# thinking about renting second property and buying family home



## blueskies (9 Aug 2008)

looking for some advise

Have a one bedroom apartment rented and living in a two bed at the moment. For various reasons need to move. Thinking about renting out the two bed and buying another. Both properties in dublin 15 area.
Any thoughts anyone? In particular about dublin 15 area
This has already been approved by the bank but just wanted to get a feel for other peoples thoughts on renting two properties and having mortgage on third?

edited to say that rent covers mortgage in both cases. Also thinking of going interest only on one of the properties for a few years as this will reduce mortgage repayments in the very short term in case of interest rate inreases and I also plan to release equity of about 50K for that rainy day! Debt to equity ratio is about 65% in both cases and yearly yield is approx 5%. The 50K will be kept in savings /investments and to protect against ye old interest rate increase or gap in rental.

edited again to pose the question what is the worse that can happen. ? If I optain mortgage protection on my new owner occupier property I will protect the home I live. Then if problems with interest rate and or the rental market means I cannot pay the fees on the investment properties, is the worst that can happen is I lose my investment properties to the bank. I mean so what? Nothing ventured , nothing gained. I guess it depends on if the properties ever go into negative equity.


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## webtax (10 Aug 2008)

IMO, In the present environment there would not be much point trying to sell an apartment where the rental income is covering the mortgage (plus other expenses?). Have you owned the two bed for over two years?
You should consider going interest only on both rental properties and using the surplus cash to pay down your home mortgage or for your rainy day fund.
As for releasing €50k, you will not be able to claim this as an expense.


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## WaterSprite (10 Aug 2008)

blueskies said:


> edited again to pose the question what is the worse that can happen. ? If I optain mortgage protection on my new owner occupier property I will protect the home I live. Then if problems with interest rate and or the rental market means I cannot pay the fees on the investment properties, is the worst that can happen is I lose my investment properties to the bank. I mean so what? Nothing ventured , nothing gained. I guess it depends on if the properties ever go into negative equity.



Losing an investment property to a bank is a pretty bad worst case scenario and will affect your credit rating for the rest of your life.  

Sprite


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## rmelly (10 Aug 2008)

blueskies said:


> If I optain mortgage protection on my new owner occupier property I will protect the home I live.


 
This is generally not optional for a PPR - do you know what it covers? I suspect you're confusing it with Mortgage Repayment Protection.

And of course we're assuming you are fully tax compliant on the existing property and will be so on the second rental property, including potential SD clawback etc

One more thing - did the bank clearly understand that you plan to retain both existing properties when 'approving'.


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## blueskies (10 Aug 2008)

I really am posing this question not to be asked about whether I am tax compliant or whether I have communicated my affairs correctly to the bank although I appreciate your interest. You can get mortgage protection for unforseen circumstances such as involuntary unemployment or illness whatever

It is a business risk I am undertaking, Webtax, think youre advice is very valid in terms of going interest only on both. I am naturally risk adverse to be honest, but I have looked and looked again at the market. 15% of the population are under 5 at the moment. Even if there is much unemployment in the future 20 years, there wont be the mass emigration of the 80s as all these families will need homes. Therefore rent. Also construction is down 80% this year. To my mind this means that for the building industry it is no longer profitable for them to reduce new house prices . This suggests to me that the property prices are approximating their correct level. And since properties are renting out with no apparant difficulty then demand is roughly equal to supply. 


Any thoughts anyone or comments anyone please.


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## rmelly (10 Aug 2008)

blueskies said:


> I really am posing this question not to be asked about whether I am tax compliant or whether I have communicated my affairs correctly to the bank although I appreciate your interest. You can get mortgage protection for unforseen circumstances such as involuntary unemployment or illness whatever
> 
> It is a business risk I am undertaking, Webtax, think youre advice is very valid in terms of going interest only on both. I am naturally risk adverse to be honest, but I have looked and looked again at the market. 15% of the population are under 5 at the moment. Even if there is much unemployment in the future 20 years, there wont be the mass emigration of the 80s as all these families will need homes. Therefore rent. Also construction is down 80% this year. To my mind this means that for the building industry it is no longer profitable for them to reduce new house prices . This suggests to me that the property prices are approximating their correct level. And since properties are renting out with no apparant difficulty then demand is roughly equal to supply.
> 
> ...


 
1. You claim to be risk averse but are 'putting all your eggs in one basket' - property, then talking about going interest only on both investment properties, plus the comment 'Nothing ventured , nothing gained.' is completely at odds with this.
2. You don't understand difference between Mortgage Protection & Mortgage Payment Protection - I'd advise you to read up on it and what it ACTUALLY covers and when it can be claimed.
3. I was under the impression that there were much more properties for rent on daft and similar sites compared to a year ago - maybe I'm wrong?
4. How is this a 'business risk' - will the properties be owned by you or company or other investment vehicle?
5. There are some significant logic gaps & jumps in your analysis of the property market. I don't claim to know it all but would disagree with much of your analysis.
6. You are way too blasé about possibility of losing the investment properties - again how risk averse are you really? 
7. Point taken on the tax compliance but you wouldn't believe the number of posters who ignore this or are ignorant of it.
8. Why do you consider negative equity to be a problem if these are long term investments?


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## blueskies (10 Aug 2008)

i find the last ops last comments even more condescending than the last, actually rude and trying to get personal. I must have hit a nerve . i am getting advise from my advisor next week and will probably be taking it from there so heres hoping.

Thanks again


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## Howitzer (10 Aug 2008)

I'm not surprised. I suspect an element of novice investor fatigue is breaking out on AAM. There have just been so many "investors" posting incredibly naieve propositions over the last 12 months in this forum, receiving pretty good advice and then choosing to ignore that advice and do what they were going to do themselves anyway. 

I thought your proposition to be a fair one. 2 properties in the same area is usually not much more work then 1. You seem to have thought through things on the investment side.

Personally I don't think it's a great time to buy another property - regardless of what you do with your apt. Would you consider renting yourself for, say, 6 months to keep your risk as low as possible?


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## rmelly (10 Aug 2008)

OP, apologies if you found my response personal and condescending - it wasn't meant to be, but as Howitzer says you'd be surprised at some of the propositions people suggest.

By all means go for it, and good luck - I have no interest either way. My only concern is that I feel you don't fully understand the implications and have arrived at your conclusions on the state of the property market incorrectly. I would feel much more confident were you to respond to or refute my comments and show you had fully thought through the points raised rather than dismissing them as a rant.


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## blueskies (10 Aug 2008)

I understand op that youre intentions are well intended but I am qualified professional myself and know what is entailed . I have looked at youre questions and I dont need to address any of them at all except perhaps the one that daft is recording more properties (much more I believe) than last year. Is this not perhaps because a lot of people who were trying to sell last year have now given up and are renting out their properties. And the people who are taking up these properties are the future purchasers of these or similar properties when the market and credit crunch settles. 
I am trying to establish is their over supply out there. ? any any thoughts?


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## Howitzer (10 Aug 2008)

To my eyes this is the best indicator of supply around

http://daftwatch.atspace.com/

Whether that indicates oversupply "should" be indicated in the CSO statistics for [broken link removed] , though there is some debate as to how those figues are ascertained.

That's why I would suggest renting yourself for 6 -12 months if you do decide to rent your apt, at least that would allow you possibly move back in if demand fell off a cliff and you were left servicing 3(?) mortgages.


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## blueskies (10 Aug 2008)

Thanks for the info. My head is also saying to me to hold off and say and play the waiting game.Thing is tho, my instinct is SCREAMING to buy buy buy , the last time it did this was post 9/11 and Enron and the market was reeling  and I made a bundle.I guess this time is different in that there is more to lose and that we would have as you say potentially three properties to service. 
This time I think head will win over heart although I dont know .
Will be meeting advisor during week however to see what their thoughts are too and need to go through all with my husband as well who also feels I think we need to play safe and see how the cookie crumbles.Ever wish you had a crystal ball

Thanks again


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## Bronte (11 Aug 2008)

Why would you borrow another 50K, I don't see the logic of this.  You can't write it off against tax on rental income.  If you used it to purchase your new home and thereby reduce your mortgage it would make more sense.  Will the interest you pay on the 50K be less than the interest you receive on the 50K?  Personally I think mortgage protection insurance is a waste of time.  As you referred to worst case scenario, if you go belly up on the investment properties the banks will not only take those properties but your home too and anything else you might own.


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## webtax (11 Aug 2008)

Bronte said:


> As you referred to worst case scenario, if you go belly up on the investment properties the banks will not only take those properties but your home too and anything else you might own.


 
If the debt equity ratio of <65% is accurate then there is little chance of this happening.
Agree with the lack of logic in borrowing 50k - might this also affect the interest rate available on LTV?


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## cromulent (11 Aug 2008)

blueskies said:


> Also construction is down 80% this year. To my mind this means that for the building industry it is no longer profitable for them to reduce new house prices . This suggests to me that the property prices are approximating their correct level.


 
It suggests to me that there is no market whatsoever for property at current prices, because the market is both vastly oversupplied and overpriced. 



> And since properties are renting out with no apparant difficulty then demand is roughly equal to supply.


 
If demand was equal to supply in the rental market there would not be 16,000 properties available to rent on Daft.


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## charliemacck (11 Aug 2008)

blueskies said:


> Thanks for the info. My head is also saying to me to hold off and say and play the waiting game.Thing is tho, my instinct is SCREAMING to buy buy buy , the last time it did this was post 9/11 and Enron and the market was reeling and I made a bundle.


 
Brendan O'Connor said it best when he said - The really smart and ballsy guys are the guys who are buying when no one else is.


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## Howitzer (11 Aug 2008)

charliemacck said:


> Brendan O'Connor said it best when he said - The really smart and ballsy guys are the guys who are buying when no one else is.


 
He said that in . I think he just about picked the top of the market - fair play.


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## cromulent (11 Aug 2008)

charliemacck said:


> Brendan O'Connor said it best when he said - The really smart and ballsy guys are the guys who are buying when no one else is.


 
I sincerely hope Brendan was buying all around him in July 2007.


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## Bronte (11 Aug 2008)

charliemacck said:


> Brendan O'Connor said it best when he said - The really smart and ballsy guys are the guys who are buying when no one else is.


And he's an Irish property expert? That's great advice to take advice from someone who writes for the Indo, isn't that the number one paper for advertising from .... property developers.


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## blueskies (11 Aug 2008)

I know there are so many properties on daft but the question is are they renting out as that would be more indicative of over supply or not In my current rented property last time I rented 9 months ago I got 20 calls in one day but obviously things have changed?


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## ntab2 (12 Aug 2008)

Blueskies, I was renting in a centrally located area of Dublin for the last two years - right on the Luas, great location, blah blah blah.

In October I needed to find a new roommate, I got a zillion calls, lots of semi-desperate people, found a roommate no trouble. She couldn't find work and went back to Spain. It was harder to find someone in the winter, but I still managed it.

In June, I went looking for another roommate (to replace myself this time, as I was moving). No joy. Got two phone calls. One guy saw it but he said he had a ton of options and wasn't mad about the place, the other guy just didn't bother to show up. My roommate, who had planned on staying, realised that it was going to be really tough to fill the place and left as well - he just got a better deal in another apartment. 

I doubt you'd get 20 calls in one day anymore. Those days are over for the moment. 

The upsurge in the number of properties is oversupply. Immigrants are going home, more properties are on the market.


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## z101 (12 Aug 2008)

I think the areas within D15 must be a variable also. If you say you had no trouble renting out 9 months ago then fair enough, but a friend of mine has had difficulty in D15 renting out a 5 year old apartment. I cant see anything wrong with the place but others clearly do.

As for the borrowing the 50K for the rainy day - I really cant see the logic in this. Such repayments are what induce rainy days....!!


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