# Spend all cash on property investment



## Reick (16 Apr 2013)

Hi All,

Not sure if anyone can help with this question, however, I'll put it out there.

I was thinking of buying a house to rent out and am wondering if it is it a good idea to pay cash for an investment property?

I have enough cash to either buying a rental property or invest in something else (but have no idea what). I have a small mortgage and happy with it so don't want to pay it off.

So wondering if it would be better financially to try buy two investment properties? both with a 50% mortgage each, rather than just one (not taking property prices into account) to get mortgage interest relief, if that exists anymore?

I checked out some small houses for sale in not so wonderful areas in Dublin, pretty bad condition so would require refurbishment costs. I could pay to buy and refurbish one. Just not sure if it is a good use of cash. Not a bad problem, but not sure what to do with the cash. The return on investment would be slow, but steady assuming no tenant problems.
thanks!


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## cremeegg (20 Apr 2013)

The advantage to borrowing the money to buy an investment property is that you can deduct 75% of the interest you pay against tax.

There are many other issues to consider and I suggest that you start with one property


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## MrEarl (20 Apr 2013)

Hello,

If you do not have past experience of managing a residential investment proeprty, then I strongly recommend you commence with one property.  There are numerous things we all take for granted in this life, but only when we have first hand experience, do we realise exactly how much commitment (work, financial or whatever) is actually involved.

Things to consider:

* If you spend all of your funds on the property, how do you pay for possible works to the property which may later be required - pretend it needed €5k worth of work, which the insurance doesn't cover ?

* What happens if you don't have a tenant for 12 months, can you afford to cover the costs associated with the property - insurance, tax, electricity, gas, phoneline and other possible services ?

* Acquisition costs need to be considered, solicitor fees and stamp duties for example.

* If you take a mortgage out and buy two properties, then both become vacant for a period of time ... can you cover the repayments and if so, for how long & by doing so, will this impact on your own standard of living ?

* Is there a risk that the value of the property you purchase may fall, due to either the general recession, a lot of other houses nearby likely to go on the market for some reason (young people trading up, old people trading down, banks enforcing security etc) ?

Do a cashflow for an 18-24 month period, assuming no rent is generated on a property and consider the costs (with / without a mortgage), this will help you project with some accuracy the costs associated wtih buying a property.  

Best of luck with this.  There is money to be made if this is done correctly, but it's more work than it first appears and definitely, a long term investment so don't expect any significant profits in a sub 5-year period for example.

Regards

Mr. Earl.


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## Reick (20 Apr 2013)

Thanks Mr Earl and CreamEgg,

I think I understand a little better now and thanks for the feedback. 

It  may be better to get a mortgage to a property to get the offset of 75%  of interest relief. However, that leaves the remaining cash susceptible  to the possibility that the government could potentially try take a  percentage of it in the future (as done in Cyprus). Also, a DIRT rate of  33% on any interest on savings and interest rates do not help.

Maybe  there is an alternative of leaving cash on deposit, or buying property.  Stock market is not something I'm interested in however. The amount of  people that seem to have problems with rental related issues is  concerning.


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## Reick (23 Apr 2013)

I've failed to understand why getting a mortgage to save 75% of the mortgage interest is advantageous to spending the cash?

A rental mortgage costs about 5% APR, then there's a need to buy mortgage life insurance, and any other charges the bank add in.

Cash on deposit will get about 2.5% before DIRT.


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## Bronte (24 Apr 2013)

Reick said:


> I've failed to understand why getting a mortgage to save 75% of the mortgage interest is advantageous to spending the cash?
> 
> .


 

Because the idea is that the property pays for itself.  Depends on the yield.  You also may factor in capital appreciation if you think that will happen, you may think that that alone is worth the investment and meanwhile you still have most of the cash to invest elsewhere.


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## Reick (24 Apr 2013)

Thanks Bronte. 
But then one is still susceptible to leaving money in banks here or getting additional mortgages. Leaving money in banks is a concern I have.


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## Reick (28 Apr 2013)

I've thought about this. Bronte, you are probably after saving me from making a big mistake. I wouldn't know what to do here, but seems a cash purchase wouldn't be a good idea, but better to get a mortgage and get a better property location.


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## Reick (30 Apr 2013)

Is there such a thing as  specialised finanacial advisors that help with questions on property investment or is it typically a case of judge for yourself and hope for the best.


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