I purchased an investment property in Jun 2005. It is a 2 bed terraced in Co Wicklow. The location is very close to the town center so there is not a problem renting. I paid 328000 (plus 19000 Stamp duty) with a mortgage of 266000. I am getting 1050 per month.
When I bought the house the repayments were 1080 pm. They are now 1240 per month. Another 2 rises this year and 4 next year will see payments rise to 1450 approx.
I have 20K plus my SSIA next year. By paying this 40K off the mortgage the repayments would reduce to 1100 pm.
However one thought did not occur to me when I bought. The stamp duty rates change from 3 to 6% at 381000. This is about what I would get for the house now. A near neighbouring house sold for about that a month or so ago. I am now begining to think that I have reached the max limit of the vlaue of the property for the foreseeable future because I cannot envisage anyone paying 382K or more for a 2 bed townhouse when they know it will cost them 23K in stamp duty.
So after all fees/taxs/interest is paid how much do you reckon you'll trouser if you sell now? Do you think you'll make more or less in 1/3/5 years? Due to high transaction costs selling property within a year of buying wouldn't, in a normal market, return a profit.
Ok, this works out to be a pretty thin profit. Now who do you think will buy from you at that price? Certainly not an investor as you've already outlined from your own figures that it's a non runner going forward, certainly at a 381K starting price.
Ideally you should be looking to make the investment pay for itself. Without pumping your SSIA into it I guess going IO is the only route at the moment but from your own figures you've already outlined how this may be a false economy in a year or so.