Investing in dilapidated property

I am considering investing in a shell of a house in Dublin city centre. It is a former 2 bed cottage , the only structure remaining is the outside wall. The property has recently been repossessed by the bank and and is about to go on the market. I don't know what value the estate agents will put on it (thats not my question here as I know thats not allowed). I am not prepared to pay more than €50K for it as it will take that amount again to get it into a rentable condition. I have €40K in savings and am considering approaching my existing mortgage provider about getting a top up on my tracker, but telling the bank the purpose is to extend my existing home. Assuming I get approval ( I have good credit history-no other loans, secure job) are there other implications not telling the bank the real purpose of the top up ?
I have read other posts on rental yields and costs involved on rental properties, if I can get the property at the right price I do believe its a worthwhile investment
any advice would be appreciated

Have you compared it with twobedroom cottages in good condition ?
For example you get a pleasant two-bedroomed cottage in Stoneybatter for just over 100k. Whilst not exactly city centre it's a good rental area.

If you can get your shell for 40k and spend under 50k to get in top condition then it's marginally worth it. Any more then -no as you must factor in hassle and stress, (unless you're a builder of some sort).
And you won't be getting any rent for some months.
But it does depend exactly where it is. If it's in a more central or trendy area than Stoneybatter area e.g. Pimlico or even,marginally, Liberties then it may be worth spending more

Finally, you may think that you'll get far more rent letting a newly built twobed cottage compared to an established one in reasonable condition. I doubt you'll get an extra 2k p.a. for the brand new one ,unless you add some amazing features which of coruse will increase your building budget.

thanks oldnick

any advice on the top up mortgage ie funding required to put the property in rental condition ?

bigdog said:

thanks oldnick

any advice on the top up mortgage ie funding required to put the property in rental condition ?

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We were asked for three quotes for an extension we were thinking of before our mortgage company would process an application for a top up for renovations. No guarantee you get it even then.

Sounds like a very high-risk strategy to me, unless you have deep expertise in restoring derilict properties. What happens when your €50k restoration turns into an €80k restoration? What happens when you can't find tenants for 6 months, or 12 months maybe? Lying to the bank is not a great idea, and it is unlikely to succeed in the current environment.

bigdog said:

thanks oldnick

any advice on the top up mortgage ie funding required to put the property in rental condition ?

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Whatever about lying to the bank - although that sort of thing may have helped get us to where we are but the banks probably lied more to us - there is the prospect that you will not get a top up to your tracker. You may get another mortgage at a variable rate or they may try and get you to change all over to a variable. Trackers are no longer available. Also, you may not be able to claim the interest on the buy to let against the rental income if the mortgage is ostensibly for an extension to your PPR. Slim

thanks all for the advice (I have no morale issues about not informing the bank of true purpose of the loan as I know it wont be an issue for me to repay it from my salary - not dependent on rental income)
I know trackers are gone , interesting to see if they would insist on changing it to variable mortgage
thanks again !

The first issue here is whether this building is still a habitable house under planning law. If it isn't, you will need planning permission. Creating a new habitable dwelling almost from scratch isn't part of the Exempted Development Schedule.

The description you gave with only one wall standing suggests this is a ruin. It is unlikely that you will be able to "restore" such a dilapidated structure economically. You will have to clear the site.

This suggests you are paying from €40K up for a site. There may be legal fees, so allow €2K you'll need planning permission for say €2K and on top of that you will have site clearance costs of anywhere up to say €20K or more. €74K so far.

Then you will have to build a new house, and a compliant house in the current economic climate is from €80 a square foot minimum keeping it legal. Your Council levies will be €15K in Dun Laoghaire Rathdown. €89K and you haven't started to build.

Say you build a modest 1,500 sq.ft two storey detached house for €80K a square foot - that's €120K so you're looking at circa €209K without paying any professionals to take it to site or certify the monies.

Feel free to criticize my figures, but you have to tot up realistic figures for a project like this or as other posters have warned, you could end up sinking a lot of money into this project, for almost no return.

By that I mean when you tot up total costs of say €220K and you see what houses in the area are fetching on the open market, you might have no profit on a sale. Plus the Estate Agent will look for 1.0-1.5%!

Think very carefully about this one.


ONQ.

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All advice on AAM is remote from the situation and cannot be relied upon as a defence or support - in and of itself - should legal action be taken.
Competent legal and building professionals should be asked to advise in Real Life with rights to inspect and issue reports on the matters at hand.

So in worst case scenario you could still pay the mortgage from your salary. But are you sure your renovation costs are correct, what if it goes over?

Presumably the 'top up' will be a separate loan so you will be able to deduct the interest (at 75%) from your rental income.

Are you happy to be a landlord.

Why do you think the bank would not lend to you with an investment of 50K and a mortgage of 40K?

bigdog said:

thanks all for the advice (I have no morale issues about not informing the bank of true purpose of the loan as I know it wont be an issue for me to repay it from my salary - not dependent on rental income)

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I'm sure that many of those now facing repossession proceedings were equally confident of their ability to repay their debts. Life doesn't go according to plan. Marriages split up, people get fired, people get sick, etc etc.

ONQ

Many thanks , that is most helpful, the shell is currently an attached cottage on a residential street so I am assuming PP will not need to be reapplied for , its a modest dweling with sq footage well under 1500. The outside wall would appear to be OK (structurely sound ), but you are correct the costings need to be looked at it detail. In what circumstances are council levies applied ?

Bronte sorry not clear on your question " Why do you think the bank would not lend to you with an investment of 50K and a mortgage of 40K? "

The cleanest and cheapest way of getting the funds would be a mortgage top up, but I havent approached the bank on funding at all yet, hence I was looking for steer on AAM

Complainer I am sure you are correct , however I am not a risk taker and if I was in doubt at all on ability to repay this , it would not be a runner.