated risk. If it pays off I could be better off to the tune of E100,000 in 5 years assuming very modest property rises(which  isnt a guarantee).
For this my initial outlay would have been E18,000 as I am getting 100% finance. Can you tell me how much money I would need to place on deposit now in order to earn E100,000  in profit in 5 years.


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## rainyday (14 Mar 2005)

*Re: the future*

If you had invested your €18k in Anglo Irish Bank five years ago, it would be worth €180k today - see their 5 year performance chart. Leaves your mere 500% return in the shade, and no hassle with tenants or solicitors or plumbers to worry about!


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## investor100 (14 Mar 2005)

*Re: the future*

Take your point rainyday. However I think that this performance isn't typical. And as we have seen with Elan the price of shares can be very volatile. People will always need a roof over their heads. If I invested E18,000 in Bank of Irelnad 5 years ago what would they be worth now? Hom much would I have earned in dividends?
By the way rainy do you know the answer to one of my original questions...i'm raising 25% on another investment property. Can I still write that off for taxation purposes on the new property?


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## Tommy (14 Mar 2005)

*Re: the future*



> I said I was willing to take a calculated risk. ...For this my initial outlay would have been E18,000



Although you may have only €18,000 at present, your initial outlay on this proposal isn't this sum but the actual amount you are to commit to the investment, approx €350k plus stamp duty.  By borrowing to finance a €350k investment you are exposing yourself to a (theoretical) €350k risk - not an €18k risk.  €350k is the sum that (along with interest) will have to be repaid to the bank and to yourself in order to achieve any net payback on the investment.


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## rose (14 Mar 2005)

*the future*

Have a look at this!

[broken link removed]


www.finfacts.com/Private/...reland.htm


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## investor100 (14 Mar 2005)

*.*

Fair point Tommy. 
Reading my initial entry what's your own gut instinct to my project?
Do you think I'm mad taking such a risk? Have talked to a couple of mates who have told me it's something they would love to try but aren't brave enough(or maybe stupid enough!)


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## Tommy (14 Mar 2005)

*Re: .*

Hi investor100

I make a point of NEVER advising anyone (formally or informally) as to whether or not they should invest in property. That is a decision for themselves to make. Unfortunately I don't have a crystal ball!


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## poundmasters (15 Mar 2005)

Hi There investor100,
Your plan sounds fairly good to me. I would be interested to know who does your mortgage.Sound like a good package.
Thanks
poundmaster


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## rainyday (15 Mar 2005)

Hi Investor - Yes, I'm aware that I was being highly selective in choosing Anglo-Irish Bank (though note that I didn't include any dividend income in my calculations. For the record, BOI shares would give you approx a 100% return in terms of capital gain (ignoring the steady dividends) over the same 5 year period.

But aren't you being just as selective as me in choosing two houses in one estate in your locality? Who's to say that the estate will be representative of property prices as a whole? And couldn't I validly twist your argument that 'people will always need a roof over their heads' to read 'people will always need a current account' or 'people will always need cheap flights to Europe' to justify an investment in shares.

You seem to have an inherent preference for property investment. That of course is your entitlement. But let's not kid ourselves that there is any financial or economic analysis that supports this investment. 

I hope it works out well for you.


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## investor100 (15 Mar 2005)

Point taken rainy. However it is true that people do always need a roof over their head even when they have no money to put into a current account or to head on a stag to prague. 
However as I said in my initial entry I didn't plan on buying 2 houses. I viewed a number last week and came accross,

1) a house I estimate is almost E10,000 undervalued. I was the first and only to view and arranged a quick deal. 

2) a house in quite reasonable condition available with entire contents and tenants happy to continue renting and willing to sign a lease(which I hope to organise prior to signing contract). The fact that they are staying on means I save E4,000 at least for the moment in furnishing it.

I have to say I'm surprised that there has only been one positive comment about my project. Feckin hell lads ye're a negative lot. Where are all the risk takers?!

Thank you for your good wishes anyway rainy and if you like I am happy to keep you informed of progress down the line.


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## rainyday (15 Mar 2005)

> if you like I am happy to keep you informed of progress down the line.


Please do - it's always good to get real case histories. Forget to mention that I couldn't answer your other specific question as it goes beyond my personal expertise.


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## dubinamerica (15 Mar 2005)

Do you own a section 23 property ?  If you have multiple properties it would make sense to purchase section 23 so that you could get the break on rental income.  Regarding buying two houses in the same estate I would think it's a higher risk than buying two houses in separate estates/town/counties as you going to be sortof competing against yourself for tenants. Of course no-one knows  - you could end up tapping into a great market . Would you be able to move ahead and buy one property now and sortof stall the purchase of the other for some amount of time ? That way you could test the waters out.  I wouldn't go by what the tenants in one of the properties say - they could be friends/relative of the current landlord.   Good luck in whatever you end up doing !


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## rtod (15 Mar 2005)

*re: buying houses...*

one final thought, have you factored in the probability that the government will bring in a non-ppr tax, or even scrap mortgage interest relief(did this in the uk over 2 yrs, 100% yr1, 50% yr2, 0% yr 3) and the extra amount of 42% income tax liable?.


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## EAMONN66 (15 Mar 2005)

> I have to say I'm surprised that there has only been one positive comment about my project. Feckin hell lads ye're a negative lot. Where are all the risk takers?!



i think your project is a good idea. given your non-rental income, i dont think there is any real risk. apart from that you have  relatively low purchase prices , low stamp duty , an existing tenant and you also have the tax angle covered as well as possible with the 100% mortgage. 

ive noticed recently that practically every request for advice on this forum receives loads of replies of the"balanced portfoilo" or  "why dont you invest in equities instead" variety. although these are no doubt well intentioned, it is becoming a little tiresome. if people wanted general advice about investing , they would specifically ask or post elsewhere.


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## Tommy (15 Mar 2005)

> ive noticed recently that practically every request for advice on this forum receives loads of replies of the"balanced portfoilo" or "why dont you invest in equities instead" variety.


Has this anything to do with the fact that comparitively few people ever bother to reply to queries? If more people did bother surely we would all enjoy a greater variety of replies.



> although these are no doubt well intentioned, it is becoming a little tiresome.


Speaking for myself here, when I reply to a query I am simply stating my personal opinion. I am not an entertainer. Nor do I see any point in taking a particular stand simply to be provocative/ interesting/ postive/ negative/ popular/ controversial etc. 

If you find AAM tiresome, then perhaps you should look for amusement elsewhere


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## ClubMan (15 Mar 2005)

I've said it before but it looks like I need to say it again - in general the most prudent course of action for most people is to build a well balanced portfolio of investments/savings catering towards their short, medium and long term needs and comprising a mix of investments with different risk/reward profiles. In the absence of detailed personal information justifying an alternative strategy (as is the case with many queries posted here where only partial information is provided) this general rule of thumb approach to investment must be restated because many people are obviously not aware of it. Obviously those with special needs/circumstances may find a different (e.g. less or more "risky") strategy appropriate to their specific circumstances. Unfortunately the generally accepted prudent course of action applicable in many cases is not at all sexy, exciting or ground breaking. This does not make it any less pertinent. I would echo most of _Tommy's_ sentiments above. As some football manager or other once said when his team was criticised for not playing entertaining football: _"If you want entertainment, go see the clowns"._


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## EAMONN66 (15 Mar 2005)

who said anything about entertainment or amusement. 
my criticism was directed at a particular repetitive theme on this forum alone which i think is counter to the the forums very subject. i was not referring to your posts, tommy.
i also did not say that i found AAM tiresome.

i for one, do attempt to reply to queries as constructively and as relevantly as my limited experiences allow.

clubman, if you went into a garage to buy a new car , would you appreciate a lecture on how much better off you'd be with a bike.


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## ClubMan (15 Mar 2005)

*Re:  Re: Buying 2 houses simultaneously...interest only*

*clubman, if you went into a garage to buy a new car , would you appreciate a lecture on how much better off you'd be with a bike.*

Where did anybody do the equivalent of this in this specific topic? In fact, where has anybody at all "lectured" contributors on any topic? Drawing a parallel between making major financial investments and buying cars is trite and pointless in my opinion. Remember that people choose to post here of their own volition in order to get feedback. If some of that feedback toes the "prudential line" and challenges the opinions of those looking for more racy strategies then so be it. I certainly make no apologies for that. People who seek feedback are free to disregard the opinions voiced by me or anybody else if they like and pursue a less prudential approach to investing if they so choose and/or decide that this is more appropriate for their specific circumstances. However to suggest that somebody who reprises the prudential line is lecturing or is being somehow "negative" is ridiculous. While many of us may be well aware that building a mixed/balanced portfolio is a generally accepted prudent approach applicable in many situations, there are obviously others who do not judging by many of the contributions over the years. Those who don't like being reminded of the prudential approach to investing are free to skip over such contributions and ignore them.


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## EAMONN66 (15 Mar 2005)

*Re:  Re: Buying 2 houses simultaneously...interest only*

I actually agree with your advice.  Why not put it in key posts. it would certainly save you a lot of typing.


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## ClubMan (15 Mar 2005)

*Re:  Re: Buying 2 houses simultaneously...interest only*

I think that more or less the same message is encapsulated in other places like the AAM Guide to Savings & Investment but it's often the case that when one links to resources such as this people don't bother reading them whereas they will read direct contributions to "their" topic. On the other hand, you are correct, maybe I should look at reducing my typing burden.


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## investor100 (16 Mar 2005)

*interest only*

Thanks Eamonn for your positive comments. It's reassuring that an objective observer sees merit in my plan. It's the opposite to the earlier response that my exposure is really E350,000 plus stamp duty as that is the amt that will be owed to the banks. Somehow I can't see any bursting bubble reduce the price of my house from E175,000 to E0. Ok if property prices fall 20% thats 34 grand.It's a risk I feel is worth taking because I've been listening to stories about the property bubble since I bought my first house on a cold winter's day in Feb 1998.
I do find that the contributors have been very guarded and cautious but I guess I can see where they're coming from. However I guess I'm a kind of guy who likes to take a little risk. We'll all be dead long enough lads.
investor100


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## Tommy (16 Mar 2005)

*Re: interest only*



> It's the opposite to the earlier response that my exposure is really E350,000 plus stamp duty as that is the amt that will be owed to the banks.



This is an amazing statement. I NEVER said that your "exposure" was €350K.

I DID say the following, in response to your statement that "For this my initial outlay would have been E18,000 as I am getting 100% finance."



> Although you may have only €18,000 at present, your initial outlay on this proposal isn't this sum but the actual amount you are to commit to the investment, approx €350k plus stamp duty. By borrowing to finance a €350k investment you are exposing yourself to a (theoretical) €350k risk - not an €18k risk.



You replied


> Fair point Tommy.



From my viewpoint, It's more than a little offputting to see you at this stage attempting to twist around what I said to mean something quite ludicrous that I neither said nor meant to say...


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## investor100 (16 Mar 2005)

*Re: interest only*

I apologise if I've annoyed you Tommy. It wasn't intended. 
I understand that as you say I'm 'exposing myself to a theoretical' risk of E350,000. And therefore it is a fair point. However the point I was trying to make was that in reality the total theoretical risk/exposure is unlikely to become a reality no matter how bad things go. Do you understand what I mean?


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## carriglee (16 Mar 2005)

*Re: interest only*

Hi Investor100

I would have to say that if you're looking for feedback then I would agree with most of the other posts re. balanced portfolios, exposure, etc. and so won't reiterate their points. 

I had a quick look at the figures for the 175,000 euro property generating a rent of 625 euro pm.  Back of the envelope stuff says that the yield is about 4.3% gross, which is not bad by current Irish residential standards.  However, when you take loans and expenses into account, I have a feeling that you slip into negative cash flows (possibly even with an interest only mortgage).  Therefore, your investments will be cash suckers.  This investment strategy may be suitable for certain types of individuals but not others.  For example, age profile is important.  If you're nearing retirement age do you really want to subsidise your assets into retirement?  Many people wouldn't or indeed couldn't afford to due to the recent performance of pensions.  Secondly, if you're not near retirement but may wish to ease off on work to spend more time with family, looking after parents, travelling, leisure, etc. then this type of strategy may make such lifestyle decisions more difficult or indeed impossible.  Thirdly, there is a risk from one's lifestyle and investments being dependent on a single income stream.  Such a strategy is sometimes compared to the castle made from stacked cards i.e. if the base goes then so does everything above it.  However, the positive note is that it can suit some younger investors who have a strong (and fairly guaranteed) income stream in a stable property market.  Realisation of profits will be based on cashing in (or refinancing) capital gains.  For myself, I'm an advocate of the property market but would rather see assets financing themselves and therefore I find the yields a bit too low.  I would bracket anything else as speculation and would restrict the amount of money in this pot.  All in all, it is extremely difficult to give balanced advice without knowing your situation in detail.  Perhaps, an independent legal advisor could assist.  

Regards,
Paidi


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## Tommy (16 Mar 2005)

*Re: interest only*

Hi investor100

Thanks for your kind feedback. I hope I didn't over-react to your original post.

My point wasn't that you were ever going to be exposed to a real or theoretical risk of €350k, but that €350k (not €18k) is your initial outlay and the benchmark by which you should evaluate the investment.

In evaluating the eventual performance on your investment, it is much more meaningful to measure your gain/loss by reference to the total capital investment than to your original seed capital.

For example if the properties' value increase by 5% overnight your gain is approx €17k. In other words your original investment of €18k has almost doubled. However this is only relevant if you realise your gain by selling the assets at that point. If the opposite happened and the assets fell by 5% overnight, it would be meaningless to say that you have lost all your original investment - unless of course you were forced to sell just at that point. The reality, in that scenario, would be that you would still own assets worth €332K and would stand to benefit accordingly by future increases in value from that point on.


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