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Property Investment Advice

  • 27-11-2019 10:38pm
    #1
    Registered Users Posts: 10 D3nn!s


    Hi,

    I have recently received a cash sum of €75k from a family bereavement. I am being told that I should invest it by buying a property in the city and renting out the rooms, while living there myself.

    Just a bit of a background on me, I am a man in my mid-twenties, and am currently renting in Galway City. Ideally, I want to eventually live out in the countryside (or at least further away from the city) in a few years when I am a bit more settled. I earn €52k per annum with my current job and have €10k saved.

    Going on what I've been told from several mortgage brokers, I should be able to take out a mortgage of €182000 (3.5 x salary). With that, I would have €267000 to spend on a house. In Galway City (where I would be looking to buy if I go down this route), I could get an apartment or a decently sized 2-3 bedroom house with this, although nothing special.

    I am also aware that I could potentially earn quite a lot from renting out the property with the tax-free income allowance.

    The problem is, as I said I eventually want to live in the somewhere else inside the next 5-10 years, and therefore I know I will need more income to buy it. The type of house I would be looking to buy then will probably be more expensive than the one I would be looking to buy now. This will mean another mortgage, given my income (my income should increase between now and then, although not too drastically). I don’t think a bank will give me another mortgage while allowing me to keep my current property (please correct me on this if I am wrong), even if it was profitable from the rental income, so I think I would have to sell the house I already bought.

    Anyhow, my question is this. Is it a good investment given my age and current situation to buy a house with the intention of renting it out, and selling it again within the next few years, or should I continue renting as I am, and buy a house I actually want to live in in 5-10 years time? Or of course the third option, should I just go ahead aim to buy my “forever” home now?

    Thanks.
    PS.
    I am 100% new to property/investments/mortgages etc, so please keep that in mind when replying.


Comments

  • Registered Users Posts: 12,289 ✭✭✭✭ Mad_maxx


    D3nn!s wrote: »
    Hi,

    I have recently received a cash sum of €75k from a family bereavement. I am being told that I should invest it by buying a property in the city and renting out the rooms, while living there myself.

    Just a bit of a background on me, I am a man in my mid-twenties, and am currently renting in Galway City. Ideally, I want to eventually live out in the countryside (or at least further away from the city) in a few years when I am a bit more settled. I earn €52k per annum with my current job and have €10k saved.

    Going on what I've been told from several mortgage brokers, I should be able to take out a mortgage of €182000 (3.5 x salary). With that, I would have €267000 to spend on a house. In Galway City (where I would be looking to buy if I go down this route), I could get an apartment or a decently sized 2-3 bedroom house with this, although nothing special.

    I am also aware that I could potentially earn quite a lot from renting out the property with the tax-free income allowance.

    The problem is, as I said I eventually want to live in the somewhere else inside the next 5-10 years, and therefore I know I will need more income to buy it. The type of house I would be looking to buy then will probably be more expensive than the one I would be looking to buy now. This will mean another mortgage, given my income (my income should increase between now and then, although not too drastically). I don’t think a bank will give me another mortgage while allowing me to keep my current property (please correct me on this if I am wrong), even if it was profitable from the rental income, so I think I would have to sell the house I already bought.

    Anyhow, my question is this. Is it a good investment given my age and current situation to buy a house with the intention of renting it out, and selling it again within the next few years, or should I continue renting as I am, and buy a house I actually want to live in in 5-10 years time? Or of course the third option, should I just go ahead aim to buy my “forever” home now?

    Thanks.
    PS.
    I am 100% new to property/investments/mortgages etc, so please keep that in mind when replying.


    galway city appears fully priced , 75k is not that large of a sum , put it in the post office and keep saving , your time frame is too tight to have any kind of certainty


  • Moderators, Business & Finance Moderators Posts: 7,837 Mod ✭✭✭✭ Jim2007


    D3nn!s wrote: »
    Is it a good investment given my age and current situation to buy a house with the intention of renting it out, and selling it again within the next few years.

    A resounding no. Despite all the hype that has been burned into Irish brains, the reality is that you break every rule for wise investing when you buy a property. And that is exactly why Irish households suffered a bigger fall in wealth that most of Europe in the last recession, although they prefer to blame in on the banks, the government etc...

    A wise investing approach says:
    - Don't borrow to invest
    - Don't invest in a high risk asset class
    - Don't invest in illiquid assets
    - Diversify your holdings

    In your case the risk would be even higher since you intend to hold the property for a short period.


  • Registered Users Posts: 12,289 ✭✭✭✭ Mad_maxx


    Jim2007 wrote: »
    A resounding no. Despite all the hype that has been burned into Irish brains, the reality is that you break every rule for wise investing when you buy a property. And that is exactly why Irish households suffered a bigger fall in wealth that most of Europe in the last recession, although they prefer to blame in on the banks, the government etc...

    A wise investing approach says:
    - Don't borrow to invest
    - Don't invest in a high risk asset class
    - Don't invest in illiquid assets
    - Diversify your holdings

    In your case the risk would be even higher since you intend to hold the property for a short period.

    Your an orthodox traditional investment text book on legs

    Plenty of people made money on property and still do, anyone who bought a house in a reasonable location twenty years ago has seen their asset dwarf the appreciation of a standard basket of European stocks

    Liquidity is the most over rated of all the tick boxes in orthodox investment theory, you will always sell a house in a decent location, big deal if it takes six months as opposed to clicking a mouse and stocks fall far harder than property during the majority of recessions so being in stocks won't save you in a downturn


  • Moderators, Business & Finance Moderators Posts: 7,837 Mod ✭✭✭✭ Jim2007


    Mad_maxx wrote: »
    Plenty of people made money on property and still do, anyone who bought a house in a reasonable location twenty years ago has seen their asset dwarf the appreciation of a standard basket of European stocks
    Mad_maxx wrote: »
    Liquidity is the most over rated of all the tick boxes in orthodox investment theory, you will always sell a house in a decent location, big deal if it takes six months as opposed to clicking a mouse and stocks fall far harder than property during the majority of recessions so being in stocks won't save you in a downturn

    You just confirmed exactly what I said. You investment is based on luck, buy right property in the right place and you are laughing, unfortunately in the real world in only worked out for very few people as the county sheriff and registrars have been confirming for several years.

    But at the end of the day it's your money and if you want to take those kind of risks it's up to you.


  • Registered Users Posts: 12,289 ✭✭✭✭ Mad_maxx


    Jim2007 wrote: »
    You just confirmed exactly what I said. You investment is based on luck, buy right property in the right place and you are laughing, unfortunately in the real world in only worked out for very few people as the county sheriff and registrars have been confirming for several years.

    But at the end of the day it's your money and if you want to take those kind of risks it's up to you.

    " only worked out for very few people "

    patently false


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  • Registered Users Posts: 874 ✭✭✭ DubCount


    D3nn!s wrote: »
    Hi,

    I have recently received a cash sum of €75k from a family bereavement. I am being told that I should invest it by buying a property in the city and renting out the rooms, while living there myself.

    Just a bit of a background on me, I am a man in my mid-twenties, and am currently renting in Galway City. Ideally, I want to eventually live out in the countryside (or at least further away from the city) in a few years when I am a bit more settled. I earn €52k per annum with my current job and have €10k saved.

    Going on what I've been told from several mortgage brokers, I should be able to take out a mortgage of €182000 (3.5 x salary). With that, I would have €267000 to spend on a house. In Galway City (where I would be looking to buy if I go down this route), I could get an apartment or a decently sized 2-3 bedroom house with this, although nothing special.

    I am also aware that I could potentially earn quite a lot from renting out the property with the tax-free income allowance.

    The problem is, as I said I eventually want to live in the somewhere else inside the next 5-10 years, and therefore I know I will need more income to buy it. The type of house I would be looking to buy then will probably be more expensive than the one I would be looking to buy now. This will mean another mortgage, given my income (my income should increase between now and then, although not too drastically). I don’t think a bank will give me another mortgage while allowing me to keep my current property (please correct me on this if I am wrong), even if it was profitable from the rental income, so I think I would have to sell the house I already bought.

    Anyhow, my question is this. Is it a good investment given my age and current situation to buy a house with the intention of renting it out, and selling it again within the next few years, or should I continue renting as I am, and buy a house I actually want to live in in 5-10 years time? Or of course the third option, should I just go ahead aim to buy my “forever” home now?

    Thanks.
    PS.
    I am 100% new to property/investments/mortgages etc, so please keep that in mind when replying.

    First up, get some independent advice from a professional before doing anything. You could cause yourself a lot of problems here.

    You need to figure out if you are going to be living in the property yourself and renting out a room (or rooms), or letting the whole property. There are massive differences in the financial implications of these alternatives. The "tax free income allowance" for example, probably refers to the rent-a-room scheme which does not apply if you are not living in the property as your principle private residence.

    If it is not your forever home, at some point you are going to be looking at trading up and the available mortgage levels for first time buyers and trader-uppers are different.

    My gut reaction is stay away from a complex industry and find an easier way to make money.


  • Registered Users Posts: 2,217 ✭✭✭ robman60


    I think prices might be a little high right now but if I were you I would invest in a three bed house.

    You live in one room, and if it's a good house you'd probably get somewhere over 10k a year in tax free rent. Interest rates on the mortgage would also be quite low right now.

    Only worth it if you'll live in the house yourself for the next few years though. Given your income you'd lose over half the rental income in tax and other deductions if you're not living there.


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