# What happens to rents during a recession up? down? stay the same?



## Paddyboy0576 (26 Sep 2008)

I have a chance of buying a property in the centre of cork from my uncle.

I would be able to renovate the property and bring it up to standard myself but the worry i have is this.

I have the money to buy the house and renovate it. 

Because the house is near UCC i would be able to rent the rooms to students consistently. 

What I am afraid of is what if the rent drops over time? If that happens and or interest rates increase again....I wouldnt be able to meet the repayments.

Can anyone give me an idea of how rents react in a recession? 

Am i right in saying that when people cant get loans to buy houses the rental market will maintain itself? 

Thank you in advance for your help


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## ajapale (26 Sep 2008)

moved from  Mortgages and Buying and Selling Homes to  Property Investment


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## BoscoTalking (27 Sep 2008)

Paddyboy0576 said:


> I have a chance of buying a property in the centre of cork from my uncle.
> 
> I would be able to renovate the property and bring it up to standard myself but the worry i have is this.
> 
> ...


i think you are assuming students want to live in houses instead of the load of apartments built - is this true, also students only rent 8/9 months of the year - thats not consistent rent, Is there parking - most students would request this now as well as professional renters..


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## sidzer (27 Sep 2008)

A big uni like UCC will always attract a large number from far away who need rental accomodation. However, colleges seem to be building more student accomodation and in general students prefer to be on-campus with other students......

Like any investment you will need to budget for all sorts of potential challenges like interest rate hikes - problem tenants - maintainance - vacant periods...

Is your uncle giving you a special deal? And will the price be attractive in a years time...

From my experience of student life is that accomodation near the college is always the most sought after by students.


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## Paddyboy0576 (27 Sep 2008)

Thanks for your relpy. Yes there is hopping demand at the moment. I attribute this to the fact that the house id md way between the city centre and the university. 
The number of new student apartments doesnt seen to have affected the rents at all. I have no parking but i suppose there is still lots of people who attend uni but dont have a car?
Can i fix my mortgage for a prolonged period folks to prevent against any further interest rate rise and for the peace of mind...?
I wonder about a comparison with other european countries who have experienced 'down times' - is there a trend regarding rental rates?
Thanking you.


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## rmelly (27 Sep 2008)

Paddyboy0576 said:


> Am i right in saying that when people cant get loans to buy houses the rental market will maintain itself


 
But if people aren't buying then people aren't selling - I understand the number of properties available for rent on daft has tripled in the last year. From there it is simple supply & demand...


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## Paddyboy0576 (27 Sep 2008)

Thanks rmelly,
Yes i suppose its all about location & supply & demand. Im sorry about the rethorical questions but im just afraid of things going sour. thats all. Does anybody know if i can fix my proposed mortgage for a few years for peace of mind?
Thanks again.


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## niceoneted (27 Sep 2008)

Only your mortgage provider will be able to answer that one for you definitively. There are plenty of fixed rate products out there from anything from 1 to 10 yr fixed. 
Would this also be your PPR where you are renting the rooms out while living there or have you a separate PPR?


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## Lollix (27 Sep 2008)

To get back to the original question.
In a downturn such as we are experiencing now, rents will intially stay steady but are unlikely to rise with inflation as they tended to do heretofore. However as the numbers of emigrants reduce and return home, and unfinished schemes come on line, then supply/demand economics kick in and rents are likely to reduce. This will be triggered by small investors who take the view that any rent is better than no rent, and price cutting will start. Of course there will be additional renters available from the pool of people who are waiting to buy, but it won't change the fundamentals much.
We saw it all before, in the eighties when property prices collapsed. Nowadays there is a better selection of available property for rent, so no reason to expect that rents will do anything but fall.


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## Steve D (28 Sep 2008)

You can see how the number of properties for rent on the Daft website has soared from 5,000 in June 2006 to 17,000 now at the following website:

http://daftwatch.atspace.com/   (scroll down a bit)

The number of properties for rent in Cork has risen from approx 400 to 1,800 over the same period.

http://daftwatch.atspace.com/daftcounty_15.html

This increase in supply is only going to mean that rents will have to reduce. 

You can see how the number of properties for sale has also risen on this website. If developers cannot sell new properties, they often try to rent them out, thereby increasing the supply of rental accomodation further.


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## Complainer (28 Sep 2008)

Paddyboy0576 said:


> I have a chance of buying a property in the centre of cork from my uncle.
> 
> I would be able to renovate the property and bring it up to standard myself but the worry i have is this.
> 
> ...



What kind of return are you expecting to get from your investment, by comparison to (say) putting your money on deposit?


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## Superman (28 Sep 2008)

How many bedrooms does the house have and what sort of rent were you expecting?
Rents in Cork have softened somewhat.
City Centre locations fared better in the last slight downturn (back in 2001), in that they generally stayed rented (unlike places further out such as Wilton, Bishopstown etc.) - though the current downturn is likely to be scales of magnitude worse.
I would expect softening of rents of c.10-15% over the next two years and then rents to stay put (i.e. be eaten by inflation) for a number of years after that - but I am rather pessimistic on the state of the economy.

What would that do to your calculations?


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## Paddyboy0576 (28 Sep 2008)

Thanks Superman, you sound like you have a sound knowledge of the cork rental market. Here are my firgures so if you get time you might let me know what you think?

Purchase Price €300,000
Stamp €12,250
Renovations Fixtures & Fittings €62,000
Professional Fees €5000 
Misc €5000

My investment €75,000 (loan from parents)
Cost of carrying loan while renovating (4 months) €9233.08
Mortgage Amount € 393,483.08
Monthly Repayments €2362.23  - €28346.76 pa

I have carried out 3 test run adverts & have go a massive response. The rent i quoted is as follows;
3 double ensuite rooms - €115 per week   - €17,940
6 single rooms - €100.00 per week - €31,200 
Total Rental Income € 49,140 pa

Gross profit €20,793.24

So these are my calculations. Fell free to disect any of the above. Maybe I am missing something. I have renovated houses on contract for other investors in the past but not for myself. Maybe someone can help out and offer some guidance and outline any pros & cons?
Thanks


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## Complainer (28 Sep 2008)

Paddyboy0576 said:


> Maybe I am missing something.


Tax?


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## monkeyboy (28 Sep 2008)

Complainer said:


> Tax?



He has stated "Gross" profit and has listed allowable tax deductions so I dont think this is forgotten.

Sidzer points out that students prefer to be on Campus. This is not necesarilly true.
I have a unit in Liverpool rented to older uni students. The demand is consistent for this unit, from the older groups of students as they DO NOT want to be on campus due to the more hectic party etc and distractions that come with it.

These older students tend to be more focussed on the quiet life in achieving their exams etc than the fresher party life style and in my opinion are far better tenants. They are less likely to have massive parties and puke every where and trash the place !
They also tend to stay over the summer from y experience. My father has a unit also near by and is experiencieng the same as I have described.

You should focus on this group IMO, but the large house share you describe is more geared towards individual letting ( more hassle ) or larger groups which by very nature are harder on a property.


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## Howitzer (29 Sep 2008)

Paddyboy0576 said:


> Thanks Superman, you sound like you have a sound knowledge of the cork rental market. Here are my firgures so if you get time you might let me know what you think?
> 
> Purchase Price €300,000
> Stamp €12,250
> ...


Your numbers assume 52 weeks per year occupancy for each and every room. This isn't unlikely, it's impossible, especially when renting to students. 

40 week occupancy equates to a rental return of 37800, still a healthy return on investment but you've also to account for the fact that you'll be renting out 9 rooms. Over the course of a year that equates to a lot of work.


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## Steve D (29 Sep 2008)

Anybody considering taking on a mortgage of €393K, as well as taking a loan of €75K to buy a property when property prices are plummeting, the worlds banks and stock markets are in a crisis and the Irish economy is going into a recession must be living on another planet or cloud cuckoo land!


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## Kemo_Sabe (30 Sep 2008)

Steve D said:


> Anybody considering taking on a mortgage of €393K, as well as taking a loan of €75K to buy a property when property prices are plummeting, the worlds banks and stock markets are in a crisis and the Irish economy is going into a recession must be living on another planet or cloud cuckoo land!


 
that was my thoughts also

why not come back to this in a year's time OP?


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## z101 (30 Sep 2008)

Are you a quick fix to a problem your uncle has? Have you verified the market price of this property?


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## cancan (30 Sep 2008)

Steve D said:


> Anybody considering taking on a mortgage of €393K, as well as taking a loan of €75K to buy a property when property prices are plummeting, the worlds banks and stock markets are in a crisis and the Irish economy is going into a recession must be living on another planet or cloud cuckoo land!


 
I suppose the proopsed profit doesn't matter at all?


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## Superman (30 Sep 2008)

I'd be fairly pessimistic on rents holding up over the next couple of years - so what you are calling up for single rooms as €100, I'd be looking at €80 (i.e. €300 a month) and rather than €115 I'd be looking at €92 (i.e. €400 a month) when working out my calculations.  (If you were lucky and waited long enough you'd get what you are looking for in the present climate, though I would expect rents to soften significantly in the coming years).

This depends on how many rooms are sharing of course, and the standard to which you are fixing things up - it could be less, but not much higher.  

What is interesting is just how much shopping around tenants are doing at the moment - so many people interested in viewing a property does not translate into rentals necessarily - it has become a renters' market.

Given that there are so many rooms involved which you appear to be renting singly, and that your target market is student based, I'd be working off having rooms rented for 9 months of the year - this would assume that you'll fill some of the rooms over the summer, but that you will also have some void periods during the academic year.

The wear and tear on something which had 9 "units" with a "tragedy of the commons" effect on facilities would also be enormous - are you going to have a fridge in every room or a couple of fridges in a common area?  If you have common fridges, who do you hold responsible if one breaks (for example)?

Also given the number of units you are proposing to have, taking care of the units, making sure everyone pays their rent, cleaning up after someone leaves, tidying up common areas when new people come along so that it doesn't look too bad, looking for new tenants etc. is a full time job - unless you or your partner has nothing better to do you will not find the time.

I think it is a really bad idea in the present climate - wait two years for the smoke to clear and it might begin to make sense - property prices will have dropped significantly, and you'll be in a better position to know what sustainable rents are likely to be.


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## Steve D (30 Sep 2008)

cancan said:


> I suppose the proopsed profit doesn't matter at all?


 
The "proposed profit", as you call it, is unlikely to materialise to such an extent because he is being too optimistic, as other posters have already pointed out. You also have to bare in mind that the property price is likely to continue to fall for a number of years as we are in a bear market now as far as property is concerned. 

In order to survive a recession it is usually best to minimise debts as much as possible. Anyone who decides to take on such huge debts in an era that we have not seen since the Great Depression of the 1930's is either very brave or very foolish or perhaps a mixture of the two!


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## Bronte (1 Oct 2008)

Your rental figures are a little too high in my opinion.  Renting 9 rooms to 12 people is looking for trouble, people splitting up, not paying their share of the rent/bills, disputing who is liable for what etc and students are notorious for this,  wear and tear will be a very high annual cost,  you should subdivide your property to minimise the hassle, this may increase your investment costs and therefore your montly payments would increase but your rent roll even reduced would be able to service it.  The most important thing is location.  Fix your interest rate if worried about it going up and do the sums again and then also do the sums for worst case scenarious such as students have party, thrash the place and disappear and it takes 2 months to fix and then it's the summer etc and you'd have no rent for 5 months - can you handle this.


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## z106 (1 Oct 2008)

I agree. renting 9 rooms to 12 people is going to be an unbvelievable headache - particularly when they are students.

i wouldn't go near it with a barge pole - particularly given the current property climate.


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## cancan (1 Oct 2008)

He knows his costs - he has projected his income - college areas are in general less prone to fluctuations that many others, given that you have a pretty fixed demand, and fairly constant supply now.

I don't see the problem, as long as he factors in the downside as well. People are not going to stop going to college - probably be an increase with all the chancers from the boom going back and getting a proper qualification!

People make money in good times and bad - relying on the irish independent for investment advice will not get you rich in a hurry!

Rents in most of ireland are reasonable if one looks as rental cost in relation to average income - house prices are not. Expect rents to stay static, or even begin to increase as economic panic people such as yourself believe ... 





> In order to survive a recession it is usually best to minimise debts as much as possible. Anyone who decides to take on such huge debts in an era that we have not seen since the Great Depression of the 1930's is either very brave or very foolish or perhaps a mixture of the two


 
Chicken lickin' economics will not get you very far.

Some of the above posters have proven been burnt with their own bad advise in the past, so believing them now would be a mistake.

You do the maths, factor in possible downsides, effort involved, and if the numbers work for you, well then it's your own decision in the end.


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## Steve D (2 Oct 2008)

cancan said:


> Rents in most of ireland are reasonable if one looks as rental cost in relation to average income - house prices are not. Expect rents to stay static, or even begin to increase as economic panic people such as yourself believe ...


 
Why have you not said what you expect to happen to house prices? You are saying that house prices are not reasonable to average income......so this can only mean one thing...house prices will fall further, especially as the credit crunch begins to bite and makes mortgages more difficult to obtain.

Why should he invest now if he is going to loose capital when the value of his asset continues to fall?


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## cancan (2 Oct 2008)

I think you are missing the bit that he is buying a 9 br house in cork city centre beside the university for 300k from his uncle.

I repeat - 9 br house in cork city center for 300k.


Now I am no economist, but that looks like a pretty good deal, and perhaps well below any pesimmistic current market price that chicken lickin' economics may provide.

Hence why his numbers look so good!

OP - be sure to look after the uncle 

A recesssion does not make all deals bad - just the bad ones....

So house prices don't really matter in this case.... (Maybe gift tax though!)


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## Paddyboy0576 (3 Oct 2008)

Thanks Folks,
So myybe im on another plant? I take ur point without offence
The price is the actual price on todays market. I have had several auctioneers give it to me like it is....I have run a few sdverts & have got enough replies to fill the same house 4/5 times over. Is this a true reflection? Western Road, the location of this house is between the uni & city centre about 5/6 mins to each literally. I have factored in rate hikes/maintenance/vacant periods/ etc.... 
I know there is a significant increase in the number of houses to let in cork like everywhere but is a house to let in Glanmire/Blackrock/Togher etc to be compared?

Your comments are greatly appreciated and have no worries i can take it on the chin no matter how critical

Thank you


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## Raskolnikov (3 Oct 2008)

qwertyuiop said:


> I agree. renting 9 rooms to 12 people is going to be an unbvelievable headache - particularly when they are students.


He's renting 9 rooms, with one person to every room.

As for rents, €100 for a single and €115 for a double is definitely achievable if the house is newly renovated. I can't see those rents falling, although I think they may stay static for two years with inflation eating into your profit. 

I think the figures stack up on this one, although my only concern would be whether Paddyboy0576 is happy to deal with the hassles of letting such a large house to students.

If you do go ahead with it, best of luck. My advice to you would be to make sure you don't spend too much in furnishings. Students almost certainly will wreck carpets, dirty walls, break cups, etc. Don't scrimp on any structural work though. Oh, and only provide things that tenants need! Don't waste money on a television, dish washer or stereo!


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## webtax (3 Oct 2008)

cancan said:


> Chicken lickin' economics will not get you very far.



He's buying a house - not a snackbox.


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## Steve D (3 Oct 2008)

cancan said:


> I think you are missing the bit that he is buying a 9 br house in cork city centre beside the university for 300k from his uncle.


 
If you read the op's last post you will see that he is getting the house at market value, which means that as property prices continue to fall he will be loosing capital.

Also referring to your point about "chicken lickin' economics". risks have to be considered when making an investment and the op needs to be aware of them before he committs to a huge mortgage and loan. He is not buying a packet of cornflakes...the mortgage will be with him for 25 or 30 years! 

The fact is that the financial turmoil that is going on at the moment is the worst since the Great Depression and as the country is in recession, any investment decision made now is very risky because the future is more difficult to predict.


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## cancan (4 Oct 2008)

You wouldn't get an apartment in cork cc for 300k, never mind a 9br house!
Schmarket value me thinks - if that is what 9 br houses go for in cork, sign me up for two of em please.....

The valuation is way off, hence the rental figures look so good. Nice yield.

If anyone else wants to off load a house like that for 300k with those rental income numbers, pm me please!
Cash waiting...

And given everyone thinks this is the worst financial crisis since the depression, perhaps they should hop in to a time machine and visit ireland circa 1980, or any decade prior to that...


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## allthedoyles (4 Oct 2008)

Howitzer said:


> Your numbers assume 52 weeks per year occupancy for each and every room. This isn't unlikely, it's impossible, especially when renting to students.
> 
> 40 week occupancy equates to a rental return of 37800, still a healthy return on investment but you've also to account for the fact that you'll be renting out 9 rooms. Over the course of a year that equates to a lot of work.


 
 Correct me if i'm wrong , but i understood that students had to pay rent in advance for 12 months occupancy , regardless of the college term ?


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## z109 (4 Oct 2008)

allthedoyles said:


> Correct me if i'm wrong , but i understood that students had to pay rent in advance for 12 months occupancy , regardless of the college term ?


Wrong.


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