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Firefly said:
I wouldn't disagree that there are positive aspects to property investment when you don't buy into a bubble. I will buy investment property again when I can get find a property that will yield above 6%. It's far more difficult for first time buyers but since they are competing with investors, looking at the rental return to spot a bubble and avoid it makes sense.
CapitalCCC: "Firefly - if rent is DEAD MONEY...then what do you call the money that a landlord pays on an INTEREST ONLY loan that exceeds the rental income on a house (you will be doing that if you buy investment property at current prices)?"
That money is a cost of business. If this cost is greater than house price inflation then the investor is losing money. However over time, inflation causes the initial purchase price to be small compared to rental income which rises over time. In short, it is the small price you pay for inflation that causes a house to be worth 4x what it cost 20 years ago. (last 10 years has been exception, but the principle still applies.)
That money is a cost of business. If this cost is greater than house price inflation then the investor is losing money. However over time, inflation causes the initial purchase price to be small compared to rental income which rises over time. In short, it is the small price you pay for inflation that causes a house to be worth 4x what it cost 20 years ago. (last 10 years has been exception, but the principle still applies.)
W
walk2dewater
Guest
http://www.m-w.com/dictionary/sap
Pronunciation: 'sap
Function: noun
Etymology: Middle English, from Old English sæp; akin to Old High German saf sap
1 a : the fluid part of a plant; specifically : a watery solution that circulates through a plant's vascular system b (1) : a body fluid (as blood) essential to life, health, or vigor (2) : bodily health and vigor
2 : a foolish gullible person
Every pyramid scheme needs a steady supply of the No.2's.
Pronunciation: 'sap
Function: noun
Etymology: Middle English, from Old English sæp; akin to Old High German saf sap
1 a : the fluid part of a plant; specifically : a watery solution that circulates through a plant's vascular system b (1) : a body fluid (as blood) essential to life, health, or vigor (2) : bodily health and vigor
2 : a foolish gullible person
Every pyramid scheme needs a steady supply of the No.2's.
1. House prices rise in the long term - they for the past 200 years.
Most things do - that is called inflation. Most asset prices are subject to cycles - a period of outperformance followed by either static or falling real prices. If you buy near the top you could spend 10 years regretting it.
2. You have to live somewhere - You do....think of all the wonderful and practical things you could do with shares and gold on a desert island.
Like earn a return significantly in excess of the returns available on Irish property! Not to mention diversification etc - Yes you do need to live somewhere - buy you only need one property.
3. Safe as houses - houses are safe. See 1. Also, for all the talk about shares as a better investment, property assets make up a very sizeable portion of a plc's Balance Sheet...take this out and see what happens the share price!
Houses safe? No investment is truly safe - even bank deposits carry a degree of risk. In the past 15 years house prices have fallen in lots of places (UK; Japan; Australia; Norway & look to be about to in the US). Property is an increasingly unimportant balance sheet asset in an economy that is service oriented - also, lots of plc's (including the Irish banks) are selling some of their property assets - does this not concern you?
4. Rent is dead money - it is - you're paying off someone else's mortgage
instead of your own. In the short term renting may be cheaper, but as mortgage payments are made up of Principal and Interest payments, the outstanding balance is falling all the while. For a realistic comparison of short term cashflow, the rent should be compared to only the interest element of the mortgage. Principal repayments, while hitting your bank a/c, are netted off by reducing the mortgage balance.
True but many investment properties in Ireland are on IO mortgages so the loan amount is never reduced. Lots of landlords cannot even cover the interest payments on the mortgage out of rent received - in this respect the rent is dead money from the landlord's perspective!
5. Renting is not viable long term - totally agree. Without proper rent control we can't compare our situation with the Germans. And without proper rent control I personally think that raising a family by moving from one rented house to another is both impractical (schools, childminding etc) and irresponsible as it promotes a transient attidute. Some things, like housing, just make sense.
Also true but the property market in Ireland now seems to be weighted in favour of renters in terms of choice and price.
I know I'm gonna get slated now because the vast majority of contributers to this thread are preaching doom & gloom, but for those who really believe long term renting is a better way to go...please spread the word to as many people you can - who knows you might be renting one of my places in a few years time, and sure then we'll all be happy!!
no interest in slating you. It is good to debate these issues. That is what makes a market place. At current prices I am a seller and you are a buyer.
Firely[/quote]
Most things do - that is called inflation. Most asset prices are subject to cycles - a period of outperformance followed by either static or falling real prices. If you buy near the top you could spend 10 years regretting it.
2. You have to live somewhere - You do....think of all the wonderful and practical things you could do with shares and gold on a desert island.
Like earn a return significantly in excess of the returns available on Irish property! Not to mention diversification etc - Yes you do need to live somewhere - buy you only need one property.
3. Safe as houses - houses are safe. See 1. Also, for all the talk about shares as a better investment, property assets make up a very sizeable portion of a plc's Balance Sheet...take this out and see what happens the share price!
Houses safe? No investment is truly safe - even bank deposits carry a degree of risk. In the past 15 years house prices have fallen in lots of places (UK; Japan; Australia; Norway & look to be about to in the US). Property is an increasingly unimportant balance sheet asset in an economy that is service oriented - also, lots of plc's (including the Irish banks) are selling some of their property assets - does this not concern you?
4. Rent is dead money - it is - you're paying off someone else's mortgage
instead of your own. In the short term renting may be cheaper, but as mortgage payments are made up of Principal and Interest payments, the outstanding balance is falling all the while. For a realistic comparison of short term cashflow, the rent should be compared to only the interest element of the mortgage. Principal repayments, while hitting your bank a/c, are netted off by reducing the mortgage balance.
True but many investment properties in Ireland are on IO mortgages so the loan amount is never reduced. Lots of landlords cannot even cover the interest payments on the mortgage out of rent received - in this respect the rent is dead money from the landlord's perspective!
5. Renting is not viable long term - totally agree. Without proper rent control we can't compare our situation with the Germans. And without proper rent control I personally think that raising a family by moving from one rented house to another is both impractical (schools, childminding etc) and irresponsible as it promotes a transient attidute. Some things, like housing, just make sense.
Also true but the property market in Ireland now seems to be weighted in favour of renters in terms of choice and price.
I know I'm gonna get slated now because the vast majority of contributers to this thread are preaching doom & gloom, but for those who really believe long term renting is a better way to go...please spread the word to as many people you can - who knows you might be renting one of my places in a few years time, and sure then we'll all be happy!!
no interest in slating you. It is good to debate these issues. That is what makes a market place. At current prices I am a seller and you are a buyer.
Firely[/quote]
JohnBoy said:
You have to admit that the rental options, even now, are not great for people wishing to raise a family. I have stated in other posts that after looking for a place to buy, I have decided to rent instead for a while. However this decision will always be based on personal circumstances as well as financial circumstances. In many situations it is not a viable option in the long term.
I can understand these people thinking that if they have to bite the bullet of house purchase sometime soon anyway, it may as well be now instead of paying two more years of rental "dead money" and then starting with a mortgage. Would you tell such people not to buy now and instead try to "time the market"?
T
thewatcher
Guest
Persius said:
One simple answer to that "Government failure" yet again.The simple fact is the FF/PD's care more about economic units than they do about people.
CelloPoint
Registered User
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Persius said:
I would, because it's worth the risk. What isn't worth the risk, is a 40 year mortgage for a house in the middle of nowhere. The only reason people live in such places is because it's the 'only place they can afford' which is a stupid reason to buy.
With rent you can live in a very good location with very low financial exposure to market downturns. And let's be honest, the longer this madness continues, the more the risk accumulates and the more unnattractive these generic housing estates in west Dublin become.
W
walk2dewater
Guest
beattie said:
No they won’t. IMHO the thinking of the “marginal” unit of demand at the bottom of the pyramid is as follows:
- Rates have gone up, I can borrow less at my current income.
- Rates are rising faster and faster, I can borrow less and less.
- Fixed rates are also rising, if I buy now I can lock-in at a fixed rate.
- Prices have risen so high, for so long, therefore they cannot fall, only “stagnate” at worst.
- I must buy now or never be able to buy my own house.
Persius said:
Yes and I have but they don't listen as I am told it will be more expensive if they wait...... I no longer pass any remarks about it as it is becoming too critical for many people if there is a correction. There is no planning as to future expenses such as children etc so I just avoid any mention of the subject. Still many bankers will take home serious bonus' judging by the results from the banks in the past few days on the back of the property boom.......
walk2dewater said:
Also, when one considers that the primary building activity over the last 5 years or so, was aimed to the FTB market. These people are due an "upgrade", so to speak. I would expect the points you have highlighted would resonate more with people who wish to trade up. Already, houses like mine (trade up type, nice area etc) have sold for over 150k more than we paid in April.
One of our selling agents called this morning to advise accepting an offer which is below the asking price - he said it's a good idea to get the deal done before the new "stock" comes on in September. They've given me until Monday to decide! I asked him about his feelings on the market - he said there were "Lots of tyre kickers". I presume he means people viewing without making any offers.
B
Bedsit
Guest
I thought this comment by an EA in today's Irish Examiner was quite amusing. The full article can be found at the following URL:
[broken link removed]
“Regardless of interest rate hikes, the Irish property market will continue to perform strongly on the back of positive economic conditions, ...,” said Marie Hunt, director of research at estate agents CB Richard Ellis.
She added that considering the enormous wealth generation that has been created in Ireland in recent years, property purchases are now less reliant on bank financing than was traditionally the case and upward movements in interest rates of the scale that we are likely to witness this year are not a huge concern for many investors.
“This is particularly true in the commercial sector and in the residential investment market, where many investors are now cash buyers,” she said.
[broken link removed]
“Regardless of interest rate hikes, the Irish property market will continue to perform strongly on the back of positive economic conditions, ...,” said Marie Hunt, director of research at estate agents CB Richard Ellis.
She added that considering the enormous wealth generation that has been created in Ireland in recent years, property purchases are now less reliant on bank financing than was traditionally the case and upward movements in interest rates of the scale that we are likely to witness this year are not a huge concern for many investors.
“This is particularly true in the commercial sector and in the residential investment market, where many investors are now cash buyers,” she said.
I'd like to qualify that interest only is not what I'm about to do, nor would not recommend...however rent would still cover an interest only mortgage. Can't remember who, but someone made a good point that if the rent covers the interest element of a mortgage on a non-IO mortgage, doesn't this give the investor effectively an interest-free 30 year lona? Not bad...
As for renting, you are at the mercy of the landlord..ok it's good at the moment, but you never know.
The bank does own (or at least has the rights to) most of the house until the loan is repayed - same with any other business you go into with start up capital.
One of the points I forgot to mention regarding shares (and I'm not anti-shares btw, I have a growing portfolio here also), is that if you have say an extra 200 euro coming in every month and want to buy shares Mr Davy and Mr Goodbody are going to charge you a bomb to transact on those, with property (once the initial costs, although huge, are paid) you can simply reduce the balance.
Firefly.
As for renting, you are at the mercy of the landlord..ok it's good at the moment, but you never know.
The bank does own (or at least has the rights to) most of the house until the loan is repayed - same with any other business you go into with start up capital.
One of the points I forgot to mention regarding shares (and I'm not anti-shares btw, I have a growing portfolio here also), is that if you have say an extra 200 euro coming in every month and want to buy shares Mr Davy and Mr Goodbody are going to charge you a bomb to transact on those, with property (once the initial costs, although huge, are paid) you can simply reduce the balance.
Firefly.
W
walk2dewater
Guest
Firefly said:
And it's a very good point. Brokerage services/infrastructure is a joke here. And with their "advice" it's no wonder people consider stocks and bonds more akin to gambling than investing. There are other options though for Irish residents, namely a certain (unmentionable) international brokerage based in Luxembourg.
I think quite a few people, (including that lady from CB Ellis) are in for a shock.
The only long term study on real estate price growth in real terms that I'm aware of was undertaken in Holland. The study examined property prices in Amsterdam over a 300 year period, the average annual rise in prices in the period, 0.3%.
People discuss the Irish property market as if the Irish economy was a self sufficient entity removed from the vagaries of cyclical economic growth and contraction. In fact Ireland is almost uniquely exposed to a global contraction in trade.
If any one is interested in what lies in store for the Irish property market/economy (the same thing essentially) then look no further than the US. You know the nation that drags us along on its economic coat tails; its one year further down the debt bubble correction trail than us.
Edit
Have a butchers at this, not a Goldilocks perspective I'm afraid.
http://www.rgemonitor.com/blog/roubini
The only long term study on real estate price growth in real terms that I'm aware of was undertaken in Holland. The study examined property prices in Amsterdam over a 300 year period, the average annual rise in prices in the period, 0.3%.
People discuss the Irish property market as if the Irish economy was a self sufficient entity removed from the vagaries of cyclical economic growth and contraction. In fact Ireland is almost uniquely exposed to a global contraction in trade.
If any one is interested in what lies in store for the Irish property market/economy (the same thing essentially) then look no further than the US. You know the nation that drags us along on its economic coat tails; its one year further down the debt bubble correction trail than us.
Edit
Have a butchers at this, not a Goldilocks perspective I'm afraid.
http://www.rgemonitor.com/blog/roubini
bearishbull
Registered User
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interest only mortgage as free loan? What about opportunity cost ? Your getting zero return on capital unless the house price rises.Firefly said:
As for renting,in reality the landlord is at the mercy of the market ,rents are no higher in real terms than in 2000 while the asset price has shot up massively, the reason is vast supply of rental property and this will only get worse for the landlord with 100k units being built a year and 40% being bought (and presumably rented) by investors.
If your buyng now i really feel you will deserve it when prices fall along with rents in coming 1-3years. maybe you will see out this rough patch if you have strong cash flow but in long term i think things are even worse for you as with approx 100k units being built EVERY year there will be massive oversupply in one two and three decades which is your long term investment horizon.
As for shares save the 200 a month for say 6 months and then buy online for feck all charges/transaction fees.
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