# The BIG question: Sell or remortgage?



## z106 (11 Jul 2007)

Ok people.

I think someone should  buy as much property as is possible and let it grow !!(Assming you buy in a location where renting is not an issue)

Or should they sell ?

Some people believe in selling at ceratin times.
Personally I advocate to NEVER sell !!

So - generally,do people think u should sell at some times?
(I think it's ok to sell sometimes but very rarely)

How do people generally approacxh their portfolio ?


----------



## ClubMan (11 Jul 2007)

qwertyuiop said:


> I think someone should  buy as much property as is possible and let it grow !!(Assming you buy in a location where renting is not an issue)
> 
> Or should they sell ?


Eh? So you don't know if you think that people should buy as much property as is possible?

There are inherent risks involved with concentrating most or all of your wealth in a single asset class/geographic region/risk reward profile that can be mitigated by diversifying across a range of same.


> Some people believe in selling at ceratin times.
> Personally I advocate to NEVER sell !!
> 
> So - generally,do people think u should sell at some times?
> ...


 Not by sticking all the eggs in one basket anyway.

I don't really understand your points about lumping everything into property and never selling.


----------



## z106 (12 Jul 2007)

Ok - i believe every 'blue chip' residentail property will always appreciate over time.
The reason I think that, is because inflation exists.
Obviosusly excessive inflation will result in high interest rates - but assuming healthy inflation then I reckon it's a no brainer.

When I say 'blue chip' I mean buying in an obvious rental area in a country with healty stable economy.(E.g.Canary wharf, London,Manahattan,New York etc.)
(Obviosuly no investment is guaranteed but if u wanna put the odds in ur favour then the above examples are reasoble enough in my book)

Like - lets face it - is property gona be more/less expensive in 10 years time in good locations? It's gonna be more.
My attitude is all about long term - but if u get enough of it in the short term (E.g. 10% off plans) then u can't lose as ait will accumulate to a lot over the long term.

So - my strategy is buy as much as u can get ur hands on as soon as possible in good location - in a variety of countries - then i think ur onto a good thing !

I really think u can't lose.And that is how I'm purchasing in the future


----------



## ClubMan (12 Jul 2007)

qwertyuiop said:


> a country with healty stable economy.(E.g. London,New York etc.)


Have you read about the _US _economy lately? 10% take up on the most recent T bill issue, housing market problems, extremely weak US$ etc.?


> Like - lets face it - is property gona be more/less expensive in 10 years time in good locations? It's gonna be more.
> My attitude is all about long term - but if u get enough of it short term (E.g. 10% off plans) then u can't lose.


 Yes - property prices in certain places never fall. 


> I really think u can't lose.And that is how I'm purchasing in the future


 Good luck - let us know how you get on.


----------



## z106 (12 Jul 2007)

And by they way - I should have also said - NEVR sell.
Always remortgage.

Why not sell ?

U ca always get pretty much the same amount by remortgaging (because it's net) and STILL maintain the appreciating asset (assuming it's blue chip) - FOREVER!!!
THat property will always make u money - EWvery year !

That's why when i watch 'property ladder' on tv i look at small developers selling the property that they develop for a ONCE OFF profit !
If they keep it, it will always raise on value over the long term.

If u ar involved in many (say 5) countries in blue chip properties then u will not lose - and properly make a fortune.


----------



## z106 (12 Jul 2007)

Clubman.

Historically property prices DON'T fall over the long term.(which u do seem to agree on to be fair)

By the way- if someone had a couple of apts. in the middle of big cities like Ny,london,Sydney,Paris etc. in the most central part of the cities whereby their mortgages were interst-only and the shortfall between their repayments and yields was minimal would u envy their position or fear their position?

Presoally I would envy it it big time.

a) Because their property over the long term will rise
b)they can always remortgage to reinvest



ClubMan said:


> Eh? So you don't know if you think that people should buy as much property as is possible?


By the way - I would have thought that the reference of the above quote would have been realised by most that I ws playing devils advocate.

See below


qwertyuiop said:


> Personally I advocate to NEVER sell !!


----------



## GeneralZod (12 Jul 2007)

qwertyuiop said:


> By the way- if someone had a couple of apts. in the middle of big cities like Ny,london,Sydney,Paris etc. in the most central part of the cities whereby their mortgages were interst-only and the shortfall between their repayments and yields was minimal would u envy their position or fear their position?
> 
> Presoally I would envy it it big time.
> 
> ...



Qwertyuiop, What if they're already stretched with the repayments for their dream collection of low yield apartments, interest rates are rising and the banks won't lend them any more money? Say even there's a downturn in the property market causing negative equity and they can no longer fund the repayments. How do they manage to effortlessly sail ever onwards and upwards?


----------



## MrMan (12 Jul 2007)

Its a bit idealistic to presume that good areas will always exist. the reason investors will often sell is to get out when they fell an area is close to saturation and invest in an area that is showing potential. Its not straightforward by any means. A prime area in Paris, London etc today may well be different in 10/20 years time, there are no assurances that any asset will remain 'blue chip'

Property is traditionally seen as a strong long term investment, but one cannot simply purchase and sit back in the knowledge that it will appreciate, global and local markets have to be monitored.


----------



## derryman (12 Jul 2007)

qwertyuiop said:


> Clubman.
> 
> Historically property prices DON'T fall over the long term.(which u do seem to agree on to be fair)


 
But they surely can (and surely will in the next few years) get the a$$ kicked out of them - something about an impending global credit crunch.


----------



## robd (12 Jul 2007)

qwertyuiop said:


> Historically property prices DON'T fall over the long term.(which u do seem to agree on to be fair)



There is a serious flaw in your thinking here.

Historically and long term, property prices track inflation.  More specifically they track wage inflation.   Property is a low yeilding asset class.  They are incapable of growing their income base in the same way that a company might.  Alarms should be going off when property prices  jump at double digit rates and yields drop well below cost of finance of circa 6%.

Property should be held as a long term hedge against inflation. Leaving speculative growth aside, long term growth in property yield and thus value can be achieved through investing in areas which are regenerating, thus attracting higher quality and income tenants be that residential or commerical. In regard to holding property for it's current income level, the most important thing is yield.  Yield needs to be in excess of cost of finance thus compounding the earnings versus finance costs.

The time to sell property and invest in a better asset classes is when returns drop well below the norm, finance costs are much higher and/or much better returns are to be had else where.

Over all time a basket of blue chip equities yields higher than blue chip property.  As I already said this is because of the companies ablity to grow their income through sales growth which is not available in property.

Of course a portfolio should contain both and the only question should be which to hold more of depending on the investment environment.


----------



## comesicomesa (12 Jul 2007)

How do you finance any shortfall in bank intrest repayments? Also how do you finance your day to day living expences? Do you have any method of using your increased equity in the property (or profit) without selling any of your portfolio? Essentially... how do you get liquidity from it?

Is this just a theory of yours or have you put it into property.

We can see historically, long term investment in property has proved your theory correct.


----------



## z106 (13 Jul 2007)

How do u get liquidity from it ?
You get liquidity from it by remortgaging.

It's more than just a theory - I have a number of blue chip residences (5)in 3 different cities. Dublin,London,new york.

That said - for me it's only at the beginning of the wole process (1st one bought 3 yeras ago). - So only time will tell.

As for the person who said  my logic is flawed by saying over the longterm property prices will rise,can you provide me with examples please.Japan does spring to mind,as does Berlin, but these are very much tehe exceptions and if u buy in a number of countries u spread that risk.
As I said - no investment is guaranteed but as risks go,property pretty much always increases in price over say,a 10 year period or more.

Also - remortgaging is tax free.

Also - as for the poster who said what happens if interest rates rise an the banks won't leave u remortgage and you the have to sell with possible negative equity?
Obviously this is the situation u wanna avoid. This is the risk involved. Faced with this is bad news.
But - if you buy in great locations you should always be able to rent it out at a premium - ALso perhaps go into fixed rate loans for the first few years. That way u know what your costs will be.

ANd yes - I do want to reiterate that I know there is risk.

But whar I am saying is that by using the above approach you minimise that risk abd greatly stack things in ur favour as much as possible.

AT least that's my tupence worth anyway. Eveybody has different strategys i suppose.


----------



## comesicomesa (13 Jul 2007)

Can you see it ever catching up on you? i.e. You're borrowing to fund interest payments and living expenses, that will only cover you to a point, after which you can't borrow any more, but you still have to pay live and pay interest.

Have you encountered this scenario so far? How will you address it if it happens.

If you don't mind could you explain your situation, roughly, to date. How did you start off with property 1? How did you move on to property 2... etc

Hope im not seeming nosey, I'm really interested in this plan.


----------



## z106 (13 Jul 2007)

comesicomesa said:


> Can you see it ever catching up on you? i.e. You're borrowing to fund interest payments and living expenses, that will only cover you to a point, after which you can't borrow any more, but you still have to pay live and pay interest.
> 
> 
> If you don't mind could you explain your situation, roughly, to date. How did you start off with property 1? How did you move on to property 2... etc


 
Yes - it may well catch up on me. That is the risk I am taking.
But as i said, I think the risk is minimal. Purely because they are in top locations across different countries.

Basically I was able to get a good gain on teh dublin properties - released equity from these - also claimed for the VAT refund as an investor on these - Also got a personal loan for €30k int. only day one to conribute towards the irish ones -  was also given some money from the folks (That started the whole ball rolling at teh beginning)

Refinanced to buy off plan in London and new york.
(Actually the deposit isn't paid overyet for NY but should be done v. soon)

SO basically I'm borrowed up to the gills.

And I'm assuming that they wll always be rented so over the long term should rise. That's teh hope !!
It's a gamble I'm prepared to take on.

I'll get back to yee in 5 years time to let yee know if i was right or wrong.


----------



## ClubMan (13 Jul 2007)

qwertyuiop said:


> But as i said, I think the risk is minimal. Purely because they are in top locations across different countries.


What about exchange rate risks?


----------



## robd (13 Jul 2007)

qwertyuiop said:


> How do u get liquidity from it ?
> You get liquidity from it by remortgaging.



This does not make any sense.  Liquidity is an economic measure of how easy it is to convert an asset to cash.  You are talking about extacting cash (not liquidity) through remortaging.  Property is highly illiquid as it is difficult to sell versus selling say equities by the click of a button or a phone call.



qwertyuiop said:


> It's more than just a theory - I have a number of blue chip residences (5)in 3 different cities. Dublin,London,new york.
> 
> That said - for me it's only at the beginning of the wole process (1st one bought 3 yeras ago). - So only time will tell.


 
The whole argument and discussion has definately fallen apart at this stage.  You have bought 5 properties overy the last 3 years at a time when interest rates have been increasing from a long term minimum.  You have thus paid a speculative premium for them.  The speculative premium you paid is much greater than the rent premium you will get.  New York and London are considered top places to own because of their significane as financials centers, Dublin is not.



qwertyuiop said:


> As for the person who said  my logic is flawed by saying over the longterm property prices will rise,can you provide me with examples please.Japan does spring to mind,as does Berlin, but these are very much tehe exceptions and if u buy in a number of countries u spread that risk.
> As I said - no investment is guaranteed but as risks go,property pretty much always increases in price over say,a 10 year period or more.



I said your logic was flawed because longterm property prices track wage inflation.  I did not say "longterm property prices will rise".  Maybe you meant "will not rise" which again I did not say.  Property is a low capital appreciation asset.



qwertyuiop said:


> Also - remortgaging is tax free.



I hear this all the time.  I think the banks must have started this one.Yes it's tax free, but you have to pay interest on the money you borrow through remortgaging (and in Ireland at least you can't write the extra borrowings off against interest unless you use it to buy another property).  Unless you're remortgaging to put into an asset class with higher returns and thus greatly compounding your gains this isn't an argument.  You're just substituting paying interest for paying tax.  See how much interest you'll pay over 30 years on 100k (versus 20% CGT in Ireland anyway).  See below for the risk side of this.

Also - as for the poster who said what happens if interest rates rise an the banks won't leave u remortgage and you the have to sell with possible negative equity?
Obviously this is the situation u wanna avoid. This is the risk involved. Faced with this is bad news.
But - if you buy in great locations you should always be able to rent it out at a premium - ALso perhaps go into fixed rate loans for the first few years. That way u know what your costs will be.

ANd yes - I do want to reiterate that I know there is risk.

But whar I am saying is that by using the above approach you minimise that risk abd greatly stack things in ur favour as much as possible.[/quote]

This is very very very false.  If you remortgage you are levereging.   Thus you are actually increasing your risk.  Leverging and putting money elsewhere does not change this, especially when you're putting that money into riskier assets.

Long term property has been considered a solid asset class with low gains.  Globally, property prices increased speculatively over a 10 year period as if they were commodoties or tech stocks.  Right now, this removes them from being a solid asset class and makes them the same as any other asset class.  They have the potential to drop considerably in price over coming years.

I don't think you will have built up much if any equity in the properties you talk about so I don't see how you can remortgage anyway.

I don't believe you would have posted here unless you were worried about the position you have built up.  You seem to be looking for confirmation that buying 5 residences in 3 different countries over a 3 year period was a great idea.  Your terminology and thinking indicates to me that you bought based on belief rather than fundamentals such as yield.  I think you have exposed yourself to considerably risk.  I fear for you and hope you have the cashflow to cover the shortfall between your mortgage repayments and the rental income these places generate.  Otherwise you are in serious trouble.

You've bought in 3 different cities.  While this reduces your risk from a localized price crash it adds to the costs of renting (as you can't do it yourself) and tax returns etc.  Dublin, London, New York.  You must have paid an absolute fortune for these places.

I'm afraid your theories are really just belief and not based on any kind of sound economic or investment principal.


----------



## z106 (13 Jul 2007)

ClubMan said:


> What about exchange rate risks?


 
Exchange risks are a factor - but if you are borrowing in the local currency then only the capital gain along with your initial deposit that is subject to exchange rates.
It's unavoidable - but at least it's not on the entire amount that is exposed.


----------



## bacchus (13 Jul 2007)

qwertyuiop said:


> By the way- if someone had a couple of apts. in the middle of big cities like Ny,london,Sydney,Paris etc. in the most central part of the cities whereby *their mortgages were interst-only* and the shortfall between their repayments and yields was minimal would u envy their position or fear their position?
> 
> Presoally I would envy it it big time.
> 
> ...


 
Don't need to build some equity to be able to remortgage?... Going interest-only means that you solely rely in capital apprecation. And the ride could be very long due to the slow cycle in property prices, e.g. decades..


----------



## z106 (13 Jul 2007)

Fair enough Robd
But there has been plenty of growth in dublin from 3 years ago - That's how I remortgaged.

And yes I am highly leveraged - which i accept is risk.
But nothing ventured nothing gained.

Howver - I agree with you that in the future it will probably rise along with inflation at most. (See my original post)
But if you're getting 4%-5% of a large asset base then that's good enough fro me.

And as for remortgaging having an interest charge - of course it does.
However - that way you keep an appreciating asset over the long term.
ANd if you invest the remortagge anmount wisely it should more than pay for any interest charges incurred.


----------



## ClubMan (13 Jul 2007)

The whole avoid tax and never sell stuff sounds suspiciously like Rich Dad, Poor Dad stuff or one of the many other get rich quick(ish) strategies. Good luck if it works for you but I would be skeptical about the general usefulness of those sort of schemes.


----------



## z106 (13 Jul 2007)

Yes - it does sound liek his book alright.

However - it is NOT a get rich quick scheme.
It's more of a get rich slow scheme - which over time would grow exponentially.


----------



## ClubMan (13 Jul 2007)

So you are a _Rich Dad, Poor Dad _follower then?


----------



## robd (13 Jul 2007)

qwertyuiop said:


> Yes - it does sound liek his book alright.
> 
> However - it is NOT a get rich quick scheme.
> It's more of a get rich slow scheme - which over time would grow exponentially.



Buying 5 properties in 3 years in London, Dublin and New York is not a get rich slow scheme.  It ticks all the boxes of a get rich quick scheme.  Unfortunately, you're about 5 years to late.

Have you attended any property investment seminars?


----------



## z106 (13 Jul 2007)

No - I have not attended any seminars.
ANd no - I'm not a rich dad disciple.
I did read the book once many moons ago and only have a vague recollection of what his points were.

And in this climate it is a get rich slow scheme.

As I say - point me out a ten year period in history where nominal prices were less at the end of the 10 year period than they were at the beginning ?
ANd it is that fact alone which makes me think it's worth the gamble.


----------



## robd (13 Jul 2007)

qwertyuiop said:


> As I say - point me out a ten year period in history where nominal prices were less at the end of the 10 year period than they were at the beginning ?
> ANd it is that fact alone which makes me think it's worth the gamble.



You completely fail to understand what I have said again and again.  Will a bag of sugar cost more in 10 years time than today.  Most probably as it tracks CPI.  Will a person (in the same job at the same level) earn more in 10 years time.  Again most probably as wages track CPI.  Inflation (albeit low inflation) is a macro economic requirement of every free market economy.  As I have constantly said house prices in general track inflation (mainly wage inflation) so of course they will probably (leaving speculation aside) be worth more in 10 years time.  So what, they're not increasing in relative money terms.  Thus you are not building up any wealth.

To build up wealth you need to invest in assets that out perform inflation or invest in assets that have a yield greater than cost of finance thus gradually gaining ownership of them.  Houses do not out perform inflation over a long period.  You bought all your properties over the last 3 years, thus you are not getting a yield of 7% so you are not covering your cost of finance and you are not gaining greater ownsership bar buying more each month with your own money.  They are thus bad investments and you should sell them. I suggest you research house prices vs CPI and equities vs house prices for further info.

I'm afraid your financial thinking is very warped.  There is no basis to any of the arguments you have tried to put forward.


----------



## z109 (13 Jul 2007)

qwertyuiop said:


> As I say - point me out a ten year period in history where nominal prices were less at the end of the 10 year period than they were at the beginning ?



      UK House Prices   
  1984-2000   % Real Change   

      Year      % Change                 RPI % Change                       Real House Prices %   Change       
  1984          ......7.2...............                  5...................                                    2.2   
  1985            ......9.1                  ...............6.1                                      .................3   
  1986             ......11................                  3.4                                   .................7.6   
  1987         ......5.4                 ...............4.2                                   ................11.2   
  1988            ......23.3               ..............4.9                                  ...............18.4   
  1989            ......20.8                 ..............7.8                                  ...............13   
  1990             ......0                    ..................9.5...............                                  -9.5   
  1991            ......-1.2                 ..............5.9...............                                  -7.1   
  1992            ......-5.6                 ..............3.7                                  ...............-9.3   
  1993            ......-2.9                 ..............1.6                                  ...............-4.5   
  1994              ......0.5                 ................2.4                                  ...............-1.9   
  1995             ......-1.7                 ...............3.5                                  ...............-5.2   
  1996              ......4.5               ................2.4                                   .................2.1   
  1997             ......6.3                  ................3.1                                   .................3.2   
  1998             ......5.4                ................3.4                                   .................2   
  1999             ......7.2                ................1.5                                   .................5.7   
  2000             ......9.8                  ................3                                      ....................6.8   

      Source:   HM Treasury   
  From [broken link removed]
(Just to use the source info.).
(edit: apologies for the extraordinarily bad formatting - it was all nicely tabulated, but disappeared when I posted).

If you are talking about property as a leveraged investment, you should be worried about real returns, not nominal returns. Particularly if you are financing the properties on an interest only basis (i.e. you will have to sell them at the end of the mortgage term to pay them off). As far as I can see, you are praying for low inflation/low interest rates through the course of your investment to have a hope of return on it!

Or is my o-level economics letting me down again?


----------



## z106 (15 Jul 2007)

robd said:


> You completely fail to understand what I have said again and again. Will a bag of sugar cost more in 10 years time than today. Most probably as it tracks CPI. Will a person (in the same job at the same level) earn more in 10 years time. Again most probably as wages track CPI. Inflation (albeit low inflation) is a macro economic requirement of every free market economy. As I have constantly said house prices in general track inflation (mainly wage inflation) so of course they will probably (leaving speculation aside) be worth more in 10 years time. So what, they're not increasing in relative money terms. Thus you are not building up any wealth.


 
Robd - I disagree.
WHat matters is nominal terms - not real terms.
E.g. Lets say someone has a property worth €1m.
Lets also say for the sake of argument that the rent covers the cost of financing.

LEst also say that inflation is 5% - and lets say that house prices rise with inflation.
Correct me if i'm wrong but what i gather from you is that in real terms the house price is flat therefore no gain.
(At least i think that's what ur point is - corerct me if I misunderstood)

However - quite clearly there is a gain of €50k afte the 12 months.i.e. If the property was sold it would go for an extra €50k.
Admittedly the €50k wwould only be worth around €48k in todays money when u factor in inflation.
(By the way - obviously if you owned the property outright then the real terms apply - however assuming you have a mortgage then it's the nominal terms that apply)

In teh above example you don't need the investment to out perform inflation. As long as it tracks inlation in the long term you will make money on ur investment.

To sum up - it's nominal terms that matter - not real terms.(Assuming a mortgage)

Robd - as far as i can see we are in agreement.
i.e. over the long term house prices will,at worst, track inflation.
I have also illustrated above how it's nominal terms - not real terms that are relevant.
SO -once the rent pays for the financing (which it pretty much should should do if it's a blue chip residential property),surely then the strategy surely holds ?

And even if there is a small shortfall in the monthly financing you can always hold back a few thousand from one remortgage to top up monthly.


----------



## robd (16 Jul 2007)

qwertyuiop,

I'm going to wrap this up.  I did not say in worst case house prices will track inflation.  I said that in the long term house prices track inflation. There are a lot of writings on this in book, magazine and online which you should look into.  The worse case in any investment is that you lose all the money including that which you leveraged from the bank (negative equity).

Quite simply your hypotetical arguments have no meaning.  Sorry.  It really is just mary make believe stuff that you're putting forward as arguments/theories.

The yield you get from your 5 properties bought in the last 3 years is less than the general cost of financing on them at normal (90%) borrowing levels.  No amount of sugar coating changes this.  You are unlikely to generate weath with them due to poor yield and market conditions and there are better places to put your money.

This is my last post to this thread as I have nothing further to offer, I'm just repeating myself.

The end.


----------



## z106 (17 Jul 2007)

Ok Robd - we'll leave it at that so.

Just one last one though.

Your key point that u mentioned in an earlier post is that the investment has to outperform inflation to be profitable.



> As I have constantly said house prices in general track inflation (mainly wage inflation) so of course they will probably (leaving speculation aside) be worth more in 10 years time. So what, they're not increasing in relative money terms. Thus you are not building up any wealth.
> 
> To build up wealth you need to invest in assets that out perform inflation or invest in assets that have a yield greater than cost of finance thus gradually gaining ownership of them.


Clearly wealth can also be generated when the above scenarios do not apply.See my example in my earlier post.
Just to reiterate my main point - assuming a mortgage is in place,it is NOMINAL increases that are important - NOT real terms.
For some reason you seem reluctant to acknowledge this fact.

Also for me personally the rent does cover the interest due to fixing low interest rates at the time of purchase coupled with rising rents. (These 90% mortgages you mention simply do not exist for investors - 75% on a portfolio is closer to the mark) Also - 2 were bought off-plans => no financing required for a couple of years.(other than the interest on the released equity for thedeposit which is covered by rent anyway)
But even if there was say,1% point that needs to be covered (difference between interest rate and yield),assuming the portfolio rises with inflation over the long term(which you agree on - currently standing at 5%),then that is still a 4% net rise.(c. 3.8% after the 5% inflation is factored in)

And for the record - propery HAS outperformed inflation over the long term.


----------

