# equity release from my property portfolio



## rocky (19 Nov 2005)

hi all
i have an investment portfolio with a market value of €1.1m approx and a total mortgage of €700k approx.this leaves me with €400k of equity which i wish to release or 'gear up' to purchase another investment property(s). should i purchase 1 property for €400k or use the money as a deposit for 2 or 3 (or more) properties. any advise or suggestions are most welcome.


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## markowitzman (19 Nov 2005)

I suppose another way of putting this is what total loan to value (80% or above I would not be comfortable with personally) of the portfolio would both you and the bank be happy with?
Secondly are you diversified into other asset classes and not just property and do you have diversification within the property portfolio (e.g. location and residential/commercial?)?
How would your cashflow be if interest rates went up by a couple of % and do you have significant cash reserves to cover you if there is a downturn?
These would be the most obvious questions that would come to me but there are bound to be others.


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## RainyDay (19 Nov 2005)

Do you have other non-property investments? If not, you might want to consider the risks of a non-diversified portfolio.


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## markowitzman (20 Nov 2005)

Also with the amount of property units you propose to buy do not underestimate the time involved in managing them etc. Time factors can be an issue too. Also good idea to have your own dedicated handy man and easy access to a reliable electrician and plumber. Otherwise letting agent with associated costs.


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## rocky (21 Nov 2005)

hi again
i am ok with my current l.t.v of my portfolio as are my bank so that is not a problem.
yes i have other equity based investments(admittily not as much as in my property portfolio) but i feel i can live with this.
my property investments are split up as follows
2 s/h semis worth €500k approx
1 new duplex worth €225k approx
1 new apartment worth €150k approx
1 site with fpp worth €125k approx
1 small farm recently planted for forestry worth €150k+ approx

obviously like everyone else i would be effected by an increase in interest rates but i would be ok at the moment as i have access to some cash 

i prefer to personnally source and look after my tennents but i do take the point that more tennents equalls more time and /or more potential problems .

so any suggestions on my original question ?


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## markowitzman (21 Nov 2005)

Rocky I would first of all develop the site with fpp so as to get an income from it. Did you pay 125k? What is planning permission for? My reason for asking is that it is just for one house it could be difficult ehough getting a good rental yield once you have put house up except if you are a builder. 
Also with house built and let on this site then you are in stronger position with bank re further development. Also if you build on your own site you should be getting the house for at least 20% less than retail price in my experience.
Is all property in one area?
Is it urban or rural?


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## rocky (21 Nov 2005)

hi markowitzman
i intend to build on this site and sell.i bought the site which is in a rural area for €75k 12 months back and have now got fpp on it without any residency clauses.  i was offered €100k for it some time back but as i said i intend to build on it.the other properties are in different urban areas.


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## markowitzman (21 Nov 2005)

Tough call.
For what it is worth I would build, hold and let as you got site at cheap price.
Would only sell if I had to (significant selling costs and cgt).
Why do you want to sell?
If you really wanted to sell it might pay you to keep it as your ppr for a while and then sell to avoid cgt.


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## rocky (21 Nov 2005)

hi again
i feel i am getting off the point here
but to answer your question i want to develop the site and sell  it because i will need the cash from the project and kit out cost  for rent will be too much and also my returm on investment would be way too low and any way as i said it is in a rural location so rent market would be small
as i am living elsewhere it would not be practical to use it as my ppr
my orignal query was how best to utilise equity in my portfolio to purchase some more rental properties


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## markowitzman (21 Nov 2005)

I would pitch with bank for equity release of 100k from existing portfolio to act as deposit on one 400k property. Rates etc do not get involved yourself with bank.
Your portfolio is somewhat similar to mine. At this level they will drop rates to get or keep you but get a good financial advisor to fight your corner.
If you are a distance away from site and do not want to rent it etc I would sell it for 125 rather than build as too much hassle.
If it is not a good rental area are you sure it will sell quickly?
As I say I would not sell to avoid tax liability etc.
Tax payment would go along way to kit out rental property especially an appartment.
Best of luck in any case.


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## rocky (22 Nov 2005)

what rates do you think i should be able to get. i currently have 3.3% interest only on some properties and 2.75% fixed for 1 year on another.
i expect to make some money for the 'hassle' of building as this is something i have done before.when i said that i did not expect it to rent i meant that in my opinion it would be easier to sell a new house in the country than rent it but i do admit that the tax involved would go some way to kit out a new house. you say that you would release €100k as a deposit on one property of €400k but why not release say €250k as a deposit on 3 properties of €300k each


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## markowitzman (22 Nov 2005)

closer to 3% I would say as tracker.
I think it is completely up to yourself as to how many properties you buy.
I just feel in present market that personally I would not like total ltv of the portfolio above 80% just in case market tanks.
I am sure others on this forum would say I am too cautious but I like to buy and rent one property at a time rather than buying a few at same time.


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## rocky (22 Nov 2005)

ok thanks for your views
i will see how i get on at the bank re the interest rates hopefully they will give me a better deal although with the talk of an increase i guess the best i will get is a freeze on what i have.

anyone else out there with some thoughts


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## sudden (22 Nov 2005)

hi.
build on the site and then sell it.
on buying property by releasing equity-why not just release maybe 10k to 30k of equity of your holdings to use as downpayment to buy each new property using 80-90% mortgage with interest only, that way, as you know,you get to write off the interest aganst the rental income,your rent should cover the interest on the mortgage .
you should still make a small profit every year but if property took a dive you would be able to cut your losses by selling them and still hold onto your original properties. if property continues upwards for a few more years you will have bought at a good time and can worry then (or not) 
about paying off the capital portion of the mortgage .

in other words -invest with the banks money instead of your own,

thats my view but i am still learning so take it with a pinch of salt.
also with profit from sale of the house why not consider buying shares that way you are not so exposed to any property downturn and it is easier to convert to cash if needed.
either way , good luck to you.
sudden
by the way , i dont see a downturn coming -but it never hurts to plan for one.


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## markowitzman (23 Nov 2005)

which is why I feel one should at all costs HAVE to sell in a downturn as this is just the wrong time to be forced to sell. At this time many also would be running to the exit! Hence I would say watch loan to value of the overall portfolio. 
Agree with all you say about using bank's money.


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## rocky (23 Nov 2005)

hi sudden
i agree with everything that you say except i must admit that i did not intend to invest too heavily in the stock market. it is an area that i have dabbled in but know very little of. any recomondations?
With €400k of equity in my property portfolio what would be my best move?


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## rocky (23 Nov 2005)

Hi Markowitzman
I'm sorry as i do not fully understand your reply except for the loan to value bit which i agree with


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## sudden (23 Nov 2005)

rocky.
my point is that you have nice equity which is a good cushion against a downturn in the market, if you invest it it all in more property you are leaving yourself exposed, 
which is why you should spread your risk by investing in something other than property, read brendans investment guide to start.
dont borrow to invest in the stockmarket, 
your problem now is (we should all be so lucky) is whether you invest your profits from property into more property or not.
you can have an two-pronged strategy,-use some equity to invest in more property
use spare cash to invest in the stockmarket which in the long term gives better returns than propery.
 for whats its worth ,thats my take on it.

sudden.


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## Purple (23 Nov 2005)

With entry and exit costs so high it will take some time to make a profit on new investment properties. If there is a downturn you will have to have made approx. 10-12% to break even when you sell (9% stamp duty, legal fees when you buy plus the estate agents % when you sell). I have some investment properties but would not but any more, as I don't see it being a good use of equity/capital at the moment. 
It may be the banks money but they will get it back from you if it all goes pear shaped. 
If you don't know much about shares (and I don't either) then why not take the time to learn about them and spread the risk into other asset classes? Or if you have a mortgage on your PPR you could use the income to reduce it.


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## markowitzman (23 Nov 2005)

rocky sorry this is not clear.
Put simply do not over leverage yourself to such an extent that you would have to sell in a downturn which is exactly the wrong time to sell as there would be more sellers than buyers and prices would suffer.
Sudden do not agree that property is a better performer than equities as you leverage your return in property by using the bank's money whereas you cannot do so to the same extent with shares. 
However if you were to buy all your property for cash then agree stock market better return but not many buy property for cash especially in current bubble.


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## markowitzman (24 Nov 2005)

Agree with you sudden apart from one point.
Do not think that stock market will be a good enough hedge if you are long stocks.
A suitable hedge would be to 
buy puts or short the housing sector (or market as a whole but hard to time!) of the stock market in my opinion.
If property crash I think US stock market and hence the world markets will not escape.
I do not think there will be crash but who knows?
I personally would not go into shorts or puts until there was very clear evidence of a crash both in the stock market or specifically in the housing sector.
Something of the order of the dotcom crash.
Until then I diversify into as many assets like yourself.
Just feel being long the stock market in a crash is not a hedge but am open to your views on this.


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## rocky (24 Nov 2005)

sudden said:
			
		

> hi all.
> i broke both my ankles recently so as i lie in bed i have nothing better to do than annoy my good wife and think about my own situation.
> markowitzman, i don't think i said that property gives better returns than the stockmarket, i meant that once we are on the property market and are making money it would do no harm to diversify so as to spread the risk in case of downturn in property.
> at the moment i have 3 investment houses worth 920k with mortgage of 419k,also have family farm with no debt worth around 400k,which i let to an neighbor for small money, family home mortgage is 250k on house worth 450k, as far as i am concerned the above portfolio is pretty good and can stand on its own.
> ...


WHY NOT APARTMENTS
ARE THEY NOT EASIER TO LET TO YOUNG COUPLES OR SINGLES


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## sudden (24 Nov 2005)

rocky.
(bet clubman will be all over me for this one)
i feel that if people have a choice between renting an house or an appartment for the same money-most would take the house,
feel appartments value and rents would drop quicker than houses
in a downturn.
a friend of my has several houses and (very nice) appartments around cork city center and all he does is bitch about the high turnover in his appartments, l
i have an irrational fear that,over time, appartment blocks could become delapitated.
i dont think there will be a property crash but i like to be careful.

just because i am biased against appartments don't make them bad investments.


sudden.


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