Use SSIA for Buy-to-Let?

Gwynston

When our SSIA's mature, my wife and I could pay off what's left of the mortgage on our 5-year-old house, and ongoing invest money each month. I was brought up in Britain, but my wife is Irish and has caught the property buying bug. Since we have some money to invest, she thinks we'd be mad not to jump on the soaring property price bandwagon.

I've tried to tell her about the possibilities of a house price drop, but she feels we're missing out because everyone we know is buying investment properties and we look stupid to be missing out. Mortgage repayments on a 4-bed semi 8 miles from Galway would cost us almost twice what we could rent it for, but doing the calculations, we could afford this (even if interest rates went up 1%) and her justifiacation is that with just 2 or 3 years of growth, we'd still make a profit if we sold when things started looking not so good. Besides, we'd like to be in it for the long term, so it's bound to be worth a lot more anyway in 15-20 years, even if there is a slump in between, right?

I don't know all the facts necessary to convince her that now is potentially the worst time to buy an investment property. Her heart rules her head, and she says she "just knows" prices are going to keep going up, and could never take a big dive even if growth did slow down.

[banging head against wall...]

superfly

go for it
i am

FillSpectre

Sounds like maddness if you are all paid off. In fact it sounds like madness to pay off the mortgage the mortgage is the lowest rate loan you could get.

Personally I only see the investment route in property as a way to get to mortgage free. Why not enjoy your money and life. Start collecting something of value like maybe art or cars. Somthing you enjoy. Unless the property investment is for kids or retirement home for future.

Look at all the tax breaks if you insist on buying as people often miss the tax relief.

Gwynston

Why is it madness to pay off the mortage? The fact is when we get the SSIA money, we don't need to borrow money anymore - we can be debt free. A mortgage would only be a means to investing in more property on the assumption it's going to make a profit, even with no rental income.

We have two small children, so we were looking to invest for the long term. I just don't think buying near the peak (if that is indeed where we are right now) is the right time to buy, even if we are looking to keep it rented for 15 years.

Superfly, that's a pretty glib statement! Can you explain your reasons for it being a good move? I'd like to hear from someone who can justify it on a basis other than the usual blinkered faith that prices are going to continue rising for the forseeable future. Because on that basis, we'd obviously be mad not to buy!

Would love to think we could go out and buy shiny new cars, but I don' think the wife is considering that as an option!

whizzbang

If you have two small kids would a more secure long term deposit of some of the money not be the responsible thing to do? Putting all your eggs in the property basket might be a bit riskey.

Gwynston

I tend to agree - but my wife sees property as a sure-fire long-term investment! And it's her idea to put something aware for our children's future!

JimmySmith

Your wife wont be alone in thinking this way. That is why property prices are going to keep climbing until everyone has spent their SSIAs.

Even if you had bought at anytime in the last 5 years you would have thought you were buying at the peak.

Dont forget its not the people like us who post here with own opinions of where property prices are going who drive the market. Its people out there who put their money where their mouth (or not) is that drive the market.

Culchie

Gwynston wrote:

I tend to agree - but my wife sees property as a sure-fire long-term investment! And it's her idea to put something aware for our children's future!

No offence, you wife needs to get a grip.

Get some proper advice, yield %, rental income from the area, factor in another 1% interest hike at least.

Factor in the Irish economy is completely reliant on building industry, what happens when supply has met demand?

Lots of houses that will need renting, lots of people out of work.

TempestSabre

I think if I was is that position I'd be looking at a cheaper property somewhere else hot and sunny, and aim to use it as a holiday home and rent it the rest of time. But I wouldn't go for Irish property unless I could make money in the short term from it.

HelterSkelter

Gwynston wrote:

my wife is Irish and has caught the property buying bug.

we'd be mad not to jump on the soaring property price bandwagon.

she feels we're missing out because everyone we know is buying investment properties

we look stupid to be missing out

Her heart rules her head

she says she "just knows" prices are going to keep going up

could never take a big dive even if growth did slow down.

All these statements alone tell me it is a very bad idea. You are not making this decision based on any professional advice or factual evidence. Have a look at many of threads about property on this site and you will quickly realise the potential problems that lie ahead.

we'd still make a profit if we sold when things started looking not so good.

And everyone else will have the same idea, resulting in you having a very tough time selling.

Mortgage repayments on a 4-bed semi 8 miles from Galway would cost us almost twice what we could rent it for

Why don't you buy abroad? My gf's brothers have property in London and their rental income equals their mortgage repayments. Property prices there are around the same as Dublin prices.

WhatsGoingOn

Gwynston wrote:

I tend to agree - but my wife sees property as a sure-fire long-term investment! And it's her idea to put something aware for our children's future!

Tell your wife to watch this program (link at the bottom or the page) and she'll change her mind. There is no way the property boom can continue.

http://www.rte.ie/thetimeofourlives/boom.html

ChuckProphet

I wouldn't buy to rent unless the rent covered the mortgage. It doesn't make sense.

Lex Luthor

Gwynston wrote:

Mortgage repayments on a 4-bed semi 8 miles from Galway would cost us almost twice what we could rent it for, but doing the calculations, we could afford this (even if interest rates went up 1%) and her justifiacation is that with just 2 or 3 years of growth, we'd still make a profit if we sold when things started looking not so good..]

sounds too much of a risk if you ask me...think if you had to cover the mortgage for 2-3 months if you had no tenant

personally, i think its too late to get into the buy-2-let unless you put a good deposit down

TempestSabre

Lots of places to buy, Ireland is probably one of the most expensive in the world at the moment.

Noelie

I don't think anyones SSIA is big enough to prompt buying an investment property. Even with the max amount saved you'd still only be getting about 20K, this will just cover the deposit, rental income would fall well short of your mortgage repayments, as i can't see a bank giving more than a 20year mortgage on a investment property.

I dont think house prices will fall but i think the rate of growth will, maybe only 5% PA, so it would take about 4 years before your capital appreciation would match your costs ( Stamp duty, solicitor fees and Agents fees)

Lex Luthor

Noelie wrote:

i can't see a bank giving more than a 20year mortgage on a investment property.

I got 25yrs given to me last year on the 85% and the remaining 15% that I took out on an equity release on my own home at 30ys

Noelie

I'm just going by what a friend on mine told me, he works in the AIB mortgage department

Lex Luthor

Noelie wrote:

I'm just going by what a friend on mine told me, he works in the AIB mortgage department

i got mine with AIB so ask another branch

Victor

Gwynston wrote:

I've tried to tell her about the possibilities of a house price drop, but she feels we're missing out because everyone we know is buying investment properties and we look stupid to be missing out.

Assumming you get 40 grand, go buy a boat. That will keep you up with the Jones.

Lex Luthor

Victor wrote:

Assumming you get 40 grand, go buy a boat. That will keep you up with the Jones.

or a Hyundai Tucson

The_Conductor

Gwynston wrote:

Why is it madness to pay off the mortage? The fact is when we get the SSIA money, we don't need to borrow money anymore - we can be debt free. A mortgage would only be a means to investing in more property on the assumption it's going to make a profit, even with no rental income.

If you are planning on borrowing money for assistance in the purchase of a property- by paying off your current mortgage you are lowering your amount of current liquidity and most probably pushing up the cost of borrowing on the new mortgage. The lower the Loan-to-equity ratio, the better the interest rate you are offered (as you are a far better risk from the banks perspective)

Also it is extremely dangerous to make an assumption that were you to purchase property in today's market, that you would make a profit, even with no rental income.

You are in the Galway area- a far better long term proposition might be to buy in the city itself- there are a number of developments coming on stream at present (I see a nice new block of apartments on Dominic Street for example). You would be maximising your rental potential, covering several segments of the market. I have no idea what the asking price is though- and very much doubt they are Section 35s!

Gwynston wrote:

Would love to think we could go out and buy shiny new cars, but I don' think the wife is considering that as an option!

My brother is using his SSIA to import a classic Jag from the UK. He has a small car already- so he is entitled to classic car insurance. Whatever about splashing out on a nice shiny new car that will depreciate by 20% as you drive it off the forecourt a classic car is unlikely to go the same direction. I don't think there is any VRT on classic cars either.


To be quite honest- having hung around here for a while, people's attitudes to property in Ireland in general are very akin to those trying to enter pyramid schemes (which oddly enough do a flourishing trade here too......) While it is all well and good to say Caveat Emptor- the rule book seems to have been thrown out and not figure in people's calculations here anymore.

Research what you are proposing properly and get good professional independent advice. Have a read of the Business Post and other reputable papers (today's Business Post states that by March '07 that using Central Bank rules- that a couple on 76k per annum will only be entitled to a mortgage of 320k (100k less than at present) and will be paying over 50% of their combined income on servicing debts. Interest rates are going up- the ECB themselves consider 4.5 percent (a rise of 1.75% on current levels) to be "normalisation" of rates and have stated they intend to increase it to that level "in measured steps". Money is getting more expensive. First Time buyers (who represented 34% of the market in 2004) are being priced out of the market altogether and everyone else is getting hit by the credit crunch.

Equip yourself with information and inform yourself before you decide what to do. Buying because all the neighbours are is not a good enough idea- after all lemmings commit suicide by following each other in jumping off cliffs regularly- us human creatures have our own similarities.....

miju

smccarrick wrote:

Have a read of the Business Post and other reputable papers (today's Business Post states that by March '07 that using Central Bank rules- that a couple on 76k per annum will only be entitled to a mortgage of 320k (100k less than at present) and will be paying over 50% of their combined income on servicing debts.

smccarrick wrote:

Interest rates are going up- the ECB themselves consider 4.5 percent (a rise of 1.75% on current levels) to be "normalisation" of rates and have stated they intend to increase it to that level "in measured steps".

you wouldn't have links to the above would you , particulalry the ECB intending to raise rates to 4.5% would be very interested in reading about that had a look about the ECB website and couldn't find anything

The_Conductor

The first article from the Business Post is by Louise McBride and is entitled "First-time Mortgage limits will fall by Euro 100,000 if rates rise".

http://www.thepost.ie/post/pages/p/story.aspx-qqqt=NEWS-qqqs=news-qqqid=14976-qqqx=1.asp

Re: ECB normalisation of rates, control of inflation and tightening of M3 monetary supplies- it was a live questions and answers with Jean Claude Trichet to the European Banking Congress. In it he hammered home that the M3 expansion rate was both destabilising and inflationary- and that the ECB would proceed towards normalisation of interest rates in order to bring headline inflation levels (2.6%) back towards core levels (of 1.5%), He refused to comment on the ECB's liquidity-focused reasons for wishing to increase rates, which analysts deem to suggest that the ECB is prepared to give growth the benefit of the doubt and downplay the very large downside risks that remain, by continuing their measured increases.

I will try to get a transcript.

miju

excellent thanks for that , hadn't heard anything about that in the press so i'd gues the average joe wouldn't have known that either (which you figure something like 4.5% normalisation of rates would merit some coverage)

Sarn

smccarrick wrote:

Sundays Business Post states that by March '07 that using Central Bank rules- that a couple on 76k per annum will only be entitled to a mortgage of 320k (100k less than at present) and will be paying over 50% of their combined income on servicing debts.....

Of course the problem will be for people who have put down their deposit for a new build due for completion in a year or two. That original mortgage quote that covered the cost will no longer be applicable. Therefore they'll have to offload them, get a serious pay rise, come up with a lump sum or lose their deposit.

Gwynston

I'm just catching up on this thread - I wasn't getting e-mail notifications of updates, so figured it had been abandoned!

Thanks for the all the interesting discussion. I managed myself to outline with my wife a lot of the issues that have been discussed, and finally convinced her now is not a good time to buy. Of course, everyone else she talks to who are brainwashed thinks we're crazy to miss out, and I know she'll never forgive me if prices are still going up at the same rate by the end of the decade.

I'm much happier paying off our existing mortgage and becoming completely debt free. The way I see it, we'll own a huge house on a big plot in a nice quiet rural area that we bought new 4.5 years ago for less money than it would cost for a 3-bed semi these days, so we've already done well out of the property boom. And it will be quite a novelty when the bank actually hands over the deeds to OUR house - how many people can say they have theirs? The banks in this country must own a hell of a lot of property! :eek:

In the meantime, we'll be able to save a large amount monthy that used to go into our SSIAs or mortgage payments. The wife has set me the task of finding something safe with a high retuurn over at least a decade. Any suggestions?

whizzbang

Gwynston wrote:

The banks in this country must own a hell of a lot of property! :eek:

yep, and their stock is starting to suffer for it!

miju

ranging from a -9% to -14% drop in share prices for the four big players if i'm not mistaken

The_Conductor

Lol, the bloodletting has begun.....:)

All the talk of a new SSIA has brought me to this thread.
I wonder how it worked out for the OP?
I was too young to get in on the SSIA action unfortunately .

L1011

BrownFinger wrote: »

All the talk of a new SSIA has brought me to this thread.
I wonder how it worked out for the OP?
I was too young to get in on the SSIA action unfortunately .

We're OK with some level of thread bouncing, but this is taking the piss...

The OP is still active on boards, I would suggest you PM them.