Buy another apartment to negate negative equity?!!

nino1

This is my situation:
My wife brought a one bed apartment in Dublin off the plans in 2004 for €275,000 now worth €95,000!:eek:
I never brought, always rented.
We have a combined salary of €130,000.
The mortgage is €1,200 monthly.
We have a baby on the way in a few months and the place is way too small so we will need to move.
we are going to rent our apartment.(we would have to pay a little extra to cover the mortgage)

Now 2 senario's

1) My wife thinks we should rent another house/apartment until the property market settles down. (we will have to leave for the uk in 2-3 years for work purposes and don't know what location in dublin we would eventually like to settle in when we move back)

2) I think we should buy a 2 bed apartment for €120,000. We could pay a deposit of €40,000 and on a 15 year mortgage the repayments would only be €630. When we need to move to the uk we then rent the apartment and in 15 years time we have an apartment worth €120,000 or hopefully more, which can go someway to negate the losses in our apartment bought in 2004.

If you have managed to stay awake through all of that, what would you do?!!

true

With future austerity here, tax rises, future property taxes etc, I think your wife is right. If I was moving abroad I would want as little property in this country to worry about as possible. ( leaks, tenants moving out, letting problems, taxation issues etc ). I wish it was otherwise.....but I fear apartments @ 120k are still way overvalued.

riclad

IT sounds like a good plan.You,ll have to pay tax on the rental income,
200 euro council tax.As a landlord you get 75per cent trs mortgage relief
on interest paid ,up to x amount.theres a ceiling see ,
http://www.irishlinks.co.uk/mortgage-tax-relief.htm
see http://www.revenue.ie/en/tax/it/reliefs/tax-relief-source-mortgage-rates.html
i dont know how trs works for people who have 2 mortgages,
its probably 20k ceiling 25 per cent rate ,for a couple in 2012.
if you appoint an agent to supervise,tenants, you can claim the cost of that against, rental income , profits.
same for accountant, if you get one to submit your accounts, re two rental units,
remember,you have to holdon to all receipts, expenses,bills, etc re expenses.,insurance,repairs,
to claim them against tax.

i dont understand what the 30 per cent rate means,
maybe you can claim 30 per cent of
interest paid ,up to a ceiling of 20k max, for a couple,
if you bought property in 2004.

Switching lender or mortgage type to achieve a better interest rate is not the same as taking out a new loan. However, a new mortgage where you move home and take out a mortgage with a new or existing lender is eligible for relief.

Mortgages taken out from 1st January 2004 to 31st December 2012, subject to qualifying mortgage criteria, are eligible for mortgage interest relief until 31st December 2017 (see rates/ceilings chart).

Mortgages taken out after 31st December 2012 will not qualify for mortgage interest relief.

if you wanna buy ,buy before 31st dec ,otherwise
you get zero trs.

all those things, leaks ,repairs, insurance,
you get tax credits for,
the rental market is strong in dublin,you can say ,ill get x amount per month.
be careful, think,what happens if interest rates go to 6 per cent,
can i afford to pay my mortgage,s.2 loans.

Senna

Scenario 1 makes sense, especially since you know you will be moving to the UK in a few years.
Scenario 2 makes no sense what-so-ever, one property purchase hasn't worked out for you and you think another purchase will make up for it, based on nothing but blind hope. I can only compare scenario 2 to a degenerate gambler who keeps doubling up in search of the "big win".

ted1

Apartments are unsaleable why would you want another one?. I'm sure you would have a good intrest rate on existing property. This would more than likely change as it becomes a rental one. So repayments could go up a couple of hundred. You may have trouble renting it so won't have a rental income every month.

Are you sure your wife will return to work after baby is born.

riclad

I think its a good idea,no gaurantee it,ll offset your loss
on apartment 1.
it may help you as in asset to be in a financial position ,to afford to sell off apartment 1,even if 1 is still in negative equity.
its impossible to predict the market in 15 years ,but as regards rental income dublin is the safest place to buy.
interest rates could be 6 per cent in 3 years time,
around 4 percent now on average standard variable rate.

mickdw

Buy a house if you must buy something. Avoid property with management company would be my opinion.

riclad

Yeah buy a house,same price,no service charges ,you get a parking space.
Better long term investment,
you,ll need landlord insurance,ie public liability insurance as part of the house insurance package.

Zulu

Ugh, I bought a 2 bed the same time as your wife when I was single. I'm married now and we don't have kids. We've moved out & are renting out a 3 bed house.

What's my point?
If you buy the 2 bed you'll regret it. You'll grow out of it in no time. If you are buying anything, buy the house you see yourself celebrating your childs 21st in. Your wife is right. Listen to her.

djimi

Youre moving to the UK in a couple of years and you want to buy a second place in the meantime? That makes absolutely no sense whatsoever; why on earth would you want to be left in a situation where you are out of the country with two rentals to worry about?

Rent out your own place and rent somewhere else to live for the couple of years until you move. Do not tie yourself into a second apartment; I cant even begin to imagine why you would even consider this if you dont plan on being in the country for much longer.

Zulu

Zulu wrote: »

Ugh, I bought a 2 bed the same time as your wife when I was single. I'm married now and we don't have kids. We've moved out & are renting out a 3 bed house.

What's my point?
If you buy the 2 bed you'll regret it. You'll grow out of it in no time. If you are buying anything, buy the house you see yourself celebrating your childs 21st in. Your wife is right. Listen to her.

...that said, I bought a 2 bed apt in 2006, so my thinking re property should probably be taken with extreme caution.

Caseywhale

I think both your options are good ones. Depends whats right for you though. You are on good money, and can afford it. Dont forget to work out the tax though.

There is a lot of negativity towards any buying of property these days. Too much I think. Reminds me of the late 80's in the UK. Just like there was too much positivity towards it pre 2007.

I personally would steer well clear of any property outside Dublin, Wicklow and Kildare though. Basically I think the rest of the country is sunk. Commuting distance to Dublin is the way to go. And by that I mean within 25 miles of Dublin city center, not 70 miles.

I think the property market is ripe for the picking at the moment though.
You can easily get a 10% plus yield on a 1 bed apartment now in Dublin.
So for investment purposes 1 bed is the way to go. But for yourself, you need something bigger as you need to live in it for a while yourself.

riclad

i,d agree with above ,except i,d say within 7 miles of city center.
GO to daft ie search houses 120 max price.
Even RE apartments if i was buying i,d buy a 2bed unit ,
better long term investment.

wyndham

I think we should buy a 2 bed apartment for €120,000. We could pay a deposit of €40,000 and on a 15 year mortgage the repayments would only be €630. When we need to move to the uk we then rent the apartment and in 15 years time we have an apartment worth €120,000 or hopefully more, which can go someway to negate the losses in our apartment bought in 2004.

Do you have mortgage approval?

Is your wife going to return to work after the baby and/or will there be more babies?

There is nothing wrong with the idea in pricipal, and the same logic is often applied to share purchases. ie I buy 1000 Facebook shares today at $38 and the price drops to $34 tomorrow so I buy 1,000 more. My average purchase price is now $36 on he 2,000 shares so any rise in the price to or above that puts me back in the black.

The problem with this is where the asset price continues to fall, such as with Irish bank shares. Will you buy a third property if and when they are available for €70k to get your average purchase price down further? If they fall to that level you have basically flushed your 40K deposit down the crapper.

Caseywhale

wyndham wrote: »

Do you have mortgage approval?

Is your wife going to return to work after the baby and/or will there be more babies?

There is nothing wrong with the idea in pricipal, and the same logic is often applied to share purchases. ie I buy 1000 Facebook shares today at $38 and the price drops to $34 tomorrow so I buy 1,000 more. My average purchase price is now $36 on he 2,000 shares so any rise in the price to or above that puts me back in the black.

The problem with this is where the asset price continues to fall, such as with Irish bank shares. Will you buy a third property if and when they are available for €70k to get your average purchase price down further? If they fall to that level you have basically flushed your 40K deposit down the crapper.

I'll gladly buy 10 of them if they fall from 120k to 70k from where we are now

I was in property for many years before and it worked out very well for me. I think i'm good enough at it to play it well again. I would like to do it again at the right price, and I think we are there now. 10% + yields are excellent as far as i'm concerned.

I'll be confining my interests to a 20 mile circle around Dublin city center though.

nino1

Thanks a mil for all the replies guys.
I agree now that another apartment would not be a good investment.
We are now thinking a 2-3 bedroom house for around €180,000. (somewhere along the m50, preferably southwest)

Our next decision is to build, buy, or buy and renovate?

Is it still difficult to find sites in Dublin?
If a new build is €120 per square foot for a 1,200sq foot build we would be looking at €144,000 + €50,000 for a Site = €195,000
Are these resonable estimations?

Is it actually to buy a similiar house for cheaper than it is to build?
Seems crazy but I've heard that is possible.

Our other thought was to buy a house in need of renovation. (maybe a house left in a will to be divided amoung siblings)
This is the option i am leaning most towards. I assume the cost of renovating will increase the value of the house a lot more than the money spent on renovating.
I'm thinking buying a house for 150,000 spending around 40,000 renovating and hopefully the house will be worth over 200,000 afterwards.

Which option do ye think is the best?

the groutch

I can't see the value in tieing yourself down to a 2nd mortgage if you're going to be leaving the country in two years time.

that 40k deposit, along with whatever money you save over those next 2-3 years (should be able to save a fair bit if you're on 130k between you) would imo be put to better use reducing the mortgage on your current property.