Do you think I´m mad????

CiaranC

He has a guarantor, probably best to read the thread before posting on it!

Kinetic^

CiaranC wrote:

He has a guarantor, probably best to read the thread before posting on it!

:rolleyes: Sorry OP, missed that. If there were 2 of you I'd say go for it, but I feel that you're stretching your budget. Socialising off just over €300 will get very frustrating and will possibly lead to more serious matter like being depressed about not getting out enough.

Paraic

the house is €480,000 and is located in the dundrum / churchtown area dublin.
i would be borrowing in the region of €520,000
my mortgage repayments for the first two years interest only are in the region of €1500 and then after two years they will go up to around €2300.

i will have around €1500 in rental income as long as i have 3 doubles and 1 single room let out (3 doubles * €400, 1 single * €300) kinda going lowest rental i could stretch to... maybe get more for rooms
at the moment i can afford to put €870 a month into the mortgage, but as i finish masters and progress up career ladder my earning etc will increase.


Hi Rick
As a mortgage Broker I would advise you to be very careful!
Your level of borrowing is extremly high on your own affordability of €870p/m.
Your parents will more than likely have to make up a significant shortfall.
On 520K 2yr discount Tracker ECB+.75%. Expected ECB rate increase to 3.5% today. Your repayments are then on 4.25% of 520K, which is €1,842p/m allowing for mortgage relief, brings it to €1,709p/m.

Moonbeam

miju : 8-10 times your salary for a mortgage can not be correct.

It was 4 times about 2 years ago when I got mine,I know it has gone up since but thats crazy amounts.

1/3 your monthly take home pay for reypayments is a good estimation

Ie take home pay 2400pm then mortgage repayments should not exceed 800 euro

Paraic

Yeah 8-10 times isn't correct.
40% of net income is the general guideline.

Braylad79

If I had Parents that could afford to do it for me I would be doing this type of thing as well.
Regardless of the possibility of house prices even falling, you will be in a situation where tenants will be paying off a large portion of your mortgague.
There are pleanty of people especially foreign nationals who will be willing to live in a large house with a few other people.
Being a good judge of charictor and telling people who are not suitable that you dont want them is important. introverts are usually great tenants.

I invested in a property with the same idea as you.
However I had to do it off my own bat as I had no guarantors.
I was less reliant on tenants than yourself. but the reason I could do it was because the sums worked.
It seems to me that by and large you have done your sums too.
The things I would be wary of is underestimation of the cost of running a house. The amount of direct debits for different bills you will have will amaze you. Be careful to include them all.
Another major issue for you is liquidity.
If two of your tenants leave and it takes you 2 months to replace them and your oil runs out and need to 500 quid to get the tank filled, will your parents bail you out?

Braylad79

If I had Parents that could afford to do it for me I would be doing this type of thing as well.
Regardless of the possibility of house prices even falling, you will be in a situation where tenants will be paying off a large portion of your mortgague.
There are pleanty of people especially foreign nationals who will be willing to live in a large house with a few other people.
Being a good judge of charictor and telling people who are not suitable that you dont want them is important. introverts are usually great tenants.

I invested in a property with the same idea as you.
However I had to do it off my own bat as I had no guarantors.
I was less reliant on tenants than yourself. but the reason I could do it was because the sums worked.
It seems to me that by and large you have done your sums too.
The things I would be wary of is underestimation of the cost of running a house. The amount of direct debits for different bills you will have will amaze you. Be careful to include them all.
Another major issue for you is liquidity.
If two of your tenants leave and it takes you 2 months to replace them and your oil runs out and need to 500 quid to get the tank filled, will your parents bail you out?

miju

Paraic wrote:

Yeah 8-10 times isn't correct.
40% of net income is the general guideline.

someone on €30k qaulified for a €220k which is 7.3time salary

2funki4wheelz

For anyone, not just rick, the point isn't "can" you (i.e. 7 times or whatever irresponsible multiples some places offer) but are you able to survive with that? Quality of life is an issue that seems to be forgotton with people's hunger for a house with a desirable postcode.

That's why people get turned down for loan approval, it's a calculation saying you cannot afford it. Rental income is not guaranteed, tenants can end up costing you a fortune if they run off/wreck the place etc. Being a landlord is not just about collecting the rent.

A guarantor does not help you in your repayment, it's more of an issue when things go bad that there's someone else to chase for the capital debt. And it's a very serious thing for someone to do for someone, making themselves liable like that. If the LTV is +100% that extra percentage could mean your Guarantor having to sell a prop, raise cash. (Yes, worst case scenario)

The 1%-2% stress testing is very important, yes the rate rise is unlikely but things like 9/11 and stock crashes and crazy chaotic things happen and then where are you?

And I'm a homeowner, my house in Laois has doubled in value in 2 years but you have to be real. And I got what I could afford as an FTB and it's a good learning experience. Mammy & Daddy won't always be there to dig people out of holes.

mountainyman

Bluehair wrote:

However as another poster observed you are clearly viewing this with 'rose tinted glasses'. Cruel as this may sound i believe you'll soundly deserve everything you get in the (likely) event of a downturn.

Madness...

why will he deserve it?
I don't understand where this 5 bedroom house in Dundrum is available for 525 are you buying from a family member?

Your estimates sound very bullish. You would be bettre off to take the level of enrepreneurship you are showing and speculate in something else and buy a smaller place to live in.

MM

Kinetic^

mountainyman wrote:

I don't understand where this 5 bedroom house in Dundrum is available for 525 are you buying from a family member?

Your estimates sound very bullish. You would be bettre off to take the level of enrepreneurship you are showing and speculate in something else and buy a smaller place to live in.

MM

It's a magical house, with fairies who are also going to pay his mortgage!!!!!!! :rolleyes:

godtabh

Kenny 5 wrote:

It's a magical house, with fairies who are also going to pay his mortgage!!!!!!! :rolleyes:

How would one go about getting one of these fairires?

I think at this stage the OP has made is mind up. If he pulls it of fair play but if he falls flat on his face then at least we can say we told you so. But at the end of the day he's an adult and can make is own decisions. Thats how people learn from there mistakes

TheMonster

Just wondering OP - do you have the luxury of going to a family members some months if you are struggling? or are you totally going to stand on your own 2 feet with family just as a means of getting the mortgage.

rick_fantastic

i have enough there to keep me ok for six months at the moment in the event that i had nobody renting...

you all seem very sure that im going to fall flat on my face....

im relying on the folks just for the mortgage. thats it.

im confident in my ability to make it work and if it doesnt then im willing to take a loss...

at the end of the day, its only money and i have the whole rest of my life to make more / earn it back...

better to have tried than not tried at all

Nermal

rick_fantastic wrote:

at the end of the day, its only money and i have the whole rest of my life to make more / earn it back...

better to have tried than not tried at all

That's just the thing, you see, it's not. If you try this and you can't rent it, maintenance cost is too high, you lose your job or interest rates continue rising you will lose a lot of money and will end up quite significantly worse off than you would otherwise have been.

But... I get the feeling you are not telling us the full story, and that the Bank of Mater & Pater will be at your side if it goes pearshaped. Just keep on their good side.

rick_fantastic

well the risk to me is acceptable. the risk to my parents of underwriting is acceptable.

once in i am on my own then its uo tp me to make it work. if it doesnt work out then i will sort it out. if i make a loss it is my loss. if it doesnt work out i have enough for six months mortgage.

if my offer is accepted then im going to go for it.

Jazzz

rick_fantastic wrote:

ive gone over this with accountant and auctioneers i know and the chances of an interest rate hike over 1.5% is minimal.

As an example of how high interest rates can go, in the late 1980's the interest rate in the UK was 15.00%

subway

rick_fantastic wrote:

if it doesnt work out i have enough for six months mortgage.

what happens after 6 months?

Shane™

rick_fantastic wrote:

...the risk to my parents of underwriting is acceptable.

...if i make a loss it is my loss.

Is it your loss?

Sounds to me like your parents will take the hit because you just don't have the money.

IMHO the market is going to crash, I might be wrong, but a lot of indicators point to it. If this happens you will not be able to back out by selling, have you considered this?

I was in the same situation with my parents backing my mortgage, but with investors out-bidding I realized it was like a pyramid scheme and I was risking my parents money as well as my own.

I have no doubt that you will go ahead with this, but before you do read the Daft report it shows house prices can fall as South Dublin prices demonstrate.

I would say you're not mad, some might say you clever and daring, but I certainly think you're parents are mad, but that's just my opinion.

I hope prices don't crash, no-one will benifit, FTB will get a 2.5x multiplier instead of 10x (I was given this), lots of people will be out of a job, but worse than all that the people who bought in the last year or two (or five) will be in a bad place.

Good luck, you're gonna need it!

chump

The OP is not a lot different to many a folk. Unfortunately his timing is all wrong, by about 5 years. That is the reason his parents have prospered and are of the opinion that he should go for it. His parents are a part of a wider subsection who have benefited by doing nothing much. In their experience buying property has made them wealthy, they can't see how this isn't going to follow for Rick Jnr. And maybe Rick Jnr. will pull it off, but after all the heartache and trouble, if all going well, he still won't do nearly as well as the current generation of home speculators. The real money has already been made in this market.

miju

rick_fantastic wrote:

if it doesnt work out then i will sort it out. if i make a loss it is my loss.

that's just it though if it doesnt work out it's not just your loss , in a falling market with you in negative equity the bank will come looking for your parents to make up any shortfall in the outstanding mortgage

El Stuntman

I have just read through this thread and my jaw is sore from hitting the table so many times!!

The OP strikes me as a typical product of his generation; dazzled by greed/property lust and blinded to any sense of financial reality

but he's just a typical example and kudos to him for being quite open and upfront about it.

it's not his generation I'm wondering about though....

the question I want to ask is:

how many parents around Ireland have put themselves in a position where their future financial security is now irretrievably linked to their kids financial health?
Does anyone realise how crazy this is?
When will parents have to sell their homes to bail out Junior (it will happen if this thread is anything to go by)?

Sponge Bob

El Stuntman wrote:

how many parents around Ireland have put themselves in a position where their future financial security is now irretrievably linked to their kids financial health?

Stacks of them

When will parents have to sell their homes to bail out Junior (it will happen if this thread is anything to go by)?

of more interest is when will the banks call in the collateral.?

eg
Junior buys €400k gaff on 100% Interest Only over 35 years
Junior qualifies for €250k

prices drop as they do

Gaff now worth €300k
Bank owed €400k
Junior still only qualifies for a €250k mortgage becuase the banks have tightened up their lending even though juniors salary went up.

HOW DOES THE BANK ???? reduce this mortgage from €400k to €300k , the new 100% ????? Do they call for €100k cash payment and how ??

I am sure they are entitled to reduce their exposure but what would the exact mechanism be one wonders seeing as it never happened much before ??

Collateral exists so that it can be called in, fact ! Banks cannot account for 133% exposure to property. They can only go to 100% and after that they are not covered by assets and must 'do something'

miju

think you might be a bit mixed up there sponge bob ,

as long as the mortgage is payed on time every month the bank don't give a rats ass what happens to the pirce of a house

when negative equity becomes an issue is if someone begins to default on the mortgage

Maxwell

Yes you are mad. (you did ask!)......so are your parents and the next 2 years WILL be very messy if you go ahead with this.

You at, 23 years of age, after having a good education behind you, must have had some exposure to basic economics, before you finish your masters take out a basic economics book and read/re-read it.

There is no way this inflated economy/housing market is not going to suffer a downturn, it just has to happen.

The current Irish Housing Market has developed into a Housing Pyramid....and someone always get burned from them.

If you go ahead with this, you WILL get burned, without a shadow of a doubt!

Sponge Bob

miju wrote:

think you might be a bit mixed up there sponge bob ,

as long as the mortgage is payed on time every month the bank don't give a rats ass what happens to the pirce of a house

No . I am quite clear on this.

In the past mortgages were repayment mortgages so you were always reducing the balance and eventually you would catch up with negative equity even if it took 5 - 10 years

In the past 3 or 4 years there has been an explosion of interest only mortgages where the balance does not reduce at all . Now if there are 30 years left on that 35 year mortgage you have a performing loan as you clearly explained Miju but you also have a 133% mortgage in my example with 30 years left on it .

Our banks have never faced negative equity on a large scale and most certainly not negative equity on a large scale with interest only.

Kinetic^

SB, they are not entitled to reduce their exposure. This is part of the risk a bank takes when giving people mortgages. If he consistently defaults any payments then he's FUBAR'd.

El Stuntman

yes, suppose I should answer the OP's question too....

no you are not mad but you are seriously self-delusional imho ( I play a lot of poker, believe me I know about self-delusional types, lol)

you should only buy a house when you (not your parents) can afford it on your own two feet (i.e. mortgage repayments less than 35% of your net income).
therefore....YOU CANNOT AFFORD TO BUY THIS HOUSE (sorry for shouting )

your financial calculations are specious at best (please tell me you are not studying for any form of business masters) and are highly dependent on factors outside your control

you are risking your own future and that of your parents (unless they are extremely wealthy). This is silly at best

you should enjoy your early 20s while you can; travel, relationships, party, whatever. Buy a house when you meet someone nice and want to settle down. Buy your first house for yourself, not to share with strangers. Just some life advice.....

That is all, gl whatever you decide to do

Sponge Bob

miju wrote:

ah get you now sponge bob , the aul credit timb bomb

Exactly. Bank has guarantor for €400k and banks essentially has the same guarantor for the excess €100k loan over the value of the property in my scenario , coz junior cannot guarantee it can he ???

Lorax

WTF ??? My post was deleted because I told him to go for it?