Buying a house to rent out before buying a house to live in.

E

endao

Registered User
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I'm just wondering if its a good idea to buy a house/apartment to rent out before buying a house to live in myself. Say if i bought a place to rent out and the rent covered the mortgage and expenses and two years later i wanted to buy a place of my own would the amount of the mortgage that i get change because i already own a property. Or would the fact that id have an existing property be ignored because the property would be paying for itself.
Thanks
e.
 
You'll have to pay stamp duty at investor rates on the purchase. Then when you buy your house to live in you'll be treated as non-FTB and so won't get stamp duty exemption.
 
Ok thanks. So the best option is to buy my own place first.
Would the banks be willing to give me a second mortgage after buying my home place then or would i have to wait a couple of years before they would even entertain the idea.
 
endao said:
Ok thanks. So the best option is to buy my own place first.
Would the banks be willing to give me a second mortgage after buying my home place then or would i have to wait a couple of years before they would even entertain the idea.
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Not sure about your circumstances but I'm assuming a few things : you aren't wealthy, you don't have a very high salary and you don't have a large deposit to put towards your PPR.

Based on the above assumptions I would hazard a guess the banks will not give you a second mortgage straight away after buying your first house. You would need to have built up some equity in house # 1 to demonstrate to the lender your "financial credentials" so as to minimise their risk.

You may have heard about the credit crunch - for you the main effect is that banks aren't going to be handing over investment property mortgages to people like you as easily as they did over the past 10 years or so. And depending on your income/occupation/capacity to come up with a deposit maybe not even giving out PPR mortgages so freely either.

I suggest you get your PPR sorted out first and leave it for a few years before applying for an investment property mortgage- maybe a lot longer if property prices are going to be much flatter in the coming years which will restrict equity growth and hence your capacity to get a 2nd mortgage.
 
yes im not wealthy but have an average salary and about 30k for a deposit. I earn 68k a year.
id be keen on getting an investment property as it seems like easy money but yes i do not know much about the industry but i dont think it will be all doom and gloom for the next few years.
Thanks for your responses.
 
Investment property easy money! Can I ask you a question. You obviously have a property in mind. What's the yield?
 
Purchase price 340000
Stamp duty 7% 23800
Legal fees 1500 (guess)
Survey fees 1000 (guess)
Decoration & furnishing 2000

Total Acquisition Cost 368300


Weekly rent 369
Rent lost in void periods 5%
Net Annual Income 18228

Yield 4.94%
 
In an Irish context that's a pretty good yield. I've no idea where you've sourced a property for 340,000 that pays out say 1500 per month but fair played, it's tempting.
 
Don't forget about Tax. Any profit is liable at 41%
See [broken link removed]
 
camel said:
In an Irish context that's a pretty good yield. I've no idea where you've sourced a property for 340,000 that pays out say 1500 per month but fair played, it's tempting.
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Ignoring comparisons with other Irish properties, I don't find a yield of 4.94% particularly impressive. Is it just me?

This is a margin of less than 1% over ECB...
Considering the risk, management effort, transaction costs and lack of liquidity associated with direct property investment, personally I would be expecting a considerably higher margin.

Also don't forget to include repair and insurance costs assuming that these won't be passed to the tenants.

Of course if you're investing for the LONG term you should expect capital appreciation in line with salary inflation.

Just an opinion...
 
...but have an average salary...I earn 68k a year.
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What!? That's about twice the average salary. People on less than that have bought their own place!! Strap on a pair, I say. A person on your income will have little problem getting a house.
 
John J, 4.94% is very good in an Irish context in my opinion. I'm not saying it yet at a level where sane people should enter the property investment market. But people of the past 5 years people have been happy with 2% yields (insane of course, but that's what people have been doing....in fact I personally think people have been buying investment property not even knowing what yield means!!).
 
Rental properties can be problematic, depends on the tenant. If you are mad set on a rental property (and it is your first time buying one) then I would suggest going outside of Dublin- the investment is a lot less ! ) I have just bought a two bed apartment in Nenagh for € 160,000 (fully furnished) and am renting it at € 650 per month. Again You need to look at the area and it is worth posting an advert in a local paper for an apartment to let to see how many calls you get.
 

So you are paying getting about 650 in rent and paying about 680 in interest(based on 5.2% interest rate and 100% mortgage). This does not take account of void periods, insurance, repairs, management fees or your time. Can you explain your angle on how this is going to make you a return?
 
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