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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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Chopper83

Now is not the time to buying a property for investment in my opinion. You are in a very healthy position and without knowing your personal circumstances it doesn't seem like you are under major pressure to move other than investing. Some good advice on this thread already.

Pussyhands

Squozen wrote: »

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

No I have 60k sitting in the bank losing value.

0gac3yjefb5sv7

Pussyhands wrote: »

No I have 60k sitting in the bank losing value.

How did you manage to save so much on that wage? Fair play!

Pussyhands

Pheonix10 wrote: »

How did you manage to save so much on that wage? Fair play!

To be honest, I live a very frugal lifestyle. It's not that I even make these decision, I just see waste as bad...it's just my psyche.

For instance. Most people spend 20 euro a month on their phone. I looked at all the deal out there and saw 48. I don't ring people often and I am on wifi a lot of the time so I decided the 10 euro option was good for me. If I need extra data abroad or whatever I'll pay a few euro extra.

Take opportunities when they present themselves. If a shop is closing down and they're selling runners half price, buy 2 or 3 pairs. Don't open them until you need them.

Going to the shop for food? Browse by the reduced section. I picked up a sandwich for 75c when it would have cost probably 2 quid otherwise.

I don't go to pubs/clubs/restaurants really at all as it's not what I enjoy doing so maybe a lot of money is saved there.

For me, I never have to save. Saving isn't something that I choose to do. I spend money on the essentials and then things I want to spend things on and the rest is money that won't be spent.

I find it hard to explain how I do it really. I just value my money. 60 euro for an addidas hoody? No thanks I'll have a look on sportsdirect and get one for 20 euro or less.

I don't live the most eventful life but I still do things that cost money and I have bought things with substantial costs too.

jim salter

In my opinion the maths don't add up. The OP is currently on €40k/yr, started working in 2013 and has saved €60k in less than 5 years (obviously the OP didn't start on €40k) but that is saving €1,000/mt every single month since starting work. Pays approx €291/mt on rent (if in Dublin this is very low regardless).
It seems very unusual to me.

Pussyhands

jim salter wrote: »

In my opinion the maths don't add up. The OP is currently on €40k/yr, started working in 2013 and has saved €60k in less than 5 years (obviously the OP didn't start on €40k) but that is saving €1,000/mt every single month since starting work. Pays approx €291/mt on rent (if in Dublin this is very low regardless).
It seems very unusual to me.

I started work in Dublin on 23k and saved 7k in one year.

Wesser

There is no way you would be able to afford to repay in 10 years anyway. Yes you should pick a 25 year mortgage but you can always overpay if able.

jim salter

Pussyhands wrote: »

I started work in Dublin on 23k and saved 7k in one year.

In my opinion the numbers still don't add up, sorry.

Pussyhands

jim salter wrote: »

In my opinion the numbers still don't add up, sorry.

Well they do.

Pussyhands

Wesser wrote: »

There is no way you would be able to afford to repay in 10 years anyway. Yes you should pick a 25 year mortgage but you can always overpay if able.

I think I could.

I'd rent out a room or two in the house.

Pussyhands

Been thinking hard about this again and thinking of a 30 year mortgage as it's the cheapest money you'll ever get

Mortgage payment of max 1k a month. Rent room oit for 600.

I know for a fact an apartment in this block was rented for 1300 a couple years ago.

I just feel real unease that my money is losing value. I want to be wealthy

SteM

3 months in and you've gone from a 10 year mortgage to a 30 year mortgage. You've gone from expecting 45%of the mortgage being paid to expecting 60%+ of it being paid.

Do you expect your life to remain the same over the next 30 years? All of the plans you're making will go out the window when you meet someone somewhere down the line and the plans will be readjusted. It doesn't happen to everyone but it does to the majority of people, that's life. No point in thinking too far ahead. If you can get approval for a 2 bed place that you'll be happy in for the next few years, rent out a room and go from there. Not sure what other advice you expect from people here that you haven't gotten already tbh.

Do you pay into a pension by the way?

Pussyhands

SteM wrote: »

3 months in and you've gone from a 10 year mortgage to a 30 year mortgage. You've gone from expecting 45%of the mortgage being paid to expecting 60%+ of it being paid.

Do you expect your life to remain the same over the next 30 years? All of the plans you're making will go out the window when you meet someone somewhere down the line and the plans will be readjusted. It doesn't happen to everyone but it does to the majority of people, that's life. No point in thinking too far ahead. If you can get approval for a 2 bed place that you'll be happy in for the next few years, rent out a room and go from there. Not sure what other advice you expect from people here that you haven't gotten already tbh.

Do you pay into a pension by the way?

Not paying into one yet but i have the option in work.

SteM

Pussyhands wrote: »

Not paying into one yet but i have the option in work.

That's something you should look into starting imo. As important as a mortgage you're unsure of getting.

Jim2007

Pussyhands wrote: »

I just feel real unease that my money is losing value. I want to be wealthy

You are uneasy about your money loosing value and your solution is to throw out every rule of thumb in investing and you’ll be come wealthy!

When you invest in a property you ignore all the best advice:
- You borrow to invest
- You fail to diversify within the asset class
- You invest in a high risk asset class
- Normally holding more than 7% of your portfolio in property is considered high risk and you are going to go for 100%
- You accept a low rate of return for a high risk investment.
During the last recession the Irish saw more of their personal wealth wiped out than any other EU nation for exactly this reason. It does not matter about bank bailouts etc... if you ignore the rules you have to expect to take the hit when the recession comes.

You have got the Swiss attitude to spending, now following their investing approach a good solid equity portfolio and an objective to retire by 55 or 60.

Squozen

Listen to Jim. Jim is smart.

Pussyhands

Jim2007 wrote: »

You are uneasy about your money loosing value and your solution is to throw out every rule of thumb in investing and you’ll be come wealthy!

When you invest in a property you ignore all the best advice:
- You borrow to invest
- You fail to diversify within the asset class
- You invest in a high risk asset class
- Normally holding more than 7% of your portfolio in property is considered high risk and you are going to go for 100%
- You accept a low rate of return for a high risk investment.
During the last recession the Irish saw more of their personal wealth wiped out than any other EU nation for exactly this reason. It does not matter about bank bailouts etc... if you ignore the rules you have to expect to take the hit when the recession comes.

You have got the Swiss attitude to spending, now following their investing approach a good solid equity portfolio and an objective to retire by 55 or 60.

I understand your points.

The last recession was a once in a generation thing.

House prices may not rise massively but at least my mortgage is being paid and the value is stored. So technically I'm making money on renting a room out and having half the mortgage paid for.

Investing in stocks is risky imo with the all time highs being reached.

I wouldn't be paying tax on any of the rental income as I'd be owning and living in it and I wouldn't pay tax on any increase in property value.

That's why I'm seeing property as much better option than any other.

SteM

It may have been the first recession for you but there was one in the 80s.

Taylor365

Pussyhands wrote: »

I wouldn't pay tax on any increase in property value.

In the same vein as you don't pay taxes on stocks that increase in value.

You pay when you go to sell.

Mach 3

Taylor365 wrote: »

In the same vein as you don't pay taxes on stocks that increase in value.

You pay when you go to sell.

I stand to be corrected, but unless things have changed, after one year living in your principal dwelling, any profit from the sale is exempt from tax. Likewise any loss can be offset against future CGT.

Of course very few take into account the interest payments on the mortgage, which is quite high for the first ten years.

Pussyhands

Mach 3 wrote: »

I stand to be corrected, but unless things have changed, after one year living in your principal dwelling, any profit from the sale is exempt from tax. Likewise any loss can be offset against future CGT.

Of course very few take into account the interest payments on the mortgage, which is quite high for the first ten years.

You are correct.

There is no tax on primary residence profit. I am paying rent now.

I would rent out a room which would cover half the mortgage or even more.

So basically the interest would be paid by tenant and principal would be paid by me which is like putting it into the bank.

I am wary of prices at the minute due to talks of a slowdown. But my head says it's a slowdown in increase of price rather than any potential drop.

Also as I am on less than 50k, is there any banks that are specifically hard to get mortgages from? I would take the rebuilding ireland home loan if i could.

Pussyhands

SteM wrote: »

It may have been the first recession for you but there was one in the 80s.

Ireland was a backwards country then.

We're in the Eu with good links to the world.

And I believe governments do learn from history. the more history to learn from, the less mistakes will be made.

The only way I see us going into serious recession is if FDI gets moved out of Ireland and thousands of jobs are lost, but the tax rate is too good here and many companies have their EmEA HQ here.

SteM

I was just pointing out that the previous recession was not a once in a generation thing like you posted.

daheff

OP

if i were you I would keep renting & saving. Your rent is extremely low, way below mkt rates.

if you want your money to try keep pace with property market then maybe investing into one of the property REITs will mean your money gains as property prices rise(but not to the same extent)..... but would also drop if property prices drop. and any profit would be taxable.

Jim2007

Pussyhands wrote: »

The only way I see us going into serious recession is if FDI gets moved out of Ireland and thousands of jobs are lost, but the tax rate is too good here and many companies have their EmEA HQ here.

You have a lot to learn! Ireland is a small open economy and it is impact by world events beyond it's ability to shield itself from them. If you are in your late 20s/early 30s you can absolutely expect to live through three or four more recessions.

And the many property bubbles around the world, suggests that people and governments have very short memories. They are repeating the exact same behaviour as the last time around.

And as for the 'this time it is different' argument, we all ways hear that one. And it always fails!

Jim2007

Pussyhands wrote: »

The last recession was a once in a generation thing.

Investing in stocks is risky imo with the all time highs being reached.

That's why I'm seeing property as much better option than any other.

The only way those statements would hold true, is if you were to ignore all the research on topic. At the end of the day is it your money, but you should be under no illusion - you are going for the highest risk option on the table and the outcome will depend more on luck than skill.

What works in investing

Pussyhands

Jim2007 wrote: »

You have a lot to learn! Ireland is a small open economy and it is impact by world events beyond it's ability to shield itself from them. If you are in your late 20s/early 30s you can absolutely expect to live through three or four more recessions.

And the many property bubbles around the world, suggests that people and governments have very short memories. They are repeating the exact same behaviour as the last time around.

And as for the 'this time it is different' argument, we all ways hear that one. And it always fails!

You are saying we're making the same mistakes. So you think people are borrowing money they shouldn't be allowed to and that banks are partaking in fraud?

Jim2007

Pussyhands wrote: »

You are saying we're making the same mistakes.

Yes, of course. You only have to look at the kind of comments coming about seeking mortgages etc... to realise this.

The only question is what will kick it off? There is a massive build up in personal credit all around the world, there is a need to rollover billions in corporate debt in the coming five or six years, as a result of the US trade wars, China could decide to dumb major blocks of US debt on to the market, Switzerland no longer backs the Franc with gold and need to dispose of a very large quantity, furthermore as a result of having to conduct market operations in defence of the Franc some time ago, they hold a large block of Irish government bonds and have admitted that they have entered the market in defiance of Irish bonds in recent months. At some point they will dispose of them and that support will not be there? What happens then...

And you think you have experienced a once in a life time recession.....

Pussyhands wrote: »

So you think people are borrowing money they shouldn't be allowed to

People are borrowing money they'd be better off to avoid. But it is not a question of being allowed or not, they are adults and it is their responsibility.

Pussyhands wrote: »

and that banks are partaking in fraud?

Lets be clear on this certain bank officials committed fraud and have been rightly prosecuted for it. But banks in general did not commit fraud.

If you are going to invest for your future then you have to accept that you are responsible for your decisions, not the banks, not the government or anyone else. And if you are going to ignore the best practice and sink all your savings in to a property then you need to realise that it is on you.

Pussyhands

Jim2007 wrote: »

And you think you have experienced a once in a life time recession.....

People are borrowing money they'd be better off to avoid. But it is not a question of being allowed or not, they are adults and it is their responsibility.

Lets be clear on this certain bank officials committed fraud and have been rightly prosecuted for it. But banks in general did not commit fraud.

If you are going to invest for your future then you have to accept that you are responsible for your decisions, not the banks, not the government or anyone else. And if you are going to ignore the best practice and sink all your savings in to a property then you need to realise that it is on you.

So basically you're saying the only way to make money on property is in a recession. How is there so many wealthy people due to property then?

As Kenny Rodgers says - "every hand's a winner and every hand's a loser".

Bank fraud was systematic all over. Lehmans, AIB etc.

Stocks really aren't appealing to me as much as property seeing we're at an ATH andCGT is 33%.

BTW do you mind me asking how much you are worth?

Bigmac1euro

As Jim stated above property is the worst investment you can make but on the flipside I'll be buying a house in the coming years as I will need somewhere to live and grow a family. At the moment what you need is patience.

Take all the good advice you can get.
Question though, Do you plan on meeting someone in the future and possibly starting a family ?
Is that a possibility ?