Buying property - Cash or Mortgage

b4bmm

With banks not lending much in the way of mortgages at the moment, what are the advantages and disadvantages of buying a property upfront with cash as opposed to with a mortgage and say a 20% downpayment?

Do you lose out a lot of the like of tax deductions which could be claimed against the interest of the mortgage when paying cash?

Im am looking for FACTUAL information from people in the know, thanks.

chris85

b4bmm wrote: »

With banks not lending much in the way of mortgages at the moment, what are the advantages and disadvantages of buying a property upfront with cash as opposed to with a mortgage and say a 20% downpayment?

Do you lose out a lot of the like of tax deductions which could be claimed against the interest of the mortgage when paying cash?

Im am looking for FACTUAL information from people in the know, thanks.

Stupid to not buy in cash if you have the funds due to cost of the mortgage interest which is at around 4-6% compared to savings rates of 2-3% so no advantage to having a mortgage. TRS cannot be obtained for new mortgages anymore. For a €300k mortgage you would be saving probably €6-8k per year by not having a mortgage on it.

There is no advantage to having a mortgage over not having one if you can pay in cash.

murphaph

chris85 wrote: »

Stupid to not buy in cash if you have the funds due to cost of the mortgage interest which is at around 4-6% compared to savings rates of 2-3% so no advantage to having a mortgage. TRS cannot be obtained for new mortgages anymore. For a €300k mortgage you would be saving probably €6-8k per year by not having a mortgage on it.

There is no advantage to having a mortgage over not having one if you can pay in cash.

There is an advantage. You still have cash if you need it. That's valuable to many.

whatnext

The honest answer is its impossible to say. It really depends on what the economy (interest rates and inflation) does or doesn't do over the course of the proposed mortgage.

Depending on your age, the purpose of the mortgage (investment or your own residence) there are perhaps things that you could do to make the money work harder for you.

To flip the question on its head, ask yourself is the cash worth more to you than the bank.

Give us a scenario - a notional person. And its easier to give an answer.
The reality is the opinion any one will give will differ on the circumstances of the buyer.

b4bmm

Is there no advantage in spreading out that money on a number of properties instead of throwing it all into one property?

Mrs OBumble

It depends on what the cash would be doing instead.

If it would just be sitting in a bank account, then rememeber that DIRT is increasing to 41%, no matter how much or little you earn.

If you have the option of spreading it over several properties, then you should be getting financial advice from a profession not randoms on the interwebs.

Victor

b4bmm wrote: »

Is there no advantage in spreading out that money on a number of properties instead of throwing it all into one property?

Spreading it out over a number of properties potentially mean a larger involvement / overhead and a greater exposure ot the property market - for good or bad.

b4bmm

If the deposit is spread out and placed on two investment properties, which will reduce the repayments of the mortgage to a range where the rental income will cover the repayments or even where the rental property is cash-flow positive would this not be better an investment than dumping the whole lot onto a single property as a long term investment?

By doing this, i am initially putting a large deposit down up front (maybe 30-50%) but will then have tenants
paying the rest for the term of the loan preferable 20 yrs. So i will have paid half and half will be paid for me.

If the prices of property drop further, you may be in negative equity in the short term but your rental income would cover you.
Prices cannot drop the likes of what has been in recents years again so negative equity should not be a major concern
i would think. Not over the medium/longer term.

Does this type of thinking make sense in property investment or are there better strategies people have used
or know of that i may be overlooking. Also i know shag all about the tax implications or advantages of property investment,
maybe somebody can enlighten me on some strategies with that also.

Thanks guys

whatnext

It really is impossible to say.
You need to know the full picture regarding your personal circumstances.
There is no off the shelf model that you should follow. Its all down to personal circumstances and knowing what you want to achieve in the end, ie after the 20 years.

I'm going to give one scenario to illustrate a point.

if for example you were 35 years of age, on a salary of 60k. Were looking for an income for retirement and had 100k in the bank for investment.

It could be suggested that putting the money into a pension might be the best idea. if you put 12k a year into a pension (from your 100k) after 5 years with zero growth on you investment, you would have a fund of 60k'ish and still have approx €68K (tax relief would mean it would effectively only cost c. 6,250 PA in real terms) of your 100k in the bank - leaving you with assets of 128k. before allowing for any potential interest or investment return. (for this exercise you could have your pension contributions coming from your salary and subsidise the loss of income from your 100k.)

Now the above is only very rough for illustrative purposes only.

There are lots of arguments for using the banks money to buy a property. Personally it is the route I take, as I feel the value of the money being repaid keeps diminishing). But I know what my end game plan is.
I now know what I am doing. But if I knew how emotionally tough being a landlord was at the beginning I don't think I would have done it.

You say you know shag all about the Tax side, and to be honest that gives you a major head start in that at least you realise this.

My advice is talk to an accountant. Not a financial advisor.
Decide what you want to achieve in monetary terms over say 20 years and see if you think property is the way to go still. It may well be. Compare it to other things you could do with the cash, as many of them as you can come up with.
Be hard on yourself with your projections. Don't plot the figures "to make it work", plot them to see "if it works".
Remember also - over the life of a rental house in 20 years you could be looking at replacing the kitchen, Bathroom, windows or even the roof etc............. any of those alone could wipe out a whole years rent.

b4bmm

Thanks whatnext. I have decided to see a financial planner instead of an accountant. In fact I am going to get initial consultations from a number of them to decide which one I think will suit my goals and circumstances best.

I am not biased towards property I am biased to any financial investment that may give me my best investment options. Do financial planners generally deal with shares,pensions,tax advice more so than property or should they also be fully educated on property investments also?

Thanks for the replies.

whatnext

What I have found is that financial planners are business people that have to make a living, and I have no problem with that.
However if they are not charging you a fee for their services then they have to sell you a product from a company that will pay a fee. They are not a charity after all.

On the flip side of that I can go to my accountant with a load of hair brained ideas and plans, he can crunch out the numbers for me, stress test the returns and costs and leave me with enough information in language I can understand to make my own mind up. The other thing is when it comes to sorting out the tax issues he knows what's going on.

Not saying its the right way to go, but its what I prefer to do.

b4bmm

I think you have got it down whatnext. I am going to a meeting with a financial planner tomorrow(free of charge 1st meeting) and have been talking to two already on the phone. The two i have talked to on the phone mentioned if I'm thinking about property. This leads me to believe they would be very little help to me. So, as you said i will do my own research and come up with my own ideas and then see how financially viable they are by consulting a accountant. The thing that keeps going around in my head is that i have research plenty of financial planners and a lot of them are in their later years 50+. If they were that good why are they still working the 9-5 job like the rest of us monkeys?? Intereted to see what this meeting will cover tomorrow.

Eoin0603

Hi all,

Some very good points made here regarding the use of money etc in reality without a complete picture it's impossible to make any recommendation as to what's best to do.

As a financial planner myself I'm obviously going to suggest you consult with one! But just to clarify a few points.

A financial planner is different from a financial advisor or a financial broker. Many financial planners are also advisors/brokers but it's not fair to say many advisors/brokers are planners.

A good financial Planner should have a good knowledge of tax, property, investments, pensions, savings etc.

If you have a good accountant they may be able to help you in a situation like this, however remember what the role of an accountant is: It is to look backwards at your finances and ensure you pay the right tax.

A financial planner is paid to look forward at your finances and a situation like this is exactly what they should be used for.

Just my biased opinion!

b4bmm

I had a meeting with a financial planner the other day. I talked to two others on the phone.
I was impressed with the guy I had the meeting with but not the other two.

Basically I can either invest in shares or property.

Property is more a lifestyle choice as much as an investment choice.
I really don't know over the long run which as an investment is better.
I guess its the flip of a coin really.

I think there are a lot of responsibilities and stress with owning a property, even more so
if you are to rent out some of the rooms as extra income.

Really i would do whichever option i knew to be more profitable but like i said.....its a coin flip i think?

Victor

It isn't a coin flip. The best financial portfolios have a spread of investments. Concentrating on one asset class or one asset is where there is the greatest risk.