First Time Buyer looking to go travelling

pedropumpalot

Hi all,

I am considering purchasing a two bed apt. in the next year in the greater Dublin region and I am also looking to do a years traveling or possibly longer depending on how I get on.

My question here is, what are my options with regards going abroad for greater than one year and having a mortgage here. Am I allowed to rent out my apt for the whole year or just a room? Or can I get the mortgage stalled for a period of time?

I would appreciate any feedback regarding this matter.

pedropumpalot

pedropumpalot wrote:

Hi all,

I am considering purchasing a two bed apt. in the next year in the greater Dublin region and I am also looking to do a years traveling or possibly longer depending on how I get on.

My question here is, what are my options with regards going abroad for greater than one year and having a mortgage here. Am I allowed to rent out my apt for the whole year or just a room? Or can I get the mortgage stalled for a period of time?

I would appreciate any feedback regarding this matter.

To qualify as a first time buyer, the property must be your principal place of residence for the first five years.

You will have to pay investors' stamp duty if you rent it out during those five years.
The rent-a-room scheme also requires that you are living in the property as your principal residence.

So, in short, if you do as outlined above, you lose FTB status.
As for stalling the mortgage, I'd ask a broker about that.

A Random Walk

I don't mean to sound rude, but I think you're mad. Why buy now when house prices are falling and you're going traveling? What happens if you decide not to come back? You're going to have this millstone around your neck, you can't rent it but you're still going to have to maintain and buy insurance on it (which can be akward on an unoccupied house).

BlackIguana

A Random Walk wrote:

I don't mean to sound rude, but I think you're mad. Why buy now when house prices are falling and you're going traveling? What happens if you decide not to come back? You're going to have this millstone around your neck, you can't rent it but you're still going to have to maintain and buy insurance on it (which can be akward on an unoccupied house).

I agree buying & then going travelling seems like you suggest just seems like grief to me. Prices are expected to stay level at best over the next year/two years.

Invest your cash (at 6/7 per annum) and head off travelling..... IMO what you are suggesting isn't worth the grief and could quite possibly but you in a worse financial position in 2 years time.

By the way, I completely understand your thinking. I've thought that way myself. There's something nice about leaving a mortgage getting paid while you travel around. Not a good idea in the current climate though. Again - just my opinion.

robd

You really need to sit down and think an awful lot more about the implications of buying.

• As pointed out already if you rent out in the first 5 years you lose your FTB and have to pay clawback on the stamp duty you saved. Can you afford to pay this stamp duty (at investors rate) while buying flights and burning cash traveling?
  
• Technically, your mortgage should be changed to an investor mortgage as the bank would prob not be too happy with the idea of you being out of permanent Irish employment and traveling around the world while you have a residential mortgage with them. Given the stagnation and possible drops in property values this may simply be not an option. Of course, lots of people just ignore this.
  
• Are you guaranteed to be able to rent the property. You said Greater Dublin Area, which hints that you're looking outside the M50. These places aren't always the easiest to rent and may have long rental void periods while you or and agent tries to get tenants. You may get a rent less than you expect that no where near covers your mortgage. Most rental income only covers circa 50% or rental income on current properties for sale. Can you cover this?
  
• Remember if you buy that's the end of your FTB status. This could be worth more to you in a few years time if you've got a higher paying job and/or buying with a partner and can afford a better place.
  
• Also, if you can't afford to cover items mentioned above your property could be repossessed. This will put a big black mark on your credit record which will mean a long wait before purchasing again and having to pay much higher interest rates due to having to go with a sub prime lender.
  
• Personally, I believe renting is the only way to go when you're in a transitionary period. College, first few years or working, doing the whole down under trip is exactly that. Plenty of time for ownership when that's all done. You can up and leave with a mere 28 (slightly longer if you're there 6 months+) days notice.
  
• Also Residential Property Investment in Ireland in 2007 is a mugs game.

pedropumpalot

I borrowed 15k (student loan) once i left college and I am paying that off gradually. The apt is located 5km from the city centre and 2 min walk to DCU so renting shouldn't be a problem really.

In terms of paying the stamp duty which will be about twenty something grand I think just paying off the mortgage and not rent it out is the way to go. The mortgage repayment for the year will be around 16k so whats the point in paying 2..k when I can leave it empty for the year and it costs 16k.

The apt is about a yr off till completion so it leaves me time to get a few bob together and think about things. The property is a sound investment but having it hanging over ones head while traveling/working isn't such a good idea i am thinking.

I'll just have to keep the head down

The_Conductor

pedropumpalot wrote:

I borrowed 15k (student loan) once i left college and I am paying that off gradually. The apt is located 5km from the city centre and 2 min walk to DCU so renting shouldn't be a problem really.

I'd rephrase that- renting to DCU students shouldn't be a problem really...... Note: if you go down this road, you will be legally obliged to register the property with the PRTB, and rental income will most probably only be for the 9 months of college.

If you are in a position to accelerate repayments on your 15k student loan, this might be the best course of action to consider at present.

pedropumpalot wrote:

In terms of paying the stamp duty which will be about twenty something grand I think just paying off the mortgage and not rent it out is the way to go. The mortgage repayment for the year will be around 16k so whats the point in paying 2..k when I can leave it empty for the year and it costs 16k.

Its not the way to go. If it is not your principle residence, as it won't be if you go travelling, the stamp duty becomes due. Potentially you could get hit for both the mortgage repayments, and also the stamp duty.

Why would you be happy to pay 16k in mortgage repayments by the way? You would have no income (unless you were working elsewhere- in which case why not be working in Dublin, and living in your own apartment, saving yourself additional outgoings? How would you propose to finance this 16k? As a non-resident (which could be cross-corrolated by the Revenue Commissioners by checking whether you are making PRSI payments on your RSI number, which is also how mortgage interest relief is doled out at source), you may also not qualify for mortgage interest relief- which could potentially mean your mortgage payments could work out a good deal higher than you reckon......

pedropumpalot wrote:

The apt is about a yr off till completion so it leaves me time to get a few bob together and think about things. The property is a sound investment but having it hanging over ones head while traveling/working isn't such a good idea i am thinking.

Am I correct in assuming you have already paid a deposit and signed contracts on the apartment? You may have read in the Business Post at the weekend about some developers taking buyers to court to enforce contracts- so its possible, if you have already signed contracts on this, that you may not be able to back out one way or the other.

The case in the paper at the weekend was of a couple who paid an 18k deposit on an apartment in North county Dublin and who now wish to withdraw from the sale. They acknowledge that they may have to forfeit the deposit, but as property prices are falling- the builder reckons the apartment they were to buy has fallen by over 18k and wants the difference in addition to the deposit. Contract law would dictate that he would receive the difference, that the potential buyers are not entitled to walk away. In a rising market developers didn't care about people walking away from sales, as they would have a queue of people ready to take their place. At the moment, particularly in the case of apartments, its difficult as hell to shift them.

pedropumpalot wrote:

I'll just have to keep the head down

You need to seriously sit down and think about what you are doing. You do not need to get on the property ladder at any cost. You do need to have the information and a pretty open mind about the future before you commit yourself to a long term committment, such as buying a property. You do need to recognise that cheap interest rates are over, that appreciating property values have finished, that rental income cannot be guaranteed, that there is no point in trying to hide things from the Revenue Commissioners, that trying to resell an apartment is far harder than a house, that living with lodgers is not a simple kettle of fish.......

Sit down with open eyes and try to think things through clearly. What you are proposing at the moment does seem more than a bit mad.......

robd

pedropumpalot wrote:

I borrowed 15k (student loan) once i left college and I am paying that off gradually. The apt is located 5km from the city centre and 2 min walk to DCU so renting shouldn't be a problem really.

In terms of paying the stamp duty which will be about twenty something grand I think just paying off the mortgage and not rent it out is the way to go. The mortgage repayment for the year will be around 16k so whats the point in paying 2..k when I can leave it empty for the year and it costs 16k.

The apt is about a yr off till completion so it leaves me time to get a few bob together and think about things. The property is a sound investment but having it hanging over ones head while traveling/working isn't such a good idea i am thinking.

I'll just have to keep the head down

Your absolutely bonkers even contemplating this. The cash burn of traveling, especially if you hit Oz and New Zealand is huge. I owned a 3 bed house in Glasnevin while a student in DCU. I put it up for sale when I went traveling but it still took 6 months to sell. That was in 2004 when the market was good and I had tons of equity to cover myself as I had bought 7 years previous to this. I even took a sizable loan which I used as an overdraft to make sure I was OK. I was working as a contract software developer in Sydney, earning well in excess of what any other backpackers I knew over there. I still ran out of money and had to borrow further. I wasn't exactly living a champagne life either, far from it. My mortgage repayments were no where near the level of what you are contemplating taking on either.

Bonkers, absolutely bonkers. You seem intent on getting on the property market at all costs. This would have worked out OK regardless up until 2005. There's no way this will work in 2007. You're at serious risk of the apartment being repossessed. Oh, and you forgot to include management fees, ESB, Bord Gais, Life Insurance, Home Insurance in your calculations. You'd be looking at in excess of €20k per year not €16k.

Why would you do this to yourself? Go traveling, get drunk, get laid and enjoy yourself with no worries.

dochasach

pedropumpalot wrote:

Hi all,

I am considering purchasing a two bed apt. in the next year in the greater Dublin region and I am also looking to do a years traveling or possibly longer depending on how I get on.

My question here is, what are my options with regards going abroad for greater than one year and having a mortgage here. Am I allowed to rent out my apt for the whole year or just a room? Or can I get the mortgage stalled for a period of time?

I would appreciate any feedback regarding this matter.

I held remote property (overseas absentee landlord) for a few years and I don't recommend it unless:

1) The rent yield exceeds the mortgage interest (at the very least), plus the cost of a property management company, maintenance and capital depreciation (remember, the Irish property market is currently depreciating at an annualized rate of least 2-5% per year.)

2) The property is a one of a kind, you can't possibly buy another anywhere else in the world ever. I'm a bit suspicious of this one with regard to an apartment, especially if even 1/10th of the 250,000 empty houses the cso found as empty are actually empty.

3) The place you're moving to has a property market that is even more insanely out of whack with fundamentals than Ireland's (I can't think of any place right now, maybe parts of Spain, Florida or South Africa?), otherwise it would be more cost-effective and convenient to buy property where you're living and rent or buy in Ireland if you decide to come back.

4) Your bank pays -2% to -5% interest per year and your banker often calls you at midnight because his toilet overflowed.

No you can not get a mortgage suspension and there are tax consequences to letting an apartment instead of using it for your primary residence (e.g. even FTBs probably have to pay stamp duty and capital gains tax on sale.)

dochasach

There are at least 61 properties to let in Dublin 11 at the moment, all of them are listed below 1700 Euro/Month:


Search daft for lettings in D11


And long before you return from your travels, these apartments overlooking the DCU sports arena will be available:
http://www.ireland.com/newspaper/property/2007/0517/1179315398225.html

The payment on a 20 year 2550000 investment mortgage at 5.41% would be 1723 Euro/Month (yes the interest rates are higher and loan length is shorter for investors as compared to owner-occupiers!) You could be cash flow negative without even considering cost of utilities, stamp duty clawback, rent income tax, maintenance and capital depreciation. Subtract another 1000 Euro/month from your take if the "soft landing" depreciation of 5% /year is accurate.