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Does this make sense.

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  • 05-03-2012 10:53pm
    #1
    studdlymurphy
    Registered Users Posts: 827 ✭✭✭


    I am married with a child due in the next few months the wife doesn’t work she lost her job last year. Currently my father is letting us stay in a rental property rent free to save to get ourselves started (Can't thank him enough).
    By November I hope to have about 50k in savings.
    My plan is to buy a cheap property 60-70k so that I have a small amount to payback so that I can continue to save (for a year or two) as much as possible for a deposit on a permanent home for my family and then use the first house we buy to help with the mortgage via rental income (houses like the one I’m looking at are getting 500-600 euro per month before you take tax and other costs into it). does this make sense or am I being very optimistic? should I just use the savings for a deposit on a permanent house to lower the mortgage repayments altogether and forget about the rental income?


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    #2
    killers1
    Registered Users Posts: 1,443 ✭✭✭killers1


    studdlymurphy wrote: »
    I am married with a child due in the next few months the wife doesn’t work she lost her job last year. Currently my father is letting us stay in a rental property rent free to save to get ourselves started (Can't thank him enough).
    By November I hope to have about 50k in savings.
    My plan is to buy a cheap property 60-70k so that I have a small amount to payback so that I can continue to save (for a year or two) as much as possible for a deposit on a permanent home for my family and then use the first house we buy to help with the mortgage via rental income (houses like the one I’m looking at are getting 500-600 euro per month before you take tax and other costs into it). does this make sense or am I being very optimistic? should I just use the savings for a deposit on a permanent house to lower the mortgage repayments altogether and forget about the rental income?

    Lot of variables here, but your plan is very reliant on rental income. If you go down the road of buying the cheap property now & fail to rent it out or have long vacant periods then you will have to cope with 1) a larger mortgage on the family home & higher repayments (as less deposit available), 2) the cost of the upkeep of two properties 3) As you have little or no mortgage to offset against the rental income you may end up giving over a large percentage of the rental income to Revenue, 4) Does the idea of being a new landlord & the hassles that go with it appeal to you? (at the same time as being a new Dad (congrats!)? That's just a few of the many many things to consider. On paper it would seem like a good idea but on paper & reality can be poles apart sometimes....


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    #3
    Milk & Honey
    Banned (with Prison Access) Posts: 1,950 ✭✭✭Milk & Honey


    Makes no sense. You will not get a mortgage on a second property. Keep saving and buy the house you want with a small mortgage.


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    #4
    the groutch
    Closed Accounts Posts: 16,096 ✭✭✭✭the groutch


    wouldnt a huge fan of the "property ladder" concept, especially if you're dependent on renting out a property.

    it would be worth working out how much (properly stress tested) you could afford to borrow & are likely to be approved for with your 50k deposit in november, see can you buy a permenant home within your budget.


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    #5
    studdlymurphy
    Registered Users Posts: 827 ✭✭✭studdlymurphy


    Milk & Honey wrote: »
    Makes no sense. You will not get a mortgage on a second property. Keep saving and buy the house you want with a small mortgage.

    Why wouldn't I get a mortgage on the second property?


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    #6
    athtrasna
    Closed Accounts Posts: 13,420 ✭✭✭✭athtrasna


    I would not recommend becoming a landlord unless you have to. With changes to interest relief, NPPR charges, Household Levy, the likelihood of increased taxes and cuts to rent relief (which will drive rents down in some areas) - it really is not a road that you should choose to go down in an attempt to provide a family home.


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    #7
    killers1
    Registered Users Posts: 1,443 ✭✭✭killers1


    Milk & Honey wrote: »
    Makes no sense. You will not get a mortgage on a second property.

    That's a very bold statement considering you have no idea of the OP's financial circumstances. In any event he would be virtually mortgage free on the initial property with a rental income so no reason in the world why he wouldn't qualify for a mortgage for a second property if he qualifies for one in the first place...


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    #8
    Lantus
    Registered Users Posts: 3,027 ✭✭✭Lantus


    sounds like a good plan, what you need to do is get some numbers written down.

    Being a landlord can be tricky, even the best tenants want new stuff, threaten to move out or leave gum in the carpet, permanent marker on the wall etc.

    factor in periods of non rental over 3 years. rental properties suffer high wear and tear (it's not theirs' so there is no need to make it last.) depending on the property and your market you may need to replace items.

    travel to the property etc.

    It's not everyones cup of tea. You need to be very firm (but fair!)

    read up as much as you can on how to do it right so you dont learn by mistake.

    and good luck, 50k in savings. I'm prety jealous allright, even a low paid job would be nice!


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    #9
    Lantus
    Registered Users Posts: 3,027 ✭✭✭Lantus


    sounds like a good plan, what you need to do is get some numbers written down.

    Being a landlord can be tricky, even the best tenants want new stuff, threaten to move out or leave gum in the carpet, permanent marker on the wall etc.

    factor in periods of non rental over 3 years. rental properties suffer high wear and tear (it's not theirs' so there is no need to make it last.) depending on the property and your market you may need to replace items.

    travel to the property etc.

    It's not everyones cup of tea. You need to be very firm (but fair!)

    read up as much as you can on how to do it right so you dont learn by mistake.

    and good luck, 50k in savings. I'm prety jealous allright, even a low paid job would be nice!


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    #10
    3DataModem
    Registered Users Posts: 3,997 ✭✭✭3DataModem


    Also... a property selling for 70k is unlikely to be rentable at 700pm.


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    #11
    the_syco
    Registered Users Posts: 37,299 ✭✭✭✭the_syco


    studdlymurphy wrote: »
    By November I hope to have about 50k in savings.
    My plan is to buy a cheap property 60-70k
    You'll be a fool to do this IMO. You buy the house for 60k spend another 10-20k to make it liveable, and you'll loose at least 10% of the 60k when you go to sell it.

    If you're able to sell it.

    You're thinking like someone buying a house in 2005. Make up and smell the manure; the Irish property market no longer works that way.


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    #12
    Milk & Honey
    Banned (with Prison Access) Posts: 1,950 ✭✭✭Milk & Honey


    studdlymurphy wrote: »
    Why wouldn't I get a mortgage on the second property?

    Banks are now notoriously reluctant to fund landlords, even indirectly, at this time. You have no track record paying a mortgage and no experience as a landlord. You are vulnerable to difficulties with letting and achieving the rental income.


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    #13
    Zamboni
    Registered Users Posts: 4,305 ✭✭✭Zamboni


    If I were you I would stay in the rental property rent free as long as your Dad lets you and then when it comes to the point that he needs money offer him a nominal rent and stay there until it not a viable accomodation which suits both you and him.
    You have a one working person family now and you should minimise accomodation costs as much as possible whilst saving like a jewish squirrel.
    Then eventually you will reach a point where you can get a suitable mortgage and/or your wife is back in employment.


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    #14
    daltonmd
    Registered Users Posts: 1,246 ✭✭✭daltonmd


    studdlymurphy wrote: »
    I am married with a child due in the next few months the wife doesn’t work she lost her job last year. Currently my father is letting us stay in a rental property rent free to save to get ourselves started (Can't thank him enough).
    By November I hope to have about 50k in savings.
    My plan is to buy a cheap property 60-70k so that I have a small amount to payback so that I can continue to save (for a year or two) as much as possible for a deposit on a permanent home for my family and then use the first house we buy to help with the mortgage via rental income (houses like the one I’m looking at are getting 500-600 euro per month before you take tax and other costs into it). does this make sense or am I being very optimistic? should I just use the savings for a deposit on a permanent house to lower the mortgage repayments altogether and forget about the rental income?

    A couple of things if I may.

    It's not the worse idea in the world. The main concerns are:
    The 20k mortgage - how long will you take it out for?

    Taking this money out for 5 years will cost you 7k in interest, for 15 it will cost you 9k in interest.
    The monthly repayments below.
    5 Year Fixed - rolling to Variable VRP5 - ALL LTVs 5.70 4.8
    5 years 10 years 15 years.

    €383.87 €219.03 €165.54.

    If you do buy a property for 70k the bank will take your repayments (not the rental income) into account and it will reduce the amount you can borrow for your PPR.

    In order to make any gains on the rental property you will have to put out 50k cash, 20k loan, minimum 7k interest in the first place, and then rent it out for at least 10 years, every month with no vacant periods.

    Add into the mix the valuation of your now 70k property - if it falls any further then the bank won't look at this as a 70k "asset" it could well be worth a lot less and then your deposit is gone.

    I am also a bit dubious of the rental income, no disrespect but I have looked at houses for 75k (3 bed) around the country, and then looked at the asking rental prices, they are as low as 300pm but average about 450pm.

    I really think you are in a great position at the moment and borrowing to buy a rental may work against you in the long run.


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