# Bad Investment property



## wino (22 Sep 2009)

Hi , 

I have a second property as an investment. It's on a 22 year interest only with Haven which is on the Euribor rate which is alot higher than the standard variable rates. The rent I'm recieving is only 1100 a month, a shortfall of over 220 euro a month of which I am subsidising. The property is now only worth around the same as the loan which is 300K. Do I try to get an annuity mortgage over a longer term to try and start paying off this loan and will the banks entertain me?. I'm very conscious of not being able to afford a property on an interest only loan when the rates are as low now as they wll ever be!
Any suggestions would be kindly appreciated

Wino


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## murphaph (22 Sep 2009)

You could sell up and cut your losses too. If you're not in negative equity might be the best solution in fact. The only way your investment is going to turn around is if rents climb by 220 euro a month and/or your property increases dramatically in value. 

You may never get the return you envisaged and cutting your losses would then be sensible.


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## lopin10 (22 Sep 2009)

Hang in there,be patent the maket will turn


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## WillMcC (23 Sep 2009)

Hey Wino

If you are struggling to afford an interest only mortgage then the banks are very unlikely to offer you an annuity mortgage. Not sure from your post if you are struggling though.

Quick excercise here with lots of vague assumptions but just to get you thinking:
If you hold the property for 5 years it will cost you 12 X 5 X 220= 13,200 in interest. Maintenance/letting charges of roughly 1,100(1 month's rent) per year means a further 5,500.

Rough cost to keep property for 5 years is 18,700. If you sold now, what would your loss be?

You just need to start weighing up your options based on where you think interest rates will go, property prices will go, rent levels will go etc.


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## wino (23 Sep 2009)

Hi all,

My thoughts on it are to try and hang on. There is a train station due in about 12 months time which will hopefully help the area. I'm in the private sector with little or now pension and I doubt if a bank would ever give me this chance again.Long term considerations need to be made for my retirement and there is also a mortgage protection policy which can act as a life insurance policy for my family-worst case scenario.
Sorry to be so morbid and thanks again for your replys.

Wino


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## Complainer (24 Sep 2009)

wino said:


> Hi all,
> 
> My thoughts on it are to try and hang on. There is a train station due in about 12 months time which will hopefully help the area. I'm in the private sector with little or now pension and I doubt if a bank would ever give me this chance again.Long term considerations need to be made for my retirement and there is also a mortgage protection policy which can act as a life insurance policy for my family-worst case scenario.
> Sorry to be so morbid and thanks again for your replys.
> ...


Why would you choose property as your pension, instead of just getting a traditional pension, with all the tax breaks that go with it?


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## mercman (24 Sep 2009)

Complainer said:


> Why would you choose property as your pension, instead of just getting a traditional pension, with all the tax breaks that go with it?




Very simply, the Op is controlling his own destiny. In a traditional pension, a large chunk of the fund will go in Management Fees. this fee, that fee and every other god damn fee you could imagine. Now if that is not a good enough reason well what is.


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## Butter (24 Sep 2009)

Complainer said:


> Why would you choose property as your pension, instead of just getting a traditional pension, with all the tax breaks that go with it?


 
As an example my pension fund over 10 years has returned 0%.  That's not taking inflation into account at all.  So even with tax relief I am not convinced by the argument for private pensions.  I still pay into mine so maybe I'm daft but I also have money invested in property and the stock market.  The best option if you can do it is to invest in different sectors.


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## wino (24 Sep 2009)

Thanks complainer,

but I'd have to agree with mercman.
The pension I have had since the early nineties is still in freefall and I'd hate to think what I would have lost in the last few years if I had put in the kind of funds the so called experts advised me on. I have just discovered that an evergreen fund I've been investing in is returning a little of 1% a year while the management fees are 3 % per year.
Go figure.
To have a pension worth something half decent on retirement at present would see me having to put in over 1K a month- I just don't have it


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## mercman (24 Sep 2009)

If somebody on AAM took the time to work out the fees taken from Pensions and Managed funds both directly and indirectly. Why do you think Banks have these Pension and Investment cos. And we all know why type of people work and sell in Banks ?? 

Personslly I've learned the very hard way. Case in High Court on October 19 and it will give me every great pleasure to report back the full extent of what happened.


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## Bronte (25 Sep 2009)

Complainer said:


> Why would you choose property as your pension, instead of just getting a traditional pension, with all the tax breaks that go with it?


 

With a property purchase you can anticipate all the costs, you can have a fair idea of the return and there are no sneaky costs.  You fully control it, you can sell it if you need a lump sum.  With a pension you have absolutely no idea of the return and it might even be close to zero, the fund can go bust, the charges, mostly hidden, mean you don't know how much you are investing, you have no control over where it is invested, in Ireland this means that a lot of pension funds are overly subscribed to Irish shares which is not a good thing.  And finally when you reach retirement date you have to purchase an annuity within a certain amount of time and depending on the timing you could get a very bad return resulting in poverty in retirement.


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## Complainer (25 Sep 2009)

mercman said:


> If somebody on AAM took the time to work out the fees taken from Pensions and Managed funds both directly and indirectly. Why do you think Banks have these Pension and Investment cos. And we all know why type of people work and sell in Banks ??
> 
> Personslly I've learned the very hard way. Case in High Court on October 19 and it will give me every great pleasure to report back the full extent of what happened.






Marg said:


> As an example my pension fund over 10 years has returned 0%.  That's not taking inflation into account at all.  So even with tax relief I am not convinced by the argument for private pensions.  I still pay into mine so maybe I'm daft but I also have money invested in property and the stock market.  The best option if you can do it is to invest in different sectors.





mercman said:


> Very simply, the Op is controlling his own destiny. In a traditional pension, a large chunk of the fund will go in Management Fees. this fee, that fee and every other god damn fee you could imagine. Now if that is not a good enough reason well what is.



All of the complaints about pension funds here also apply to property. The returns on property investments have been very poor, and in many cases negative. 



Bronte said:


> With a property purchase you can anticipate all the costs, you can have a fair idea of the return and there are no sneaky costs. You fully control it, you can sell it if you need a lump sum. With a pension you have absolutely no idea of the return and it might even be close to zero, the fund can go bust, the charges, mostly hidden, mean you don't know how much you are investing, you have no control over where it is invested, in Ireland this means that a lot of pension funds are overly subscribed to Irish shares which is not a good thing. And finally when you reach retirement date you have to purchase an annuity within a certain amount of time and depending on the timing you could get a very bad return resulting in poverty in retirement.


Pretty much everything in this post is factually incorrect, apart from the annuity issue. Property investors cannot anticipate all costs - they have little control over management fees, over tax. They cannot anticipate how rental return is going to grow or fall. There are many sneaky costs, like renovating after nightmare tenants.



wino said:


> Thanks complainer,
> 
> but I'd have to agree with mercman.
> The pension I have had since the early nineties is still in freefall and I'd hate to think what I would have lost in the last few years if I had put in the kind of funds the so called experts advised me on. I have just discovered that an evergreen fund I've been investing in is returning a little of 1% a year while the management fees are 3 % per year.
> ...



Have you actually compared your two investments? The 1% return on your pension (even with the fees) still beats the losses on your property investment. 

No Irish pension fund has gone bust. All charges are quoted up front. Every pensions provider offers a choice of funds, so if you dont want Irish shares, you don't take them.

I'm no cheerleader for pensions, but there is no sensible, financial comparison going on here. If you want to do a comparison, run the numbers. Remember, no pension investor ended up in negative equity on their pension.


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## mercman (26 Sep 2009)

Complainer, whilst I accept your viewpoint, I will in October be able to give you a true fact analysis on funds investments, the behind the scenes of the downright crooked ways the funds are managed. The commissions paid to the agents and brokers and the downright ignorance shown to customers and how they play them like fish. And most people simply do not have the time and resources to check their Investments. They believe that if their money is managed by a Bank it is safe. How wrong these people are. Why do you think the largest Bank in this business in this country made over €600 million in profit. And that was not from good Banking. And I have the proof to show every point made in case somebody wishes to start proceedings to shut me up.


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## Complainer (26 Sep 2009)

mercman said:


> Complainer, whilst I accept your viewpoint, I will in October be able to give you a true fact analysis on funds investments, the behind the scenes of the downright crooked ways the funds are managed. The commissions paid to the agents and brokers and the downright ignorance shown to customers and how they play them like fish. And most people simply do not have the time and resources to check their Investments. They believe that if their money is managed by a Bank it is safe. How wrong these people are. Why do you think the largest Bank in this business in this country made over €600 million in profit. And that was not from good Banking. And I have the proof to show every point made in case somebody wishes to start proceedings to shut me up.


And there are regular stories in newspapers about crooked property deals too. Remember the mortgage broker who sold his own UK property to his client? And the Offaly FFer with the secret profits from his 'partners'?

There are always bad apples.


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## mercman (26 Sep 2009)

Complainer said:


> There are always bad apples.



Of course there are. But I'm talking about people that work within a large Financial Organisation who portray themselves as if their dirt doesn't smell. There are crooks everywhere, but to entrust an organisation with large portions of one's hard earned money and the Institution concerned break their own rules and the same persons are still employed. Well that is not bad apples - it is ROT - and leave apples out of this. I like apples.


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## Lynda (26 Sep 2009)

wino said:


> Hi ,
> 
> I have a second property as an investment. It's on a 22 year interest only with Haven which is on the Euribor rate which is alot higher than the standard variable rates. The rent I'm recieving is only 1100 a month, a shortfall of over 220 euro a month of which I am subsidising. The property is now only worth around the same as the loan which is 300K. Do I try to get an annuity mortgage over a longer term to try and start paying off this loan and will the banks entertain me?. I'm very conscious of not being able to afford a property on an interest only loan when the rates are as low now as they wll ever be!
> Any suggestions would be kindly appreciated
> ...


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## Bronte (28 Sep 2009)

Complainer said:


> No Irish pension fund has gone bust. All charges are quoted up front. Every pensions provider offers a choice of funds, so if you dont want Irish shares, you don't take them.


  Didn't the Waterford Glass employees end up with little or no pension?


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## Bronte (28 Sep 2009)

Complainer said:


> Remember, no pension investor ended up in negative equity on their pension.


 
Well isn't a return of 1% worse than negative equity?


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## murphaph (28 Sep 2009)

I imagine a pensioner ending up in negative equity is akin to a pensioner sticking all their wealth into the stock market just before a crash-it's just something you don't do. The pensioner should have invested early in stocks and/or property to minimise the risks of crashes over time and move to 'safer' investments the older he/she got. 

I also like having a bit of investment property as I have a good idea what it pays relative to a salary. It is a bit of a comfort thing, having bricks and mortar-no doubt about that.


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## Complainer (29 Sep 2009)

Bronte said:


> Didn't the Waterford Glass employees end up with little or no pension?



That was an underfunded DB scheme, which is a totally different scenario to what I mentioned here.



Bronte said:


> Well isn't a return of 1% worse than negative equity?


SO you'd prefer a -10% return to a 1% return?  Can I interest you in some investment products that I'm selling?


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## mercman (29 Sep 2009)

Complainer, I've exchanged many posts with you and always found your own posts genuine and informative. However in this thread I fail to understand your reasoning that pension funds (in essence the same as equity funds but with different Taxation rules) are in the main better than other Investment products. The Pension funds are hit with charges each and every year with a minimum 1.5% plus, regardless if the markets went up or down. Maybe a mix of investments but Irish Pension Funds are pretty secret with their wonderful investments.


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## Complainer (29 Sep 2009)

mercman said:


> However in this thread I fail to understand your reasoning that pension funds (in essence the same as equity funds but with different Taxation rules) are in the main better than other Investment products.


Actually, that's not what I'm saying. In a devils advocate kind-of way, I'm challenging that traditional Irish 'property as a pension' story. I'm not saying that pension funds are generally better, but I am suggesting that there is no evidence that (as many posters here assume) pension funds are generally worse.


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## mercman (29 Sep 2009)

Maybe, but there is nothing worse in knowing after the event that some crowd are pulling heaps of Management fees from a fund for doing nothing, whether the value goes up or down.


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## Howitzer (30 Sep 2009)

Bronte said:


> Well isn't a return of 1% worse than negative equity?


Huh?


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## Bronte (30 Sep 2009)

But in general you can wait your way out of negative equity, if you end up aged 65 with a pension return of 1% you can do nothing. Most people don't watch their pensions and don't realise until the day they need them what return they will get and then it's too late. 

Also in relation to property it's highly unlikely you'll owe any mortgage when you reach 65 and there you have the option of rent as pension or selling the house if you want. The point is you have options and control. I'd rather deal with the vagaries of the tax system than the secrecy of the pension 'providers'.

Just because pensions get a lot of tax breaks does not automatically mean that they are worthwhile.  A lot of people make a mistake on that.


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## Howitzer (30 Sep 2009)

You've made a somewhat strange argument there. You've looked into the future and assumed a 1% return on one investment whilst you've taken another invetsment which is currently worth less than nothing (assuming deposit less than neg eq) and speculated that when it's encashed it will have made a profit.

The merits of a pension vs property is neither here nor there as far as I'm concerned, invest as you like, but here you've simply created one possible future scenario which suits your argument.


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## Complainer (30 Sep 2009)

mercman said:


> Maybe, but there is nothing worse in knowing after the event that some crowd are pulling heaps of Management fees from a fund for doing nothing, whether the value goes up or down.


Nothing worse? How about finding that your tenant has done a runner with your couch and your table, and left you cleaning their dog faeces from your sitting room? Or worse still, how about finding that your tenant has NOT done a runner, but is squatting in the house, not paying rent, keeping their dogs in the sitting room, and ignoring all your contacts. Just look around AAM to find the nightmare scenarios from landlords in negative equity dealing with problem tenants.



Bronte said:


> But in general you can wait your way out of negative equity, if you end up aged 65 with a pension return of 1% you can do nothing.


You're not comparing like with like, as Howitzer has pointed out. A 1% return on a pension over a lifetime is unknown. You are just as likely (or unlikely) to be able to wait your way out of a bad pension return as a bad property return.



Bronte said:


> Just because pensions get a lot of tax breaks does not automatically mean that they are worthwhile. A lot of people make a mistake on that.


Agreed. People need to run the numbers to work out what is best for them. THere is no-one solution.


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## patftrears (30 Sep 2009)

wino said:


> Hi ,
> 
> I have a second property as an investment. It's on a 22 year interest only with Haven which is on the Euribor rate which is alot higher than the standard variable rates. The rent I'm recieving is only 1100 a month, a shortfall of over 220 euro a month of which I am subsidising. The property is now only worth around the same as the loan which is 300K. Do I try to get an annuity mortgage over a longer term to try and start paying off this loan and will the banks entertain me?. I'm very conscious of not being able to afford a property on an interest only loan when the rates are as low now as they wll ever be!
> Any suggestions would be kindly appreciated
> ...


It's going to cost you 100k out of your pocket to fund this property for the next 22 years and get a return. Based on

* Covering mortgage short fall
* Management fees
* Maintenance and Repairs
* Void period
* Interest rate increases
* Selling fees

Can you afford to pay this over the next 22 years ?
It's an interest only mortgage, you say the property is worth roughly loan value now, so it has to increase by 100k to break even!

If you can get out now and not loose anything do it and put the 100k you save towards your pension.

edit
Is this the same property http://www.askaboutmoney.com/showpost.php?p=502132&postcount=1


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