Interesting comment.Borrowings invested in property are the best hedge against inflation.
A property bought today for €100k will have a nominal price of €265,330 in 20 years time under inflation of 5%. (100 x 1.05^20)Hi cremeegg
Would you expand on the point, with examples, so that we can tease it out.
Thanks
Brendan
That is irrelevant to the underlying point.What about the interest payments?
A property bought today for €100k will have a nominal price of €265,330 in 20 years time under inflation of 5%. (100 x 1.05^20)
Well, one hardly predicts about the past.Lots of folks invested in leveraged BTLs in 2007 and that hasn’t worked out too well.
Predictions are always difficult, especially about the future.
But if we look at the past we can see glimmers of the future perhaps.Well, one hardly predicts about the past.
You shouldn't believe everything you read. Really, the sound of people who experienced negative equity in 2013 onward has banished all rational discussion of housing.Lots of folks invested in leveraged BTLs in 2007 and that hasn’t worked out too well.
Predictions are always difficult, especially about the future.
For property at least its not the borrowing that magnifies the risk, its the possibility that you cannot meet the cashflow.But borrowing to invest in property or equities magnifies the risk.
Yes.I think you are conflating different issues.
A property bought today for €100k will be worth €265k in 20 years if property prices rise by 5% a year.
I am not sure I follow. Are you saying that inflation generally could be 100%, but property prices might fall against that background.You could have inflation of 100% over a particular period with a fall in property prices over the same period.
Yes and in the past this was a concern, however interest rates were always only one part of the repayments on a C&I mortgage.You could borrow €100k today and find that interest rates take off and exceed inflation.
YesInterest rates for investment properties are about 4.5% at the moment. That is a lot. They could well rise higher.
Rents will probably exceed interest rates.
Thousands thought like above, reality bit and the rent didn't get paid. That put paid to above scenario in an awful lot of cases.For property at least its not the borrowing that magnifies the risk, its the possibility that you cannot meet the cashflow.
And today you can borrow on a long term fixed rate, that is unusual, in Ireland at least, it makes property invest very attractive.
€300,000 over 30 years at a fixed rate of 3% is €1,260 a month. It is unusual that you have that much certainty about an investment. At 5% the repayment is €1,590.
The price you pay for an investment property, known, the finance cost over 10 years, known. The rent you will collect day one, known. The only uncertainty is changes in the rent into the future.
BTL borrowing with 100 % morgage would sure magnify the risk,so maybe keep it down to the"sound sleep level"say 65 or 70% of the value of the property being bought and use cash for remainder.I bought BTL house in 1978 and i sure wish i could have had access to a 30 year morgage like cremeegg, s e.g. above.The repayments would have been a lot smaller from day one and they would have evaporated over the next 30 years.I always thought of it as me having no repayments as the rental income was used for the repayments.It is a long term investment but after 20 years i had a valuable asset morgage free.With a variable rate morgage the equity increased with house price inflation over the years and the equity also increased because a portion of the capital was being included along with the interest payments each year thus reducing the outstanding amount of the morgage.Another small plus on the tax side was being able to claim the interest rate on repayments against the rental income.So in my humble opinion and from my bit of experience i would have to say that borrowing for investment property is one of the best if not the best hedge against inflation.For property at least its not the borrowing that magnifies the risk, its the possibility that you cannot meet the cashflow.
And today you can borrow on a long term fixed rate, that is unusual, in Ireland at least, it makes property invest very attractive.
€300,000 over 30 years at a fixed rate of 3% is €1,260 a month. It is unusual that you have that much certainty about an investment.
The price you pay for an investment property, known, the finance cost over 10 years, known. The rent you will collect day one, known. The only uncertainty is changes in the rent into the future.
You shouldn't believe everything you read. Really, the sound of people who experienced negative equity in 2013 onward has banished all rational discussion of housing.