# Invest, Land, Debts



## unstacked (26 Oct 2008)

Hi,

Just wondering if anyone has any bright ideas about how to make money, money we could plough back into out residential mortgage so we could save some money in case things ever went pear shaped !.... by playing around with the following to make it work better ?

Married.
Residential Home worth 400K, mortgage 380,000, mortgage is 1500 pm %only.
Investment House worth 220K, mortgage of 220,500.  House rented.mortgage is 962, rent covering this only just !
Have one acre site, which has planning app in at the moment.
We have 2 cars, my car loan is 17,000 or 90 per week/5 years
Husbands car loan is about 30,000.  Visa C's are about 10,000. 
Bills are about 80 per week all in. 
Combined gross earnnings of circa 86,000 annual.  Take home roughly 70,000.

There has to be a better way of making life easier...do we
invest in another house, sell my investment house, build on the site, 
?  I need inspiration !


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## DubGus (26 Oct 2008)

stackete said:


> Hi,
> 
> 
> Married.
> ...


 
Both mortgage repayments seem very low, are they interest only?
First I would move to capital+interest your main residence as no capital appreciation is in sight.

The expenses you mention above add up to 3712 euro per month that represents circa 64% of your take home. This is very high and you need to start thinking about reducing it.

After tax you are losing money in your investment property and with no capital appreciation in the housing market and emigration forecast for 2009 you should look at cutting your losses and sell the property.

The 2 credit cards are costing you a lot of money and you need to do something about it soon, they are the most expensive way of borrowing money, you need to stop using them. One way to pay them off would be to downsize one of the 2 cars, sell it and buy an older and cheaper model. 

As for the site, do you plan on eventually building a house and living there in the future? If not, I'd sell it to pay for some of your debts (CC, car loans), building an investment property in this climate is a suicidal move.

I would recommend taking out some sort of income protection if you don't have it already as job security is not good at the moment unless you are a civil servant.

Good luck,

DubGus


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## unstacked (27 Oct 2008)

Hi DubGus,


Hope you are having a nice Bank Holl !

Yes both mortgages are interest only.  The investment mortgage was my own principal residence in town before we married and bought in the countryside.
The acre site is rural and was given to me by my Dad and I was just thinking of the best use for it - could I build two houses on it, one in my own name and the other a joint venture ?  These then could be rented out or sold !  The cost would only  be in the build, labour and fit out.  
The investment prop is not bringing in any profit, and I am lucky to have it rented in this climate when everyone seems to be leaving country etc ( there are alot of unused rentals out there ! )
I suppose, I am kinda emotionally attached to the rental as it was my first house but at this stage I just want to put a plan in place that will give us some form of income other than salary and also get something for myself out of it too !
I know I am lucky to have the land as it gives options, but one wrong decision and it would be a disaster !


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## Jonathan.OB (3 Nov 2008)

What  is the rental market like in the area where your Inv. Prop is?

€47k borrowings for two cars seems just too high. I know trading down is a difficult thing to do and it will be tough selling your car in the current climate, but if you could and reduce this by 10-15k, you could pay off your ccards and be that little bit more debt free. 

As for the land, it might be of interest to at least advertise it for sale and see what interest you generate. Even if you decide not to sell, you will have a proper understanding of it's liquidity and sale value. 

Jon


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## Bronte (3 Nov 2008)

You are very highly mortgaged in relation to the value of the property.  Where are you getting the valuations from?  Do you have any savings at all with such a high income?  You are proposing to get further into debt by building yet your current investment property is not performing very well.  The reasoning for keeping the investment property are not sound from an investment point of view.  The reason you are struggling is because you seem to be living beyond your means (very high mortgage repayments, two large car loans and credit card debt combined with no savings). It would also be worrying if your mortgage repayments are interest only particularly in relation to your home.


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## Thrifty (3 Nov 2008)

Practically i can't see how you will be able to pay for further borrowing to pay for the building of one not to mention two new houses. You are over committied already to property in a falling property market. If i were you i'd be trying to sell off the investment property.


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## z109 (3 Nov 2008)

While I agree with the advice about selling some of your assets to cut your debt, the end result may be that you still have the debt. In particular, second-hand car sales are in dire straits at the moment, so you may have no alternative but to wait out the five years remaining on your car loans. With the investment property, you may have difficulty renting it if you put it up for sale, so until your cash flow improves, I don't think you can afford to take a hit on that.

Forget about the site and building for the forseeable future. You simply cannot afford it. Until you can afford to pay capital and interest on your current PPR and until your investment property is covering its costs and until you have cleared your credit card debt, you have to admit to yourself that you have no money.

So I would start with the credit card debt, which I assume is the highest interest:
1. Don't put anything new on it. Take the cards out of your purse/wallet and leave them at home. If you can't do that, cut them up.
2. Increase the payments on the card debt. You need to pay it off as soon as you can. This means foregoing holidays/nights out etc. until you have it paid off.

Once you have paid off the credit card debt, start to attack the car loans. Pick the one with the highest interest rate and aggressively reduce it (check the terms and conditions).

I presume your interest only period on your PPR is time-limited? How much longer until you have to start paying capital aswell? Before this starts, you need to have no credit card debt and have significantly reduced the car loans.

Unfortunately, perspiration (of the hair shirt kind) is called for rather than inspiration! At least until you have your short-term debt under control.


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## barryl (3 Nov 2008)

The only asset you own is the acre site,In this climate both houses and both cars are liabilities to you.your income to liability ratio is  nearly ten times your nett pay,which is dangerous if you lost your job.The only thing you can do is to sit tight and say your prayers that things dont get much worse.sorry


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## bamboozle (3 Nov 2008)

if i was in your shoes, i would flog the site once it receives PP, then i would use the cash to get rid of loans starting with the highest interst first (probably the credit cards followed by the car loans)
i dont like saying it but it looks like you are living far beyond your means.


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## Brendan Burgess (3 Nov 2008)

DubGus said:



> First I would move to capital+interest your main residence as no capital appreciation is in sight.



What terrible advice! People have an irrational fear of interest-only mortgages and 40 year mortgages which is the same thing. 

You are overborrowed in relation to your income. But you must attack the expensive borrowing first. Pay off your credit cards. Pay off your car loans assuming there is no penalty for early repayment. That is €57k of debt which will take you at least two years to pay. 

If you follow the traditional advice of avoiding an interest only loan, you will be paying off a loan which is costing you around 4.5% after tax relief, instead of a loan which could be costing you up to 18%. 

You are very exposed with the high investment in property and high loans relative to your income. Forget about the emotional attachment. See if it's possible to sell your investment property or your site. However, if putting it on the market increases the likelihood of losing your tenant, then perhaps you shouldn't do so. 

Brendan


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## Bronte (4 Nov 2008)

There is nothing wrong with interest only mortgages in the right hands.  But one needs to have a strategy to pay the capital back and someone with no savings and very little assets can not do this, this is particularly true in the current climate in relation to property and especially as the financials of the Irish economy are so bad and the predictions for job losses are so high.  If one has a long term mortgage of say 40 years it does not give one much leverage in relation to issues arising.  For example any sudden financial expenditure could tip one over the edge.  If one had a shorter term mortgage with some capital paid off in times of financial stress it would be easier to extend the loan and reduce to interest only payments to get over a couple of years of downturn.  In relation to investment property there is more grounds for interest only as the tax benefits are very high and one could even make a profit if for example one had locked in at a low interest rate and used the excess rent (if it existed) to make money in a high interest bearing account of which many currently exist.  Each situation on it's merits and in this case the OP is overexposed with very little leverage should things turn ugly.


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## DubGus (4 Nov 2008)

Brendan said:


> DubGus said:
> 
> What terrible advice! People have an irrational fear of interest-only mortgages and 40 year mortgages which is the same thing.


 
You shouldn't call it irrational after reading about the amount of debth the OP is in. Interest only mortgage is only good if it is backed up by a solid plan, in the case above it is not and I stand by my "terrible" advice.

Regards,

DubGus


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## Mr DT (4 Nov 2008)

Have to agree. The availability of interest only mortgage is one factor that has enabled the OP to get it to such a mess in the first place. They obviously had no plan on how the loans were going to be repaid. 

I would argue if the interest only option hadn't been available they wouldn't be so exposed. "R sure, the monthly repayments are only small so lets speculate on the future price of houses .....everyone else is."= Property Bubble.

In relation to sorting the problem out now that the horse has bolted.......its right to concentrate on paying off the most costly debt first.
Sell your "investment" property or land and get back to a safe level of debt before its too late!


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