Do you think I´m mad????

rick_fantastic

hey there...

so here is my situation....

im 23 yrs old and working full time while doing a part time masters and im in the process of buying a house.

the house is €480,000 and is located in the dundrum / churchtown area dublin.

i would be borrowing in the region of €520,000

my mortgage repayments for the first two years interest only are in the region of €1500 and then after two years they will go up to around €2300.

i will have around €1500 in rental income as long as i have 3 doubles and 1 single room let out (3 doubles * €400, 1 single * €300) kinda going lowest rental i could stretch to... maybe get more for rooms

at the moment i can afford to put €870 a month into the mortgage, but as i finish masters and progress up career ladder my earning etc will increase.

ive worked out my figures and after taking into account for food, light and heat, mortgage protection insurance, car insurance, tax, gym, car repairs, petrol, health insurance i would be left with €320 euro a month for socialising.

now i know that if i do this i will preclude myself from a lot of things such as holidays, nights out on the lash etc etc at least for a while anyway.

the property has a lot of potential rental and expansion wise and i feel it would be a very solid investment if say i decided to sell up in a couple of years....

im having some doubts as to whether this is a good move for me at this stage of my life, but then i could leave it a year or two and the only thing that will change will be the price of houses....

any insight into how hard it is juggling mortgage / being a landlord etc etc????

sorry bout the long post......

hunnymonster

I'm not an expert and I'm sure those with more experience will be along but no, I don't think you're mad but as you say there won't be holidays for a few years. The two things I would suggest you add to your onsiderations are

1. conventional wisdom suggests you budget with only having the rooms rented for 10 months of the year to allow for when people move etc

2. I don't know what your career is but don't overestimate how much extra money a masters will achieve. You may not move up the career ladder as fast as you would wish.

Salmon

My advice is to look at the jobs available in your field and see what the average salary is for those jobs! I know when you are doing a masters you might think that its a licence to print money, but in reality it may only be useful to you after you have spent about 3 years in a position and want to move up the ladder (this depends on the area obviously!). Best of luck in whatever you decide, but be careful of overstretching yourself too early! Are you doing the course full time or part time? You must have a good income at the moment?

Moonbeam

If someone is preperared to give you a mortgage for that much,then your earnings must be pretty good already otherwise it does sound mad.

delly

I wouldn't say your mad to buy, but I think that the value is a little too much at this early stage. Maybe start off with a 3 bed somewhere around the €350,000 mark maybe? In relation to the mortgage, have you been approved already or just know you will get the mortgage? Also the mortgage can't be any more than the value of the house, therefore the extra €40,000 will have to be some form of personal loan. Add into this a minimum of €28,000 stamp duty depending on if you are going to live in the house yourself or not. And lastly I think the max you can earn is €600 per month before you start paying tax, have you taken this tax payments into account?

Anyhow just some thoughts.

rick_fantastic

im looking at best case scenario there, but i have looked at all the permutations and combinations of having 2 rooms rented, 3 rooms rented etc etc and putting away a sizeable chunk of cash would leave me after a couple of months with some fallback money in the event that i didnt have the place rented out, i will be living there aswell....

as for moving up the career ladder, im working in IT (with BSc Hons behind me) and im currently doing an MBs in Information Systems. I dont think that having a masters would be a license to print money but i when i finish the masters my salary will increase automatically by about 10k a year if i stay in current job, more if i change jobs...

i am getting the mortgage because my parents are prepared to underwrite the loan on my behalf. if it all went pear shaped and i wanted to get out of it, i would be stuck paying the mortgage until i could sell the house. so taking that the price of the house is going to go up in line with the rate of inflation (around 4%) then the risk involved in my opinion is quite small.

Afuera

One thing that I think you might be forgetting about here... if you're going to be receiving EUR 1500 p/m rent, you will need to pay tax on all of this income. The Rent-a-room scheme only allows you to receive a maximum of 7620 per year tax free and if you go above that then unfortunately you have to pay tax on the lot. This might make a dent in your figures as effectively you'll only be receiving 900 p/m after tax (I'm presuming you'd be paying the top rate of 42%).

rick_fantastic

ive worked out the tax implications and even with paying tax on rental income id still be ok.

ive had accountant work out the tax liablity on me and with some creative accounting my tax liabilty will be minimised

Blue Duck

so taking that the price of the house is going to go up in line with the rate of inflation (around 4%) then the risk involved in my opinion is quite small.

Not to sounds glum but this is a rather large assumption to make especially in light of interest rate hikes and the so-called market slow down.

Im guessing you're young enough - do you really want to look back at this stage of your life and remember the expensive property you purchased or the fun times you had going out and holidaying.

As proposed earlier a smaller cheaper property could be an idea, maybe one that needs some work &/or has the possibility of adding value.

Bluetonic

rick_fantastic wrote:

so taking that the price of the house is going to go up in line with the rate of inflation (around 4%) then the risk involved in my opinion is quite small.

How is this a given?

edited: blue duck beat me too it!

Sponge Bob

rick_fantastic wrote:

im 23 yrs old I would be borrowing in the region of €520,000

Yes. You are completely mad unless your income is certainn to be €100k a year within three years and every year thereafter for the rest of the mortgage, (assume 30 years) . The rent a room caper can only deliver €7.5k tax free which is the equivalent of €15 k salary at the higher rate before deduction.

You may not assume appreciation, older people in their 30s and 40s did not assume appreciation either but got a very nice windfall I must admit.

rick_fantastic

Blue Duck wrote:

so taking that the price of the house is going to go up in line with the rate of inflation (around 4%) then the risk involved in my opinion is quite small.

Not to sounds glum but this is a rather large assumption to make especially in light of interest rate hikes and the so-called market slow down.

Im guessing you're young enough - do you really want to look back at this stage of your life and remember the expensive property you purchased or the fun times you had going out and holidaying.

As proposed earlier a smaller cheaper property could be an idea, maybe one that needs some work &/or has the possibility of adding value.

ive gone over this with accountant and auctioneers i know and the chances of an interest rate hike over 1.5% is minimal.

i am willing to forego holidays and partying. ive been partying for the last 5 years.

the house im looking at has huge potential for extension. big garden and one story extension already on it.

location also is very good

rick_fantastic

Bluetonic wrote:

How is this a given?

edited: blue duck beat me too it!

well the price is not exactly likely to go down now, is it!

rick_fantastic

Sponge Bob wrote:

Yes. You are completely mad unless your income is certainn to be €100k a year within three years and every year thereafter for the rest of the mortgage, (assume 30 years) . The rent a room caper can only deliver €7.5k tax free which is the equivalent of €15 k salary at the higher rate before deduction.

You may not assume appreciation, older people in their 30s and 40s did not assume appreciation either but got a very nice windfall I must admit.

im not assuming appreciation, im assuming that the price of the property will rise in line with inflation.

Blue Duck

rick_fantastic wrote:

well the price is not exactly likely to go down now, is it!

Thats what everone seems to be forgetting - YES the price may well go down

Afuera

rick_fantastic wrote:

im not assuming appreciation, im assuming that the price of the property will rise in line with inflation.

Property prices are set by supply and demand. Inflation has little if nothing to do with it. I'm sorry, but you sound a little naive here on how markets actually work. Be very careful about fooling yourself into thinking you are taking on little or no risk!

Bluetonic

rick_fantastic wrote:

well the price is not exactly likely to go down now, is it!

Why isn't there a chance it may go down? Would you sit back and listen to what you are saying.

Sponge Bob

You are assuming no appreciation in real terms but you would need €100k salary a year ( inluding rent a room income of which more later) to pay your way /car/pension fund etc for the duration of the mortgage so no year off in Australia for you sunshine.

borrowing €520k on an income of €100k implies a loan of 5.2x earnings at €100k which is about as high as you can get on a salary of €100k

I had a good laugh at this.

i will have around €1500 in rental income as long as i have 3 doubles and 1 single room let out (3 doubles * €400, 1 single * €300) kinda going lowest rental i could stretch to... maybe get more for rooms

You simply cannot stuff adults into a house any more . Once you have 2 rroms let the place gets crowded and a good tenant may want a spare room so that their mammy can visit them from Cavan or something. That you will go along with of course so the box room is the overflow room is it not . Thats what you do to keep good tenants.

you are being very optimistic on rentals , I would assume 2 rooms let for 9 months a year . so thats (€350 x 2 doubles) x 9 or €5600 income . After that you run the risk of losing good tenants because the house is too crowded and getting crap or no tenants instead. Assuming that you will get any more than €6k a year cash (= €12k income before taxation ) is a totally false assumption in my opinion and is a very 80s and 90s assumption .....when there were supply shortages . There is no supply shortage any more.

This is called Diminishing Marginal Returns. . You will not accept a slum stuffed with adults for yourself, why should anyone else.

The only people I know who stuffed houses and got away with it stuffed them with family who knew each other or friends who went along with it. Never strangers.

super_furry

rick_fantastic wrote:

ive gone over this with accountant and auctioneers i know and the chances of an interest rate hike over 1.5% is minimal.

Sounds like you might be hearing just what you want to hear. There is a risk involved and if your margins for movement in the market are as thin as they appear to be, the risk may be substantial.

rick_fantastic

in the area that the house is in and considering that the people underwriting the loan for me (parents) who already have a lot of property + who would consider that "if" they were looking for another investment property they would go with this one.

overcrowding not really an issue as with all the bedrooms there is 2 large sitting rooms and large kitchen. all double rooms are a good size also.

@ spongebob = where have you seen double rooms rented out for 350€ in the dundrum area?

all i quoted above were best scenario figures.... i fully understand the tax implications and the implications of not having all the rooms rented out. and the amount of cash i would need to have sitting there in that event.

i dont see how i would need a salary of over 100k to do this as i have worked out the figures on my current salary which is nowhere near 100k.

i can borrow that amount of money because my parent can underwrite the loan for me.

assuming that i have one room rented out for the first two years at interest only i can still afford the repayments.

its not like i dont understand the implications of renting, my folks have been doing it for years + i have a good understanding of how the markets work. supply and demand in the area i am looking to purchase in are very high and will continue to grow in the future. for example apartments 5 mins away are selling for 440k off plan for a two bed!

rick_fantastic

super_furry wrote:

Sounds like you might be hearing just what you want to hear. There is a risk involved and if your margins for movement in the market are as thin as they appear to be, the risk may be substantial.

well if interest rates move above that then this whole country is fubarred!

Sponge Bob

And you are really fubared with your huge mortgage. I still think you are mad but good luck. I can't really highlight any other pitfalls for you.

L5

Look why don't you just go ahead and buy it, cos you're sure as hell not taking any advice that's being given to you here onboard.

hmmm

Heh this is beyond merely mad. What eejit will lend you half a million euros? I wouldn't mind knowing what the bank was so I can make sure I have no money on deposit with them. Half a million euros in debt - people have no concept as to what money means any more.

delly

Look, at the end of the day you could make it work, but thats with everything going your way and your forecast of the housing market, interest rates and rental market being spot on. Your hedging quite a few bets and you'd be lucky to have everything go your way.

On a sidenote, the house beside me has been empty with a rental agency sign for the last 6 months, now that has to hurt.

On another sidenote, if it was a simple case of the rents nearly covering the mortgage of a house, sure why aren't we all doing it?

Bluetonic

delly wrote:

Your hedging quite a few bets and you'd be lucky to have everything go your way.

He's not hedging any bets, it's 100% speculation. If he was hedging bets he'd be covering his options.

delly

Bluetonic wrote:

He's not hedging any bets, it's 100% speculation. If he was hedging bets he'd be covering his options.

My bad, I was taking a different meaning to the term.

Sponge Bob

He has no margin of error , whatsoever . But he is happy with that so I do not care

rick_fantastic

sorry i do have some margin for error, my ssia matures in april so i will have enough cash there to pay mortgage in event of something happening for 9 months.

also everything everyone has said he has already been considered. im not taking this decision lightly and going out and getting myself 1/2 mill into debt at the drop of a hat

thanks for everyones comments and input so far, has been very helpful.

Sponge Bob

an ssia of €25k max on a mortgage of €500k is 5% . How were you buying furniture for your venture by the way ???

Afuera

Sponge Bob wrote:

an ssia of €25k max on a mortgage of €500k is 5% . How were you buying furniture for your venture by the way ???

I think he was planning on taking out a mortgage of 520k on the house which is only currently valued at 480k to finance that. Or maybe that was needed to take care of the fees and stamp?

Either way, he's landing himself 40k in negative equity from day one of this venture and relying on possible capital appreciation to get any kind of return from it. If he had any sense he'd walk away but he seems rather determined to go through with this.

Crazy stuff though. If this is the way people in general are thinking throughout Ireland, there's going to be some tears and broken dreams, no doubt about it!

Salmon

Hi Rick,

Just wondering what your annual salary is approx. What multiple of your sal would the mortgage be?

Paul

Sleepy

OP, some of the country's top economists are predicting market corrections of as much as 15% in the property market. Now, if you're going interest only for the first two years and that happens, you'll be looking at losses of over €75k (500 @ 15%), three times your SSIA!

Property can go down in value and has in other countries where such rapid price rises have occured in the past. Why should our economy be any different. Personally, when the World Bank and every economist in print are calling the market a bubble, I wouldn't touch it with a barge-pole.

Maybe look at some other form of investment? The forestry industry has been showing fantastic returns over the past 15 years.

Sponge Bob

Rick sounds like a 10x++ kind of guy . If the property drops 10% in price , to about €470k , thats 2 years takehome pay after evaporating on him .

Afuera

Sponge Bob wrote:

Rick sounds like a 10x++ kind of guy . If the property drops 10% in price , to about €470k , thats 2 years takehome pay after evaporating on him .

SpongeBob, it's worse than that. The property is only currently worth 480k, so a drop in 10% would make it worth 432k. He'd still have that mortgage of 520k though!

rick_fantastic

just as a matter of interest how many of you people posting here are actually homeowners?

Calina

Sponge Bob, check the figures again:

loan: 520K
house value purchase price whatever 480K

i.e. he's in negative equity already. For that reason alone, he's out of his mind.

OP - personally I think you are completely insane. Realise you're only 23 years old or so but frankly anyone who is going to be relying on co-tenants to fund a place of their own is not actually buying a place of their own, they're getting into a house share with all the headaches that entails along with not being able to foist problems onto the landlord because it's "theirs". Personally I wouldn't live with you anyway and most people I know who are tenants do their damndest to avoid owner occupied houses. When I buy my own house no way in hell will I want to be dependent on other people to fund it for me.

Plus yeah, I'd like to know what bank is doing this because I wouldn't like to have any money on deposit with them and hell I wouldn't like to have debt with them either.

Salmon

Or better still.... how many posters on here are buried to the neck in debt like rick is attempting to do!

Were just giving our opinions on what you are proposing to do. Have you secured a mortgage yet? I'd think that the bank might give you a reality check when you do! Unless your parents have built up so much equity that they can afford to take the hit. I'm guessing you cant afford to take it yourself!

Only trying to help mate!

mad m

My 2 cents,

Im a home owner with a very low mortage,will have it paid off in 5 years,its 3 miles from city centre and my wife and I were going to trade up to a tune of €250k mortage. Now a number of factors happened in the reasons I wont go into, but Im happy now I wont have a €250k mortage over my head when I would of been 59 by time it was paid off,now Ill be 39 even with the extension we are planning on getting instead of moving.

Rick thats some mortage you will have,but goodluck if you decide to go with it.

masterK

Have you factored in maintenance costs? Remember a lot of tenants wont give flying f**k about your property, this is of course on top of normal maintenance and wear and tear.

delly

rick_fantastic wrote:

just as a matter of interest how many of you people posting here are actually homeowners?

I am.

First house bought June 2002 which was a 3 bed terrace in Swords for €193,000. Sold this in December 2004 for €253,000.

Second house bought in December 2004 was a 4 bed detached just south of Drogheda for €298,000. Same houses are currently going for €480,000.

tbh I never bought to make money and was just lucky that I did which enabled me to trade up. I had contemplated keeping the first house as a rental when buying my second but I decided to put the money to the new house as well as getting some jobs done on it. The rest is sitting in a Rabodirect savings account.

DubDani

I think you are mad. IMO you will have trouble finding people to move in.

These days people are just not intrested in bigger houseshare, especially not if the owner lives in the same house. There are too many options out there. If the house i close to a university you might just about be lucky. But even then people who know each other will pool together, and rent their own place without the annoyance of the landlord living there.

I also think that no Bank in Ireland will give you the money for this venture, as it is far too risky.

Sponge Bob

rick_fantastic wrote:

I've worked out my figures and after taking into account for food, light and heat, mortgage protection insurance, car insurance, tax, gym, car repairs, petrol, health insurance i would be left with €320 euro a month for socialising.

You are left with €320 a month period. That includes paint, redecorating the place to your taste furniture, broken windows , insulation, begonias and impatien and window boxes for them , composht, buying tools for repairs you need to do .....and socialising . How could I forget socialising ??

By my reckoning a 1% increase in the mortgage interest rate on a €520k repayment mortgage over 30 years costs PRECISELY..................€320 a month.

You do know , don't you Rick , that we have had emergency low interest rates for the past 5 years and that a mortgage rate of about 6% is a perfectly reasonable assumption when doing the sums, and thats averaged out for about the next 30 years like.

But I agree with your initial statement, you are mad.

rick_fantastic

DubDani wrote:

I also think that no Bank in Ireland will give you the money for this venture, as it is far too risky.

well you would be wrong there. getting the money is not an issue as i have stated before

rick_fantastic

Sponge Bob wrote:

You are left with €320 a month period. That includes paint, redecorating the place to your taste furniture, broken windows , insulation, begonias and impatien and window boxes for them , composht, buying tools for repairs you need to do .....and socialising . How could I forget socialising ??

By my reckoning a 1% increase in the mortgage interest rate on a €520k repayment mortgage over 30 years costs PRECISELY..................€320 a month.

You do know , don't you Rick , that we have had emergency low interest rates for the past 5 years and that a mortgage rate of about 6% is a perfectly reasonable assumption when doing the sums, and thats averaged out for about the next 30 years like.

But I agree with your initial statement, you are mad.

that 320 a month is just for socialising. i have taken into account all of above.

rick_fantastic

i have been doing the maintainence on 4 houses for the last 5 years so i do understand the costs involved in keeping a house and what can go wrong with them.

mad m

Just another thing for you Rick,I recently painted a house for a young couple in August,they built a house beside the old house they bought and moved into it,I was then asked to paint the old house(Which I did),done this about 2months or more and they still have the sign *To let* outside their house.

And this house is fairly central to everything.Kimmage area.

The_Conductor

Rick- you are looking at roughly a 109% mortgage.
The only reason you are getting this is because your parents are agreeing to underwrite the loan. This is not a regular commercial transaction. I am not aware of any financial institutions that would be willing to offer a loan in the circumstances you are describing at present- other than with parents acting as guarantors until such time as you got the mortgage within 5.5 times of your annual income. As for the creative accounting you are suggesting to minimise your tax exposure- I am guessing that you are officially not resident in the property in order to maximise your tax deductable costs from your rental income. Be very very careful, the Revenue Commissioners do random audits- it does not pay to use creative accounting techniques.

chump

Rick you are the product of a country and more specifically a parental mindwash that has programmed you to think in terms of -ladder- -dead money- -shrewd- -always go up- -dead money- -ladder- -get on- -up ya boyo-

Your not alone. I recently was asked by a similar individual, who seriously questioned why I was renting a place in the city for a competitive price when I could attain (with some parental backing)a ridiculous IO mortgage for a ridiculous period of time and buy a ridiculous place in the middle of nomans land and commute 3 odd hours a day. They too, shared a similar mentality to yours.

Life is for living, and money doesn't always grow on trees, as all the shrewdies will soon find out.

wyndham

A 5 bed house in Dundrum for 480k? Has she got a roof?

stepbar

Is there such a thing as a 5 Bed in Dundrum for 480k? My advice - get a job in the bank! and get staff rate because I would'nt like to have that sort of a mortgage hanging over me