First time Apartment buyer (to rent it)

LegacyUser

I'm single in my mid 30s in a relatively low paying job. I have been renting in a house I really like for many years and am happy to remain in it for the next few years.
I have managed to save €60k. I am considering buying a 2 bed apartment in a coastal area with the intent of renting it. It's up for €85k. My credit rating was affected by a credit card bill (thought I'd cleared it but they added interest) so I won't get a mortgage in the next 4 years. I earn too low an income to be able to buy a house on my own. I am thinking if I buy the apartment and putting what money I receive in rent towards a house in a few years time, it might be worthwhile investing now. Rent is approximately €600 per month on the other apartments in the area. Some are rented weekly in summer and over 6/8 months. Management fees €1k per year.
Has anybody else done this and how has it worked out for you?
If I buy what costs should I expect to incur?
If I buy would a bank look better at giving me a mortgage in a few years if I keep it or if I sell it against buying a house?

bonyn

It won't look better to the bank.

Unless you're speculating the property will go up in value, and can afford the opposite to happen, i think you'd be mad to buy a property you dont want to live in, especially as a short term investment

In fact income tax, legal fees, stamp duty, capital gains tax, repairs, the risk of it being empty for a period can wipe out your profit.

And as a non FTB you'll need a higher deposit when you do decide to buy a house.. you'll also miss out on that incentive noonan has been promising.

Sorry i can't be more constructive on what to do with all that cash.. but property is such a risky investment. Maybe it's best to pop it in a fixed term deposit account til you're ready to buy.

Ursus Horribilis

I can't remember where I read it now but I've seen somewhere that for an average person who buys a house, it'll take them 5 years to make a profit from it. I don't know how much buying an apartment costs but you're going to be facing into a bill for a few thousand euros by the time you pay a solicitor, pay stamp duty, property tax, valuation and survey. And that's before you even get the keys. I've no idea how much it costs to sell a place but if you go through an estate agent rather than do it yourself, again you're looking at big bills. In between you'll be paying management fees, tax and will be liable for any repairs needed in the apartment. Also, if it's an apartment selling for such little money, is it in an area where there's much demand for apartments either as somewhere to rent or to buy?

LegacyUser

My mum bought an apartment with her sister several years back that was in a popular seaside town and honestly it's been nothing but hassle for them. You don't just have the investment of buying the space but also kitting it out. If your doing short term summer rentals then you need to either go yourself or pay someone to look after checking people in and out and also cleaning the place after - long term rentals have tax requirements and also you need to be able to fix anything that breaks or again have someone local to do it. It's not just a space you buy and then get money for without any effort on your part.

intheclouds

Can only add to the above, the rental income will be taxed as well and if you dont have a mortgage to offset 75% of mortgage interest against the rental income its hardly worth it.

Brego888

Expect to lose a lot of your rental income on tax. Your question would be better answered in the property section.

dd972

Be careful OP, I bought a place just before the crash in an area close in proximity to two of the Northsides most notorious suburbs, having previously rented and been happy in a nice area, ended up hating the place and now rent it out, it's like the buying a dog at Christmas parable.

Dr Crayfish

Just saying - Earlier this year I got a mortgage with a year or so left until it was no longer registered with the ICB on a 5 year old credit card debt, from BOI. So if you explain the situation to them they may help you out.

LegacyUser

Thanks for all replies. It's great to get others opinions and experiences.

Mods can move to property section if necessary.

The prices have gone up - €6 this year, €10 in past year. All properties in the area have increased. I don't know enough about the tax side of it, wanted to look into that.

I have been to the area a lot in the past few months and it is always busy. Weekend nights, all have lights on and it seems like a nice area. It's very close to the beach and shops etc. The property itself is in good condition and really only needs to be painted inside. I live 10 minutes away from the area and intended doing the weekly summer rentals myself. I thought I'd just need a cleaner for a few hours.

I really want to get on the property ladder but not ready to buy a house (it makes sense to me!!).

Ursus Horribilis

Dr Crayfish wrote: »

Just saying - Earlier this year I got a mortgage with a year or so left until it was no longer registered with the ICB on a 5 year old credit card debt, from BOI. So if you explain the situation to them they may help you out.

This is a good point. There's a boards regular who posted somewhere here about how they were suddenly needing to apply for a mortgage and were concerned about some missed repayments (I think) that'd be coming against them. I've since seen them posting on boards and they're buying a house so it must've worked out OK for them.

How about contacting a mortgage broker and see if they can advise? There's one who's also a boards user who many people in the accommodation and property forum swear by. I'd probably be breaking the rules by saying who he is though.

Wesser

If you cannot get the 25 k from the bank, where are you going to get it?

bonyn

0 wrote: »

I really want to get on the property ladder but not ready to buy a house (it makes sense to me!!).

It would make more sense if you planned to live in the apartment. As it stands you're taking on a high-risk, low-reward sitation by buying an apartment as a short-term investment. It's especially dangerous to try to justify an investment by looking at the growth rate over the past few years. [dont forget CGT is 33% and may be increased to over 40% at a whim from the government]

If you planned on viewing the apartment as a long-term investment and had a way to pay off the loan (assuming you're getting a loan) and saving an additional 20% deposit for a house, perhaps you could become a landlord.

if you want my guess, I think you have a lot of money burning a hole in your pocket, and you think you should have achieved property ownership by the age you are now...

Ursus Horribilis

So why aren't you ready to buy a house?

LegacyUser

Thanks again for replies.

Re the €25 loan, I will have another €10k by end of September so really it's €15 I will be looking for from bank. I considered asking for a car loan - thought I might have a chance getting it rather than a mortgage. I will be able to clear that €15 by March or April next year and would have the apartment paid for in full. Price of property is increasing in the area. The plan is to then save for a 20% deposit to buy a house.

I'm not ready to buy a house yet as I'm not 100% sure if I want to live in the location I am currently in long term or if I will (more than likely) move elsewhere. If I do happen to meet somebody in the next year or two, I would like to have the option to buy with them rather than on my own. The apartment could well be a longterm investment if that were the case.

intheclouds

0 wrote: »

Thanks again for replies.

Re the €25 loan, I will have another €10k by end of September so really it's €15 I will be looking for from bank. I considered asking for a car loan - thought I might have a chance getting it rather than a mortgage. I will be able to clear that €15 by March or April next year and would have the apartment paid for in full. Price of property is increasing in the area. The plan is to then save for a 20% deposit to buy a house.

I'm not ready to buy a house yet as I'm not 100% sure if I want to live in the location I am currently in long term or if I will (more than likely) move elsewhere. If I do happen to meet somebody in the next year or two, I would like to have the option to buy with them rather than on my own. The apartment could well be a longterm investment if that were the case.

Im sorry this mad plan just wont work.

When you are buying a property you have to draw down the mortgage loan and the solicitors etc sign off on everything. A mortgage is a specific type of loan with the property used as collateral against it.

I doubt they will sign off a car loan as a mortgage loan - you have to have insurance policies on a mortgage loan.

I think you would be committing fraud if you did what you suggest.

bonyn

intheclouds wrote: »

Im sorry this mad plan just wont work.

When you are buying a property you have to draw down the mortgage loan and the solicitors etc sign off on everything. A mortgage is a specific type of loan with the property used as collateral against it.

I doubt they will sign off a car loan as a mortgage loan - you have to have insurance policies on a mortgage loan.

I think you would be committing fraud if you did what you suggest.

Op can get a credit union loan and say it's for a car... It's gray terrority but not really the issue .. op is just letting us know getting the cash isn't a big deal

The stuff you're saying about mortgage protection and mortgages is off-the-wall wrong.

LegacyUser

Why do you want to get on the property ladder? (hate, hate, hate that phrase).

What's wrong with waiting til you can get a place of your own that you could live in long term? Why do you have to "start" somewhere?

To be honest, I think you'd be mad to do it. I am in my early 30s, I know too many people who had that attitude about 10 years ago. Sure we'll buy an apartment, it'll be an investment etc etc etc. It's city centre/near a big business park/beside the beach/near a college, so it will be easy to rent.

Now they are living in other areas (or countries), can't sell the apartments, can't rent the apartments (they don't want to do rent allowance), paying a large amount of tax for them, covering the mortgage shortfall every month, replacing things like washing machines, radiators, showers etc, cleaning and often redecorating after tenants move out, interviewing potential tenants, chasing people for money and maintaining their own houses at the same time - covering mortgage, kitting their houses out and now, having kids too. It's nothing short of a burden for them. The idea that property is some kind of commodity that anyone can make a fortune from is mad.

For the life of me I cannot understand why you wouldn't increase your savings in the next 4 years, with a view to using them plus your income to achieve buying a house, if your income is that low. You sound like you have money burning a hole in your pocket, to be honest.

intheclouds

bonyn wrote: »

Op can get a credit union loan and say it's for a car... It's gray terrority but not really the issue .. op is just letting us know getting the cash isn't a big deal

The stuff you're saying about mortgage protection and mortgages is off-the-wall wrong.

If you take a car loan and use it for a mortgage then I believe you are committing fraud - I could be wrong and am happy to be corrected.

If youd like to clarify what is "off-the-wall wrong" please do. I simply said you need to have it.

Neyite

Mod:

Hello everyone We've had a couple of suggestions to move this thread over to Accom & Property, where it might be more suited.

OP, if you prefer, we could move it over, you would likely get some great advice there- lots of very knowledgeable posters, but... you are posting anonymously, so you'd have to register to continue to post on that forum if we moved it. They don't allow anon posting on that forum.

So I'll leave it up to you to decide if you want it moved over or not, I'm happy to leave it here if you are.

intheclouds

Neyite wrote: »

Mod:

Hello everyone We've had a couple of suggestions to move this thread over to Accom & Property, where it might be more suited.

OP, if you prefer, we could move it over, you would likely get some great advice there- lots of very knowledgeable posters, but... you are posting anonymously, so you'd have to register to continue to post on that forum if we moved it. They don't allow anon posting on that forum.

So I'll leave it up to you to decide if you want it moved over or not, I'm happy to leave it here if you are.

Will they allow it over there?

They do a lot of deleting of posts if they think something is not strictly legal so they may remove the OPs post suggesting getting a car loan and using it for a mortgage.

Neyite

intheclouds wrote: »

Will they allow it over there?

They do a lot of deleting of posts if they think something is not strictly legal so they may remove the OPs post suggesting getting a car loan and using it for a mortgage.

Didn't spot that.

Yep, site-wide rule that we cant suggest advice that involves fraud or potential illegal activity. In that case...

Please ensure that all advice is legally above board.

LegacyUser

0 wrote: »

Mods can move to property section if necessary.

That forum doesn't allow anom posting.

The prices have gone up - €6 this year, €10 in past year. All properties in the area have increased. I don't know enough about the tax side of it, wanted to look into that.

0 wrote: »

The property itself is in good condition and really only needs to be painted inside.

For it to be a rental property there are minimum requirements for what the property needs. Have you checked what is needed and what you will have to spend for that? Smoke alarms, CO2 alarms etc... If it's short term lets people would expect plates, forks, knives etc etc which is expected in long term rentals. What furniture would be staying if any? Kettle, microwave, washer, dryer etc etc do you need to budget to buy these?

0 wrote: »

I live 10 minutes away from the area and intended doing the weekly summer rentals myself. I thought I'd just need a cleaner for a few hours.

The wear and tear of short term lets will result in a lot more then just a quick clean. From personal experience you'll have stuff broken and damaged that will need to be fixed or replaced - are you ready to have someone calling you at all hours cus the boiler is broken and you need to fix it?

The_Conductor

BOI and other lenders do an unsecured personal loan. Its not a 'car loan' and it does have a punitive interest rate (at the moment I believe its around 14-15%- which is quite remarkable given ECB base rates etc). If the OP has the potential to save in the manner in which they are suggesting- it might be an idea to apply for an unsecured personal loan- in the knowledge they would be repaying it early. Interest is only charged on the o/s principal.

Suggesting the loan is a 'car loan' would be fraudulent, as you would be deliberately misconstruing the nature of the loan in order to secure a better interest rate from the prospective lender.

As for a credit union loan- they are specifically not supposed to lend for property speculation. Once again- you probably could get a personal loan, for unspecified reasons, from them- but once you mention its to purchase property- they are not allowed to lend you the money.

Just be above board- it will cost you a little more in interest- or better still- put the nest egg you've saved towards a deposit for a proper property- and take out a regular mortgage- if you've managed to clear up your credit record. As alluded to by an earlier poster- the main cost you can put against rental income to shelter it from tax- is mortgage interest @ 75%. If you are buying the property outright with cash- or a loan other than a mortgage- you are not entitled to use any of the interest paid towards your taxable income- and depending on the rate of PRSI you pay- you could be paying up to 56% of your gross rental income to the tax man (totally ignoring the time, expense (not just financial- you can't bill for any work you undertake yourself) and stress of managing a rental property).

Taltos

Mod Note
OK OP we're closing this thread as it isn't suitable for this forum.
Also as Acomm & Property doesn't allow anon posting I'm not moving this but if you want to log in feel free to create an appropriate thread there. Hope you got the answer you needed in the meantime.

Thread Closed.