To buy or not to buy

dario28

Can you confirm that someone was wrong to spend an hour last night trying to convince me to buy a house , her theory is that if I buy a 3 bed house for say 280,000 in Swords -put 40,000 towards it initially and get mortage on rest then I'll owe approx 800 a month on mortage and rent it for 1200 and make money.....sounds nice in theory but Im not so sure , she reckons house prices can only go up...what ya think ??? I think house prices arent going to go up that much and also the interest rate is going to put mortages back over the 1000 a month mark plus finding someone to rent it is not going to be that easy

antiskeptic

dario28 wrote: »

Can you confirm that someone was wrong to spend an hour last night trying to convince me to buy a house , her theory is that if I buy a 3 bed house for say 280,000 in Swords -put 40,000 towards it initially and get mortage on rest then I'll owe approx 800 a month on mortage and rent it for 1200 and make money.....sounds nice in theory but Im not so sure , she reckons house prices can only go up...what ya think ??? I think house prices arent going to go up that much and also the interest rate is going to put mortages back over the 1000 a month mark plus finding someone to rent it is not going to be that easy

She's not an estate agent is she?

You'd have to reckon on perhaps 10% rent reduction due to the time you'll have no tenant (although this could be worse - like the bloke who bought two doors down a year ago and hasn't had a tenant yet). Then there's maintenance of the house. Which means an actual average rent of 1000 a month. A very modest interest rate increase (from absolute rock bottom levels currently) will leave you needing to add money to keep up payments.

With the prospect of continuing house price falls (13% or so year to date - and I speak conservatively) you'd be in negative equity in no time too.

My advice is to change friends

D3PO

1200 a month for a 3 bed in swords for rent. I dont think so.

Besides which here logic is flawed badly.

1. Wheres her calculation in terms of tax to be paid (stamp duty owed, tax on rental income)

2. Where has she taken into account rising interest rates ?

3. Where has she added in for unoccupancy ?

4. Where has she allowed for the 200 euro property tax ?

5. Where has she allowed for repairs and maintenance ?

Basically if that person said something based off your first post they really havent got a clue

jetski

D3PO wrote: »

4. Where has she allowed for the 200 euro property tax ?

There is no property tax and wont be either...

D3PO

jetski wrote: »

There is no property tax and wont be either...

the 200 euro property tax already exists. It might go under the banner of second homes but is libel for any home that you own that you dont live in even if you only have one house. :rolleyes:

dario28

D3PO wrote: »

1200 a month for a 3 bed in swords for rent. I dont think so.


2. Where has she taken into account rising interest rates ?

3. Where has she added in for unoccupancy ?

5. Where has she allowed for repairs and maintenance ?

Your points are exactly what I am worried about

unoccupancy and rising interest rates

She reckons I cant loose as house prices are only going to rise slowly

beeno67

jetski wrote: »

There is no property tax and wont be either...

Not only does it exist on second houses it is likely to rise well above €200 because government will not introduce it on actual homes.

AARRRGH

dario28 wrote: »

she reckons house prices can only go up...what ya think ???

I think she is thick.

jetski

D3PO wrote: »

the 200 euro property tax already exists. It might go under the banner of second homes but is libel for any home that you own that you dont live in even if you only have one house. :rolleyes:

But why are you assuming its his second home?

beeno67

jetski wrote: »

But why are you assuming its his second home?

Because he is going to "rent it out for €1200 a month and make money"

the_syco

dario28 wrote: »

She reckons I cant loose as house prices are only going to rise slowly

Eh... get new friends. House prices are going down. If she thinks it's such a good idea, tell her to do it.

Unless she's your wife. Then just ignore her :P

jetski

beeno67 wrote: »

Because he is going to "rent it out for €1200 a month and make money"

Doesnt mean anything

D3PO

dario28 wrote: »

Your points are exactly what I am worried about

unoccupancy and rising interest rates

She reckons I cant loose as house prices are only going to rise slowly

Shes one of the people with attitudes that got us into the mess we are in already.

The thousands of people that thought they were onto this get rich scheme that are up to their eyes in debt or in risk of losing everything they own. Im sure they would totally agree with your "friend"

D3PO

jetski wrote: »

But why are you assuming its his second home?

read my post. It does not have to be a second home. It is considered a "second home" if you are not living in it.

If your renting it out then your not living in it. You therfore have to pay the tax. It doesnt matter if you live with your parents, or rent yourself.

Second home property for the purposes onf this new tax = any home you own that you dont live in.

Ice_Box

Even at €200 per month clear profit after tax it will take 17 years to earn back your original 40k deposit. Although it will probably take less then that as rents will probably rise eventually.

If you have a mortgage yourself the 40k would save you a fortune on interest today.

I think to make an investment property work you would need to look at 500 pm mortgage and 1500 pm rent. It if doesn't make a decent profit for you every year then avoid.

Also you can currently write the mortgage interest off against the rent. You may not be able to do that in the future.

D3PO

i guess another point not posted yet is profit versus what you would make having your 40k sitting in a high yield interest account.

Duckjob

The OP just illustrates how deeply ingrained the property bug became over the bubble years.

Even when the cold hard facts staring them in the face, some people are having enormous trouble unlearning the lesson that buying up property is a vehicle for easy wealth creation.

beeno67

Ice_Box wrote: »

I think to make an investment property work you would need to look at 500 pm mortgage and 1500 pm rent. It if doesn't make a decent profit for you every year then avoid.

.

That means you think a property costing about €170,000 should earn €18,000 a year in rent! Dream on.

dario28

beeno67 wrote: »

Because he is going to "rent it out for €1200 a month and make money"

Im currently renting - wouldnt consider living in Swords or anywhere I can afford to buy for that amount

Ice_Box

beeno67 wrote: »

That means you think a property costing about €170,000 should earn €18,000 a year in rent! Dream on.

You got it.

18000 rent
less 9000 income tax
less 1000 expenses
less 6000 mortgage
equals 2000 per year net profit.
Its not worth doing unless it makes money

D3PO

Ice_Box wrote: »

You got it.

18000 rent
less 9000 income tax
less 1000 expenses
less 6000 mortgage
equals 2000 per year net profit.
Its not worth doing unless it makes money

I dont agree with your numbers (no way do you get the yield your referring to) but even if you did its still not worth it.

2 grand a year net profit wouldnt be worth while. Given he has 40k cash saved all he has to do is put it into a high yield account and he earns more than the 5% needed after DIRT to make his savings a better investment.

Now of course if house prices were rising then thats a different story but that isnt the case right now.

dario28

D3PO wrote: »

I dont agree with your numbers (no way do you get the yield your referring to) but even if you did its still not worth it.

2 grand a year net profit wouldnt be worth while. Given he has 40k cash saved all he has to do is put it into a high yield account and he earns more than the 5% needed after DIRT to make his savings a better investment.

Now of course if house prices were rising then thats a different story but that isnt the case right now.

Off-Topic -but I have been looking for decent HYA and cant find decent info anywhere - currently the money is sitting in hsbc online saver doing fook all since the interest rate drop ---PM if you could advise anything decent

beeno67

Ice_Box wrote: »

You got it.

18000 rent
less 9000 income tax
less 1000 expenses
less 6000 mortgage
equals 2000 per year net profit.
Its not worth doing unless it makes money

You are obviously talking about some stage in the future when mortgage interest cannot be written off against tax and where expenses cannot either.

The 6000 mortgage is not an expense, only the interest portion is. The rest is the purchase of an asset.

Edit: I should add, if you can get the property at a cost of 6000 mortgage a year, how many people are going to pay you €18000. Wouldn't they just buy.

spockety

jetski wrote: »

Doesnt mean anything

:rolleyes:

dublinrose

can I just clarify something? if I have a mortgage on a house which is in the last stages of being built- uninhabitable at present- so I'm not living there at the moment- can I be liable for the property tax? thanks

D3PO

dublinrose wrote: »

can I just clarify something? if I have a mortgage on a house which is in the last stages of being built- uninhabitable at present- so I'm not living there at the moment- can I be liable for the property tax? thanks

I wouldnt have thought so, it wouldbe an absolute disgrace if you were, but best to contact the revenue just to be sure.

Euroland

If one decided to buy, now (within next 12 months), is the right time to buy as the Irish residential property market already starts bottoming out and would be on the uptrend within the next 12 to 16 months (or even earlier).

syklops

Euroland wrote: »

If one decided to buy, now (within next 12 months), is the right time to buy as the Irish residential property market already starts bottoming out and would be on the uptrend within the next 12 to 16 months (or even earlier).

The only person who knows that the property market has started to bottom out is maybe the people at Irish Physics Live. There are some terrific bargains on the market at the moment, but that's not to say it has bottomed out.

Personally I think prices can still drop another 15-20% at least before we hit bottom, and in my opinion there are people out there who are kidding themselves with some of their asking prices.

Just had a quick look on daft there, about the cheapest 3-bed semi is 250,000-ish. There are still some pretty 'daft' offers too. Like a 4-bedroom dormer bungalow with an asking price of 850,000. I wonder if thats where the name for the site came from.

There also seem to be an awful lot of houses that are 3-bed semis with only one bathroom. Thats a bit miserable in my opinion. If all 3 bedrooms are doubles(in that they have double beds in them), from a tenant's point of view, you could have up to 6 people staying some weekend, and only one toilet between them.

My point is, if your buying the house as an investment, you are going to want tenants, to pay off some of the maintenance costs, and at the moment, I can not see a couple of tenants renting a place with only one toilet.

Theboinkmaster

Euroland wrote: »

If one decided to buy, now (within next 12 months), is the right time to buy as the Irish residential property market already starts bottoming out and would be on the uptrend within the next 12 to 16 months (or even earlier).

No I don't believe we're anywhere near bottoming out. I don't think it will happen for another 3-5 years so wouldn't even consider buying until then.

Also when it does bottom out there will be no "uptrend" it will stay flat for years and years as the supply gets utilised, then eventually when supply and demand are equal, prices should just rise in line with inflation.

This is all just my opinion but seems to be the general consensus - you should do some more research here and over at www.thepropertypin.com.

For rough guestimate of real value of a property take the current annual rent and multply it by 14. But note that rents are currently falling and will likely to continue to fall.

Actually just remembered something I read on this or another forum - reasons why property is likely to keep falling:

1. Rising unemployment; unemployed people can't buy houses. This reduces demand for property.
2. Rising taxes. Taxes are rising and leaving people with less take home money. A multiple of take home money determines how much money can be borrowed to fund the purchase of properly. If people can't borrow enough to buy existing property, then prices will fall.
3. Falling wages. Many, if not most, employers are imposing pay cuts on employees either through real pay-cuts or reduced hours and un-payed leave. This has the affect of reducing gross pay and reducing available funds to purchase property.
4. Falling population. Many immigrants are leaving Ireland reducing the number of potential people who might wish to purchase property. During the boom years, foreign nationals made up a significant number of property buyers. Indeed, there evidence that there is an increase in emigration of Irish people as well. Fewer people, mean there is less properly required, reducing demand. Furthermore, those that are emigrating tend to be the part of the demographics that are most lightly to purchase property; the young.
5. Lending requirements are becoming more stringent. Banks are reluctant to lend money. If people can't borrow money to fund the purchase of property, then the price will have to fall. 100% mortgages are unheard of anymore.
6. Interest rates are at their lowest level possible. They can only go higher. In the medium to long term, they will be increased, making it more difficult to afford mortgages.
7. Negative equity. Anyone that bought property in at least the last six years are in negative equity. People in negative equity can't sell their existing property. This eliminates people who wish to trade up their existing property from the property market and thus reducing the number potential property buyers.
8. There are hundreds of thousands of empty properties in the country. At the time of writing, there are approximately 80k properties for sale on daft. And, This number does not count most of the large property developments that have been completed in the country.
9. Falling rent. Rent is falling rapidly throughout the country. It is significantly cheaper to rent than to buy.
10. Dublin property is still more expensive per square meter than, London, Paris or Manhattan. Despite approximately 40->50% reduction in prices, Irish property is still over priced in comparison to other cities throughout the developed world. This does not event take into account the fact that Dublin is a small provincial city with no real, economic or political importance. Neither is there a shortage of land for development.

iguana

Theboinkmaster wrote: »

This is all just my opinion but seems to be the general consensus

It's not really the general consensus, just the general consensus of people who have looked at all the facts and done their research. Unfortunately they make up a small proportion of the population. So the actual general consensus is still a lot of half baked nonsense.

Euroland

Theboinkmaster wrote: »

No I don't believe we're anywhere near bottoming out. I don't think it will happen for another 3-5 years so wouldn't even consider buying until then.

Also when it does bottom out there will be no "uptrend" it will stay flat for years and years as the supply gets utilised, then eventually when supply and demand are equal, prices should just rise in line with inflation.

This is all just my opinion but seems to be the general consensus - you should do some more research here and over at www.thepropertypin.com.

For rough guestimate of real value of a property take the current annual rent and multply it by 14. But note that rents are currently falling and will likely to continue to fall.

Actually just remembered something I read on this or another forum - reasons why property is likely to keep falling:

1. Rising unemployment; unemployed people can't buy houses. This reduces demand for property.
2. Rising taxes. Taxes are rising and leaving people with less take home money. A multiple of take home money determines how much money can be borrowed to fund the purchase of properly. If people can't borrow enough to buy existing property, then prices will fall.
3. Falling wages. Many, if not most, employers are imposing pay cuts on employees either through real pay-cuts or reduced hours and un-payed leave. This has the affect of reducing gross pay and reducing available funds to purchase property.
4. Falling population. Many immigrants are leaving Ireland reducing the number of potential people who might wish to purchase property. During the boom years, foreign nationals made up a significant number of property buyers. Indeed, there evidence that there is an increase in emigration of Irish people as well. Fewer people, mean there is less properly required, reducing demand. Furthermore, those that are emigrating tend to be the part of the demographics that are most lightly to purchase property; the young.
5. Lending requirements are becoming more stringent. Banks are reluctant to lend money. If people can't borrow money to fund the purchase of property, then the price will have to fall. 100% mortgages are unheard of anymore.
6. Interest rates are at their lowest level possible. They can only go higher. In the medium to long term, they will be increased, making it more difficult to afford mortgages.
7. Negative equity. Anyone that bought property in at least the last six years are in negative equity. People in negative equity can't sell their existing property. This eliminates people who wish to trade up their existing property from the property market and thus reducing the number potential property buyers.
8. There are hundreds of thousands of empty properties in the country. At the time of writing, there are approximately 80k properties for sale on daft. And, This number does not count most of the large property developments that have been completed in the country.
9. Falling rent. Rent is falling rapidly throughout the country. It is significantly cheaper to rent than to buy.
10. Dublin property is still more expensive per square meter than, London, Paris or Manhattan. Despite approximately 40->50% reduction in prices, Irish property is still over priced in comparison to other cities throughout the developed world. This does not event take into account the fact that Dublin is a small provincial city with no real, economic or political importance. Neither is there a shortage of land for development.

I have a different view, based on my own analysis of the current economic and other indicators, together with the fact that most of the property markets, after sgnificant dowfall, stabilised, and even grow, so Ireland, which had one of the largest downfalls, definitely won't be left behind the uptrend, whatever "the bears" still say.

I understand your worries regarding the factors mentioned above, however many of them (starting from the first) are bound to improve in the coming months and would switch from negative to positive impact on the property prices.

When it comes to your factor 10, your view is already outdated, as in many segments of Irish property market prices have fallen by 30-60% and now look attractive relatively to other international destinations. Also, in my view, Irish property market would follow the international route of futher property market segmentation, where in some property segments the prices will quickly jump up again, while in others the prices would stabilise or even continue to fall.

Factor 8. the areas with oversupply might continue to face prices falling for another couple of years, while the areas with undersupply would have quick uptrend. And don't forget that the residential construction would be at very low levels for the next 2-4 years, so any property investor would take this fact into consideration and bet on this.

Moreover, most of the prospective buyers have been waiting for property purchases for the last 3 years (until prices stabilise), but cannot wait for indefinite period of time as their life arrangements heavily depend on this. So, now, when the Irish economy begins to show clear signs of economic stabilisation and recovery, these people would be ready to buy as any further delay with property purchase would mean buying later at higher price.