Buying 2 houses simultaneously...interest only

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investor100

Guest
Hi
I have the opportunity of purchasing 2 houses in a large town down the country. I have actually paid booking deposits and am now getting nervous. Would appreciate some opinions.
The location is good...not far from hospital and close to town centre. The 2 houses are in the same estate and about 40% of the houses there are let. I have made independent enquiries and they appear easy to let. I also placed an ad on daft and received a reply within 24 hrs expressing interest.
I viewed about 6 houses in total and one was of immediate interest... it was in showhouse condition, a garden twice the size of the others and many extras incl nicer fireplace,wooden floors and higher spec kitchen. Cost E175,000.
Then another was of interest to me. Not in as good condition but with sitting tenants who have told the owner they want to stay. They are paying E635 pcm which is the going rate. I met one of them and she told me they were keen to stay and happy to sign a new lease for a year. Landlord reports they are excellent tenants and keep the place very well which they do. The house was very clean and I noted that for example they only smoked outside etc.
Cost incl all contents E175,000 also.
I earn E100,000 per annum and already have an investment property with a mortgage provider who have agreed to provide 100% finance(int only) on the 2 houses based on 75% on the houses and the other 25% on my current investment
property. There should be E200 left over on each property after the mortgage(rate 3%).
Of note...there are at least 2 properties for sale in the same estate with bigger price tags. One is at E180,000 and another at E185,000. Then there are about 4 for sale priced at E175,000 also.
My questions are
1) I know I'm taking a risk...increase in int rates/not being able to let etc but overall do you think this is worth a shot at. The first house is in better condition than the one priced at E10,000 more as I viewed that too. The second requires no fit out and has good tenants in situ.
2) Will I be able to offset the 25% being placed on my current investment property as an allowable expense on the new properties as it was borrowed purely to finance the purchases?
Many thanks
Apprehensive investor100
 
Have you considered non-property investments for some diversification? Have a read of the Guide before doing anything.
 
the future

" The 2 houses are in the same estate and about 40% of the houses there are let. "..........

have you considered the fact that in many years to come, like minded investors such as yourself wil be looking to offload these properties which may prove somewhat difficult.

ninsaga
 
Re: the future

Have you run the numbers (e.g. conservative estimates of all costs, rental income, tax, occupancy rates, capital growth etc.) to assess the viability of this plan?
 
Re: the future

Thanks for replies.
Costs involved are E5,000 stamp duty on each house. Local solicitor will do each house for E850 plus usual extras.E4,000 to fit out first house. Zero to fit out second.
Occupancy is never guaranteed anywhere. I realise this isn't without risks. Thats why I'm apprehensive. However I am a risk taker. I have a lot of equity in my investment property and ppr bought in 1998. My income is reasonably strong luckily enough and if both houses were unlet for 6 months I could afford to pay the interest only mortgages.
Assuming property rises of 5% per annum for the next 5 years the 2 properties should increase in value from E350,000 to E437,000 which is a net increase of E87,000. Assuming 75% occupancy over the same period my profit after mortgage payments should be E18,000.
Yes I realise interest rates may rise and property may fall in value rather than rise. Equally rents may be higher in a few years and property MAY rise at a rate considerably in excess of 5%(for example rises of 8% would result in a capital appreciation of E140,000 in 5 years rather than E87,000).
I can write off fit out expenses , mortgage interest and maintenance against tax and when I sell stamp duty and legal fees can be written off against capital gains.
I also feel that the cost of these houses will always make them attractive to other investors and first time buyers. There are starter 3 bed semis in the same town costing E40,000 more than these.
I realise there are risks and don't mind taking one. I would just like to know if anyone out there feels there is someting I haven't spotted and that the risk is in fact much greater.
investor100
 
Re: the future

Have you run the numbers on the yields that this investment will give you?
 
Re: the future

So is it worth the risk/hassle/time for 2% above the deposit return rate? Or for about 1% above the dividend yield that you'll get from BOI shares? BOI won't ring you late on a Friday night to get you to fix the blocked toilet!
 
Re: the future

Thanks for ur interest rainy. However I disagree strongly with you. I said I was willing to take a calculated risk. If it pays off I could be better off to the tune of E100,000 in 5 years assuming very modest property rises(which isnt a guarantee).
For this my initial outlay would have been E18,000 as I am getting 100% finance. Can you tell me how much money I would need to place on deposit now in order to earn E100,000 in profit in 5 years.
 
Re: the future

If you had invested your €18k in Anglo Irish Bank five years ago, it would be worth €180k today - see their 5 year performance chart. Leaves your mere 500% return in the shade, and no hassle with tenants or solicitors or plumbers to worry about!
 
Re: the future

Take your point rainyday. However I think that this performance isn't typical. And as we have seen with Elan the price of shares can be very volatile. People will always need a roof over their heads. If I invested E18,000 in Bank of Irelnad 5 years ago what would they be worth now? Hom much would I have earned in dividends?
By the way rainy do you know the answer to one of my original questions...i'm raising 25% on another investment property. Can I still write that off for taxation purposes on the new property?
 
Re: the future

I said I was willing to take a calculated risk. ...For this my initial outlay would have been E18,000
Click to expand...

Although you may have only €18,000 at present, your initial outlay on this proposal isn't this sum but the actual amount you are to commit to the investment, approx €350k plus stamp duty. By borrowing to finance a €350k investment you are exposing yourself to a (theoretical) €350k risk - not an €18k risk. €350k is the sum that (along with interest) will have to be repaid to the bank and to yourself in order to achieve any net payback on the investment.
 
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Fair point Tommy.
Reading my initial entry what's your own gut instinct to my project?
Do you think I'm mad taking such a risk? Have talked to a couple of mates who have told me it's something they would love to try but aren't brave enough(or maybe stupid enough!)
 
Re: .

Hi investor100

I make a point of NEVER advising anyone (formally or informally) as to whether or not they should invest in property. That is a decision for themselves to make. Unfortunately I don't have a crystal ball!
 
Hi There investor100,
Your plan sounds fairly good to me. I would be interested to know who does your mortgage.Sound like a good package.
Thanks
poundmaster
 
Hi Investor - Yes, I'm aware that I was being highly selective in choosing Anglo-Irish Bank (though note that I didn't include any dividend income in my calculations. For the record, BOI shares would give you approx a 100% return in terms of capital gain (ignoring the steady dividends) over the same 5 year period.

But aren't you being just as selective as me in choosing two houses in one estate in your locality? Who's to say that the estate will be representative of property prices as a whole? And couldn't I validly twist your argument that 'people will always need a roof over their heads' to read 'people will always need a current account' or 'people will always need cheap flights to Europe' to justify an investment in shares.

You seem to have an inherent preference for property investment. That of course is your entitlement. But let's not kid ourselves that there is any financial or economic analysis that supports this investment.

I hope it works out well for you.
 
Point taken rainy. However it is true that people do always need a roof over their head even when they have no money to put into a current account or to head on a stag to prague. :)
However as I said in my initial entry I didn't plan on buying 2 houses. I viewed a number last week and came accross,

1) a house I estimate is almost E10,000 undervalued. I was the first and only to view and arranged a quick deal.

2) a house in quite reasonable condition available with entire contents and tenants happy to continue renting and willing to sign a lease(which I hope to organise prior to signing contract). The fact that they are staying on means I save E4,000 at least for the moment in furnishing it.

I have to say I'm surprised that there has only been one positive comment about my project. Feckin hell lads ye're a negative lot. Where are all the risk takers?!

Thank you for your good wishes anyway rainy and if you like I am happy to keep you informed of progress down the line.
 
if you like I am happy to keep you informed of progress down the line.
Click to expand...
Please do - it's always good to get real case histories. Forget to mention that I couldn't answer your other specific question as it goes beyond my personal expertise.
 
Do you own a section 23 property ? If you have multiple properties it would make sense to purchase section 23 so that you could get the break on rental income. Regarding buying two houses in the same estate I would think it's a higher risk than buying two houses in separate estates/town/counties as you going to be sortof competing against yourself for tenants. Of course no-one knows - you could end up tapping into a great market . Would you be able to move ahead and buy one property now and sortof stall the purchase of the other for some amount of time ? That way you could test the waters out. I wouldn't go by what the tenants in one of the properties say - they could be friends/relative of the current landlord. Good luck in whatever you end up doing !
 
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