# Young Family with Investment Property , unsure.



## frederic (18 Aug 2008)

Age: 31
Spouse’s/Partner's age: 31

Annual gross income from employment or profession: 50k+ bonuses ( up to 5k )
Annual gross income of spouse: 40k

Type of employment: e.g. Civil Servant, self-employed - Professional ( IT ) , wife works for government

In general are you spending more than you earn or are you saving? We have a small amount going into a saving fund , and also both have decent pensions. But we are usually just covering both mortgages .

Rough estimate of value of home Our House - 400k , Investment 350K
Amount outstanding on your mortgage: 400K , Investment 294k 5.99 % , 60k@ 5.85 ( this was used a remortgage used to pay the deposit on our new house )

What interest rate are you paying?

400k 3year fixed 4.99%
294k 5.99 % , 60k@ 5.85

Other borrowings – car loans/personal loans etc

Car Loan for 15K from a parent , no interest.
Personal Loan with Cormarket 7.9% 5k over 3 years.

Do you pay off your full credit card balance each month?  Usually.
If not, what is the balance on your credit card?

Savings and investments: Pension , Investment property and Savings .

Do you have a pension scheme?
Yes
Do you own any investment or other property?
Yes
Ages of children:
1 year old and one on the way
Life insurance:
yes

What specific question do you have or what issues are of concern to you?


We recently bought an investment property , we went interest only ( variable ) The mortgage was barely being covered , and now interest rate has increased and we are 200 euro down a month , if one person moves out we could be down as much as 600 euro a month . we have one baby under 2 and another on the way . Considering the amount of worry and time involved in the investment property , is it worth it or are we better off looking for another way to invest our money..


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## eileen alana (18 Aug 2008)

How recently did you buy the investment  house? You are almost certainly looking at negative equity.


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## frederic (18 Aug 2008)

We bought the investment property in 2004 . It was our original home , then we moved closer to our workplaces , which is the new house we currently live in .

As for negative equity , we had it revalued for the 60k remortgage in march , i did a check on myhome and daft and it is still at about the market rate ..


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## eileen alana (18 Aug 2008)

You have borrowings over 7 times your combined annual wages. You have  financially stretched yourselves to the limit and with another baby on the way, you are going to find it extremely difficult to make ends met. I reckon, the best option is to try and sell the investment property.


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## Mr DT (19 Aug 2008)

I agree with the above post. Which iresponsible lending practise allowed you to borrow over 7 times yr current income?!!! 

Does the bank know that the deposit for your new house came from an equity release? Je wizz, you made a very risky descion that you might have to live with for a long time.

Sell and cut yr losses. Then you can sleep at night. I hope you are lucky enough to sell and repay the mortgage. At least yr borrowing would then be only 4 and abit times yr joint income.


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## frederic (19 Aug 2008)

I have no problems sleeping at night .. not that stressed out about it , if it comes down to it , we simply sell , or hang on to it at a loss ... our combined wages are in excess of 90k , the bank not only gave it to us . they recommended it ... We were very unsure about keeping the original house as an investment , but he reassured us that we would be fine and explained that there would be no problem renting it out for the value of the mortgage.

I think we will speak with a estate agent this weekend and see what our options are.


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## Lulu123 (19 Aug 2008)

You dont mention creche/childminding fees, with 2 children and your wife working I assume they will be quite high. 
If it were me I would try to sell the investment property as soon as possible at a reasonable market price to get it shifted.


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## frederic (19 Aug 2008)

My wife is back to work for 8 weeks and then off again for baba no.2 , she gets a year off for baby due to the nature of her work , so she is returning to work and then off again , wasnt planned by us this way , just happened like that , so we should be avoiding creche fees for the immediate future ( next year anyway )


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## Mr DT (19 Aug 2008)

I don't think there are many "simple sells" out there at the momment!!

You suggest worst case senerio you will lose 2,400-7,200 euros a year covering the mortgage on the investment property. May be you should look at saving this amount just in case? Not a great investment really as it's giving you a negative return but i guess that was yr risk to take.

If you do keep the rental property because you can't sell, how are you saving to repay the principle loan amount given its interest only? 

I would also change my bank for providing such a stupid recommendation.


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## eileen alana (19 Aug 2008)

frederic said:


> the bank not only gave it to us . they recommended it ... We were very unsure about keeping the original house as an investment , but he reassured us that we would be fine and explained that there would be no problem renting it out for the value of the mortgage.


 
That was back in the good old days in 2004 when interest rates were at a record low, things have altered alot since.


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## webtax (19 Aug 2008)

frederic said:


> the bank not only gave it to us . they recommended it ... We were very unsure about keeping the original house as an investment , but he reassured us that we would be fine and explained that there would be no problem renting it out for the value of the mortgage.


 
From what you say though you are down €200 a month on an interest-only mortgage (before considering any other expenses) so that doesn't cast your banks advice in a very good light.

What area is the investment property in? Are properties there selling & renting at the asking price? If prices drop much further will you be in negative equity? How would you cope with any vacant periods?

IMHO, there are too many uncertainties involved with an investment property that is losing money both from an income & capital point of view. As the other posters say, with a young family you should give serious consideration to selling up.


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## frederic (19 Aug 2008)

webtax said:


> From what you say though you are down €200 a month on an interest-only mortgage (before considering any other expenses) so that doesn't cast your banks advice in a very good light.



I agree , keep in mind that the house is no where near negative equity , it has 290k left on it and it is worth 350k ( it is a 4 bed fully detached house )



> What area is the investment property in? Are properties there selling & renting at the asking price? If prices drop much further will you be in negative equity? How would you cope with any vacant periods?


it is in Navan , close to the town but still in a very quiet area . Considering the M3 opening , the new hospital being opened , and Quinn direct basing its european headquarters in Navan , we thought we would have no problem getting rental , but this will meaning hanging on with the house for at least another year .

The value would need to drop by around 55k to put us in negative equity , and houses in the area of this standard are going for this price. Vacant periods would be a big problem , we are flying by the seat of our pants as it is , but if there is a strong possibility that things will even out in the next year i think we would be willing to hang on to it and weather the storm , but maybe we are being too wishful .



> IMHO, there are too many uncertainties involved with an investment property that is losing money both from an income & capital point of view. As the other posters say, with a young family you should give serious consideration to selling up.


I think this might be the answer , but take a look over my responses above before commiting to this , at the end of the day , you have to take a risk to get a return , but if this is too much of a risk i think we are ready to cut it loose .


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## Lulu123 (19 Aug 2008)

To be honest with a young family you cant really afford to be taking risks.  In a year when your wife goes back to work you will have childcare to pay on top of already paying out on the investment property and could find yourself in a very messy situation.
Also assuming your wife gets paid maternity from her job for 26 weeks thats 26 weeks of the year on one income so even this year could be a struggle.


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## frederic (19 Aug 2008)

> Also assuming your wife gets paid maternity from her job for 26 weeks thats 26 weeks of the year on one income so even this year could be a struggle


She gets paid for the full year .


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## Ret45 (19 Aug 2008)

Frederic,

You are taking a very sensible approach by considering all your options. My advice is for you and your wife is to first think about what are your investment goals i.e. are you investing so that you can take early retirement, career break/reduce hours, children’s education fund etc. It becomes easier to plan once you know what your goals are.  You are both young and have potentially 70 years of earning left between you before you retire(!) so you have plenty of options. Your have complementary public/private sector jobs and your wife will have the option of working flexible or reduced hours while still retaining a great pension and benefits. 

There is no doubt that, like a lot of people, you have all your investment eggs in one property basket, and mortgage repayments are going to be your main financial challenge for the next few years. Certainly have a chat with a couple of estate agents - if you can sell the investment property and reduce your mortgages then this might be the best option. But be aware that you will be at the mercy of a very negative market - banking lending has dried up for now and the few people who are considering buying are finding they cannot get mortgages. Also, the large overhang in housing stock means that it will take a few years to clear the oversupply so be aware that it could be difficult to sell for several more years. 

If selling is not an option then there are a few things you can look at. You could look at extending the term of your mortgage to reduce the monthly repayments. You could talk to your bank about going interest-only on the mortgage on the house you live in. The goal here is not to run away from your debts but to reduce your monthly repayments for, say, five years until rising salaries and inflation make the mortages more manageable. In five years time the banks will hopefully be giving out mortgage loans again and the property market will hopefully be more balanced between buyers and sellers, and you can sell on at that stage. In the meantime, make sure your investment property remains very well maintained, so that it is a place that people will want to rent and also, in time, to buy. Don't rely on agents to find tenents for the house, do the leg work yourself. 

The worst case scenario is that you are going to have a few tough years financially, but you have a good level of income already and your best earning years are ahead of you. There are plenty of threads on how you can cut back on day to day spending. I prefer to concentrate on alternative ways of generating additional income. As you are in IT, do you have any options for overtime, nixers, moonlighting etc? You have no spare income for investing at present but that will change in time so, if you are serious about investing for the future, then now is the time to make yourself financially literate. The Irish property boom is over but there will be lots of financial opportunities over the years and there are lots of great books and resources out there that can help you make the most of them. Although it probably doesn't feel like it right now, the whole process you are currently going through is actually a useful learning exercise for the next time you make an investment. Its good to get the views of banks and investment brokers, but be wary of taking their advice - their job is to sell financial products and those products may not suit you. 

Good luck with whatever you decide to do, and much more importantly, best of luck with baby no. 2. 

Ret


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## frederic (20 Aug 2008)

Thanks for careful and considered response , we have arranged a meeting for next week with estate agent and will see what comes out of that , leave the options open ..


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## ClubMan (20 Aug 2008)

Off topic/pointless posts removed. Please stick to the point.


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## SidTheDweeb (21 Aug 2008)

Income = ~ 90+k



frederic said:


> Age: 31
> Spouse’s/Partner's age: 31
> 
> Rough estimate of value of home Our House - 400k , Investment 350K
> ...





frederic said:


> I agree , keep in mind that the house is no where near negative equity , *it has 290k left on it and it is worth 350k ( it is a 4 bed fully detached house )*



I can't work this out. To me you are in negative equity.
Total property value 750k, borrowings attached to properties 754k and that's before other borrowings.

Am I wrong here?

IMO you are in deep trouble.
If at all possible, sell the investment property asap.

You seem a bit blasé about the whole thing. Am I reading something wrong?


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## frederic (21 Aug 2008)

SidTheDweeb said:


> Income = ~ 90+k
> 
> I can't work this out. To me you are in negative equity.
> Total property value 750k, borrowings attached to properties 754k and that's before other borrowings.
> ...



we owe 360k (400k was the entire price -40k deposit = 360k i forgot ) on the house in dublin we live in , this is our house and we have no problems making this mortgage .

We are only short 200 euro PM on rent in the house in Navan , and there is a prosperous rental market there . Also keep in mind the opening of major roads , businesses i alluded to earlier ( did you read that ? ) ...

so the mortgage for navan is covered with the exception of 200 euro , we easily make the mortgage for our dublin house , how are we in DEEP TROUBLE ?

We have 3 viewings set up for this weekend for the last room , which only became vacant last weekend ... 

The reason for the post was to see if it was a wise investment considering our circumstances , we are far from being in Deep Trouble ( yet ) , and of course if we lost tenants , our jobs etc.. that would be a problem ..


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## Bronte (22 Aug 2008)

What is the term of your mortgages, and your montly repayments?  Also what is the montly rent, is the property in the best part of Navan for renting?  What do you mean by if one person moves out you would be down 600, do you rent by the room or is 600 the rent/mortgage?  In relation to be stressed about renting, you must treat it as a business, you should calculate that the rental income will be 10 months per annum (for void periods), how would a drop in rents affect you, how would an increase in interest rates affect you - that's some of the things you should be looking at.  You've got high salaries and one goverment job so I'd be more positive about your situation, I understand you've no savings with all the dramatic changes recently in your life (house plus move plus new house, plus baby, plus new baby) but you need to start on the savings now.


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## SidTheDweeb (22 Aug 2008)

frederic said:


> we owe 360k (400k was the entire price -40k deposit = 360k i forgot ) on the house in dublin we live in , this is our house and we have no problems making this mortgage .
> 
> We are only short 200 euro PM on rent in the house in Navan , and there is a prosperous rental market there . Also keep in mind the opening of major roads , businesses i alluded to earlier ( did you read that ? ) ...
> 
> ...



OK, so the originally figures are off by 40k?

So by your own reckoning

Value both properties = 750k
Loan (754-40) = 714k

So you have a combined LTV of 95.2%
Income circa. 95k p.a
Borrowing as multiple of combined gross income = 7.5x

Our economy is in (nearly?) recession
_Some_ predict property prices to fall by circa. 20%
The most recent daft report suggests rents are in decline
The increase in unemployment is significant
Your current rental situation is losing you money

The risk is immense

What if either of you lose a job?
What if the rental market deteriorates further?
What if the capital value of the properties decline further?

Am I OTT here?

I don't mean to annoy you. To me the risk is unacceptably high and I would be looking to reduce it.
I suggest trying to sell the rental property asap.

If you can't sell it, at least it might set you straight about how you really need to think this through.


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## mainasia (26 Aug 2008)

You call this an investment property. Most of the other posters call this an investment property. However for the life of me I can't see how this is an investment. I don't see how it will ever make you any decent return, just a lot of trouble and huge risk. Just sell it for a loss, it is not an investment, it is much more likely to lose you money. Therefore it could more legitimately be titled as a 'loss-maker property'. Just like the term property ladder is still being bandied around, when it is not a ladder of any sort. You need to think about the way people label things and how you can fool yourself by wording and accepted ideas, I'm being objective for you, I don't have any interest in property but everybody can crunch the numbers, see the trends, it's shocking that everybody still terms this as an investment property. This is not a coincidence by the way, it's a very well known selling technique that works on subliminal programming to use a keyword in relation to an item to influence the purchaser.

Apart from this there's a nice post that outlines what influences cause this (conscious/unconscious-moral/immoral) here from another board: http://www.thepropertypin.com/viewtopic.php?t=6917 . Do you think you are making objective judgements, are you hearing objective information to make these judgements?


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## Butter (27 Aug 2008)

I'm not going to argue for or against keeping the house in Navan, but I will offer this...
It seems from reading your posts that you are renting out the house on a room by room basis.  This is always much more difficult to maintain.  The onus is always on you to get a new tenant when one moves out.  If you rent the house out as a unit with the tenants paying a monthly rent for the whole house rather than on a room by room basis, then if one moves out the full rent still has to be paid.  It is much less hassle in the long run.


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## Purple (27 Aug 2008)

Sell the rental property. It will only loose value over the next few years and rents will only drop. You will be paying to cover a bigger shortfall on a depreciating asset. 

Whether you can afford to cover the repayments is not the issue; the issue is that you are subsidising an investment that is loosing value. That just doesn’t make any sense. Don’t hold onto a property in the misty-eyed hope that the glory days will be back; they won’t (or at least not in the next 15-20 years).


Take the hit and get out.


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## frederic (27 Aug 2008)

ok so we have decided to sell , spoke with estate agent and he will put it on the market if we wish .

the only problem we can see is if we are selling and we still have tenants how does that work ?

they have a lease , but are there less than 6 months .. and how do we pay the mortgage while we are waiting for it to sell , our mortgage lender doesnt allow us to put the mortgage on hold ...

any ideas ?


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## cancan (28 Aug 2008)

Purple said:


> Sell the rental property. It will only loose value over the next few years and rents will only drop. You will be paying to cover a bigger shortfall on a depreciating asset.
> 
> Whether you can afford to cover the repayments is not the issue; the issue is that you are subsidising an investment that is loosing value. That just doesn’t make any sense. Don’t hold onto a property in the misty-eyed hope that the glory days will be back; they won’t (or at least not in the next 15-20 years).
> 
> ...


 
While you are predicting the future with certainty over the next 15-20 years, any chance you could be a dear, and let us know the lottery numbers for next weekend?

Rents will only drop eh?
How about stocks, does your crystal ball mention whats a good buy for the next 5 years?

To the OP. There are some negatives to selling - a tenant is not going to want to stay in a house that is for sale, and with average time on the market at 211 days at the min, you could have no rent, and no sale for quite a while. Work out the cost trade off of a situation where you have no tenants, and people making low ball offers on your house too.
Buy low, sell high and all that jizz.

If you can afford to modify your expenditure and suck it up for a while, hold on. If not, be aware of the negatives of the sale too.
Given the irish mentality not to diversify beyond property and land, expect the same mistakes to be made in the future again, similar cycles to follow and all that, albeit, not to the same degree as the past...

Booms, bust and bubbles have happened since time began, human nature being what it is, people make the same mistakes over and over again.
You'd swear the current downturn was the first and only downturn in the world, ever...


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## Mumha (28 Aug 2008)

cancan said:


> While you are predicting the future with certainty over the next 15-20 years, any chance you could be a dear, and let us know the lottery numbers for next weekend?
> 
> Rents will only drop eh?
> How about stocks, does your crystal ball mention whats a good buy for the next 5 years?
> ...


 
First and only in Ireland perhaps....

It is not unreasonable to assume that rents will drop over the coming months and years, given the exodus of Irish and Foreign workers, especially the foreign, to other countries.


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## mainasia (29 Aug 2008)

At least with stocks you can buy and sell in one day and they are usually not back by 20-40 year loans!

The property is situated in Navan, which has a large supply of houses/apartments if I am correct. If a large part of the population of Navan or future population predicitions of Navan are commuters that would also pose a problem for rents (new toll fees/time/traffic problems). The OP mentioned something about hospitals etc. but I don't pretend to understand the real local job situation there. 
If the apartment was situated closer to Dublin or in Dublin City Centre might be a different story. I think Dublin or large cities can change more quickly.
Mumha's advice is you get booms and busts all the time and.....the point is, what? Is there a magical boom coming to Navan soon that we don't know about? 

I think the OP is most likely going to take a hit now or later. There's a chance that he could make money over the long term (like everything), yet there's nothing that is pointing in this direction at all at this moment in time.  If he wants to loosen up his income for something else downstream might be better to take the hit now. Since their combined wage is already quite high there is also a risk of losing some of that income stream in future, why not take care of the issue when they are in a relatively good financial situation.

This evaluation is based on my limited understanding of property and OP's circumstances.


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## Purple (2 Sep 2008)

cancan said:


> While you are predicting the future with certainty over the next 15-20 years, any chance you could be a dear, and let us know the lottery numbers for next weekend?


 What are you talking about?



cancan said:


> Rents will only drop eh?
> How about stocks, does your crystal ball mention whats a good buy for the next 5 years?


 Rents are dropping and will continue to drop in the short to medium term. Are you suggesting otherwise (smart arsa comments not withstanding)? 



cancan said:


> To the OP. There are some negatives to selling - a tenant is not going to want to stay in a house that is for sale, and with average time on the market at 211 days at the min, you could have no rent, and no sale for quite a while. Work out the cost trade off of a situation where you have no tenants, and people making low ball offers on your house too.
> Buy low, sell high and all that jizz.


 House prices are dropping and, according to just about everyone, will continue to drop for the next year or two (at least). So the Op can hold off for a year or two and face the very real possibility or spending that 221 days with no rent etc but for a price that is a good deal lower.



cancan said:


> If you can afford to modify your expenditure and suck it up for a while, hold on.


 And then what?


cancan said:


> If not, be aware of the negatives of the sale too.


 How will they be different in a couple of years?


cancan said:


> Given the irish mentality not to diversify beyond property and land, expect the same mistakes to be made in the future again, similar cycles to follow and all that, albeit, not to the same degree as the past...


 Not the same degree as the past?... Kind of what I said, eh?



cancan said:


> Booms, bust and bubbles have happened since time began, human nature being what it is, people make the same mistakes over and over again.
> You'd swear the current downturn was the first and only downturn in the world, ever...


 So?


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## frederic (10 Jun 2009)

going to reopen this thread as I have searched and searched and cannot find a definitive answer to my new question which is what to do . Brendan closed this earlier in the investment forum , so maybe hell lock me again ...anywho...

so i posted here in july of last year that I had two house , one of which was our original home which was to become an investment property.

I am now in serious negative equity on both houses , one is up for sale ( with three viewings since christmas ) we have dropped the price to below what we paid for it in 2004 and it is still not selling .

I have just recieved an offer from my employer to relocate to the US with my family , I have two small children .

At the moment I am paying two mortgages and struggling to survive , both children will be going into creche in a couple of months and we simply will not be able to pay for it.. 

I have applied for a moritorium with our mortgage lender , which they refused as we are both in full time employment. this means in order to get the moritorium I would need to make myself unemployed , doesnt make much sense to me.

Anyway , I am seriously considering this offer of relocation , which means I would either have to rent out both houses , which is a nightmare in my opinion or put them up for sale , which hasnt been working too well so far .

in short I am considering handing the keys back to the bank at this stage , they will survive , we wont if we continue as we are .

Anyone has any other advice / options I am open to ideas ...

Fred.


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## thecretinhop (10 Jun 2009)

I would fight on all fronts if i were you, go to citizens advise to get general idea, go to solicitor that specialises in this area (try to avoid the corrupt ones there are many) and I would talk to the bank again about possibly restructuring the loans, id say they are bluffing you, they will have little chance to sell or rent properties in this market, if you can offer them what you can they may accept, I would not mention the us angle though, id leave that untill you have looked at all options as above, after that if all else fails good luck in the USA, also what happened you on this website was a disgrace, good luck anyhow


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