Am I mad - using redundancy payment to buy another property

Irishder

Both myself and my wife are being made redundant and will end up with a nice redundancy package between us. I currently have a house bought in 2007 on a tracker mortgage. meeting payments no problem. I am thinking about buying an investment property to rent out. I will be buying this with cash assuming i get a job in the mean time. Anyone see any obvious holes in this plan? or am i mad to do this and i should just pay off the mortgage.

Doom

Been mortgage free is like winning the lotto....pay it off. Good luck with a job too.

Irishder

Well i won't get enough to be mortgage free, but if i do pay it off i will be giving up a very good tracker. If i put the money in the bank i would probably get more interest on it then i am currently paying on the mortgage. Thanks for the reply

godtabh

Irishder wrote: »

Well i won't get enough to be mortgage free, but if i do pay it off i will be giving up a very good tracker. If i put the money in the bank i would probably get more interest on it then i am currently paying on the mortgage. Thanks for the reply

are you sure paying extra off your tracker would result in losing it? I thought you could increase your monthly payments and it wouldnt affect it?

godtabh

PS no way would I buy an investment property. Not worth the hassle

Ritchi

Put the money in the bank, and when interest rates go up, pay off the mortgage.

professore

Irishder wrote: »

Both myself and my wife are being made redundant and will end up with a nice redundancy package between us. I currently have a house bought in 2007 on a tracker mortgage. meeting payments no problem. I am thinking about buying an investment property to rent out. I will be buying this with cash assuming i get a job in the mean time. Anyone see any obvious holes in this plan? or am i mad to do this and i should just pay off the mortgage.

Get a job first. Then think about what to do. In the meantime you are going to need some of that money to fill the holes created by having no income apart from social welfare.

mad m

Have you thought about putting a proposal together to give to the bank to pay off your mortgage...

Dear sir,

We at such an address have been with you for a number of years on a tracker mortgage. We have kept up payments but my wife and I are being made redundant and we are thinking of emmigrating. We understand tracker mortgages are costing the banks and We would like to offer the bank xxxx amount to settle/clear our mortgage.

Well something like that if you know what I mean?

Irishder

Mad M thats sounds like a good idea, worth a try i suppose. Both who would you write such a letter to? Local branch manager?

mad m

Ring up the bank and ask to speak to someone in mortgages. Because in the long run you are saving them money if you do a deal with them because they're losing money on trackers.

Just ask the person in mortgages who should you make out your proposal to. Hand letter into bank in person or get letter registered.

Galego

It is not a bad idea but you need to identify the risk attached to it. If you are borrowing cheap in your tracker then you shouldn't be in a rush to pay off those debts as you are likely to get a higher return from your investment than your mortgage interest rate. If your investment is in a property then you need to calculate its rental yield (after tax) and see how this compares to your tracker's interest.

People tend to have a negative misconception of credit and how this works in the real world.

hardmaneddie

professore wrote: »

Get a job first. Then think about what to do. In the meantime you are going to need some of that money to fill the holes created by having no income apart from social welfare.

This is right You are assuming you will get a job straight away, you say that you are meeting the mortgage payments no problem, but if you dont get a job straight away you will need money, and you dont get welfare for awhile when you receive redundancy. How will buying a second property be an investment? The rent will be usually dependent on what you pay. So if you get a cheap apartment for cash you might only get €400 a month rent, add to this tax and management fees and you really arent making much return. Unless properties go up drastically but this could take a long time. If you have a mortgage of any type, tracker, fixed dont matter, you are still paying big interest on it. You need to look into this

noxqs

Wow - you want to deal with PRSI, Taxes, Tenants, Upkeep, insurance and general hassle from a rental? How did you think this was a better investment in any shape or form than bonds/stocks?

It is one of the worst possible assets to have as an investment and historically rinsed for inflation it has never, ever, performed even close to bonds/stocks. Infact if you put 1000 euro into a house 100 years ago and sold today you'd have 1000 euros after inflation+upkeep. If you're lucky.

It is also not a very liquid asset, so if you need the money, how long would it take to get it out? Stocks or bond mutuals can be sold off in much smaller portions without withdrawing entirely (and with tiny fees compared to a house).

Whatever you do - don't become a landlord with redundancy payments. That has to be up there with the craziest thing I've ever heard.

Irishder

Thanks for all the feedback.. i really appreciate it. Lots of negativity about becoming a landlord. My reasoning about buying a house now is it seems like a good time to buy especially if you are a cash buyer and not awaiting mortgage approval. Seems like there are deals to be had.
However i understand it is not easy money and it would be a long term investment. My thinking is i would get a 3bed semi for about 80K. I am in waterford and there is a good rental market because of the collage. i would get about 650 /Month. This would relate to 7800 euro per year in income. Hold the property for 15 years and it should pay for itself and hope it has gone up in value rather then gone down.
Maybe i am delusional and as already stated there may be better ways to invest the few pound.

D3PO

Irishder wrote: »

Thanks for all the feedback.. i really appreciate it. Lots of negativity about becoming a landlord. My reasoning about buying a house now is it seems like a good time to buy especially if you are a cash buyer and not awaiting mortgage approval. Seems like there are deals to be had.
However i understand it is not easy money and it would be a long term investment. My thinking is i would get a 3bed semi for about 80K. I am in waterford and there is a good rental market because of the collage. i would get about 650 /Month. This would relate to 7800 euro per year in income. Hold the property for 15 years and it should pay for itself and hope it has gone up in value rather then gone down.
Maybe i am delusional and as already stated there may be better ways to invest the few pound.

7800 in income minus property tax, minus PRTB fees, minus Daft my home ad costs, mins EA fees if you have one, minus tax due on the income .......


etc etc etc

considering buying an investment house with your redundancy nest egg when you have a NE mortgage and no job is insanity at its extreme

makeorbrake

D3PO wrote: »

considering buying an investment house with your redundancy nest egg when you have a NE mortgage and no job is insanity at its extreme

Wait until you are both back in employment - and review again at that point.

Galego

Irishder wrote: »

Thanks for all the feedback.. i really appreciate it. Lots of negativity about becoming a landlord. My reasoning about buying a house now is it seems like a good time to buy especially if you are a cash buyer and not awaiting mortgage approval. Seems like there are deals to be had.
However i understand it is not easy money and it would be a long term investment. My thinking is i would get a 3bed semi for about 80K. I am in waterford and there is a good rental market because of the collage. i would get about 650 /Month. This would relate to 7800 euro per year in income. Hold the property for 15 years and it should pay for itself and hope it has gone up in value rather then gone down.
Maybe i am delusional and as already stated there may be better ways to invest the few pound.

To me, houses in Waterford will not increase much in value for the next 10-20 years and therefore they won’t be able to keep up with the annual inflation in Ireland. Also a building is an asset which needs to be depreciated in time. If you already own a house and I were you, I would diversify my investments and reduce my risk. Nobody knows whether properties could still fall even a lot further due to the huge uncertainty in the Irish economy at the moment.

djimi

Have you considered how you will handle and unforeseen issues that might arise with the property? Boiler goes, washing machine needs replacing, pipe bursts etc. If such a situation arises your tenant is going to want it resolved quickly; if the repairs require a big outlay of cash will you be able to provide it?

Rasmus

Even if you did yield 7,800 in rental income, that doesn't cover all the other outgoings associated with a house, in addition to any incidentals. If a renter leaves unexpectedly for instance, without paying last month's rent, that income goes down again. There could be unexpected repairs.
If you imagine that you could make 6,000 extra a year by simply having the property, is this number really worth the hassle of being a LL? I have rented out properties in the past and it is stressful and hard work. A house does not take care of itself, and 'paying for itself' it a misnomer - the outlay for any house (especially a cheap one that might need some work) mounts year after year.
Personally I don't think a house is an investment nowadays unless you plan to live in it yourself.

Tow

The time to buy is when everyone says don't, the time to sell is when everyone says buy.

blops2013

Whoooooooooooo, wasnt expecting all this concerning cheap property. I was actully thinking of buying 3 properties with the money i get from the sale of my house. My situation migth be different thou as im sitting on the dole now and own my own home outright apart from a small amount of a personal loan to bank) and was selling it in the hope to buy 3 properties and live of the rent rather than being on the dole

Irishder

All again thanks for the replies, really appreciate it. Ok so housing is not te way to go. Any other investment ideas out there? If you had day 100K how would you invest.

makeorbrake

Irishder wrote: »

All again thanks for the replies, really appreciate it. Ok so housing is not te way to go. Any other investment ideas out there? If you had day 100K how would you invest.

Lock it away in a fixed term account -wait until you both are back in full employment - then review again....that review to include possibility of property venture. It's all down to the numbers - if they work on a particular property, then why not.

imitation

Nobodys mentioned property tax yet, I have a feeling it is going to put a big hole in any profits on renting in a few years. Long term I dont think its a great plan, youll pay interest, taxes and maintenance fees. Once the mortage is done the house will probably need serious renovation.

StillWaters

noxqs wrote: »

Infact if you put 1000 euro into a house 100 years ago and sold today you'd have 1000 euros after inflation+upkeep. If you're lucky.
.

Is that a typo, because if not it is one of the most nonsensical things I have ever read!

blops2013

StillWaters wrote: »

Is that a typo, because if not it is one of the most nonsensical things I have ever read!

I agree

Irishder

makeorbrake wrote: »

Lock it away in a fixed term account -wait until you both are back in full employment - then review again....that review to include possibility of property venture. It's all down to the numbers - if they work on a particular property, then why not.

Any good long term accounts around? what type of return would you be looking at?

phormium

Put the money in the highest interest account you can get if you do not decide to pay off your own mortgage.

If you do not find a job and your jobseekers benefit runs out you will be means tested for jobseekers allowance, the savings will affect this. However if you clear your existing mortgage with the savings, you can keep up to 20k each in savings, you will at least get JA.

I would not buy property, too much hassle and again will affect any future benefits if you do not find work.

I am not advocating anyone continue drawing benefits but may as well future proof your decisions now instead of being left high and dry like many are.

The_Conductor

D3PO wrote: »

7800 in income minus property tax, minus PRTB fees, minus Daft my home ad costs, mins EA fees if you have one, minus tax due on the income .......


etc etc etc

considering buying an investment house with your redundancy nest egg when you have a NE mortgage and no job is insanity at its extreme

I'd echo what D3PO has said here. Landlords have been targeted by recent budget measures (such as PRSI on gross rental income for example) alongside a swathe of other taxes and onerous bureaucracy. What your net income would be after all deductions- depends on your personal situation- however I think you'd be insane to consider becoming a landlord when you've just lost your job and have no idea what the future might bring. You've gotten lots of good advice in this thread- do let us know what you decide.

S.

noxqs

StillWaters wrote: »

Is that a typo, because if not it is one of the most nonsensical things I have ever read!

http://4.bp.blogspot.com/-kjOHoEKbH7A/ULQgiAZ45RI/AAAAAAAABh4/8U-RJx1-pGg/s1600/Inflation-Adjusted+U.S.+Home+Prices+Since+1900.jpg

No, not a typo. This is US numbers but can't find the Irish numbers, someone posted that on the property pin. Similar, but much heavier drop off towards index 100.

Please, if you have any real facts and data as counter argument - let us know.

Galego

Irishder wrote: »

Any good long term accounts around? what type of return would you be looking at?

Invest in timber. There are some nice tax incentives attached to it.