Buying 2 houses simultaneously...interest only

[rtod]

re: buying houses...

one final thought, have you factored in the probability that the government will bring in a non-ppr tax, or even scrap mortgage interest relief(did this in the uk over 2 yrs, 100% yr1, 50% yr2, 0% yr 3) and the extra amount of 42% income tax liable?.

 

[EAMONN66]

I have to say I'm surprised that there has only been one positive comment about my project. Feckin hell lads ye're a negative lot. Where are all the risk takers?!

i think your project is a good idea. given your non-rental income, i dont think there is any real risk. apart from that you have relatively low purchase prices , low stamp duty , an existing tenant and you also have the tax angle covered as well as possible with the 100% mortgage.

ive noticed recently that practically every request for advice on this forum receives loads of replies of the"balanced portfoilo" or "why dont you invest in equities instead" variety. although these are no doubt well intentioned, it is becoming a little tiresome. if people wanted general advice about investing , they would specifically ask or post elsewhere.

 

[Tommy]

ive noticed recently that practically every request for advice on this forum receives loads of replies of the"balanced portfoilo" or "why dont you invest in equities instead" variety.

Has this anything to do with the fact that comparitively few people ever bother to reply to queries? If more people did bother surely we would all enjoy a greater variety of replies.

although these are no doubt well intentioned, it is becoming a little tiresome.

Speaking for myself here, when I reply to a query I am simply stating my personal opinion. I am not an entertainer. Nor do I see any point in taking a particular stand simply to be provocative/ interesting/ postive/ negative/ popular/ controversial etc.

If you find AAM tiresome, then perhaps you should look for amusement elsewhere

 

[ClubMan]

I've said it before but it looks like I need to say it again - in general the most prudent course of action for most people is to build a well balanced portfolio of investments/savings catering towards their short, medium and long term needs and comprising a mix of investments with different risk/reward profiles. In the absence of detailed personal information justifying an alternative strategy (as is the case with many queries posted here where only partial information is provided) this general rule of thumb approach to investment must be restated because many people are obviously not aware of it. Obviously those with special needs/circumstances may find a different (e.g. less or more "risky") strategy appropriate to their specific circumstances. Unfortunately the generally accepted prudent course of action applicable in many cases is not at all sexy, exciting or ground breaking. This does not make it any less pertinent. I would echo most of Tommy's sentiments above. As some football manager or other once said when his team was criticised for not playing entertaining football: "If you want entertainment, go see the clowns".

 

[EAMONN66]

who said anything about entertainment or amusement.
my criticism was directed at a particular repetitive theme on this forum alone which i think is counter to the the forums very subject. i was not referring to your posts, tommy.
i also did not say that i found AAM tiresome.

i for one, do attempt to reply to queries as constructively and as relevantly as my limited experiences allow.

clubman, if you went into a garage to buy a new car , would you appreciate a lecture on how much better off you'd be with a bike.

 

[ClubMan]

Re: Re: Buying 2 houses simultaneously...interest only

clubman, if you went into a garage to buy a new car , would you appreciate a lecture on how much better off you'd be with a bike.

Where did anybody do the equivalent of this in this specific topic? In fact, where has anybody at all "lectured" contributors on any topic? Drawing a parallel between making major financial investments and buying cars is trite and pointless in my opinion. Remember that people choose to post here of their own volition in order to get feedback. If some of that feedback toes the "prudential line" and challenges the opinions of those looking for more racy strategies then so be it. I certainly make no apologies for that. People who seek feedback are free to disregard the opinions voiced by me or anybody else if they like and pursue a less prudential approach to investing if they so choose and/or decide that this is more appropriate for their specific circumstances. However to suggest that somebody who reprises the prudential line is lecturing or is being somehow "negative" is ridiculous. While many of us may be well aware that building a mixed/balanced portfolio is a generally accepted prudent approach applicable in many situations, there are obviously others who do not judging by many of the contributions over the years. Those who don't like being reminded of the prudential approach to investing are free to skip over such contributions and ignore them.

 

[EAMONN66]

Re: Re: Buying 2 houses simultaneously...interest only

I actually agree with your advice. Why not put it in key posts. it would certainly save you a lot of typing.

 

[ClubMan]

Re: Re: Buying 2 houses simultaneously...interest only

I think that more or less the same message is encapsulated in other places like the AAM Guide to Savings & Investment but it's often the case that when one links to resources such as this people don't bother reading them whereas they will read direct contributions to "their" topic. On the other hand, you are correct, maybe I should look at reducing my typing burden.

 

[investor100]

interest only

Thanks Eamonn for your positive comments. It's reassuring that an objective observer sees merit in my plan. It's the opposite to the earlier response that my exposure is really E350,000 plus stamp duty as that is the amt that will be owed to the banks. Somehow I can't see any bursting bubble reduce the price of my house from E175,000 to E0. Ok if property prices fall 20% thats 34 grand.It's a risk I feel is worth taking because I've been listening to stories about the property bubble since I bought my first house on a cold winter's day in Feb 1998.
I do find that the contributors have been very guarded and cautious but I guess I can see where they're coming from. However I guess I'm a kind of guy who likes to take a little risk. We'll all be dead long enough lads.
investor100

 

[Tommy]

Re: interest only

It's the opposite to the earlier response that my exposure is really E350,000 plus stamp duty as that is the amt that will be owed to the banks.

This is an amazing statement. I NEVER said that your "exposure" was €350K.

I DID say the following, in response to your statement that "For this my initial outlay would have been E18,000 as I am getting 100% finance."

Although you may have only €18,000 at present, your initial outlay on this proposal isn't this sum but the actual amount you are to commit to the investment, approx €350k plus stamp duty. By borrowing to finance a €350k investment you are exposing yourself to a (theoretical) €350k risk - not an €18k risk.

You replied

Fair point Tommy.

From my viewpoint, It's more than a little offputting to see you at this stage attempting to twist around what I said to mean something quite ludicrous that I neither said nor meant to say...

 

[investor100]

Re: interest only

I apologise if I've annoyed you Tommy. It wasn't intended.
I understand that as you say I'm 'exposing myself to a theoretical' risk of E350,000. And therefore it is a fair point. However the point I was trying to make was that in reality the total theoretical risk/exposure is unlikely to become a reality no matter how bad things go. Do you understand what I mean?

 

[carriglee]

Re: interest only

Hi Investor100

I would have to say that if you're looking for feedback then I would agree with most of the other posts re. balanced portfolios, exposure, etc. and so won't reiterate their points.

I had a quick look at the figures for the 175,000 euro property generating a rent of 625 euro pm. Back of the envelope stuff says that the yield is about 4.3% gross, which is not bad by current Irish residential standards. However, when you take loans and expenses into account, I have a feeling that you slip into negative cash flows (possibly even with an interest only mortgage). Therefore, your investments will be cash suckers. This investment strategy may be suitable for certain types of individuals but not others. For example, age profile is important. If you're nearing retirement age do you really want to subsidise your assets into retirement? Many people wouldn't or indeed couldn't afford to due to the recent performance of pensions. Secondly, if you're not near retirement but may wish to ease off on work to spend more time with family, looking after parents, travelling, leisure, etc. then this type of strategy may make such lifestyle decisions more difficult or indeed impossible. Thirdly, there is a risk from one's lifestyle and investments being dependent on a single income stream. Such a strategy is sometimes compared to the castle made from stacked cards i.e. if the base goes then so does everything above it. However, the positive note is that it can suit some younger investors who have a strong (and fairly guaranteed) income stream in a stable property market. Realisation of profits will be based on cashing in (or refinancing) capital gains. For myself, I'm an advocate of the property market but would rather see assets financing themselves and therefore I find the yields a bit too low. I would bracket anything else as speculation and would restrict the amount of money in this pot. All in all, it is extremely difficult to give balanced advice without knowing your situation in detail. Perhaps, an independent legal advisor could assist.

Regards,
Paidi

 

[Tommy]

Re: interest only

Hi investor100

Thanks for your kind feedback. I hope I didn't over-react to your original post.

My point wasn't that you were ever going to be exposed to a real or theoretical risk of €350k, but that €350k (not €18k) is your initial outlay and the benchmark by which you should evaluate the investment.

In evaluating the eventual performance on your investment, it is much more meaningful to measure your gain/loss by reference to the total capital investment than to your original seed capital.

For example if the properties' value increase by 5% overnight your gain is approx €17k. In other words your original investment of €18k has almost doubled. However this is only relevant if you realise your gain by selling the assets at that point. If the opposite happened and the assets fell by 5% overnight, it would be meaningless to say that you have lost all your original investment - unless of course you were forced to sell just at that point. The reality, in that scenario, would be that you would still own assets worth €332K and would stand to benefit accordingly by future increases in value from that point on.