Pulling equity from a property to purchase another

Designator · 22-01-2020 10:08pm #1

Ok so Ive always wanted to become a landlord and have a property portfolio. Currently living in my first home which I bought for 70k and so far have spent about 15k on it at least. I have read that if you get the house reappraised and say the appraisal says that due to markets and the money spent that the house is now worth 90k, apparently its possible to renegotiate with the bank and pull the 20k out of the house and use it as a deposit for a second property perhaps to rent out? Is this a way to begin a property portfolio does anyone know how this works? And also apparently you can choose to pay interest only on the mortgage repayments for the first two years to help you put money into refurbishing the property and what not. Anyone have advice?

work · 22-01-2020 10:38pm

Designator wrote: »

Ok so Ive always wanted to become a landlord and have a property portfolio. Currently living in my first home which I bought for 70k and so far have spent about 15k on it at least. I have read that if you get the house reappraised and say the appraisal says that due to markets and the money spent that the house is now worth 90k, apparently its possible to renegotiate with the bank and pull the 20k out of the house and use it as a deposit for a second property perhaps to rent out? Is this a way to begin a property portfolio does anyone know how this works? And also apparently you can choose to pay interest only on the mortgage repayments for the first two years to help you put money into refurbishing the property and what not. Anyone have advice?

Not sure if this is a joke. The prices your giving are not what houses cost in Ireland? Otherwise what you are asking is correct and your local FF candidate will explain it best to you.

godtabh · 22-01-2020 10:39pm

Designator wrote: »

Ok so Ive always wanted to become a landlord and have a property portfolio. Currently living in my first home which I bought for 70k and so far have spent about 15k on it at least. I have read that if you get the house reappraised and say the appraisal says that due to markets and the money spent that the house is now worth 90k, apparently its possible to renegotiate with the bank and pull the 20k out of the house and use it as a deposit for a second property perhaps to rent out? Is this a way to begin a property portfolio does anyone know how this works? And also apparently you can choose to pay interest only on the mortgage repayments for the first two years to help you put money into refurbishing the property and what not. Anyone have advice?

Walk away and dont put your future at risk

GingerLily · 22-01-2020 10:39pm

Will you use your 5k credit union loan too?

Designator · 22-01-2020 10:45pm

GingerLily wrote: »

Will you use your 5k credit union loan too?

What’s the smartness about?

Designator · 22-01-2020 10:46pm

work wrote: »

Not sure if this is a joke. The prices your giving are not what houses cost in Ireland? Otherwise what you are asking is correct and your local FF candidate will explain it best to you.

So you’re telling me the house I purchased for 70k and am currently living in simply doesn’t exist? Wow

Steer55 · 22-01-2020 10:50pm

It's impossible to get equity release now, all that caper ended with the last property crash, and rightly so.

Gumbo · 22-01-2020 11:30pm

Designator wrote: »

Ok so Ive always wanted to become a landlord and have a property portfolio. Currently living in my first home which I bought for 70k and so far have spent about 15k on it at least. I have read that if you get the house reappraised and say the appraisal says that due to markets and the money spent that the house is now worth 90k, apparently its possible to renegotiate with the bank and pull the 20k out of the house and use it as a deposit for a second property perhaps to rent out? Is this a way to begin a property portfolio does anyone know how this works? And also apparently you can choose to pay interest only on the mortgage repayments for the first two years to help you put money into refurbishing the property and what not. Anyone have advice?

No that can’t happen now a days.

Technically equity release when it did happen, can occur like this.

Current mortgage 70000
Current value 90000
Equity 20000

They would remortgage your up to 92% of the 90000
So that’s 82800
Legal fees of maybe 1000
Means you release in the region of 11800.

To buy a buy to let, you need at least 20% deposit and capacity to pay both mortgages with your current income.

You won’t know 100% until you talk to the banks.

ahnowbrowncow · 22-01-2020 11:37pm

https://www.youtube.com/watch?v=

People.dont know when and where the OP bought the property. Quite possible that they bought it as stated, I dont get the disbelieving comments

SEPT 23 1989 · 22-01-2020 11:39pm

You would have enjoyed 2000-2007 OP

Voltex · 22-01-2020 11:40pm

It is possible OP as I did something similarish. I had 2 properties...my PPR and a mortgage free investment property in North Dublin. I decided to buy another property as my PRP and to keep my former PRP and turn it into a let property giving me 3 properties altogether.

Basically I raised a new mortgage on my investment property that was <50% LTV and used the funds as a deposit for property #3 and raised another mortgage to fund the remainder of my new PPR.

There arent that many banks willing to get involved in BTL segment for obvious reasons, and those that are, are charging premium rates. I used ICS and to be honest found them extremely easy to deal with. ICS do charge an arrangement fee and you will have legal fees to pay also.

Just be aware the max LTV on BTL is 70% and the property would generally need to be within close proximity to the larger towns and cities. Be sure you have projected out your cashflows, factored taxation and maintenance costs and have some time to dedicate to managing property.

My advice would be to read up on all BTL topics on various discussion boards like askaboutmoney. After that, try talking to a broker...theyre worth their weight in gold and can save a lot of headaches.

Best of luck.

Caranica · 22-01-2020 11:51pm

Run, run away as fast as you can and put that idea way out of your head. Renting out property in Ireland is a headache for the small guy and a windfall for the REITs.

beauf · 23-01-2020 1:23am

Voltex wrote: »

It is possible OP as I did something similarish. I had 2 properties...my PPR and a mortgage free investment property in North Dublin. I decided to buy another property as my PRP and to keep my former PRP and turn it into a let property giving me 3 properties altogether.

Basically I raised a new mortgage on my investment property that was <50% LTV and used the funds as a deposit for property #3 and raised another mortgage to fund the remainder of my new PPR.

There arent that many banks willing to get involved in BTL segment for obvious reasons, and those that are, are charging premium rates. I used ICS and to be honest found them extremely easy to deal with. ICS do charge an arrangement fee and you will have legal fees to pay also.

Just be aware the max LTV on BTL is 70% and the property would generally need to be within close proximity to the larger towns and cities. Be sure you have projected out your cashflows, factored taxation and maintenance costs and have some time to dedicate to managing property.

My advice would be to read up on all BTL topics on various discussion boards like askaboutmoney. After that, try talking to a broker...theyre worth their weight in gold and can save a lot of headaches.

Best of luck.

I assume you mean a mortgage broker. I'm not sure who they would help you with a BTL. Perhaps you just mean the mortgage aspect and the business planing etc.

beauf · 23-01-2020 1:29am

kceire wrote: »

No that can’t happen now a days.

Technically equity release when it did happen, can occur like this.

Current mortgage 70000
Current value 90000
Equity 20000

They would remortgage your up to 92% of the 90000
So that’s 82800
Legal fees of maybe 1000
Means you release in the region of 11800.

To buy a buy to let, you need at least 20% deposit and capacity to pay both mortgages with your current income.

You won’t know 100% until you talk to the banks.

When you say that cant happen now? What do you mean.

I know someone looking for a equity release and the banks are offering terms. They have no existing loans, or mortgages though.

Personally unless its someone with a large income and could at a pinch maintain at least 50% of the mortgage with their own income I would be wary. Say all the rents dropped 50% tomorrow, or someone stopped paying rent for 6months or even a year, could they handle it.

Gumbo · 23-01-2020 9:39am

beauf wrote: »

When you that cant happen now? What do you mean.

The OP asked if he could release the full value. In his example, the full 20k equity. That can’t work as the bank will offer a % Of the full value.

92% in my example. But the % will depend on the bank. They certainly won’t give 100% for a BTL as the OP asked. That’s what I meant.

Claw Hammer · 23-01-2020 1:56pm

The o/p only said he bought the property for 70k. He doesn't say if he has a mortgage on the property at all. The first issue is how much equity he has, before considering whether he has any chance of an equity release.

TSQ · 24-01-2020 9:55pm

work wrote: »

Not sure if this is a joke. The prices your giving are not what houses cost in Ireland? Otherwise what you are asking is correct and your local FF candidate will explain it best to you.

You must live in Dublin, Cork or Galway for sure... check out house prices in Wexford, plenty of older properties under 100k in town centre, not wrecks either, just needing redecorating.

Arklow10 · 27-01-2020 10:41am

Firstly admire your interest- yes it is worth exploring, however....

My suggestions
Read up on rental property, talk to estate agents, join a property organisation e.g. Irish Property Owners Association, look at rental properties in your area of interest and see how demand is and what a contract looks like , allow for void periods, allow for tenants who will not look after the place. Try and rent from the professionals e.g. a REIT and see how they manage a property.

Do the mats, then do the maths again..

Honestly you are on very shaky ground. The next recession IS coming.

Best put any savings (after starting up a good pension, and having short term and medium savings) into buying shares in a REIT, quoted on the stock exchange and enjoy associated "property ownership"

DO NOT DO IT

Graham · 27-01-2020 10:57am

Arklow10 wrote: »

The next recession IS coming.

The next recession is always coming, much like the next boom.

duffman13 · 27-01-2020 8:41pm

Purely from a practical point of view, it's possible but very difficult. I was going do something similar for various circumstances although when push came to shove I realised the numbers wouldn't add up in the short term or medium term.

The only place who will get something like this is a broker, even then the numbers you are talking about are quiet small so I'm not sure how viable it would be for you. The traditional banks didn't want it but Pepper mortgages would do it. The interest rate would have been 4.9% or something which is what pushed me away. I would have had 40% equity in one property and 50% n another and that was the best interest rate they were offering so I walked away.

Btw way my reasoning for walking away was after tax implications were taken into account it was going to cost me a decent amount each month never mind maintenance and/or the risk of a band tenant

work · 31-01-2020 10:11pm

TSQ wrote: »

You must live in Dublin, Cork or Galway for sure... check out house prices in Wexford, plenty of older properties under 100k in town centre, not wrecks either, just needing redecorating.

Perhaps you are right but one reason the prices are lower is banks won't lend as easy against them .

Claw Hammer · 04-02-2020 4:16pm

Designator wrote: »

Ok so Ive always wanted to become a landlord and have a property portfolio. Currently living in my first home which I bought for 70k and so far have spent about 15k on it at least. I have read that if you get the house reappraised and say the appraisal says that due to markets and the money spent that the house is now worth 90k, apparently its possible to renegotiate with the bank and pull the 20k out of the house and use it as a deposit for a second property perhaps to rent out? Is this a way to begin a property portfolio does anyone know how this works? And also apparently you can choose to pay interest only on the mortgage repayments for the first two years to help you put money into refurbishing the property and what not. Anyone have advice?

There are couple of flaws with this reasoning. Money spent on a house does not automatically translate into equity in the same house. An extension costing €50,000 to construct might only add €20,000 to the value of the property.

Equity in a property is not like having money on deposit. The ability to access the equity depends how much there is an also what market conditions regarding the availability of finance are at any particular time. Banks are currently extremely reluctant to allow equity release for any purpose and are even slower to allow equity release in a primary home for the purpose of speculation in another property. The best thing to do is to try and stay on interest only on the principal residence and save the money that would be paying down the capital in order to accumulate a deposit for another property. Another option is to pay down the existing property as rapidly as possible, sell it and with the proceeds buy two properties, getting a mortgage on each.

XsApollo · 04-02-2020 4:24pm

You cannot get an equity release to use as a deposit for another place.
That was stopped.
You can however get equity release for home improvements , for education for your kids and something else I can’t remember.
Home improvements I know bank of Ireland seek a valuation before works and after but other banks don’t for under 30k I think, so that something you might be able to work.

Claw Hammer · 04-02-2020 4:35pm

XsApollo wrote: »

You cannot get an equity release to use as a deposit for another place.

there is no law against it. The banks just won't do it at the moment.

Samuel T. Cogley · 04-02-2020 5:57pm

If you're having to pull equity to invest in property you're asking for trouble. Where are you going to get the €20K+ needed to remove a bad tenant and completely re-do the place after it's trashed? Thankfully it's unlikely but far from impossible.

beauf · 04-02-2020 6:06pm

Samuel T. Cogley wrote: »

If you're having to pull equity to invest in property you're asking for trouble. Where are you going to get the €20K+ needed to remove a bad tenant and completely re-do the place after it's trashed? Thankfully it's unlikely but far from impossible.

Its a gamble that you build up enough of a float before you have that problem, or you put some aside at the start.

SwordofLight · 05-02-2020 1:36am

I was thinking about going for a house that needs work, I'd have to use about €50k hard-saved as a deposit, then spend about €15k refurbishing it (could get a loan). The idea would be to put it's value up from €220k (purchase price) to about €280k, then either sell it after 2 years or so, or get a 'top up' mortgage to try to release some of the equity. I think some banks are still doing it, e.g. https://www.permanenttsb.ie/mortgages/home-improvements-top-up/
But put off by talk of an incoming recession, also of how long it took me to save my money, that's a lot of capital. Is the potential return worth it? I'm not sure it's worth the hassle. e.g After 2 years I'll have spent about €1k per month on repayments alone, before sales fees or maintenance costs etc... any thoughts? Compared to the OP is this worth it as there is potentially a higher margin?

Samuel T. Cogley · 05-02-2020 7:57am

I'm pretty sure we are at the top of the market. Not a good idea purely on that basis imho. Part of your profit is the capital appreciation, without that or worse that working against you it's a very long term investment with huge risk.

Claw Hammer · 05-02-2020 12:44pm

Samuel T. Cogley wrote: »

I'm pretty sure we are at the top of the market. Not a good idea purely on that basis imho. Part of your profit is the capital appreciation, without that or worse that working against you it's a very long term investment with huge risk.

You expect to spend 15k on a property and thus increase its value by 60K?

SwordofLight · 05-02-2020 2:02pm

I have the advantage of having a builder in the family

Really not sure about the market now though. Think the reality is a bit clouded.

Think I may have to leave this one.

Samuel T. Cogley · 05-02-2020 2:04pm

Claw Hammer wrote: »

You expect to spend 15k on a property and thus increase its value by 60K?

Where have you got that idea from? 15K will not increase the value by 60K.

Pulling equity from a property to purchase another

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