The interest payments are based on €200k (deposit of €22.5k provided) variable rate mortgage from KBC with the discounted rate of 4.18% A.P.R. Total monthly repayment is €968.22, of which the €412.67 is interest.
, are we bananas to considering buying a property for such a short time and then selling it after 1.5 - 2 years?
I'm pretty confident that I've covered all the associated costs of buying and selling and I have factored them into my calculations.
Any contributions or thoughts would be appreciated!
1) Your baseline assumption should be that house prices will remain constant
2) Even if house prices remain constant, there are transaction risks - you may overpay or undersell
3) It can be very difficult and time consuming to sell a property - allow for it to take 6 months.
So what is the ongoing cost of buying a €222,500 property for two years?
Stamp duty 1% : €2,000
Legal fees on purchase: 1% €2,000
Legal fees on sale: 1% €2,000
Auctioneers' fees: 2% €4,000
Mortgage interest@4%: €20,000 (2.5 years @4%)
Foregone interest on deposit, immaterial: 0
Total costs: €30,000
Cost per annum: €15,000
It is highly unlikely that you will be able to move into an apartment in walk-in condition. So you will have to factor in some money for doing it up. Maybe you can do this yourself, so it would only be the materials.
The risk.
You have to factor in the possibility that your selling price may be 10% less than your purchase price. So you are facing a loss of €22,000. As this is the full amount of your deposit, the risk is simply too high.
The future is not predictable. I have allowed for a fall of 10%. It could be more and you would be trapped in negative equity.
Other reasons not to do it
I assume you are first time buyers? If you buy an apartment, you will lose any advantages there are for first-time buyers. Currently a loan to value of 90% over 80% for subsequent buyers. The Labour Party is talking about bringing in some sort of subsidy for first-time buyers. If they do, there will probably be a claw-back if sold again soon after purchasing.
When you decide to go abroad, you may do so in a hurry e.g. in response to a job offer. You will be able to time this to the end of your lease or do a sub-let or do a deal with your landlord. If you have a house to sell, it takes a lot of time and could be hard to do from abroad.
When you go abroad, it would be great to have the comfort of €22k in your back pocket. It will tide you over until you get a job or your first pay. It will allow you pay the deposit on your new rental. If that €22k is tied up in an apartment back in Dublin, you will be a lot less flexible.
I don't know how you are doing this calculation. The only figure of relevance is the interest paid. €200@4% = €8,000 per annum = €666 per month.
I've included 5% interest that I would be losing on my deposit could I be investing it.
While this is immaterial to the overall calculations, you can't get 5% deposit interest at present in Ireland. This suggests to me that some of your other calculations may be unrealistic as well.
Brendan
Talk to the thousands of people who bought apartments for 2-3 years and who still have them. See what their opinions are.
A mortgage is a long term commitment. Buying it with a short term goal with the intention of flipping it carries massive risks. It may work, it may not.
I notice on your spread sheet you have run scenarios where the rent covers your costs. What about doing it the other way, where you have to subsidise the payments every month. Then if you go abroad and have to send money home, you will have to factor in foreign exchange fluctuations.
I know if I was living abroad, I wouldn't want to have to service debt on an apartment in Ireland.
Steven
www.bluewaterfp.ie
my parents have a few rental properties so they always have some spare furniture lying around so we would be hoping to take advantage of this.
We could take a loss of up €28,500 (€22,500 deposit and ~€6k saved against renting) and still walk away from it all at the end. This would allow for just under a 13% decrease in house prices over the next 2 years.
.
Yes to bananas.
Amazed to see Flipping is back.
I'm pretty confident you'e not covered all the possible things that can go wrong.
One positive thing I will say, if you're going to take a risk, do it while you are young.
Ok that's better, you've parents in the game, what do they think?
Like that you are prepared for the risk and that you've factored it in.
I think you'd be better off with seeing this as a long term investment. Were your parents Flippers?
and that it was very easy to get away with not declaring rental income and avoid paying tax on it.
Labour's first-time buyer subsidy could have an impact on our decision alright depending on what it would be, but what are the odds of this being available by the end of this year? We would be hoping to buy by the end of this year, if we haven't done so by then we won't be able to hang on to the property for at least 1.5 - 2 years so it will be too late.
True, you can't get anywhere close to 5% deposit interest in Ireland. I'm basing this figure on the performance of my portfolio over the past 3 years (that's as far back as it goes). I've got a split of around 55% equities to 45% fixed income; equities are generating an annual return of around 17% (inclusive of all broker fees, currency conversion and stamp duty but exclusive of CGT) and fixed income is generating a net annual return of just over 2%.
Yes it was, they are right, there are still some at it, very very risky now, actually downright stupid. I see this week 500+ landlords got caught by revenue. Average payment was 41K.
The rental yields currently can be atrocious. And the taxes are desparate now. Which is why so many investors are dying to get out.
If it's any help to you I bought, moved abroad shortly afterwards and took another risk. Probably a gamble. You can do that when you are young. I wouldn't do it now, but it was the right thing to do at the time.
Your parents are very wise to a) support you and b) let you make your own decisions.
It doesn't matter when it's introduced. It's what is in force when you are buying your family home in Ireland after a few years. Let's say you rent for the next two years. Then go abroad for 3 years. When you come back then, there may well be advantages for first time buyers. If you buy now for a short period, you will not be able to avail of them.
You have been investing during one of the best periods. 17% is way ahead of the long term averages. But it's not material in the overall context.
Brendan
you have to take risks to achieve greater returns
Yes you do. In doing so, you have to assess whether it is good risk or bad risk. Buying small cap, value stocks is higher risk than buying large cap growth stocks and there is a risk premium attached to it.
What is the higher expected return of buying a 1 bed apartment in dundrum? The higher potential returns are due to the borrowing on the property.
I don't see it.
Steven
www.bluewaterfp.ie
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