House: cut my loses and sell, or hang on?

Dionysus

First off, *I* don't actually own a house but somebody close to me does and this will directly impact hugely upon my own finances and indeed where I live (for tax reasons the house in question has to be lived in until 2015 in order to receive particular tax breaks)

Anyway, after a discussion today I think we need some advice.

1) This Article (April 2010) says: 'A house price-to-income ratio value calculation used by chartered surveyors is to take the rental income potential of the property for one year, multiplied by a 15-year investment life span: 12 x months rental income x 15 years = property value.'

My question: How reliable is valuing a house this way? Should we be treating such a valuation seriously? If we use this formula for the house in question it is worth €1,000 X 12 X 15 = €180,000. A neighbour two doors down recently sold her house for €280,000 (in 2006 the house in question was bought for €530,000).

2) When all sums and interests are taken into account, the loss on paper for the person in question is, as I write, €90,000. At present, the mortgage adds €700 to her monthly bills. If we were to rent, it would cost €1000 pm. If one of us loses his/her job, that means the other will have to pay all €1700 (mortgage & rent) per month. As we expect to have children, servicing that sort of basic bill each month from a single income is simply not realistic.

3) What would be the consequences of "handing in the keys" on the house in question?


What are the options in this situation? I'd appreciate serious responses only. Thank you.

Dob74

If the house is near where you work, or near a major urban centre you may as well hang.
You will always be able to rent it if in the right location.
Prices are still dropping but transactions cost money as well.
Cant tell you what to do but hold if you think you can wather the storm.

amacca

Dionysus wrote: »

First off, *I* don't actually own a house but somebody close to me does and this will directly impact hugely upon my own finances and indeed where I live (for tax reasons the house in question has to be lived in until 2015 in order to receive particular tax breaks)

Anyway, after a discussion today I think we need some advice.

firstly, hope things work out...secondly....I'm sure there will be better more informed responses to your questions but I'll give it a bash and you can decide whose opinion rings true/carries more weight/is more valuable etc

Dionysus wrote: »

1) This Article (April 2010) says: 'A house price-to-income ratio value calculation used by chartered surveyors is to take the rental income potential of the property for one year, multiplied by a 15-year investment life span: 12 x months rental income x 15 years = property value.'

My question: How reliable is valuing a house this way? Should we be treating such a valuation seriously? If we use this formula for the house in question it is worth €1,000 X 12 X 15 = €180,000. A neighbour two doors down recently sold her house for €280,000 (in 2006 the house in question was bought for €530,000).

imo this method tells you what your property is worth to a buyer who is an investor...there are precious few of those around now...

i use a variation of this along with other methods if I'm thinking about buying a property and I haven't been thinking about doing that for a long time....this method was almost always wrong in the bubble and can still be wrong (wrong in the sense that properties actually sold for way more than it indicated they should...not necessarily wrong in that the price it indicated was around what they should have sold for if buyers were acting rationally)

it could overvalue or undervalue.....eg: whose to say an investor would get the house rented 12 months of the year for fifteen consecutive years, most of these calculations factor in one month idle, these type of calculations usually factor in other bills (taxes, water charges, management fees) that affect the income from the property

if you are thinking of selling soon and a neighbour recently sold for 280k then you should be thinking of selling for more than 180k...unless of course you have reason to doubt the veracity of this selling price....

if you wait for longer then yield calculations/valuations based on rental incomes may be much closer to what you would expect to get for a property....notwithstanding the fact that the location of your property might blow that out of the water

Dionysus wrote: »

2) When all sums and interests are taken into account, the loss on paper for the person in question is, as I write, €90,000. At present, the mortgage adds €700 to her monthly bills. If we were to rent, it would cost €1000 pm. If one of us loses his/her job, that means the other will have to pay all €1700 (mortgage & rent) per month. As we expect to have children, servicing that sort of basic bill each month from a single income is simply not realistic.

so what are your options...if Im reading the above correctly they are

1) hold on to house, continue to pay 700 in mortgage

2) sell house and still be liable for same 700 payment + 1000 to rent a place ---something doesnt add up here--there has to be some upside to selling the house

Dionysus wrote: »

3) What would be the consequences of "handing in the keys" on the house in question?


What are the options in this situation? I'd appreciate serious responses only. Thank you.

at present if you hand in the keys the debt pursues you...to the best of my knowledge

if the bank sells the house then you owe what remains of your debt after the sale price + fees etc has been subtracted from the outstanding amount

population

I have mine rented out and it is a struggle making up the shortfall each month but ultimately I like my house and I would like to own it eventually. I did enquire to the bank as to what would be the situation with selling in negative equity and they told me that under no circumstances would they release the deeds unless every cent of the mortgage was paid up to them. Handing back the keys is not an option in Ireland. You will be chased for the shortfall plus interest and solicitor fees so best to avoid taking that line imo

washman3

good debate going on all day on a similar topic, will send you details if you can. was titled "how much is this house worth" in accomodation and property if you want to have a look.
every1 will have a different opinion, best of luck with your choice.!

oflahero

This thread over on the 'pin is worth a read. Stick with it til the end. The thread that is, not the gaff...
http://www.thepropertypin.com/viewtopic.php?f=10&t=15517&start=30