To buy or not to buy

[rebellad]

Have a site for a house that has just been refused planning permission based on the fact that they don't want a one off house in an area that has just been rezoned as development land. It is my dad's land and basically the council want an overall development plan for the land. My dad is currently in the process of getting this done but it may take a bit of time, I am currently renting and between myself and my girlfriend we are paying 866 a month for an apartment. I have spotted a nice newly renovated house and have been told that a bid of 195k would clinch the deal. My question is does it make financial sense to buy this house at the moment - we were talking about it the other day and between planning etc it may be 3 years before we would be in the house we want to build.

 

[pinkyBear]

Hi there I was in a similar situation a few years ago - where by my family have a small site. The local council were building a new road and were using a corner of the site. When we first approached the council they informed us that it would be a few years before we could even apply for permission due to this new road..

We decided then that we would buy a house.... As it stands it was a great move for us, if and when the time comes and you choose and when thing have sorted itself out with the land you could decide then that you want to sell and build - using what ever equity you have.....

 

[MrKeane]

To mortgage 195k would cost about 900pm over 35 years and you would have a house rather than an apartment for roughly the same monthly repayments.

 

[Afuera]

To mortgage 195k would cost about 900pm over 35 years and you would have a house rather than an apartment for roughly the same monthly repayments.

This assumes that interest rates don't continue to rise too much. The OP should also factor in the cost of furnishing, maintaining and insuring it too to make a valid comparison between buying and renting.

If the OP sees themself living in the property for the long term (10+) years then it's definately worth considering buying as the monthly cost is not going to be that much higher than renting. If it's only a starter home to get on the ladder then they'd be better off holding out and using their FTB status for the property they really want.

 

[room305]

Don't forget the tax benefits of home ownership either. This certainly sounds like it is worth considering anyway, though be sure to factor in rate rises or fix your mortgage for a period if you are concerned about not being able to meet these increases.

At the same time, three years isn't long in the scheme of things and the transaction costs incurred in selling (quite apart what might happen to the price) might leave me inclined to wait for your Dad to develop the land if you are happy where you are renting.

You could always throw in a "take-it-or-leave-it" stink bid on the house and chance your arm that way.

 

[rebellad]

Thanks guys

As it stands it was a great move for us, if and when the time comes and you choose and when thing have sorted itself out with the land you could decide then that you want to sell and build - using what ever equity you have.....

That was our thinking alright and at least it gives us some breathing space

If it's only a starter home to get on the ladder then they'd be better off holding out and using their FTB status for the property they really want.

Ideally it is a starter home, but hopefully in 2-3 years we will be able to build our own house and FTB shouldn't come into the equation

To mortgage 195k would cost about 900pm over 35 years and you would have a house rather than an apartment for roughly the same monthly repayments.

Don't forget the tax benefits of home ownership either. This certainly sounds like it is worth considering anyway, though be sure to factor in rate rises or fix your mortgage for a period if you are concerned about not being able to meet these increases.

Yeah when you say it like that it does look appealling, to be honest we have had enough of paying someone elses mortgage and the hassle of renting, even if in 3 years time we sell the house on and get what we paid at least we will have some money paid back off it instead off wasting dead money on rent

You could always throw in a "take-it-or-leave-it" stink bid on the house and chance your arm that way.

Tried that, guide was 215k threw in 180k and was basically told no chance....

 

[Afuera]

to be honest we have had enough of paying someone elses mortgage and the hassle of renting, even if in 3 years time we sell the house on and get what we paid at least we will have some money paid back off it instead off wasting dead money on rent

Alarm bells when I see you talk in these terms!!! You are looking at this in a more emotional way than you realize.

After 3 years on a 35 year loan, you will have paid off less than EUR 7,000 from the original mortgage. Be careful in presuming that you will even be able to get the original price you paid for the property. AIB came out yesterday to say that they expect house prices to fall by 2% this year alone.

I think you are underestimating the risk of buying this property, and since it is only for the short term, I think you would be better off to continue renting for the moment.

 

[room305]

I think you are underestimating the risk of buying this property, and since it is only for the short term, I think you would be better off to continue renting for the moment.

The more think about this the more I agree. The transaction costs of buying/selling and the opportunity cost of losing FTB status (possibly more valuable than ever when a new government is formed) coupled with the general shakiness of the market don't make this a particularly good idea.

I don't see why anyone would buy a house with the intention of selling it again in three years.

 

[sheena1]

The transaction costs of selling are not that high. You will have solicitors fees and auctioneers fees but on the other hand you also have the risk of increased rents and planning permission being refused. FTB Status is not relevant if the OP is building a house. Three years is a long time and nobody can predict whether the house will be worth more or less then. The house is only worth what yuo want to pay for it. The OP wants a home of his own eventually and if planing is refused then presumably in three years he will buy anyway? Personally I would go for it!

 

[mayway]

I don't see why anyone would buy a house with the intention of selling it again in three years.

What about profit? I think that sometimes people can have an unhealthy attitude to property. The whole "must get onto the property ladder no matter what the cost" approach is extremely dangerous. But also the idea that you must hold onto property for ever or for at least a certain amount of time can become very costly.

 

[room305]

What about profit? I think that sometimes people can have an unhealthy attitude to property. The whole "must get onto the property ladder no matter what the cost" approach is extremely dangerous. But also the idea that you must hold onto property for ever or for at least a certain amount of time can become very costly.

I should probably have qualified that by saying I was speaking personally. I can see why someone might buy and sell within a three year period with the aim of making a profit just that personally, the risk/reward would rarely stack up.

The high transaction costs and illiquity of the market mean the price has to increase significantly in order to break even. Furthermore, you are buying on leverage which increases the risk as you can potentially lose more than you have invested.

 

[rebellad]

Alarm bells when I see you talk in these terms!!! You are looking at this in a more emotional way than you realize.

After 3 years on a 35 year loan, you will have paid off less than EUR 7,000 from the original mortgage. Be careful in presuming that you will even be able to get the original price you paid for the property. AIB came out yesterday to say that they expect house prices to fall by 2% this year alone.

I think you are underestimating the risk of buying this property, and since it is only for the short term, I think you would be better off to continue renting for the moment.

It's not even the whole money thing with renting, have had a lot of hassle with landlords over very minor things as I have been renting for the last 3 years and I think its time to finally bite the bullet...
With regards to the money side though isn't 7k off my mortgage better than having paid 7k off someone elses??

The transaction costs of selling are not that high. You will have solicitors fees and auctioneers fees but on the other hand you also have the risk of increased rents and planning permission being refused. FTB Status is not relevant if the OP is building a house. Three years is a long time and nobody can predict whether the house will be worth more or less then. The house is only worth what yuo want to pay for it. The OP wants a home of his own eventually and if planing is refused then presumably in three years he will buy anyway? Personally I would go for it!

The FTB status I hope wont come in to play as sheena1 says above, as the long term plan is to build, I could wait and go back for planning in 6 months time and get refused again and house prices might have picked up again and I would be kicking myself (also I know they may have fallen as well and I might be lucky but I can't see them falling too much)

 

[Afuera]

With regards to the money side though isn't 7k off my mortgage better than having paid 7k off someone elses??

You're not looking at the full picture here.

As an exercise, work out all of the monthly outgoings you would have to make should you buy (i.e. mortgage, insurance, furniture, transaction fees, ...). Compare this to the monthly outgoings you would have for the next 3 years if you were renting.

If there's no capital appreciation, which works out to be better after 3 years? How much capital appreciation is required for the buyers profit to match the renters savings? If you think this level of capital appreciation will be easily met, then you should buy. But don't forget that if you get it wrong, the debt you have leveraged could end up losing you a lot of money very quickly.

 

[rebellad]

You're not looking at the full picture here.

As an exercise, work out all of the monthly outgoings you would have to make should you buy (i.e. mortgage, insurance, furniture, transaction fees, ...). Compare this to the monthly outgoings you would have for the next 3 years if you were renting.

If there's no capital appreciation, which works out to be better after 3 years? How much capital appreciation is required for the buyers profit to match the renters savings? If you think this level of capital appreciation will be easily met, then you should buy. But don't forget that if you get it wrong, the debt you have leveraged could end up losing you a lot of money very quickly.

Thanks afuera these are all very valid points, just to clarify I suppose - the plan is to build in 3 years, this hopefully will happen - but with planning etc you may never know it might take longer or never happen ( hopefully it will), so it is more than just a stop gap or an attempt at profit making it will be our home for the foreseeable future. We would be secure enough in the money we are earning to cover any more interest rate increases for the time being.

Ideally if all goes well and we get sorted for planning etc and we have a newly built house in 3-4 years time we would like to hold onto this property to rent it out.

 

[Afuera]

just to clarify I suppose - the plan is to build in 3 years, this hopefully will happen - but with planning etc you may never know it might take longer or never happen ( hopefully it will), so it is more than just a stop gap or an attempt at profit making it will be our home for the foreseeable future. We would be secure enough in the money we are earning to cover any more interest rate increases for the time being.

Ok, I see. It's not strictly a short term purchase then. Provided that you are comfortable with the fact that you may have to live there a lot longer than anticipated, then at the current price (when compared to rent) it is not a bad deal.

Ideally if all goes well and we get sorted for planning etc and we have a newly built house in 3-4 years time we would like to hold onto this property to rent it out.

I still think you are looking at this as a bit of a profit making scheme. It's probably worth pointing out that if you were in negative equity in 3 years time and there was a housing slump, it would make it quite difficult to get the finances together to build your own home (should you finally get the planning permission granted). You could be jeopardizing that plan by making a bad decision here.

If you're comfortable with the risks though then best of luck with whatever you do.

 

[rebellad]

Ok, I see. It's not strictly a short term purchase then. Provided that you are comfortable with the fact that you may have to live there a lot longer than anticipated, then at the current price (when compared to rent) it is not a bad deal.


I still think you are looking at this as a bit of a profit making scheme. If you're comfortable with the risks though then best of luck with whatever you do.

Ideally we would have liked to have had no problems with our planning and be in the process of building the house we are going to live in for the rest of our days, but unfortunately nothing is ever easy!!! But of all the scenarios we have gone through - renting, buying, reapplying for planning etc this seems to be the most viable and we have put a lot of thought into all the options. If it all does go pear shaped in the morning, I would have no problem staying in this house we are buying for as long as we need to.

Thanks for all the replies guys, you have pointed out some very valid issues for me