# Rent not covering mortgage



## niceone (1 Jan 2007)

It's amazing how things have changed in 18 months !!! Back then the rent was making me a nice annual profit. But now the tide has turned. I have 3 rental properties on interest only mortgages as follows:
*Property / Rate     /Profit (monthly)*
A              0.0503   -€77
B              0.0485    €219
C              0.0469   -€4

So, I am €138 in the black every month. BUT when we see the next .5%interest hike I will be in the red. Now I have to consider my options ! Should I subsidise these properties with a view to making 5% to 10% gain in value. Should I approach a bank with a view to consolidating the 3 separate loans into a single loan (commanding a lower interest rate) or should I now consider off-loading the properties. 

Any advice ?


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## CelloPoint (2 Jan 2007)

niceone said:


> It's amazing how things have changed in 18 months !!! Back then the rent was making me a nice annual profit. But now the tide has turned. I have 3 rental properties on interest only mortgages as follows:
> *Property / Rate     /Profit (monthly)*
> A              0.0503   -€77
> B              0.0485    €219
> ...



What about the cost of your time and maintainence? Also, if you don't sell, you'll eat into your capital appreciation gained. 

I'd bank, fast. Many other investment opportunities out there that won't cost you much time nor hassle.


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## Remix (2 Jan 2007)

To add to poor yield woes, Sherry Fitzgerald is reporting this morning that second-hand Dublin house prices actually fell in the last quarter of 2006.

The strategy of tolerating low/no yield in order to hold out for capital appreciation is looking like higher risk gamble.


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## jonnypool (2 Jan 2007)

A lot of this was down to people waiting for news on stamp duty in the budget.  You'll see that prices will rise again in Q1 of this year and will keep rising.

I certainly wouldn't sell but there's no harm in shopping around for a better deal on your mortgages.  Ther's big competition now in this market and it's good news for Joe Public.

Good luck with it.


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## Remix (2 Jan 2007)

jonnypool said:


> A lot of this was down to people waiting for news on stamp duty in the budget. *You'll see that prices will rise again in Q1 of this year and will keep rising*..


 
I'm simply passing on Sherry Fitzgeralds findings regarding the house price falls in 2006 and the increased risks around this.

As far as I understand, your kind of blatant speculation and hype on the future direction of house prices is now suspended on this site.

You can put your case to the test over at

[broken link removed]

or

[broken link removed]
[broken link removed]


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## jonnypool (2 Jan 2007)

Remix, your reference to the Sherry Fitz article was quite selective and disingenuous. It smacked of tabloid headline journalism. In the article itself, there is a quote "She (the Sherry Fitzgerald economist) expects a slowing towards single digit percentage growth in 2007" yet you only quote the (0.7%) drop in Q4 last year in Dublin.

So in other words, the Sherry Fitz economist agrees with what I am saying (that "prices will rise again in Q1 of this year"). 

You provided the link to what the Sherry Fitz economist said for everyone to see. I agreed with the economist's prediction then you accuse ME of blatant speculation and state that this is not allowed on this site. Why then do you provide links to such articles if they are not allowed?


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## Remix (2 Jan 2007)

No point in wriggling around, let me remind you of what you said.

*You'll see that prices will rise again in Q1 of this year and will keep rising*_._

That kind of statement well deserves to be 'flamed'.


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## extopia (2 Jan 2007)

jonnypool said:


> ... the Sherry Fitz economist agrees with what I am saying (that "prices will rise again in Q1 of this year").



Sherry Fitzgerald have a vested interest in the property market and therefore cannot be relied on for independent, unbiased opinion on where the property market is going.


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## Miles (2 Jan 2007)

Remix said:


> No point in wriggling around, let me remind you of what you said.
> 
> *You'll see that prices will rise again in Q1 of this year and will keep rising*_._
> 
> That kind of statement well deserves to be 'flamed'.


 
Last time I checked this was a forum where people are entitled to express there views....


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## Remix (2 Jan 2007)

Miles said:


> Last time I checked this was a forum where people are entitled to express there views....


 
You don't seem to  have been very thorough in your checks.

Didn't you see any of the new rules regarding the issue in question ?


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## Miles (2 Jan 2007)

Apologies Remix I have not seen the new rules.

Disregard my last post please.


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## beattie (2 Jan 2007)

Its a tough decision to make, if you think that the ECB will increase rents further this year then you will probably go further into the red. If not you could be at the low point. Are these properties in areas where the rental market is strong, i.e. could you get higher rents than what you are currently charging?


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## Remix (2 Jan 2007)

Miles said:


> Apologies Remix I have not seen the new rules.
> 
> Disregard my last post please.


 
None necessary! I'm but a mere poster - although strangely enough I seem to have found myself impersonating a moderator on this one


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## niceone (2 Jan 2007)

Thanks to all who have responded so far.  I know there's Bulls and Bears on this one but I am interested to see how others would deal in my situation.  

Made a few calls to Mortgage provide - First Active will provide a .75% above ECB Tracker = 4.25% which will certainly help keep me in the black. I suppose my ultimate move depends on how high Interest rates hike.  

I am reasonably confident that we are now in a 5% growth market and capital appreciation would not be a major concern for me (at the moment)


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## jonnypool (2 Jan 2007)

Remix, I see you chose to underline a bit that time. So I take it that you agree with what preceded the "and will keep rising". With regard to my 'keep rising', I will opine further - prices will rise in the next 12 months.

I believe that the vast majority of economists - at least the ones I know - do not disagree with this prediction. It is based on this that I would not myself cash in on any investments yet. There may come a time but it is not yet here.

You might give me a look at the rules you refer to by the way, thanks.


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## Remix (2 Jan 2007)

jonnypool said:


> Remix, I see you chose to underline a bit that time. So I take it that you agree with what preceded the "and will keep rising". With regard to my 'keep rising', I will opine further - prices will rise in the next 12 months.
> 
> I believe that the vast majority of economists - at least the ones I know - do not disagree with this prediction. It is based on this that I would not myself cash in on any investments yet. There may come a time but it is not yet here.
> 
> You might give me a look at the rules you refer to by the way, thanks.


 

Ah! now a 12 months timeframe! that's a significant change from 'will keep rising'. I wouldn't put any certainty on it myself - even in that timeframe. Looks risky.

Many of economists quoted in the media are bank employees. 

As far as I know, discussion/speculation on future direction of house prices has been terminated. There was a lot of discussion around this. You could PM a moderator if you want more details.


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## jonnypool (2 Jan 2007)

Thanks, I'm fed up talking about it anyway.  All day, every day!

All we need really is one good horse...!


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## whathome (2 Jan 2007)

jonnypool said:


> It smacked of tabloid headline journalism


 
Jonnypool - your bullish bias, writing style and "tabloid" retort remind me of a once frequent poster (now banned) on AAM - SteelBlue05. 


http://www.askaboutmoney.com/showpost.php?p=259935&postcount=2077


Niceone - when you made your decision to purchase investment property, did you stress test your calculations with a possible increase in interest rates? I wouldn't re-evaluate a long term investment if I had factored potential interest rate hikes into my decision to begin with.


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## gearoidmm (2 Jan 2007)

extopia said:


> Sherry Fitzgerald have a vested interest in the property market and therefore cannot be relied on for independent, unbiased opinion on where the property market is going.



The methodology that SF use to calculate their index is laughable.  They get their own in-house estate agents to estimate how much they think a certain basket of houses would sell for from quarter to quarter. It's not based on actual sales, just opinion.  It should be taken with a very large pinch of salt.


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## niceone (2 Jan 2007)

Whathome - Yes I did the stress test.  Original interest rate was 2.5%, I stressed upto double that (which my accountant said wouldn't happen in this decade) and was comfortable that rent would pay mortgage.  And so, 2 years later, the interest rate has doubled.  

After 5% I can afford to subsidise but is that the prudent thing to do ???


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## whathome (2 Jan 2007)

niceone said:


> After 5% I can afford to subsidise but is that the prudent thing to do ???


 
If your purchases were for long term investment and you can afford the increased mortgage payments then I would ignore movements in the property market and focus on the long term plan. If your purchase decisions were based on shorter term speculation of capital appreciation then you should make a decision now based on whether you think the factors that prompted you to purchase in the first place still exist.


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## JohnBoy (3 Jan 2007)

You assume a property market with 5% annual growth so in real terms prices remain almost static given where inflation is. Moreover, these properties are barely producing any income and may soon become a cash drain - in sum limited capital appreciation and negative income in hardly a winning investment strategy. 

Could you sell one and use the cash to reduce the LTV's on the remaining two?


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## jonnypool (3 Jan 2007)

whathome, you have made a comment about my writing style.  What's all that about?  Is that what people do on here because I don't see much of it going on?  I'm glad to see that you have offered some fairly healthy advice too.


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## G123 (3 Jan 2007)

> You assume a property market with 5% annual growth so in real terms prices remain almost static given where inflation is.



For most people, their equity in the property in the property will be less than the value of the property so, if my assumptions are correct, they will still be making money in the above scenario. e.g. Property Value €100k, Mortgage €60k = equity of €40k. A 5% increase in the property is then the equivalent to a 12.5% return on equity. 
Simple example I know - other factors are - cost of funds and maintenance vs rents received... a fall in property prices etc.
As a long-term investment I would include Irish Property in a balanced portfolio as I personally would not bet against it over the next 10 years - personal choice though.


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## renter (3 Jan 2007)

Niceone, 
It is probably worthwhile talking to a financial advisor about your options. Consolidating loans would seem to make sense if you are in it for the long term. Personally, I would look at selling at least the worst performing property. Would be worth talking to EA's in the area also.

P.S. We sold our home in late summer and are planning to rent for another 18 months or so to see how the property market and our family life work out. Have'nt regretted it so far. If your properties are in sought after locations, you will probably be ok in the long term. We are happy to rent in a location convenient for work and family life, so there should always be a good rental market for well located properties.


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## sunrock (3 Jan 2007)

Niceone ,  what in gods name do you need 3 investment properties for? 
With people like you jumping on the rising house price bandwagon, it`s no wonder first time buyers can`t afford  a house.
Now you are moaning because the rent won`t cover your mortgage.Do you think you have a god given right to get your properties paid for by renters.
What about selling 2 properties and maybe paying off some of the mortgage in the remaining property.
Don`t forget about the stock mrkt..up 28% this year   .....oh yes  it`s called having a diversified portfolio.


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## niceone (3 Jan 2007)

Sunrock, welcome to this thread.

Sounds like you're the one that's moaning, I am looking for advice from like minded people.  I was once a first time buyer and took the risk to invest my money, time and energy so that I could improve my lifestyle and security for the family.

Your suggestion to sell one and keep three has already been put forward.  This is workable but perhaps not the best move if the property is still appreciating in value.  Nonetheless I must consider this.

Good to hear your stocks are up 28% this year but not relevant in this discussion.  Thanks also for clarifying the term 'Diversification'.


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## gearoidmm (3 Jan 2007)

sunrock said:


> Niceone ,  what in gods name do you need 3 investment properties for?
> With people like you jumping on the rising house price bandwagon, it`s no wonder first time buyers can`t afford  a house.
> Now you are moaning because the rent won`t cover your mortgage.Do you think you have a god given right to get your properties paid for by renters.



Can't understand this attitude.  The country needs landlords who are dedicated and in it for the long term to provide rental properties for people who might choose to rent.


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## sunrock (3 Jan 2007)

Sorry about my rant.Of course we need landlords even thought i like to criticise them....maybe i am envious. Don`t unfortunately own much stocks but everyone should consider diversifying their assets. What would you do if there was a property crash..your situation would be much worse.


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## baby_tooth (4 Jan 2007)

niceone said:


> It's amazing how things have changed in 18 months !!! Back then the rent was making me a nice annual profit. But now the tide has turned. I have 3 rental properties on interest only mortgages as follows:
> *Property / Rate /Profit (monthly)*
> A 0.0503 -€77
> B 0.0485 €219
> ...


 

welcome to credit crunch....
interest rates to rise further and inflation errodes the current capital appreciation gained, if we take that house price rises have stalled....

so you lose 5-6% of your currnet capital appreciation per annum as well as what you forgo in interest earning deposits on this amount, as well as your shortfall...

it's time to take profit and bank!


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## Debtwish (4 Jan 2007)

baby_tooth said:


> welcome to credit crunch....
> interest rates to rise further and inflation errodes the current capital appreciation gained, if we take that house price rises have stalled....
> 
> so you lose 5-6% of your currnet capital appreciation per annum as well as what you forgo in interest earning deposits on this amount, as well as your shortfall...
> ...


 
Exactly. This is why so many investors don't make nearly as much money as they should - they don't know when to sell.

I know a few that hung on to small cap tech stocks in 2000, hoping they would bounce back. They ended up handing back all they'd gained in previous years. I know some people will say "Ah, but it was obvious tech Stocks were overvalued", but there was still plenty of bullish stuff around in the media at the time, just like today with the property market. The parallels are spooky to say the least.

What makes the property market even worse is that it is illiquid. Many investors seem to think that when the downturn comes they will just sell up and bank their profits. Sell to who exactly?

A lesson for anyone holding an illiquid investment: *Always sell into strength, otherwise you probably won't sell it at all.*


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## colk (4 Jan 2007)

Niceone, there has been some good advise listed above. Unless property increases by more than 5% this year in relative terms you shall be losing money even if you make a small profit with your rental yields.

Diversifying the risk might be a good option.

European shares and Irish shares have been performing well and will continue to perform well over the next 12 months. Irish & English banks have been undervalued and in my opinion its there time to come good. Investing in oil or commodity companies was yesterdays news, banks and finance related shares are steady earners.

Even if you put the money on deposit if you sold your properties would give you a greater return at the moment.


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## Raskolnikov (5 Jan 2007)

Perhaps it might be a good idea to sell off the poorest performing property, what sort of profit would you make on the sale of it?


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## baby_tooth (5 Jan 2007)

Raskolnikov said:


> Perhaps it might be a good idea to sell off the poorest performing property, what sort of profit would you make on the sale of it?


 

stop talking madness man...property prices only go up, or at worst....a soft landing..

you are all heretics ;-)...questioning our heritage, our irish mantra..


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## infinity (5 Jan 2007)

colk said:


> European shares and Irish shares have been performing well and *will continue to perform well over the next 12 months.*



can I borrow your crystal ball please


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## niceone (5 Jan 2007)

Thanks again for all the responses !!  There have been over 3,000 viewings of this thread so far.  This confirms the subject 'Rent Not Covering Mortgage' is one of high interest (forgive the pun) at the moment.

If I could ask for a show of hands I reckon the majority would favour selling 1 if not all 3 properties.  The property pundits would be in favour of riding the interest hikes and having something VERY valuable in 20 years (even with short/medium term negative returns)

And as one man said to me at the bar "We're here for a good time not a long time"  I might sell the whole *ecking lot and go a little mad 

But seriously, I am favouring the stop loss strategy and getting out of property while I am making profit.  Thanks again for your advice.


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