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Extend, rent, or trade-up?

  • 01-05-2007 4:56pm
    #1
    Closed Accounts Posts: 148 ✭✭


    I'm a Dublin house-owner, bought my 3-bed detached house in a south
    dublin suburb back in 2001 for about 300K euro. I currently owe 100K
    on the house.

    At the height of the bubble a year ago, houses similar to mine were trading
    for 650K. However there is currently a semi-d house down the road which has
    been reduced to 535K and has still not sold.

    For some time my wife and I have wanted to trade-up to a 4-bed house
    closer to town, but with prices ranging from 1.5m to 2m in suitable areas
    it was (and still is) unaffordable. So we got planning permission for an
    extension, which we haven't built yet.

    Right now I see 3 choices:
    1. Sell the house, and trade up to a 4-bed house closer to town.
    2. Extend the house.
    3. Sell the house, and rent a 4-bed house closer to town.

    Number 1 is out of the question. I need a 1m mortgage like I need a hole
    in my head.

    Number 2 will cost us 250K, of which we would need to borrow 100-150K.

    Number 3 is interesting. Renting a 4-bed in a suitable area can be done
    for between 3K and 3.5K per month.

    My question: what do all ye think is the best option, and in the case of
    option 3 what price do you think I should ask for to get a quick sale?


Comments

  • Moderators, Society & Culture Moderators Posts: 32,286 Mod ✭✭✭✭The_Conductor


    Option 1- sheer lunacy, borrowing 1m- particularly with at least 2 and possibly more interest rate rises on the imminent horizon

    Option 2- sounds interesting. Leave it off a few months though. Builders and contractors are being laid off all over the place. Give it a few months and you will probably be able to get decent builders at a reasonable price.

    Option 3- it doesn't really matter what you reduce your price to in the current market- its a matter of the property being affordable. With interest rate rises, and further on the near horizon, people are risk averse. There is no longer the likelyhood of asset appreciation (in the medium term), so its not worth people's while taking a punt. If you really wanted to sell, you may be dissappointed at just how much of a reduction in expectations might be needed. Next door to me sold for 445k 1 year ago. 3 doors down is on the market at 380k without any interest in it whatsoever- and a slightly smaller 2 bed immediately next door to that only made 305k a month ago.

    Option 2 in my opinion seems the way to go. Hang on a bit though- it will be a lot easier to get tradespeople in the very near future.


  • Registered Users, Registered Users 2 Posts: 15,512 ✭✭✭✭Supercell


    Extend the house gets a vote here too :-

    1) Will genuinely add value unlike decking fad.
    2) If prices fall , so will the gap for you looking to upgrade - 50% of 1000,000 is more than 50% 500,000, plus you added value.

    Sit it out and extend, best policy imho, a bloodbath is unavoidable in the housing market imho, and its not likely to be over in a short time frame (imho).

    Have a weather station?, why not join the Ireland Weather Network - http://irelandweather.eu/



  • Registered Users, Registered Users 2 Posts: 9,815 ✭✭✭antoinolachtnai


    Do you have anything else to put the cash a sale would generate into?

    I think you would be over-extending the house if you spent 250k doing up something that is only worth 600 to start with. Would you really get 1m+ for the resulting property?

    My idea of an investment in doing up a property is as follows: I understand a house in Dublin 4 was purchased for around 2 million about 15 months ago, had around 500k of work done for it and is now on sale for over 3.5m. He may not get the full price he wants, but he will get most of it.

    Someone (in the property business himself) in Dublin 6 is investing the guts of a million in a property. It cost him around EUR 3m. However, the property has a big footprint and when he is done he will have something that will be worth around 6 or 7 million.

    I don't think you will really add that sort of value to the property through your investment in it. I know you want it to live in, not to sell, but eventually you will need to sell it or let it and you need to think now about how you are going to recover your hard-earned cash.

    That said, I don't know anything about your property, so maybe I am wrong. Ask an estate agent what they think the extended house would be worth.

    Remember that rents will go up, a lot more than payments will go up. Over the next ten years, rent on 4-beds closer to town will go up quicker than other types of property.

    Personally, I am a fan of property as an investment and particularly of owning the property you live in. If it were me, I would probably try to end up holding property. Still, I can see the lifestyle attractions of #3 and I can't fault you for considering it - your priorities are right, you are thinking of your family's medium-term comfort and welfare, not some vague long-term financial plan. It may be for you, I wouldn't discount it. If I were doing this, I would try to hold out for your price for your house, then sell it and rent.

    What about purchasing in another slightly far-out suburb with better transport links? You might have to go northside, but hey ...

    Try to think of the long game, i.e., not just where you are living now, but the situation you would like to be living in ten or twenty years time when your circumstances have changed. It could well be that it makes sense for you to rent for the next ten years, but then move back into your current house as the family gets smaller. Sounds crazy and not normally a runner because of tax considerations, but it might work out for you.


  • Moderators, Entertainment Moderators, Politics Moderators Posts: 14,539 Mod ✭✭✭✭johnnyskeleton


    In uncertain times like these, think about what you need and what you can afford. These are, in my view, the only considerations you should entertain, and I also think you should forget about trying to guess how the market is going to go or other similar considerations.

    If you try to make a smart move market-wise, be aware that the property market is risky. 10 years ago, no one would have needed to say that because it was so obvious, but I think the good times have left a lot of people with rose tinted glasses on.

    And if you do go for option 2, make sure you get good professional builders and that the extension is tasteful.


  • Closed Accounts Posts: 148 ✭✭VoidStarNull


    Thanks for the advice. I still haven't decided but here's some more interesting
    info in light of your suggestions:

    We got an informal quote for the extension of 220K last month. Our
    architect was very surprised: he was expecting quotes in the range 250-300K.
    I mentally rounded the figure up to 250K because I assumed the builder was planning to use cheap materials etc. But maybe I was wrong to do this..
    perhaps building prices are genuinely falling.

    After reading your posts, I also heard from a cousin of mine who works in
    the construction industry. He says new business has come to a complete
    standstill since last autumn. (He blames McDowell, but I'm not so sure...)

    That's good for me but worrying for Ireland. Maybe my national duty is
    to build the damn extension! :-)

    (Will I get a medal from the president?)


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  • Registered Users, Registered Users 2 Posts: 14,358 ✭✭✭✭jimmycrackcorm


    Keep waiting and looking for quotes until you get a much lower figure than 250K. Are you really that much in a hurry? That said though It's hard to see how an extension could cost so much.


  • Closed Accounts Posts: 148 ✭✭VoidStarNull


    Keep waiting and looking for quotes until you get a much lower figure than 250K. Are you really that much in a hurry? That said though It's hard to see how an extension could cost so much.

    Hard to see how house could cost so much :-)
    But maybe the builders look at it like this: the house is currently worth 600K
    (or was until recently), the extension increases the square footage by a
    third, that makes 800K. The extension will take 6 months to build, which
    equates to 5% price inflation in a rising market. That makes 840K.
    So the owner can afford to pay at least 240K for the extension.

    That's just a guess - I have no idea how builders price these things.


  • Registered Users, Registered Users 2 Posts: 78,537 ✭✭✭✭Victor


    Hard to see how house could cost so much :-)
    But maybe the builders look at it like this: the house is currently worth 600K
    (or was until recently), the extension increases the square footage by a
    third, that makes 800K. The extension will take 6 months to build, which
    equates to 5% price inflation in a rising market. That makes 840K.
    So the owner can afford to pay at least 240K for the extension. That's just a guess - I have no idea how builders price these things.
    Generally, no. Builders just don't ahve the time or money to carry out exercises like that. In general builders price things (a) as it will cost them (b) with hassle factored in (c) with ability to pay factored in.

    A is the dominant factor, not C. If it were C, builders would get stuck in all sorts of situations with amateur developers mis-estimating what things are worth.


  • Registered Users, Registered Users 2 Posts: 4,748 ✭✭✭Do-more


    You don't say what sq fottage the extension is but guessing that it's somewhere in the region of 500-750 sq.ft. then a quote of €220,000 for the extension is off the wall, even for Dublin!

    I'd suggest you do a bit of reading on the Construction & Self Building & Architecture & Planning Forum, it should prove helpful and might give you a few pointers on costings.

    invest4deepvalue.com



  • Closed Accounts Posts: 1,623 ✭✭✭dame


    Sister's house was built for 200k this year. It's 2,300 sq ft. Granted that's down the country (and had some family members doing some of the work), but still, I'd check that quote again.


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  • Registered Users, Registered Users 2 Posts: 9,815 ✭✭✭antoinolachtnai


    It's quite conceivable that the OP's extension is done to a spec that will genuinely cost the sort of money he's talking about. Sure, you can build a house or extension for any pricepoint, but the quality is going to depend.

    However, the problem is that it may not be worth the investment putting such a great extension onto a relatively ordinary house in an outer suburb. If you made the same investment on a house in 6w, say, you might get a much bigger lift in value.


  • Closed Accounts Posts: 148 ✭✭VoidStarNull


    Yikes!!! Thanks for the tips. Will definitely be looking for more quotes
    (and having a word with the architect)...


  • Closed Accounts Posts: 890 ✭✭✭patrickolee


    How about Option 4. Rent your own house to someone and rent a slightly larger house out for yourselves to live in. Then re-evaluate your decision in 2 or 3 years.


  • Closed Accounts Posts: 148 ✭✭VoidStarNull


    Option 4 may be good for some, but personally I'm expecting that
    Morgan Kelly's predictions will probably come to pass, i.e. properties will
    fall in price by at least 5% nominal per year averaged over the next 8 years
    (probably faster in the early years and slower later on).

    At least, I think the risk of that is large enough that I have to factor it into
    my plans. That seems to indicate, "SELL NOW!!", but the backlog of unsold
    properties (caused either by reluctance to drop prices fast enough to satisfy the
    market, or by complete inability of the market to absorb the number of
    properties offered) is now so large that I have decided it would be too
    much heartbreak to enter the market now as a seller.

    And anyway, I like my house. I like it more every day... :-)


  • Registered Users, Registered Users 2 Posts: 78,537 ✭✭✭✭Victor


    dame wrote:
    Sister's house was built for 200k this year. It's 2,300 sq ft. Granted that's down the country (and had some family members doing some of the work), but still, I'd check that quote again.
    An extension will always cost more than a greenfield house.

    That said, how big / what shape VoidStarNull?


  • Closed Accounts Posts: 148 ✭✭VoidStarNull


    Victor wrote:
    An extension will always cost more than a greenfield house.

    That said, how big / what shape VoidStarNull?

    850 square foot. Standard rectangular footprint. Extends a bit beyond
    our current boundary wall (we've already purchased the extra ground),
    which means the wall has to be rebuilt. We're going for an energy efficient
    design so that I expect will push up the price somewhat.


  • Registered Users, Registered Users 2 Posts: 9,008 ✭✭✭mad m


    Was in same position as OP,was going to have a €250K mortage over my head but after all the talk and signs of interest rates going up we took house off market,and we are the very happy we did. House is currently 900+ square foot,got architect involved and adding another 749 square foot onto it now. Got quote of 120K+,now having done some research feeling quote is a tab bit expense,working out at €165 a square foot.

    But when you take in factors like a lot of work has to be done to roof (engineers involved) and what materials cost today,especially steel (RSJ's). Also engineers drawings are a seperate cost.

    Waiting on another few quotes to come in so it will be interesting.But just thinking now your a 100 square foot more on extension we're getting and your quote was €250K :eek:


  • Registered Users, Registered Users 2 Posts: 11,220 ✭✭✭✭Lex Luthor


    Only extend if you think it will add value....but it gets my vote of the 3


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