# Sell to Rent..........Crazy or Good Idea?



## seller2000 (30 May 2007)

I have a property on the market and assuming it sells for the asking price the following is what I hope to do with the proceeds of the sale.


289,000     Clear mortgage, outstanding debts and selling costs.
20,000      Rabodirect savings account
10,000      Northern Rock savings account
10,000      NIB Savings account
10,000      Credit Union savings account
10,000      Quinn Life savings trust for my 1 year old child
10,000      Rent Account
10,000      Holiday of a lifetime

Upon the sale of the property which is solely in my name we plan to rent for a year for the following reasons:

(1)  My partner is not working enough hours for us to get a sufficient mortgage as she minds our child.

(2) For the first time ever we will have savings (60K) instead of throwing it straight back into bricks and mortar.

(3) I would like to step back and monitor what way the housing market prices go and also how many more interest rate increases the ECB apply.

As in the breakdown above I have put 10k into a rent account. This would cover approx 80% of 12 months rent in Dublin, meaning that I would have to contribute very little of my salary to rent expenses. This would enable me to add 1k a month to our savings.

I currently have a car loan, maxed out credit card and credit union loan that are taking a large chunk of my monthly salary. The thought of clearing all of these and starting fresh appeal greatly to me. I have also sworn to myself never to get into these debts again.

So  with the sale of the property *we would be debt free, have 60k savings and be adding 1k a month to these savings, have a place to live even though it is rented (plus we could be a lot more flexible in choosing the location than if we were buying)  and we also would have alot more disposable income to enjoy life.*

I look forward to your views on this matter. I personally believe that it would create a much better quality of life for us and our child and we will get back on the property ladder when we are in a stronger position. As a Dub myself I do not understand the Irish fascination of having to own your property, look at London and Paris.

I know I mightnt get the full asking price but please base your opinions/advise on the assumption that I do.


P.S I have colleagues and friends in good jobs who are so tied up with their mortgages that they cannot even afford to go for a pint on a saturday night................this is no way to live.


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## verbatim (30 May 2007)

"I personally believe that it would create a much better quality of life for us and our child and we will get back on the property ladder when we are in a stronger position."

There you go. Quality of life is worth a lot. Certainly worth more than the feeling that you own the place you live in.

Everything in your reasoning looks sensible to me. There's always the chance that it may be harder to get on the property ladder again in the future, but you have to weigh that up against the the risk of trading up now and being stretched in an environment where interest rates are rising and everyone (apart from the people on these boards of course) is talking about uncertainty in the housing market.


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## robd (30 May 2007)

Congratulations for putting a lot of thought into what you would like to do with you self financially.

I'm not sure that this thread will be kept open for very long as it might be thought of as discussion of house prices which is currently not allowed by Brendan, the site's owner.

You're prob going to get lots of (what I consider silly) suggestions like could you not go interest only/increase the term of you mortgage for a while, yada yada, yada.

Personally I advocate your idea, however you should be aware that you might :
Find it difficult to sell you house based on reported experiences over the last 6-9 months.
Get less than you expect for it.
Incur the transaction costs of selling then buying another house later on which aren't recoverable.
Rent prices have been squeezed of late due to people holding off buying and landlords removing from rental market to sell (although this is prob temporary) with increases on daft of up to 25%
On the more positive side, being debt free with good savings is a good way to be, should the downturn come to fruition.  If your house is not the size you want or is in a poor area, socially or location wise (i.e. requires long commutes to work), selling now and buying later could work well for you.  Of course it could be a disaster also.  It's somewhat of a calculated risk.

I'm currently following this path (abeit I sold a few years back) so my opinions are prob a little biased.  I believe it's better to buy in a slacker market (with higher interest rates) given that you're less likely to be involved in a bidding war and can prob bid under the asking price.  Also you're less likely to get squeezed out (as you currently appear to be) from increasing interest rates and might even get some relief from dropping rates.

I can see why you're spreading across multiple savings providers (to get higher teaser rate) but you might do better throwing money into some funds.  I advocate European Equity funds (from either Rabo or Quinn) due to resurging (mainly German) economy (which is of course the thing driving those interest rate increases so it's kind of a counter measure).

Best of luck.


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## Howitzer (30 May 2007)

Whilst this sound like a bit of a wind up I do have 1 question. I don't disagree with your plan but why have you split your savings between 5 different institutions? There can be very little, if any, benefit in doing this and surely just incurs extra overhead on your behalf in setting them all up. You may in fact be offered a better rate on a lump sum over 25K in any one of those banks rather than scattering it all over the place.


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## murray (30 May 2007)

> P.S I have colleagues and friends in good jobs who are so tied up with their mortgages that they cannot even afford to go for a pint on a saturday night................this is no way to live.


 
Best of Luck, I agree with you completely. (and I am an s.Dub EA- 15 yrs exp!)
You won't loose out by stepping off for a while to reassess, I do not beleive prices will shoot up , at best stagnate, in all likelyhood fall further than the 10-15% fall we have already seen since the peak last easter.

I have also sold to rent, it's also discussed on; www.propertypin.com 

Good Luck!


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## Niallm (30 May 2007)

Well its a gamble prices go down you win prices go up you lose,

It may be nice to move each yea but for your child they might not wish to leave friends and schools each yea (based on 1 year leases)

But what could also happen (I think it more than will) interest rates go up and investors need more rent to cover their repayments. They WILL want to hire the amount you pay and you could end up a lot worse 

Now if you stay at your home you will get more in the long run as you save on these expenses 
Stamp duty on buying a new home Est. 10'000 (your not going to be a ftb)
Legal fee on buying a new home 2'500
Survey report on new home 700
Decoration on new home 2'000

But most import of all when you are make your mortgage repayment you are building up your saving and when you rent your building up someone else’s savings 

If money is a issue try some of these 
Check revenue if you are entitle to more benefits 
Go to a car boot sale and sell some stuff to pay off credit cards 
Ask a family member for a loan to pay of credit card and then cut it up 
Speak to a bank about combining your debts
Worst of all another job to pay off the debts


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## MrKeane (30 May 2007)

Niallm said:


> But what could also happen (I think it more than will) interest rates go up and investors need more rent to cover their repayments. They WILL want to hire the amount you pay and you could end up a lot worse


 
The rental market is determined by supply and demand, not interest rates.


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## pinkyBear (30 May 2007)

Hi there Seller,
I do see your point in selling and saving the equity  (and clearing debts) that you have built up in your current home....

You are in a good position.... If I were in your shoes, I would be reluctant to sell my home because of how hard it was to get on the ladder in the first place....

I, like you, live and work in Dublin, however I recently went down to Kerry to see some cousins and Mr Bear and I were really impressed with the pace of life down there and thought "Yes, why not sell up and move" we got back to Dublin and couldn't leave his sisters! 

If your wife is at home would you think of moving down the country and possibly commuting or even better working from home - how cool would that be!!!!!

If your finances are a challange would you look at remortgaging and paying off the debts. Remember this may only be a temporary situation as your wife could decide to go back to work when your child is old enough.....


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## murray (30 May 2007)

Landlords will not necesserily have an option to 'higher'/raise rents. The amount of investors trying to offload/sell their property that they are subsidising because of higher interest rates is very significant- as in they have caused a flood of similar property to come on the market for sale.

This happened months ago.

What has happened now, is that these same landlords who have failed to sell, have put the properties back on the rental market - again causing a flood of rental properties that = more choice for tenants. http://daftwatch.atspace.com/ - you can see the trend here. More suppy generally means downward pressure on rents.

If you were going to move anyway in the next few years - ie. the property you own now is not ideal for your family long term, the fact that you will loose your FTB status, paying legal fees etc. is irrelevent as you would have paid at at some stage anyway.....

BTW. The savings accounts AND the funds is the way to go with the equity you release as robd & Howitzer have said. Excellent advice.

Good Luck !


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## murray (30 May 2007)

MrKeane said:


> The rental market is determined by supply and demand, not interest rates.


Exactly - excellent point.


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## seller2000 (30 May 2007)

Thanks for the advise folks. 

Howitzer this is not windup, this is my plan when the property sells.

I fully believe that me and my family will benefit from this plan. I just wanted to know if there was some financial logic saying that this was a mad idea. I think that the root comes back to the point of the fascination of owning our homes in this country.

Im not a financial expert but as far as I was aware itwas better to spread the amount over different savings accounts to earn the best interest return eg 5% on 10k in Rabodirect etc

With regard to my child, she is only approaching her first birthday so friends and school are not an issue yet.

As for buying in the satelite towns of Dublin, well thats the quality of life going out the window. I really dont see the value in buying a property where you spend 2 hours crawling on the M50 to get to work and 2 hours to get home no matter how cheaper it is compared to in the city.

We will rent for a year and then scan the market for value. Me and my partner will then both be on a full salary (as daughter will be old enough for creche), my salary will have increasedover the year and we will have 72kplus the interest earned over the year to put towards the purchase of the property............how can this be a bad idea??


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## Niallm (30 May 2007)

Good luck you sound as if your mind is made up


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## ClubMan (30 May 2007)

seller2000 said:


> 289,000     Clear mortgage, outstanding debts and selling costs.
> 20,000      Rabodirect savings account


On this specific point and echoing some of the earlier comments... (all interest rates quoted are gross _CARs_):

Doesn't really make sense to split across so many institutions - for example why put €20K in _Rabo _which is €10K @ 5% and €10K @ 3.75% and only €10K in _NR _when all amounts in excess of €1K with _NR _earns 4.3%?

Similarly unless you are getting a good rate with other institutions then it does not make obvious sense to deposit with them. 

_INBS _are offering 4.75% with 30 days notice on their FlexiSaver 21 account but it closes tomorrow.

Bear in mind that after _DIRT _and inflation are accounted for your money will proabably be losing real value in the meantime even at the highest deposit rates on offer.

I would sooner, if necessary, do an equity release and pay it off over a short period (e.g. c. 1-2 years) if I wanted the holiday of a lifetime. Personally I would not sell up to rent and gamble on the residential property market.

How could you lose? Your money could be losing real value in the meantime and you property prices could remain steady or increase either pricing you out of the market or leaving you at a loss when you want to get back in. Don't forget the significant transaction and ancillary costs in selling and then buying again later (e.g. easily €5K in total and quite possibly even higher especially if as a non _FTB _you have to pay _SD_).


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## woods (30 May 2007)

If you are going to buy again in about a year and plan to buy in the same area, then property prices would have to have dropped a lot to make it worth your while to pay all of the expenses involved in selling and buying.
On the other hand life is not all about money.


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## z108 (30 May 2007)

I question having so much money on deposit with the credit union etc in your plan instead of having it in a fund.
The only investment with a medium/long term view is the 10,000 Quinn Life savings trust for the kid  and the 10,000 Holiday of a lifetime is  a rather large way to dispose of the small profit you have made which will only go onto  a mortgage later if you decide to reenter the market.

What you are proposing is a gamble allright and people say that rent money is dead money yet we are really renting  money from the bank when we pay mortgage interest. I would like to know how much are your mortgage repayments versus the  rent you plan to be paying in future ?
Could you go interest only on the mortgage and reduce the pressure on yourself to pay the credit card and car loan and have this at the same level as the rent you anticipate paying? It seems to me that  our much complained about high Irish inflation has one benefit in that it is acting to reduce the real value of any loan taken out even if the loan is interest only. All this while rents can go up. 
And do you like where you live ? Would you be happy to move away from there?


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## Niallm (30 May 2007)

Do also remember a little bit of maths take rabodirect saving at 5% but if you read the small print this in only until 31/12/07 with a balance up to 10’000 after that the standard interest rate applies 3.75% on the 10’000 to 20’000

=
First 10’000 
Interest after dirt = 400 per year  

Second 10’000 to 20’000
Interest after dirt = 300 per year 

Total amount of interest after saving 20’000 for one year 700 paid once a year in December 

The banks may have these nice big interest rates on advertised but when you read the small print you find these 
High interest up to a certain balance 
High interest if you deposit you 1500 (your wages into this account each month)

Please do read all the small print they love to tempt you in the door and give you nothing after that?


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## seller2000 (30 May 2007)

Yea of course i would like to move away from where I currently live. Im paying almost 1600 a month out in Ashtown, where I could rent in Clontarf, where I grew up for approx 1400 a month. Ive accepted the fact that I will never own a property in Clontarf unless I win the Lotto, but by renting I could live there and my daughter could benefit from such a nice area to live in.

With regard to the holiday...............I cant see when else Ill have such a large sum of money sitting in my bank account to enjoy at trip of a lifetime. You only live once and you cant take it with you.

So if I went interest only, Im still stuck out in Ashtown, I still have all the debt to pay. 

So in real life terms I do not see this as a gamble. 

*No debt, 60-70k savings, flexibility of where to live* 

*Versus*

*Loads of outstanding debts, stuck in the same property, impossible to creat savings due to debt repayments*


When Im able to give my daughter the best things in life, enjoy holidays and not be stressed out with debts up to my ears, I wont give a damn whether a landlord owns the deeds to the property or whether the bank does.


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## ClubMan (30 May 2007)

seller2000 said:


> I wont give a damn whether a landlord owns the deeds to the property or whether the bank does.


Yes - but even when the property is mortgaged the householder normally owns at least a portion of the equity.

You seem dead set on this course of action so there's probably not much point in me or others giving you some alternative and counter views. Personally I don't think that this is a very prudent step in most cases and arguably evel less so if you have kids. I certainly wouldn't chance it myself. I don't think that you are looking at this dispassionately and objectively which might increase the risks of you making a bad decision. But good luck with whatever you do.


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## shanegl (30 May 2007)

I think its an excellent idea. Increasing your mortgage when your wife isn't working will only put further pressure on you, and might not even be possible. Best of luck.


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## gotsomenow (30 May 2007)

I might be on my own on this, but from personal experience there is nothing worse than going back to rented property after owning one.  The feeling of dread once you move in is unbearable.  Paying someone elses mortgage when you could be paying your own, and the fact that you could end up with a nightmare landlord.  Big No No from me.


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## z108 (30 May 2007)

You seem like your mind is already made up and fair enough you dont like where you are living now but , 

I'll point out you said one of the main positives was to have savings  but right now your savings are going into the house. So you do have savings, you just cant spend them on holidays. 

And theres other things to consider, do you have a pension ? If not I'd consider my house and the savings going into it to be my pension to sell up and downsize when I am older and the kids move out.
What would happen if you lost your job ? How would that affect paying your rent or your mortgage ? Would you end up renting somewhere in a neighbourhood where you are even more unhappy than the one you are currently in (Im not slagging ashtown. I dont even know where it is) if that happened ?  If you have more kids would you need to rent somewhere bigger with an even higher rent than 1400 ?
But I think  your mind is already made up about this..


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## delboy159 (30 May 2007)

ClubMan said:


> Yes - but even when the property is mortgaged the householder normally owns at least a portion of the equity.
> 
> You seem dead set on this course of action so there's probably not much point in me or others giving you some alternative and counter views. Personally I don't think that this is a very prudent step in most cases and arguably evel less so if you have kids. I certainly wouldn't chance it myself. I don't think that you are looking at this dispassionately and objectively which might increase the risks of you making a bad decision. But good luck with whatever you do.


 

A major factor in this decision seems to be the soon to be one year old child and when it comes to making life decisions that impact on our young - prudent and dispassionate thinking are best left in industrial schools and the like.....

To dispose of an asset to rent and thus expose yourself to property price rises is not a good long term risk/reward strategy, but, and a lot of Irish people seem to forget this at this moment in time - quality of life is everything... 

I know a lady who recentley divorced, she was determined to get back on the property ladder in South Dublin after the family house was sold as part of the settlement.  She now owns the apartment she wanted in the area she wanted, but is forced to work 12 hour days, rarely sees her teenage daughter and is up to her eye balls in debt.  But, as she says herself, she did the right financial thing for herself and her daughter...  

I threw out the idea (not to her) to mutual friends that if she rented in the area, the rent would be far less than her mortgage, she'd have cash in the bank, no car loan etc. work not only less hours in a day, but probably a 4 day week and consequently get 10 fold the amount of time with her daughter and more free time!!! The raised eye brows were obvious - "thats just silly, she wouldn't own her own home!!!"


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## seller2000 (30 May 2007)

Yes im in a pensionable, permanent job in a large company with many promotional opportunities.

In terms of my child, the 6x2 foot balcony of the present property or the garden of a rented house...........definitely the garden.

Plus the sale allows me to set up a savings account for her for when she is older or to finance a private secondary education or whatever expenses crop up in the future.

Plus she will have a far less stressed out Dad who wont have to work every hour of every day to pay off the countless debts.

I have taken on board the advise about the different savings accounts to put the money into and we reassess what ones are the most advisable.

Yes my partner and I will have to get back on the property ladder. But we will both be on a full salary.........in a years time we should be able to apply for a joint mortgage with a joint salary of 90k. With the balance of both of us working we should be able to manage the cost without it draining the bank account each month.

Plus we will still have those savings in the bank to put towards the price of a property and also so that we can live a good quality of life.

Plus we wont have thoses little loans to repay that eat into the salary.

We will be starting out fresh with no debts and the bank balances firmly in the black. Yea property prices could well have risen by then but its all relative as we will be on higher salaries.

Life is not about the possible risks of shifts in the property market, but about being able to enjoy it with a roof over your head and not suffering a heart attack at 40 due to the stresses of paying all the bills.


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## CCOVICH (30 May 2007)

seller2000-to echo other posters-you really sound like you've made up your mind.  If you are happy to rent for the foreseeable future (5+ years?) then go for it.


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## gonk (30 May 2007)

Sounds fine to me. The Irish & the Brits have by comparison with continental Europeans an obsession with owning their own homes. The problem with renting here was always the negligible rights and security of tenure tenants had. Now that the PRTB has been set up and tenants' rights have improved somewhat, there is much more of an argument for renting instead of buying. 

You are right in prioritising quality of life issues. When you're sitting in your rented house in Clontarf reading about another fall in the values of commuter belt houses in Wicklow, Kildare and Meath, as were reported today, you'll know you did the right thing.


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## Persius (30 May 2007)

ClubMan said:


> ...Don't forget the significant transaction and ancillary costs in selling and then buying again later (e.g. easily €5K in total and quite possibly even higher especially if as a non _FTB _you have to pay _SD_).


 


woods said:


> If you are going to buy again in about a year and plan to buy in the same area, then property prices would have to have dropped a lot to make it worth your while to pay all of the expenses involved in selling and buying.
> On the other hand life is not all about money.


 
The transaction costs in re-entering the market are only an issue if the alternative is to remain in his current property for the forseeable future



seller2000 said:


> ....In terms of my child, the 6x2 foot balcony of the present property or the garden of a rented house...........definitely the garden...


 
Based on this comment, I guess his alternative would be to consider trading up in the near future. In this case, he will have to look at the expenses involved in selling and buying, and the SD for non first time buyers (assuming second hand house) either way, so that's not really an issue.

I guess the main things are
1) if house prices continue to rise at a faster rate than inflation (*), then it may be difficult to purchase again in the future.
2) Rents may be cheaper than mortgage at present, but may rise as demand is quite strong and landlords are hungry for higher rents (as their mortgages have grown due to higher interest rates)
3) Security of tenure. Under certain circumstances (e.g. landlord selling up), the landlord can evict you with just statutory notice.

1 and 2 are pretty unpredictable. 3 depends on the luck of the draw with the individual property you choose to rent.

* by inflation, I probably actually mean, the rate your money grows in your deposit accounts after DIRT and/or the average growth in wages. I.e. the amount of extra money you have to purchase in the future 

The headline figure for consumer price inflation of 5.1% (or whatever it is) is somewhat misleading. The EU harmonised rate for Ireland is only 2.7%, and your personal rate is different again based on your own consumption patterns.


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## Bronte (31 May 2007)

I think quality of life is undervalued in Ireland.  I moved house 2 years ago for 1 reason and 1 reason only.  I couldn't take the stress of living 1 hour from work/crèche/school.  I didn't want to spend my life in the car with the kids anymore.  Fortunately I was able to sell and buy.  In comparison to you guys where I live (Belgium) your stamp duty rates are piffling low. I was willing to take the huge purchase tax hit just for quality of life.  

As a landlord in Ireland I have not increased my rent in over 3 years.  Don't agree that rent is going up.  Oversupply in my opinion will lower rents.  

I visited Dublin last weekend; I got a taxi from Swords to Blanchardstown.  Frankly I'm completely shocked with the development of Dublin.  We went across country.  We passed miles upon miles of new bright shiny apartments with miniscule terraces, sad for me to see all the kids bicycles on the balconies.  Furthermore the apartments were built to within a couple of feet of the road.  There were NO green areas, none whatsoever, not a tree or shrubbery in sight.  No shops or amenities.  Passed the Ballymun flats and got to Finglas.  I would prefer to live there than what went before.  These houses (while they looked like corpo type houses) were of a family size, they had front and back gardens  AND they had a big green area out the front even if there was a piebald pony grazing there.  Also saw a big football pitch.  Also noticed white van man.  There is something seriously wrong with all these families commuting long distances and never seeing their kids just so they can live in a miniscule apartment.  So OP I agree with you in your personal circumstances, move to a nicer area, maybe where you have family and I'm sure you'll find a very nice place to rent with a garden and have quality of life.     

Re parking in the new estates in Ireland, I now know why there are so many problems in relation to this issue as mentioned numerous times on AAM.   Brown envelopes and planners/politicians is all I can say.


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## Remix (31 May 2007)

> Bear in mind that after _DIRT _and inflation are accounted for your money will proabably *be losing real value* in the meantime even at the highest deposit rates on offer.


 
This was certainly true in the past but may not currently be the case if you are saving primarily for a house and house prices are falling as your savings are accumulating.



> The Irish Independent reports that house prices are falling rapidly across Ireland, the latest house-price index reveals.


 
finfacts

Still early to call a trend but it is a factor to keep in mind if you are a saver.


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## casiopea (31 May 2007)

seller2000 said:


> As a Dub myself I do not understand the Irish fascination of having to own your property, look at London and Paris.



Hi OP,
First of all good luck it sounds like youve your mind (nearly) made up and you've put a lot of thought into this.  I think sometimes you just have to jump even if its against the group way of thinking.

Just one thing to be careful of, in europe there is quite a lot of infrastructure around renting. Protecting both the tenant and the landlord.  While Ireland is getting better in this area (with PRTB etc) there is still a long way to go.  As you have a family be extra vigilant about what landlords you chose to deal with.  Make sure you get a contract, ideally ask to have a 3 month notice period on the property (given that youve a child and moving is not so trivial).  Just my 2c, good luck,
cas.


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## dublinli (31 May 2007)

MrKeane said:


> The rental market is determined by supply and demand, not interest rates.


 
and supply is determined by interest rates to a ceratin extent


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## Afuera (31 May 2007)

dublinli said:


> and supply is determined by interest rates to a ceratin extent


So lower interest rates means we'll have more property for rent (or would it be less)? I'm sorry, can you explain what you mean here?

Are you really saying that the ECB controls how many houses are for rent in Ireland???


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## ubiquitous (31 May 2007)

I would have thought that higher interest rates = less development of new rental properties = eventual shrinking of numbers of rental properties = less choice for tenants = sellers market for landlords = higher rents. 

The opposite should apply when interest rates fall.


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## beattie (31 May 2007)

ubiquitous said:


> I would have thought that higher interest rates = less development of new rental properties = eventual shrinking of numbers of rental properties = less choice for tenants = sellers market for landlords = higher rents.
> 
> The opposite should apply when interest rates fall.


 
As interest rates rise affordability is reduced, thus leaving a larger pool in the rental market which would push up rents if there was not an overhang of vacant properties or a reduction in the supply of new builds (a proportion of which will hit the rental market as they have being purchased by investors). It will be interesting to see whether the recent upward spike in rents is maintained or if the increase in rental availability (as seen on daftwatch) will reduce them again.


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## michelle123 (2 Jun 2007)

Like someone else mentioned the Irish are obsessed with owning their own property ..and the whole perspective that renting is dead money ..although no one ever mentions paying interest on a mortage to the bank is also dead money ..
The boom in the housing market seems definetly over and we are not going to see property prices rising like they have done in the last 5 years
Whether it will level off, drop dramatically ( crash), or rise at a much slower pace is anyones guess and theres a lot of debates about it at the moment ..
I think you have decided what is best for you.. and in the event of possible property dramatic down turn you might not be able to make the profit you would now make by selling your home and would be possibly stuck with a long commute and living in an area you dont seem too fond of. 
Have you ever thought about moving down the country - It might be a much nicer way of life rather than long commutes and huge rents/mortgages


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## minion (2 Jun 2007)

I think you are nuts.
Have you added up all the transaction costs and taxes to get back into the market?
If you dont intend to reenter the market then all is fine but if you do you are taking a gamble.
If someone said to you would you put 30 odd grand on a bet if houses will go down by say 10% where you live over the next 3 years would you hand over the money to paddy power?  Because i think thats what you are doing.  Gambling with your families future.


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## Steve D (2 Jun 2007)

Hi Seller,

I think that your decision should be based on how you think that the property market will perform over the next couple of years.

If you think that property prices are going to fall substantially then you could be better off selling and renting because you may be able to buy property at a much reduced price in a couple of years time. You have to weigh up that gains of doing this with the transaction costs and the cost of the rent.

If you think that property is going to increase in value, then you will be better off not selling. 

However, in the current climate there is very little chance of property increasing in value of the next two years, some commentators are suggesting that values of property could fall by 40 to 60 % over the next five years.

I do not see the point in having so many savings accounts either. Where you invest your money will be dependent upon your attitude towards risk. Personally, I consider it wasteful to have large amounts of money in bank deposit accounts because, if you know what you are doing, you can make much better returns in equities. For example, there are many funds in the UK that regularly make 20 to 25% pa. I realise that you have to have some money in the bank for a rainy day and you may be too risk adverse to try out equities.

The details above are my honest opinion but legally should not be considered to be investment advice.

Good luck with whatever you decide to do.


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## z108 (2 Jun 2007)

Steve D said:


> Hi Seller,
> ... For example, there are many funds in the UK that regularly make 20 to 25% pa. ....



If *risk* is important with regard to your familys future,I think you'd be very lucky to get those sorts of returns consistently without taking a big* risk*. Not even Warren Buffet is getting that sort of return.


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## gearoid (2 Jun 2007)

Steve D said:


> Personally, I consider it wasteful to have large amounts of money in bank deposit accounts


Doesn't it depend on whether you are willing to rent for eight to ten years or not as to whether you invest the money or not? I am hoping to buy a house or apartment when interest rates hit the top of the cycle, perhaps a year or eighteen months away. At that stage those with large cash deposits should be able to get a better deal. I guess it is using the Buffet dictum of buying when others are selling, and selling when others are buying. If I were to invest my deposit now I might risk having access to it when I want to buy, and therefore I put it all in a high interest earning deposit account. I know that this is a very conservative strategy but it guarantees me a good interest payment at least at the end of every year. Aren't  equity values also possibly somewhat stretched at present times? The possibility of increased interest rates may affect both property and equity values.


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## Steve D (3 Jun 2007)

As I said in my previous post, an investors attitude towards risk will determine which types of investments are suitable. Yes, of course if you plan on using cash in the near future you will need to hold a large balance in cash. 

Personally I do not mind taking calculated risks so I always like to have a reasonable proportion of my investments in certain equities or equity funds. I know that they could drop by 20% in one day but that is a risk that I am willing to take. I balance that with some other less risky investments. 

However, individuals who are more risk adverse could dip their toes in the water by investing a small proportion of their capital in equity funds. The percentage would depend on the individual's own circumstances such as what his other investments were and how long he was willing to hold the equity investment. If, for example, a risk adverse individual invested only 5% in equities, then the riskiness of his total portfolio would still be low.

Yes of course, the return on an investment will depend on when you buy so if you buy at the top then your return will be less. No-one can ever predict the top or bottom of a cycle so this can be mitigated by drip feeding investments, such as by buying monthly units by diredt debit.

Sign - there are a few equity income funds funds in the UK that deliver this type of return. You have to try to pick out who the good fund managers are and how consistent they are. Of course they all take a bath when the stockmarket collaspes. I usually find equity income funds to be less risky than other funds because they tend to invest in large companies that are very profitable and you can ask for all the income to be reinvested, if you choose. For example this is a fund that has generally, apart from the occasional large dip (as you would expect), done well:
http://www.trustnet.com/ut/funds/?fund=477

The above should not be considered to be investment advice.


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## csirl (5 Jun 2007)

One cost that you havent factored in is the amount that your mortgage would have reduced if you had continued to pay it for the next year or 2 instead of renting. I dont know how valuable your current property is and what type of mortgage you have etc., but it would be fair to say that the equity repayment on a typical Dublin property would not be insignificant per annum - €10k per annum would not be unusual even if the mortgage is only a couple of years old. This means that by renting, you will have e.g. €10k per annum less money when you go to buy another property in the future.

Mortgage is not "dead money" and is not like "renting from the bank". While the interest portion of a loan may be quite high in the early years, most people are still paying a not insignificant amount of the equity per annum. This is money that is not lost. It is as real as saving an equivalent amount per annum. When you come to sell up and buy another property, this IS very real money that you'll have. 

The question the poster has to ask is will house prices drop by more than the amount of equity that would have been acquired? If the answer is that property prices are going to stabilise or only drop slightly over the next couple of years, then selling and renting is a bad idea. If the answer is that they are going to drop significantly, then its not.


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## Afuera (5 Jun 2007)

csirl said:


> I dont know how valuable your current property is and what type of mortgage you have etc., but it would be fair to say that the equity repayment on a typical Dublin property would not be insignificant per annum - €10k per annum would not be unusual even if the mortgage is only a couple of years old. This means that by renting, you will have e.g. €10k per annum less money when you go to buy another property in the future.



It would want to be a very expense house to be paying off EUR 10,000 in equity during the first few years of the mortgage!

The average house price nationaly is EUR 306,619. Taking a 35 year mortage with an interest rate of 4.5% on this... for the first two years, less than EUR 4,000 will be paid towards the equity per annum.


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## newkid30 (5 Jun 2007)

Afuera said:


> It would want to be a very expense house to be paying off EUR 10,000 in equity during the first few years of the mortgage!


 
Not really, not everyone takes out a 30 year plus mortgage!!


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## Afuera (5 Jun 2007)

newkid30 said:


> Not really, not everyone takes out a 30 year plus mortgage!!



So what's the average length of new mortgages in Ireland then? I remember reading somewhere that the vast majority are over 30 years but can't find anything to verify it right now.


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## ClubMan (5 Jun 2007)

Whatever about the original term the average lifetime of a specific mortgage used to be about 8 years or so - i.e. before people remortgaged, traded up/down/sideways etc. to get another mortgage or clear the original. I believe that this has reduced even further these days with more people switching lenders etc. Not sure what the average initial mortgage term is though although I suspect that a lot of new mortgages are > 20 years these days.


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## csirl (5 Jun 2007)

On a 30 year mortgage for a 500k house (very modest by Dublin standards), the equity payments would be in excess of 9k per annum by year 4 at interest rate of 4.5%.

Now, assuming the mortgage was taken out at least 2 years ago when interest rates were only 2% and the standard margin was c.0.95%, over 10k in equity would be paid off in YEAR 1. The interest rate on the first day of the mortgage has a big impact on the equity repayments in early years. When interest rates were lower i.e. 2%, the equity is higher from day 1. Note also that when interest rates increase, the amount of equity paid back remains the same - the increase is only on the interest portion of the repayment. Someone taking the same amount in mortgage today when interest rates are higher pays less equity from day 1 - something to think about if deciding to cash in mortgage and rent and then get another mortgage.

In summary, someone who took out a 500k mortgage a couple of years ago when ECB interest rates were only 2% would be paying over 10k in equity in year 1 (10,526 to be exact) and even more in subsequent years.


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## Hel_n (5 Jun 2007)

The OP stated that €289,000 will repay their mortgage as well as covering all fees, so it is very unlikely that their original mortgage was for €500,000 which is what you based your calculations on csirl.


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