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Seeking advice - to buy a house or not.

Pussyhands

Let me give some background.

40k basic salary
Single
Paying rent of ~3500 a year
60k in bank.

I was thinking of purchasing a property (2 bed apartment) and getting a 10 year mortgage. I want to be debt free as soon as I can and renting out to someone else will mean that will pay off at least the interest part of the mortgage.

I would live in it and rent out a room to another person. I believe I could get rent of 45% of the mortgage repayment.

Pro's:

I wouldn't have dead money and I'd have someone paying towards my mortgage.
I could go travelling for a short period yet still be gaining net value as I could rent out my room to someone else.
With property prices increasing, my money will not be losing value.

Cons:
Extra costs such as management fees, insurance, bills being more expensive as split between less people. etc. (I don't know exactly how much this would add up to)
If I lost my job (permanent and no reason for it to go) I might end up with a long commute or need to rent somewhere else myself.
Not looking to go long term on this as I'd like to move home to the country eventually so property prices may go down? (But I can't see them going down in the eastern region)

So what do you think I should do?

Essentially, I'm looking for a gain in net value. My money is sitting in my account losing value now while property prices may go up year on year.

If anyone has any other advice regarding what I should do with my money, I am all ears.

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Pussyhands

Bump

Coinsguy

I'm in a similar position to yourself. But how can you get a 10 year mortgage with the money you're on? I assume you want to buy somewhere in Dublin?

Say you need 250k for a place and you need a mortgage of 190k - surely you couldn't pay that off in 10 OK 40k per year?

Pussyhands

Coinsguy wrote: »

I'm in a similar position to yourself. But how can you get a 10 year mortgage with the money you're on? I assume you want to buy somewhere in Dublin?

Say you need 250k for a place and you need a mortgage of 190k - surely you couldn't pay that off in 10 OK 40k per year?

It's not in Dublin but near. 2 bed apartments could be bought for 200-220k.

phantom_lord

Rent isn't really dead money, and in many cases can work out cheaper in the long-term. You're getting the use of an expensive asset with a lot of convenience (someone else is responsible for maintenance, and compare what's involved in moving when renting vs buying)

Buying a home tends to be more of an emotional rather than financial decision. Don't feel pressured because you've money in the bank.

Ireland too is a bit unique when it comes to property prices, in the US the long-term returns are about 1%.

If you want to have you're money doing something, are you maximising your pension contributions?

(impressive level of savings and rent btw)

BrokenArrows

OP,

My choice would be to buy a property. Thats what i did recently and i dont regret it.

Now you have to realise that with ownership there are extra expenses. Everything related to the property is now your responsibility, where as previously it was the landlords.

Everything from the €10 kettle to the multi 000's you may have to spend if you get a bad run of luck. ie Major plumbing issues, boilers, washing machine etc.

Once you understand the costs then id say go for it.

Taylor365

Get the longest mortgage possible and just overpay.

Saves any unfortunate events causing unwanted stress..

ixus

220k -50k =170k @ 2.6% 4yr fixed with UB is approx 1610pm.

You currently pay less than 300pm for a room.

How will you manage the jump to 800pm assume other room is let full time ~50%?

How will you manage if other room empty for a few months?

Add property tax to annual expense.

How will you save with new financial commitments?

Putting 50k in plus kitting out, legal expenses etc will leave you without the safety net you currently have. Adverse circumstances could easily leave you in financial distress.

Macro economics - Brexit and Trumps trade wars can have an effect on global economic cycle. Plus FED rate cycle.

Being single and cash positive gives you a lot of freedom particularly of movement.

All factors to be considered.

Pussyhands

ixus wrote: »

220k -50k =170k @ 2.6% 4yr fixed with UB is approx 1610pm.

You currently pay less than 300pm for a room.

How will you manage the jump to 800pm assume other room is let full time ~50%?

How will you manage if other room empty for a few months?

Add property tax to annual expense.

How will you save with new financial commitments?

Putting 50k in plus kitting out, legal expenses etc will leave you without the safety net you currently have. Adverse circumstances could easily leave you in financial distress.

Macro economics - Brexit and Trumps trade wars can have an effect on global economic cycle. Plus FED rate cycle.

Being single and cash positive gives you a lot of freedom particularly of movement.

All factors to be considered.

Let's say I'm paying 3500 on rent a year.

I'm saving 16/17k. Why am I saving money for? The biggest expense in a persons life is their mortgage so ultimately the money I'm saving is spent on a house anyways.

So I have looked at mortgages and the interest part of the mortgage could be paid off by a tenant. The capital part would be paid off mostly by me which is essentially going into my bank account as value.

I am aware of extra costs, but are the extra costs more than the 3500 I pay on rent? I doubt it. Also house prices can going up which means my money in the bank right now loses value year on year.

Basically the question can be summed into, will house prices increase for the next few years and will they ever go down?

I have a pension plan available from employer but I haven't been paying into it yet.

Taylor365

Pussyhands wrote: »

I am aware of extra costs, but are the extra costs more than the 3500 I pay on rent? I doubt it.

Well bills, taxes and fees can ring up €400-500 a month.

Per month you're probably looking at:

Management fees at least €100.
Elec + Gas average €100-150.
Broadband + other $hite €50-100.
Property tax €34

You'd be doing good spending less than €300 a month just owning it and keeping the lights on.

BrokenArrows

Pussyhands wrote: »

Basically the question can be summed into, will house prices increase for the next few years and will they ever go down?

Will the house prices rise for the next few years? Maybe.

Will they ever go down? Definitely.

Pussyhands

Taylor365 wrote: »

Well bills, taxes and fees can ring up €400-500 a month.

Per month you're probably looking at:

Management fees at least €100.
Elec + Gas average €100-150.
Broadband + other $hite €50-100.
Property tax €34

You'd be doing good spending less than €300 a month just owning it and keeping the lights on.

Outside of management fees and property tax and maintenance I'm paying those anyways.

The only increase would be bills divided by 2 instead of 4 as of now.

Pussyhands

BrokenArrows wrote: »

Will the house prices rise for the next few years? Maybe.

Will they ever go down? Definitely.

Down below current prices?

I'm looking at the property price register. Just looking at the area I was possibly thinking about. Someone bought an apartment for 126k in 2013 and sold for 200k in 2017. What a great feeling that would be.

nsa0bupkd3948x

Pussyhands wrote: »

Down below current prices?

I'm looking at the property price register. Just looking at the area I was possibly thinking about. Someone bought an apartment for 126k in 2013 and sold for 200k in 2017. What a great feeling that would be.

Have people forgotten about the crash already?

SteM

Pussyhands wrote: »

Down below current prices?

I'm looking at the property price register. Just looking at the area I was possibly thinking about. Someone bought an apartment for 126k in 2013 and sold for 200k in 2017. What a great feeling that would be.

In all honesty, it's easy to pick and choose an example like that if that's the outlook you desperately want to see. You're asking if prices can go below current prices? Of course they can!

2013 was slump era, you're not buying in a slump if you're buying now.

Alkers

Pussyhands wrote:

I'm looking at the property price register. Just looking at the area I was possibly thinking about. Someone bought an apartment for 126k in 2013 and sold for 200k in 2017. What a great feeling that would be.

And what about the poor chap who had to sell it for 126k.

What is you personal situation? Are you young/old etc? Is a 2 bed apartment going to be suitable for your needs for the next 15 years if the market crashes and you're stuck in negative equity?

ConnyMcDavid

You'd be very lucky to have a landlord that would replace things like kettles. You do pay for maintenance for rented apartment indirectly via loss of deposit or price increase. Which is why lots of tenants are reluctant to get landlords to replace things, and just do it themselves.

You should buy, but wait another 3-4 years.

davo2001

Pussyhands wrote: »

Down below current prices?

I'm looking at the property price register. Just looking at the area I was possibly thinking about. Someone bought an apartment for 126k in 2013 and sold for 200k in 2017. What a great feeling that would be.

OP do you rememeber 2007-2014???

Are peoples memories that short?

Diemos

OP, it sounds like you have your heart set on the purchase.
If you can afford the repayments, go for it.
As it is your home, it should not be viewed as an investment.
Putting a roof over your head is an expense.

We are in a boyant market at the minute, looking at property purchased 5 years ago is pi$$ing in the wind, go back 5 years more and you will see the futility of looking back.

Renting is not always dead money, it has it's upsides.
But personally in the current market owning has many more upsides.
We bought last year, our mortgage is cheaper than our rent was, we now have a bigger place, in a nicer area.

House prices will fall again, but not for a few years yet.

Good luck OP.

Pussyhands

davo2001 wrote: »

OP do you rememeber 2007-2014???

Are peoples memories that short?

Sorry, my first sentence and second sentence were unrelated to each other.

I was just generally commenting about the price difference of a house bought an sold then and thinking it must feel like winning a sum in the lotto.

And I don't remember 2007-2014. I only started working in 2013 and rent demand was through the roof then anyways.

ixus

I tried to highlight some real risks which you appear to discount.

Additional factors are big ticket items like cars and weddings. Wedding could easily set you back 20k up front.

Risk in terms of owning a 2 bed apartment is starting a family and being stuck there when too big for it. Caught in negative equity in a sellers market. Especially if you are a distance outside the city. This was a common event during the last decade.

For example, I know a couple earning high income who bought at top, a small 3 bed townhouse. They need to move as family is too big. They're only back flat now from negative equity but have to save a deposit like everyone else.

Am a little surprised the next generation are so insulated from the last decade.

Pussyhands

ixus wrote: »

I tried to highlight some real risks which you appear to discount.

Additional factors are big ticket items like cars and weddings. Wedding could easily set you back 20k up front.

Risk in terms of owning a 2 bed apartment is starting a family and being stuck there when too big for it. Caught in negative equity in a sellers market. Especially if you are a distance outside the city. This was a common event during the last decade.

For example, I know a couple earning high income who bought at top, a small 3 bed townhouse. They need to move as family is too big. They're only back flat now from negative equity but have to save a deposit like everyone else.

Am a little surprised the next generation are so insulated from the last decade.

Having looked at what properties were being sold for 5/6 years ago I have decided not to look into buying any further. Costs are blown up so much in such a short period although they were coming from a drastic low.

I think I'll take a risk and see what it's like in 2/3 years.

dRNk SAnTA

Pussyhands wrote: »

Having looked at what properties were being sold for 5/6 years ago I have decided not to look into buying any further. Costs are blown up so much in such a short period although they were coming from a drastic low.

I think I'll take a risk and see what it's like in 2/3 years.

Maybe you weren't living this country during the crash?

I bought my first property in 2017 and had been doing a lot of research on house prices around that time.

From what I could see, 2012/2013 was the bottom of the property market in Dublin.

You must keep in mind that this was following a collapse of the banking system, collapse of public finances, and massive unemployment.

You can't treat it as the market's normal equilibrium.

Nobody knows how current prices compare to that normal equilibrium, either. That's the judgment call you need to make.

Pussyhands

True.

My head is wrecked. I think I'm in a pretty good position financially with 60k in the bank in my mid 20's and I don't want to lose being in a good position by not making a good decision.

drunkmonkey

Your in a good position financially, when the market corrects it'll be apartments take the biggest hit first and especially 1 or 2 bed, your still young I'd keep saving and enjoy your 20's and 30's as much as you can. Your rent is reasonable so your not under pressure to buy.
If you've 120k in the bank in your 30's you'll be in a great position, market should be functioning properly by then, you might also have a partner that wants to live somewhere else and you won't be stuck trying to shift and apartment if there gone out of fashion which has happened in 07.

Pussyhands

drunkmonkey wrote: »

Your in a good position financially, when the market corrects it'll be apartments take the biggest hit first and especially 1 or 2 bed, your still young I'd keep saving and enjoy your 20's and 30's as much as you can. Your rent is reasonable so your not under pressure to buy.
If you've 120k in the bank in your 30's you'll be in a great position, market should be functioning properly by then, you might also have a partner that wants to live somewhere else and you won't be stuck trying to shift and apartment if there gone out of fashion which has happened in 07.

Also true. Cheers mate.

Pussyhands

Well folks, back again.

So was thinking...would anyone suggest going for a 25/30 year loan?

Could spend maybe 160k on a 2/3 bed apartment....mortgage repayments of maybe 900.

Tenants would be paying off the mortgage and I could sell in a few years.

Thoughts?

dRNk SAnTA

Interest rates are low and getting lower (new Ulster Bank rates sub 3%).

There is no advantage to a short mortgage, it makes your minimum repayments higher and increases pressure on you, because your minimum repayment to the bank will be higher.

My view: best to take as long a mortgage as you can get (it's the cheapest loan you'll ever have), and have lower monthly repayments and lower pressure.

If you have the capacity to pay back higher amounts, then you've got two options:

1) make overpayments to reduce the mortgage faster (and save on the amount of interest being paid over the course of the mortgage term)

2) invest money in something that would provide 5%-10% percent net returns (easier said than done) and you'll be covering the cost of the interest and making the cash work better for you.

ixus

Please don't give bad math advice.

160k at 2.3% at 30 yrs is over 60k in interest on principal.
25yrs is 50k.

At 3% there is 15k of a difference.

OP. You are liable for income tax if you become a landlord. Unless you are living there and renting rooms in which case it would be tax free.

Mach 3

Just for a bit of perspective - a well built house back in the boom, very near a hospital(Dublin) would set you back €450-500,000. Timber frame houses 2-3 miles away are now priced at €750,000+, for a worse location and lower quality build.
In the intervening years wages (for most) has not kept track with inflation, and are still below wages of ten years ago.
The thought that interest rates will keep reducing is niave. Just like the €30,000 cars/suv's peeps are driving... On jobs that could disappear on a trade war - EU counter attack on US multi media headquarters in Ireland.
A home to live and a house, are two entirely different entities, make sure you know which one you need /like.

Ignore good advice at your peril.

Squozen

Is your money just sitting in the bank or is it actually giving you a return?