# To buy or not to buy



## Ron J (13 Sep 2006)

Have PPR valued at 620k.  Mortgage is 440k.  Joint incomes circa 100k.  Have opportunity to purchase 3 bed semi valued at 250k for 224k.  Sitting tenants paying 750pm rent.  Mortgage Broker says 90% loan available - 5 yrs interest only.  Balance from equity release on PPR.  First venture into buy to let market.  As the song says " should I stay or should I go".  Any views welcome.


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## ClubMan (13 Sep 2006)

You have €620K of your net worth tied up in property already. Is tieing up another €250K in domestic _Irish _property the most appropriate investment option for your specific circumstances? Would diversifying across wider range of asset classes, risk/reward profiles, geographic regions etc. be more appropriate?


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## liteweight (13 Sep 2006)

You'd have to pay stamp duty on the 224k at investors rates plus legal fees etc. Even working on the 224k alone it's only a 4% yield at the rent you mention. I wouldn't be happy with this scenario. The 4% might not be too bad if you weren't already stretched. The equity in the family home isn't all that much. I, too, would diversify across a wider range of asset classes. Just my two cents!


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## Howitzer (14 Sep 2006)

Maybe you should this thread.

http://www.askaboutmoney.com/showthread.php?t=36468


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## Ron J (15 Sep 2006)

Thanks liteweight & Clubman.  I know the argument - you could buy 4 properties overseas for this money but I just cant reconcile having a buy to let in another contry.  May be old fashioned but I think there's a benefit having it close by.  There's a new ring rd. and a private hospital planned for the area where the house is and I think that this is a real plus .  New similar houses in the area are making 240 - 250k.  Having read previous threads a lot of people seem very happy with a 4% yield.  I feel theres a good chaance of decent appreciation over the next 3 - 7 yrs.


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## Eurofan (15 Sep 2006)

Ron J said:


> I feel theres a good chaance of decent appreciation over the next 3 - 7 yrs.



As long as you're aware of the chance of depreciation over a similar timeframe and are prepared and able to handle that then it's your choice. 

Personally i think you're crazy. You are completely reliant on one asset class to perform, and even by conservative estimates property won't give anything like recent returns in future.


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## Maine (18 Sep 2006)

Eurofan said:


> As long as you're aware of the chance of depreciation over a similar timeframe and are prepared and able to handle that then it's your choice.
> 
> Personally i think you're crazy. You are completely reliant on one asset class to perform, and even by conservative estimates property won't give anything like recent returns in future.


 
It is important to take into account to what extent your income would be impacted from a property slowdown.  If this is completely not a factor ie public sector then it derisks the scenario alot.


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## macbri (24 Sep 2006)

Hi Ron,
          On yield u need to consider annual running expenses specific to this property-examples include house insurance,tenants liability,wear and tear,rates,management fees,vacancy periods(although u have sitting tenants at moment doesn't mean it will always be like that) etc.

Conservatively,these would be in the order of 2-4k in most properties

This would reduce your net yield down to 2-3 %

Look at similiar rental properties in area on daft.ie and get an understanding of rental incomes/number of rental properties in that area.

Also bear in mind that interest rates are on an upward projectory(from a very low base) forecast to go to 3.5% by December 06

The most important consideration is your current cash flow situation(factor in a mortgage rate rise of 2%)-if this stretches your finances then its' madness to buy this property .


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## bsloe (26 Sep 2006)

I can see both sides of the argument - putting all ur investments into one asset class may be risky but I can still see some growth in the irish market. Its not going to stop but lets hope that its slows down. i read somewhere on sunday that for every 0.25 rise in interest rates reduces the amt a FTB can borrow by 10,000 which i presume will apply to alot more besides.  The thread highlighted by Howitzer is a good example of how things are in the irish market.
Ron J, if you are going to buy, you should fixed your rate so at least you know what your outgoings are. talk to an independent broker who can deal with a number of lenders so you can get the product that suits you (hopefully at a good rate).
I can see Ron j's point of view, buy a house for less than market value and already have an income stream. Get the interest only option to cover the mortgage and sell for a healthy profit in 5 yrs for doing next to nothing. Alot of people have made a lot of money this way and people have been saying for yrs that this way of making money is almost finished, yet people are still making money this way. Its a risk, i think the heady days are gone, but i think we are in line for a soft landing and there should still be alot of demand for that type of property. (FTB's etc)

You should also consider the supply of property in the area, what amount is likely to come on stream in the next couple of yrs at least. as the other posters have said, interest rates are on the way up and property prices are not going to rise by as much  as they have in the pastfor a number of factors. 
as the  adds say, past performance does not guarentee furture returns!!

What are his other options, should he release equity to invest in funds or ETF's. IMO, I dont think a lender will give him money to do this, will he have to lie on his application form and say that he wants to . 

Ron J, if you do buy, will you come back in 5 yrs and tell us how you got on!!


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## Maine (26 Sep 2006)

bsloe said:


> What are his other options, should he release equity to invest in funds or ETF's. IMO, I dont think a lender will give him money to do this, will he have to lie on his application form and say that he wants to .
> 
> Hit the nail on the head - bank will advance 200k on property but probably would not give 50k for shares.
> 
> ...


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## ClubMan (26 Sep 2006)

bsloe said:


> putting all ur investments into one asset class may be risky but I can still see some growth in the irish market. Its not going to stop but lets hope that its slows down. i read somewhere on sunday that for every 0.25 rise in interest rates reduces the amt a FTB can borrow by 10,000 which i presume will apply to alot more besides.  The thread highlighted by Howitzer is a good example of how things are in the irish market.


This all seems to be based on hunches and gut feelings. Better to crunch the numbers for projected best and worst case scenarios and try to put some sort of probabilities on their outcome and then make decisions based on that sort of analysis.


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## The_Banker (27 Sep 2006)

Ron J said:


> I feel theres a good chaance of decent appreciation over the next 3 - 7 yrs.


 
It could also go the other way and you could be in negative equity.. Some houses very slow to sell in Cork at the minute and there appears to be a glut of houses on the market. I am of the belief that the forcasted slowdown is upon us. So many houses for sale in Cork and not moving because people are stubborn and not dropping the asking price and estate agent denying that the slowdown is here by asking unreasonable prices. If people are to sell they will have to drop there prices, it is enevitable.

Lets hope it is just a slowdown.


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## Ron J (7 Oct 2006)

Thanks for the replies.  As Clubman said - I've crunched the numbers and my mindset is not to purchase.  With another rise in rates yesterday and more likely I just can't see rental income keeping pace with the repayments.  Initial repayents will be circa 830pm interest only against 750pm rent.  All in all I think its best to stand back from the market at this time and see how things develop.  We will have approx 30k in SSIA cash in March 07 and we may revisit then.


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## bsloe (9 Oct 2006)

I have been looking at houses over the past couple of weeks and have seen a definite softening in the market. I have talked to 3 different agents all giving me the same story. Viewing are minimal and houses are barely making the asking price. Bidding wars are almost non existence now. This is only in some instances and just in comparsion to the business they were doing 6 mths ago. This is probably in anticpation of reform to the stamp duty brackets and/or changes in CGT. The agents are hoping business will pick up again in Q1 07. This is for now a short term issue even though the OP is looking long term. Some of the houses I viewed have reduced their prices by 5-6 %.


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