Buying a house and renting it??

Skyuser

Is it as simple to think that......I can go to the bank and ask for €350,000 and tell them its to buy a house. Tell them i'll be renting it out and the rent money will be paying the repayments. :cool:

Or.........do I have to have a huge salary and a house of my own and land and what have ya.... :rolleyes:

lomb

Skyuser wrote:

Is it as simple to think that......I can go to the bank and ask for €350,000 and tell them its to buy a house. Tell them i'll be renting it out and the rent money will be paying the repayments. :cool:

Or.........do I have to have a huge salary and a house of my own and land and what have ya.... :rolleyes:

even if u have a good credit history the bank will ask for additional security for the loan like another property etc. also u will need at least 20% and also a steady income to pay the mortgage when/if the house is vacant.

A Dub in Glasgo

Skyuser wrote:

Is it as simple to think that......I can go to the bank and ask for €350,000 and tell them its to buy a house. Tell them i'll be renting it out and the rent money will be paying the repayments. :cool:

Or.........do I have to have a huge salary and a house of my own and land and what have ya.... :rolleyes:

I always imagined that borrowing €350k requires a huge salary anyway. What is your idea of a huge salary?

Skyuser

I dunno, it just seems simple to borrow 350k and let the rent pay the mortage. If the repayments can't be met, the house is always there to be sold again anyway, the bank will know this.

lomb

Skyuser wrote:

I dunno, it just seems simple to borrow 350k and let the rent pay the mortage. If the repayments can't be met, the house is always there to be sold again anyway, the bank will know this.

the rent wont cover the mortgage. it may cover the interest but it wont cover the principal. anyway u will have to pay tax on the rent minus the interst/maintainece so rent-interest-tax-insurance-upkeep-vacant periods means u will need a source of income to pay whats left for the principle.

the principal isnt tax deductable

Skyuser

I'll b getting €1200 a month on rent, that will of course cover the mortgage

lomb

Skyuser wrote:

I'll b getting €1200 a month on rent, that will of course cover the mortgage

after u pay tax? do u even understand how tax works? my advice is go to your bank and tell them that and they will laugh at u. also do u have 70 grand in cash as a deposit?

Cyrus

if it was that easy everyone would do it, the location is obviously going to be very important for renting it, and this will push prices up, also unless you have a certain profession ie accountant solicitor you will need a hefty deposit,

finally dont understimate the service charge costs etc

Figment

Location will be very important. There is something like 2-3 houses for every one renter in this country at the moment. It will only work if the house is in a location where there is big demand.

wideband

Buying ahouse to rent it out is just not profitable now adays unless you intend building up a property portfolio, im not going to do the full details, but thats my advise

lomb

hey wideband,its diferent in the uk though (where u are i know) i was in the north yesterday and theirs a building for sale in some provencial town in antrim for 800000stg. now its divided into 5 rental units-retail/ offices etc. the current rent is 70 grand sterling, not a half bad investment id say. has some appreciation potential as is on main st. should track inflation anyway and has 9% coming in, way more than 5% interest rate. also ive spent time in hull and u can still get 10% buying crap houses and renting them on DSS. if u buildup say 20 of these u are laughing. they are only 20 grand or so each. lot of hjassle though thats true.
its investments like that u want imho.

Bluehair

Now, now don't be putting the lad off with unncessary nonsense about tax, yield, interest rates and all that malarky.

He clearly has copped on to a no-risk winner here that no-one else has thought of before. Well done that man.

I'm all for supporting your trip to the bank to tell them about your idea.

Do let us know how you get on

(On a more serious note this is right up there with my mate who reckoned he was off to Vegas to play Blackjack and make a fortune by doubling his bet every time he lost. :rolleyes: Believe me when it comes to making money it's never that simple/easy)

528i

If you've got a €70,000 deposit, my advice is to head to vegas and put it all on black, that way you can buy a house worth a cool 3/4mill when you return

The Corinthian

Skyuser wrote:

I'll b getting €1200 a month on rent, that will of course cover the mortgage

Only if you intend to pay it all off no earlier than 2050.

wideband

lomb wrote:

hey wideband,its diferent in the uk though (where u are i know)

Hi lomb,

we here in dublin got our independance a long time ago ,

but seriously, I've been looking into some options lately with the accountant and buying property on a small scale is not very profitable and and quite risky if you havn't good backing, particularily when the property is in excess of 220,000euro. On option though is to sell your own home, rent it out and release some equity to purchase your new home (some people may find it hard to consider their old home as a business though).

MartMax

Bluehair wrote:

Now, now don't be putting the lad off with unncessary nonsense about tax, yield, interest rates and all that malarky.

He clearly has copped on to a no-risk winner here that no-one else has thought of before. Well done that man.

I'm all for supporting your trip to the bank to tell them about your idea.

Do let us know how you get on

(On a more serious note this is right up there with my mate who reckoned he was off to Vegas to play Blackjack and make a fortune by doubling his bet every time he lost. :rolleyes: Believe me when it comes to making money it's never that simple/easy)

it's not putting him off. it is a good advice to plan and study anything before going into it. in this matter, should we call if financial planning? and more than financial elements to consider too.

rental income is certainly taxable unless it does not exceed threshold of €7,620 annual rental income. in general, €1,200 a month rent will generate you €14,400 gross. well the threshold is on gross, not net rental income!

even after deductions like capital allowance and other allowable expenses, i doubt the net income goes lower than threshold. if you have another cash resource to cover the tax, it is good then.

well, that's only about renting and tax obligations. more other stuff to think and consider. if the idea is feasible, go on with it. i wish you the best luck!

RainyDay

mart_max wrote:

rental income is certainly taxable unless it does not exceed threshold of €7,620 annual rental income. in general, €1,200 a month rent will generate you €14,400 gross. well the threshold is on gross, not net rental income!

The €7,620 threshold only applies to the Rent-A-Room scheme, where you are renting out room(s) in the house while you live there. And if you exceed this threshold, all rental income (including the income below the threshold) is taxable.

To go back to OP's question, your first problem is that banks are very reluctant to give investment loans to first-time-buyers. They will expect you to have 20% deposit available (often raised by remortgaging your own property) and to cross-charge both mortgages (so they can take your family home if the investment goes bad).

You also need to consider all the supplementary costs. How are you going to furnish the property (and tenants are growing increasingly fussy & selective about where they are going to live)? How are you going to pay the solicitor, the surveyor, the stamp duty (a 5-figure sum)? How are you going to maintain the property? What happens if property prices stop rising, or actually fall? Rental yields (the income generated as a percentage of the property value) have been dropping over recent years, to as low as 3% now (which is only marginally more that you'll get if you stick your money on deposit). How much of your own time will go into advertising, showing the property, vetting tenants, cutting the grass etc.

But you are still thinking of going down this road, you need to do your sums. Allow for 1-2 vacant months per year. Allow for cost of advertising the property. Allow for maintainance charges if the property is in a maintained estate. Allow for insurance costs if not. Check out the Investment Guide & FAQ's in the Property Investment forum over at Askaboutmoney.com

lomb

not to put the lad off,.
the main advantage of property is regardless of whether it rises or falls in the long run it is linked to inflation as it plays on the economy as a whole (land-what its built on , labour-what it costs to construct+ what people make generally and can afford), enterprise - people want to buy houses and always will, capital-u need to put ur money into something

so seeing that inflation is 99% in the plus direction then u are almost certainly going to see the property rise by 3% compounded for the remainder of your life. in real terms because its compounded they will probably be double what they are in 20 years, of this i am certain.
also capital increases arent subject to gains taxes as they allow u to subtract inflation from them so this is another HUGH bonus.so ur money is SAFE in the long term regardless of blips.

interest from money in a deposit account on the otehr hand is taxed so apart from a compound loss over 20 years the yield is again very low.

if u genuinely have 70000-100000 in cash i think the best thing is to still buy property

cormie

Bluehair wrote:

my mate who reckoned he was off to Vegas to play Blackjack and make a fortune by doubling his bet every time he lost. :rolleyes:

This is actually possible.

Well, the casinos obviously know this which is how they counter it. They have limits on the tables so you have to actually win before you reach the limit. This is on roulette anyway.

Staying on topic now, just say for example, somebody bought a house for you providing you paid them back with the rent. Would all the same problems apply for them as mentioned above?

MrPudding

528i wrote:

If you've got a €70,000 deposit, my advice is to head to vegas and put it all on black, that way you can buy a house worth a cool 3/4mill when you return

How? He would only have €140 000.

MrP

RainyDay

Skyuser wrote:

If the repayments can't be met, the house is always there to be sold again anyway, the bank will know this.

If you go into the bank with this attitude, you'll be quickly shown the door. Repossession is an absolute last resort - and they will lose a pile in legal fees going down this road. If they don't believe that you have done the necessary planning to be able to make a success of this investment, there is no way they will hand over their money to you.

lomb wrote:

so seeing that inflation is 99% in the plus direction then u are almost certainly going to see the property rise by 3% compounded for the remainder of your life.

Except of course if prices crash as happened in the UK from 1990-1993. The prospect of future gains will be of little consolation to an investor who is unable to keep up repayments and finds that his outstanding mortgage exceeds the market value of the property.

lomb wrote:

also capital increases arent subject to gains taxes as they allow u to subtract inflation from them so this is another HUGH bonus.so ur money is SAFE in the long term regardless of blips.

This is dangerously incorrect. Indexation relief for capital gains tax was removed in the 2003 budget - see here for more details. All gains in the value of the property will be subject to CGT. And there is a fair chance that a future left-leaning Government will increase CGT rates to bring them closer or up to income tax rates (currently 42%).

lomb wrote:

interest from money in a deposit account on the otehr hand is taxed

As is your rental income.

lomb wrote:

if u genuinely have 70000-100000 in cash i think the best thing is to still buy property

All the data that I've seen points to a diversified stock market portfolio as bringing in better returns than property investments in the long term (with none of the work involved in managing the property). For example, from Bank of Ireland's 'Investment Advice for Life' publication, they compared the annual returns from Irish assets classes (after taxes & charges) from 1970 to 2000. Over 10 year, 15 year, 20 year & 25 year periods, equities beat property by 2-3 percentage points. Over the previous 5 years, property had beaten equities.

Don't be fooled by the Irish obsession with property. Do the financial analysis for yourself.

fintan

quote Lomb "so seeing that inflation is 99% in the plus direction then u are almost certainly going to see the property rise by 3% compounded for the remainder of your life. in real terms because its compounded they will probably be double what they are in 20 years, of this i am certain".

Thanks for cheering up my day Lomb, funniest thing I have read in a long time

As Keynes said, in the long run we are all dead.

Cheers

Fintan

lomb

well u can think its funny all u like. even if property doesnt rise as it has above inflation (which it wont unless a supply demand imbalance remains or the economy really booms which is also unlikely) then it will double within 20 years but not in 'real' terms.

i dont know what u are talking about, stating we will all be dead anyway is stating the obvious.

fintan

Lomb, unfortunately I didnt express myself as well as RainyDay has. Did you read his reply to your post? Do you have any follow ups to the points he has made?

As for the Keynes quote, it was meant as a joke, its just any long term projections of property out preforms X, property will do whatever over the next 20 years, are usually said to me by someone trying to sell me something. When really all we are sure of is taxes and death.

I hope your tea leaves dont let you down.

Cheers

Fintan

rubadub

cormie wrote:

This is actually possible.

Well, the casinos obviously know this which is how they counter it. They have limits on the tables so you have to actually win before you reach the limit. This is on roulette anyway.

Check out this
http://www.bjmath.com/bjmath/progress/bootmm.htm

If there was a system the casios would know VERY quickly and simply not let you bet in that fashion.

anyways, my mate has an apartment bought 2-3 years back and is loosing money on it renting. Has got another house he is living in and has to hold on for a while before selling the apartment or he will be stung for tax big time.

lomb

fintan wrote:

Lomb, unfortunately I didnt express myself as well as RainyDay has. Did you read his reply to your post? Do you have any follow ups to the points he has made?

As for the Keynes quote, it was meant as a joke, its just any long term projections of property out preforms X, property will do whatever over the next 20 years, are usually said to me by someone trying to sell me something. When really all we are sure of is taxes and death.

I hope your tea leaves dont let you down.

Cheers

Fintan

yes i have read it and these are the realities.desirable property will always track inflation or deflation. now as inflation is a fundamental reality then this means property is going to go up.

as regards share investments the economy is shifting with price pressures due to lower cost economys and the information/tech age. margins are shrinking every day, i would think one is better in property however a basket of shares bought during a dip can also do very well. however the yield from dividends is very low but i suppose the hassle is low also. u do know u can still get 7 or 8% or higher yield from certain properties in the uk in less desirable areas, even these arent bad if u roll your rents back into more property.

hmmm

lomb wrote:

yes i have read it and these are the realities.desirable property will always track inflation or deflation. now as inflation is a fundamental reality then this means property is going to go up..

Ah ok, like in Germany where house prices have been dropping for 15 years?

http://www.economist.com/images/20020330/CSF597.gif

Not that this stops the hype merchants from plugging property investment in Germany.

lomb

hmmm wrote:

Ah ok, like in Germany where house prices have been dropping for 15 years?

http://www.economist.com/images/20020330/CSF597.gif

Not that this stops the hype merchants from plugging property investment in Germany.

caused by the economic disaster that was reunification......also they have still gone up just not in real terms so not a loss at all.......

fintan

lomb wrote:

caused by the economic disaster that was reunification......also they have still gone up just not in real terms so not a loss at all.......

The term 'real', when used in an economic context, means 'inflation adjusted'.

If prices have not gone up in real terms, this means a loss has been made.

lomb

fintan wrote:

The term 'real', when used in an economic context, means 'inflation adjusted'.

If prices have not gone up in real terms, this means a loss has been made.

and money on deposit is always a 'real' loss.

The Corinthian

lomb wrote:

and money on deposit is always a 'real' loss.

No one is disputing this from what I can see. What is being disputed is your assertion that you’ll always make money on property. This is simply not true and it has quite comprehensively been demonstrated why it is simply not true.

At this stage you appear to be responding with increasingly unlikely logic in a bid to avoid admitting that you’re just plain wrong.

Repli

cormie wrote:

This is actually possible.

Well, the casinos obviously know this which is how they counter it. They have limits on the tables so you have to actually win before you reach the limit. This is on roulette anyway.

It's called the martingale system, heard people have lost quite a lot of money using it because theoretically it can only work 100% of the time if you have infinite money.

lomb

The Corinthian wrote:

At this stage you appear to be responding with increasingly unlikely logic in a bid to avoid admitting that you’re just plain wrong.

not at all. property values have always been linked to inflation via labour values etcand being a finite resource then desirable property will rise at the rate of inflation perpetually whatever that rate of inflation is. of course there are blips 5 or 10 year blips but as a general rule u can take it as a fact. that is why a 5 million euro house in ballsbridge today changed hands for under 1000 punts back about 115 years ago.

seamus

Best bet is to try get your hands on a property that

a) You (probably) will never have trouble renting out
b) You (probably) will never have trouble selling on
c) You don't intend to keep, or that you'd happy to hold onto for 5 or 6 years, then sell it on
d) You would live in yourself if you had to
e) You could afford the repayments on if/when you were short a renter.

1-bed apartments in a city are the safest bet on these grounds. They're quite cheap*, and foreign students or foreign workers in particular are usually quite keen on renting single apartments in the city centre.

Getting into the property market is tough, and getting into the investment property market from a blank canvas is even tougher. All property investments are a risk. I say "safest bet" above, but you still have to be willing to accept that if you find yourself with some unforseen massive losses (car exploded? Only got Third-party insurance?) or losing your job, or taking a pay cut, or any other of a multitude of things, could result in the loss of your house, and a screwing up of your credit rating.

My own advice, and what I plan to do is - Buy something that *you* can afford to live in, *now*. Then work out a way to rent it out.

All this said, an acquaintance of mine is quite confident that he's in the closing stages of getting a €500,000 mortgage based on the €2,000 rent he'll be taking in each month by renting out 5 rooms. He has no other properties, and works a contract-based career.

*When I say "quite cheap", I mean affordable if you're earning at least €25,000 a year. You could get a 1-bed in the South City with a €200,000 mortgage. A €200,000 mortgage would cost you €838 (based on this ) per month, which should be affordable on that salary, assumin you're a young man with very little debt or outgoings. You'd also want to be quite confident that your salary will continue to rise over the next few years.

The Corinthian

lomb wrote:

not at all. property values have always been linked to inflation via labour values etcand being a finite resource then desirable property will rise at the rate of inflation perpetually whatever that rate of inflation is. of course there are blips 5 or 10 year blips but as a general rule u can take it as a fact. that is why a 5 million euro house in ballsbridge today changed hands for under 1000 punts back about 115 years ago.

That’s actually not true. To begin with you can get high inflation in recessionary times too, it’s called stagflation. In that scenario demand for goods and services, including property, does not match inflation - indeed, it drops.

As for your Ballsbridge example, other than the fact that punts didn’t exist 115 years ago, you just pulled those figures out of thin air. Property in Ballsbridge may (this is I repeat only speculation) well have appreciated in real terms over the last century or two, but property in other areas may well have not. For example prior to the Duke of Leinster’s move to beautify the area south of the Liffey, the area around Mountjoy would have been the most exclusive residential area of Dublin. While still highly expensive, in real terms the value has most likely dropped, overshadowed by the rise of what is now known as Dublin 2.

Of course, you may still ultimately turn a profit in a one or two hundred years time as you suggested but this is not assured and, as has already been pointed out, you’ll be dead.

So it’s actually repeatedly been demonstrated that you’ll not always make money on property, at this stage. Why do you persist to argue otherwise?

lomb

The Corinthian wrote:

. Why do you persist to argue otherwise?

because i know i am right. that is why. desirable property is finite. it will always track inflation over a period of time. on the otehr hand shares in companys are over a period of time infinite. names change, goodwill becomes worthless. for example even a patented drug runs out of patent after 20 years. there are constant competitive pressures as is the way in business. that is the nature of the beast. but property remains finate as a resource. young couples buying in dublin and many provincial towns even are finding this to their cost.

what consitutes desirable may change of course. also what constitutes inflation may also change. and 1000 punts was the value roughly in punt equiv. which i read in a newspaper that may or may not be right but i would say it wouldnt be far off.
u stick with ur arguments and il stick with mine

The Corinthian

lomb wrote:

because i know i am right. that is why.

Sure you are... :rolleyes:

desirable property is finite. it will always track inflation over a period of time. on the otehr hand shares in companys are over a period of time infinite. names change, goodwill becomes worthless. for example even a patented drug runs out of patent after 20 years. there are constant competitive pressures as is the way in business. that is the nature of the beast. but property remains finate as a resource. young couples buying in dublin and many provincial towns even are finding this to their cost.

Property is not finite. If it were you wouldn’t have speculators.

what consitutes desirable may change of course. also what constitutes inflation may also change. and 1000 punts was the value roughly in punt equiv. which i read in a newspaper that may or may not be right but i would say it wouldnt be far off.

And a friend of my second cousin told me in a pub that he read in a newspaper that you’re talking complete bollocks. In other words, this is all complete hearsay, based upon your conviction of being right, rather than any grasp of reality.

u stick with ur arguments and il stick with mine

You don’t actually have arguments though. You have conviction of your own righteousness propped up by a number of assertions that you are repeating even though they’ve been disproved. Seriously, you’ve put forward your point of view, which numerous people have demonstrated is seriously factually incorrect and yet you’ve conveniently ignored these criticisms, merrily continuing with this mantra of ‘arguments’ of yours.

Of course you can stick to them, but it would be irresponsible to advise people using them - which is what you did here.

lomb

i amnt advising people to do anything. and DESIRABLE property is finite. end of conversation/

The Corinthian

lomb wrote:

i amnt advising people to do anything.

What would you call this post?

and DESIRABLE property is finite.

That must be the most stupid thing I’ve heard in quite a while.

The problem with that statement is that no good or service, including property, is guaranteed to remain as desirable as it always has been. That’s why we get property speculation based upon people banking that an undesirable area is going to become desirable in a few years time. And the reverse is true also.

end of conversation/

Because you say so?

RainyDay

lomb wrote:

because i know i am right. that is why. desirable property is finite. it will always track inflation over a period of time. on the otehr hand shares in companys are over a period of time infinite. names change, goodwill becomes worthless. for example even a patented drug runs out of patent after 20 years. there are constant competitive pressures as is the way in business. that is the nature of the beast. but property remains finate as a resource. young couples buying in dublin and many provincial towns even are finding this to their cost.

Would you care to provide any independent data to support your 'property beats equities' arguement?

7mountpleasant

If you have that money to hand take it and throw it into a syndicated property portfolio. Gets you far more leverage the risk adjusted return is miles and miles better than a simple residential buy to let (3% yields versus on average 6% yield after management fees on your average syndicated portfolio). As well as that you can also take advantage of investing in countries with far higher capital appreciation potential. And as an added brucie bonus as the rent these properties is used by the fund to pay down borrowings you payoff is taxed at CGT (20%).

7mountpleasant

lomb wrote:

because i know i am right. that is why. desirable property is finite. it will always track inflation over a period of time. on the otehr hand shares in companys are over a period of time infinite. names change, goodwill becomes worthless. for example even a patented drug runs out of patent after 20 years. there are constant competitive pressures as is the way in business. that is the nature of the beast. but property remains finate as a resource. young couples buying in dublin and many provincial towns even are finding this to their cost.

Many examples of Property prices falling or stagnating exist. Look at the very recent expierience of the netherlands, South East Asia, Britan (house price falls 8 out of the last 12 months) etc. . Speculative bubbles will always exist and contrary to 'the gospel according to the man inside the pub' as property is a tradeable asset is also susceptible to such a bubble.

vector

lomb wrote:

the rent wont cover the mortgage. it may cover the interest but it wont cover the principal. anyway u will have to pay tax on the rent minus the interst/maintainece so rent-interest-tax-insurance-upkeep-vacant periods means u will need a source of income to pay whats left for the principle.

the principal isnt tax deductable

Sure why don't the banks just get into the business of property speculation and close their branches, oh wait...

knightsbridge

I own some property and here's the model that has worked.

1. Single family homes go up the most in value, but the rent never covers the mortgage until you've had them awhile.

2. Crappy slummy flats are very cash flow positive, but don't appreciate nearly as much as houses.

I combine the two. I buy one house and one crappy flat around the same time, and I find that the together net out to be cash flow neutral. Thus, I get the nice appreciation on the house but am never out of pocket month to month.