I would imagine that Boi have included this 2% drop,all my rental properties reflect a 22% increase in rent over the last 3 yearsErr, and the graph plainly shows shows that property doesn't inflation over any 5-10 year period.
Err, did you read the Daft report showing rents have started falling and are now 2% lower since january
[broken link removed]
Picking and choosing what you read and choose to believe is one thing but passing that off as fact is another. There may well be 2 sides to every arguement but more often than not the facts and figures speak for themselves.
http://daftwatch.atspace.com/
I fully agree with you. The fact that the head of the Irish Mortgage Corporation mentions people expecting to make a killing in two years suggests that the mentality was prevalent though.Anyone who bought a buy to let expecting a return in two years is very naive. But sure some people made a killing on it and fair play to those who had the guts to get in buy, wait and sell at a hefty profit. It's a high risk strategy. But not everybody will succeed at this and many will get burned. Property ideally is a long term investment.
Plummeting property prices suggests that it will soon affect more than those that only bought in the last two years. If an investor is not getting their mortgage covered every month by their tenants you would have to wonder what upside they have (if any) to remain in the market now.Going back to the OP's point: Plummeting property prices don't matter if you are not going to sell.
Falling rents won't affect you if the rent still covers the mortgage/costs
Ditto rising interest rates. Also I'm sure some people can afford to pay the mortgage even if they have no tenants. The people that are worst affected are those who bought in the last two years, paid over the odds, in a bad location and have no room for manoeuvre on interest rates/rent decreases and are now losing their jobs.
I agree that there will always be a need for property rentals. It does need to be quantified though. If 70% of our population already owns their own home, what amount of rental properties do we need to accomodate all the would-be renters out there?People will always need to rent but you have to have property in a good location, one should have factored in the possibility of a rent decrease and mortgage increase into your calculations before making the decision to purchase in the first place.
The debate about property beating inflation seems a bit of a red herring to me. For investors using borrowed money there is no need for it to do so.property prices have a long history of beating inflation over any 5-10 year period
your rent covers your mortgage
I would imagine that Boi have included this 2% drop,all my rental properties reflect a 22% increase in rent over the last 3 years
rents between March 2006 and March of this year have risen by 22pc
Dr McLaughlin believes this will put downward pressure on inflation and prompt the European Central Bank (ECB) to lower rates, just as it did during the last cyclical slowdown in 2001-2003.
Currently, the base rate is 4pc and each quarter point cut would reduce the average monthly mortgage repayment by €50.
"As much as the market mood has changed, we still believe the repo rate will fall in 2008, in response to a steady slowdown in economic activity and retain our forecast of a half-point reduction, albeit pushing the first cut into the third quarter," said Dr McLaughlin.
You are confusing house price inflation and consumer price inflation.The debate about property beating inflation seems a bit of a red herring to me. For investors using borrowed money there is no need for it to do so.
For example you buy a house for €100k in 2008, your rent covers your mortgage and inflation runs at 3% per annum for 15 years (I don't want to be acused of 'short termism'). By 2023 your house would be worth €156k which is a €56k profit albeit in 2023 money.
The debate about property beating inflation seems a bit of a red herring to me. For investors using borrowed money there is no need for it to do so.
For example you buy a house for €100k in 2008, your rent covers your mortgage and inflation runs at 3% per annum for 15 years (I don't want to be acused of 'short termism'). By 2023 your house would be worth €156k which is a €56k profit albeit in 2023 money.
Here's the article
[broken link removed]
No source is given and the figures are 3 months out of date.
Given the fact that the rest of the article is based on the premise that the ECB will be lowering rates when the ECB has stated that they will be raising them I don't give too much credibility to the rest of the conclusions drawn from it. The article was published the day after the ECB stated they would be raising rates.
I dont see the red herring here,do you mean that the profit of 56,000 was not worth the effort?
err... there was no profit of 56,000. That's exactly his point. Because 156,000 in 2023 are the same as 100,000 in 2008. Hence: No profit.
Recommend to read this: http://en.wikipedia.org/wiki/Inflation to start with.
Of course: if you have rented it for say 6 K a year (increasing 3% each year) than you would have made 6% profit. Minus costs like interest on mortgage, costs for keeping the place up and running, insurance, etc.etc.etc.
how do you make out that there was no profit,when in the example there is a 56,000 euro profit
No, his point was the effect of gearing. The nominal mortgage debt does not change. Sell the house for 156K, clear mortgage of 100K, free profit of 56K. Remember, you had a mortgage on the property, you didn't stump up the price of the house in cash.
On the contrary - it's well worth it. My point is you don't need to prove that houses must rise in value faster than CPI to be profitable in the long term. To push the example I gave a bit further house prices could rise by 2% v. CPI 3% and you would still show a profit of €21k after 15 years.I dont see the red herring here,do you mean that the profit of 56,000 was not worth the effort?
This is assuming no void periods or expenses on the property of course. Isn't the main theme of the article linked to by the OP that this is much more likely to be a problem going forward?On the contrary - it's well worth it. My point is you don't need to prove that houses must rise in value faster than CPI to be profitable in the long term. To push the example I gave a bit further house prices could rise by 2% v. CPI 3% and you would still show a profit of €21k after 15 years.
On the contrary - it's well worth it. My point is you don't need to prove that houses must rise in value faster than CPI to be profitable in the long term. To push the example I gave a bit further house prices could rise by 2% v. CPI 3% and you would still show a profit of €21k after 15 years.
The debate about property beating inflation seems a bit of a red herring to me. For investors using borrowed money there is no need for it to do so.
For example you buy a house for €100k in 2008, your rent covers your mortgage and inflation runs at 3% per annum for 15 years (I don't want to be acused of 'short termism'). By 2023 your house would be worth €156k which is a €56k profit albeit in 2023 money.
More bad news today for investors
Rents down by [broken link removed].
[broken link removed] quite substantially, irrespective of what the ECB does.
Find me a property at current prices that covers mortgage, expenses and voids periods and you may have a point.
Rental yields in Ireland are currently around 3.5% so the investor probably has to contribute about 2.5% per annum to cover interest, expenses and void periods.
If, as you have assumed, inflation is around 3% then a risk free interest bearing account should yield around 5.5% over the same.
If the investor saved the 2.5% pa and invested it in the risk free account they would have 56k after 15 years.
If they invested the money in equities then after 15 years they would have about 70k profit.
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