Re-financing to invest

[KeyserSoze5]

Just a few questions I have about reinvesting.

Bought an apartment back in Sept 05, borrowed 92% and have been paying interest only since then.

The apartment has risen by a minimum of 50k since then so myself and gf are thinking about getting a 2nd place.

My questions are:
How do I go about working out how much we could have to spend on the 2nd place?

If we move into our 2nd home (which will a new home), will be liable for stamp duty on this home or the original? or any?

I've got more questions but would like to have those cleared up forst so that we have a good idea of what our financial situation would be.

 

[woods]

How do I go about working out how much we could have to spend on the 2nd place?.

You will have to ask your mortgage provider if they will give you more money and how much. I would expect that the answer would be no. If your income was enough to repay the current loan then why are you on interest only.
Loans have to be repaid at some time.

If we move into our 2nd home (which will a new home), will be liable for stamp duty on this home or the original? or any?

You can not be liable for stamp duty on the original house because you already own it but you will be liable for tax on the rental income so factor that in to your calculations.

 

[Glenbhoy]

2nd home if new will be unlikely to incur stamp duty.
However, i cannot see any bank giving you a mortgage for another property, and to be honest, in your circumstances they will be doing you a favour.

 

[thewatcher]

You can not be liable for stamp duty on the original house because you already own it but you will be liable for tax on the rental income so factor that in to your calculations.

He will be liable for the stampduty clawback,as he would obviously be renting it out within 5 years of buying it.

 

[CCOVICH]

1. Whether you are liable for stamp duty on the new home depends on the size of the floor area. If it is under 125 sq. metres, you will be exempt from stamp duty if you are owner ocupiers.

2. As the watcher rightly says, you will be liable for stamp duty at the rates investors would have paid at time of purchase on your first property if you decide to rent it out.

 

[flyer4]

I am in a similar situation whereby i purchased an apartment in a rapidly developing location late 2005. I initially bought from plans so the property is still under construction & not due for completion/signing until Sept/Oct 2006. It seemed like a good deal at the time & proving to be great deal in recent weeks, well on paper anyway. For example, a new Shopping Centre is under construction & planning approval has been granted for luas-line extension to the area. Furthermore, rental is quite strong in the area. I also learned recently that a new development (less than 1/4 mile away) is launching with almost identical property types for €360k, where i paid €110k less for mine. Assuming that i may realsie similar growth i would anticipapte at least €100k equity by 2007. So, my questions are:

1. How do i go about using this equity to invest in a second home?
2. I am a lone applicant & I earn 55-60k, will a bank entertain me?
3. What can i borrow? 92% again?
4. What about short-term (1-2 years) interest only option?
5. When can i borrow, assuming that by Jan 2007 i will only be 4 months into my initial mortgage?
6. Do i need to consider Variable rather than fixed rates when drawing down on my initial mortgage?
7. Do i need 10% savings or can i use the strength of the equity alone?
8. What about booking deposit for the 2nd home?
9. Stamp Duty?
10. Any other areas i need to consider before i make an offer for a 2nd property? tax etc.

I would appreciate any feedback from more experienced investors.

 

[asdfg]

1. Whether you are liable for stamp duty on the new home depends on the size of the floor area. If it is under 125 sq. metres, you will be exempt from stamp duty if you are owner ocupiers.

You may also be exempt from stamp duty if over 125 sq metres

From Revenue website

Over Floor Area of 125 sq. m



New houses or apartments which are purchased by an owner occupier (including a first time buyer) where the total floor area exceeds 125 square metres are charged with duty, at the appropriate residential property rate as per the table above, on the site value (excluding VAT) or one quarter of the total value of the house including the site (excluding VAT), whichever is the greater, subject to clawback. The size of the floor area must be certified by a qualified architect, engineer or surveyor

not due for completion/signing until Sept/Oct 2006

I hope you and the builder/developer have signed and paid the 10% deposit.

 

[CCOVICH]

Partial exemption if the floor area is over 125 square metres.

 

[Glenbhoy]

Kaiser and Flyer - I cannot see any bank going anywhere near either of you - as for the rationale ye both are employing - i despair, do they not teach even a little prudence/conservatism in those ACA lectures anymore Kaiser?

 

[KeyserSoze5]

Do they not teach even a little prudence/conservatism in those ACA lectures anymore Kaiser?

Of course they do Glanbhoy, sure prudence is one of the major area's we are thought. However, there's always an element of risk involved in investments, no matter what type they are. This is an option that myself and my gf are considering. (we both own the original apt I talked about so there's 2 incomes to take into account).

and to be honest, in your circumstances they will be doing you a favour.

Care to elaborate on this please?

 

[flyer4]

Glenbhoy - I can accept any critisism positive or negative but my understanding is that the purpose of this website is to thrash-out concerns in return for logical advice, of which you have offered none. Banks are plentiful & greedy and apply probabilities when approving mortgages based on concrete information. If you can offer any rational or factual answers to my questions to clarify this process it would be much appreciated, whereas your opinions really have no relevance.

 

[Howitzer]

Glenbhoy - I can accept any critisism positive or negative but my understanding is that the purpose of this website is to thrash-out concerns in return for logical advice, of which you have offered none. Banks are plentiful & greedy and apply probabilities when approving mortgages based on concrete information. If you can offer any rational or factual answers to my questions to clarify this process it would be much appreciated, whereas your opinions really have no relevance.

`

1. Any bank will only lend you what you can afford to repay. It will not take potential rental income into account, certainly for a first time investor. Just because there is X amount of equity in your property doesn't mean a bank will lend you that amount of money.

2 ... Without 1. or a significant rise in wages in the last 6 months, all other points are irrelevant.


If a bank will lend you the cash then invest away, but like I said, it doesn't matter how much equity is in your property there is only so much cash a bank will lend anyone. Anyone 6 months into a 100% mortgage or one with a long term (> 25 years) is unlikely to attract much interest from any financial institution, bar maybe a subprime lender.

 

[Afuera]

we both own the original apt I talked about

From the figures you've given, you actually don't "own" anything. You've still got 92% of the original price to pay back to the bank.

 

[flyer4]

Howitzer - Thanks for the advise but just to clarify, no bank will consider rental income whatsoever even if you have a property rented & signed contracts with tenants?

 

[Howitzer]

Howitzer - Thanks for the advise but just to clarify, no bank will consider rental income whatsoever even if you have a property rented & signed contracts with tenants?

Then it becomes a business loan and they will look to;

1. Business plan. I guess your list of Qs form a basis for you to work out the numbers. If the numbers don't work they won't touch you but you may get lucky.

2. Their past business relationship with you. 6 months interest only mortgage wouldn't cut it with me but you may get lucky.

3. Your past success in this field. 6 months interest only mortgage wouldn't cut it with me but you may get lucky.

4. What you current tax compliance is.

5. Have you registered with the ptrb. Can't get mortgage interest relief without a registration number.

 

[flyer4]

Howitzer - I must add that I was approved for a 92% mortgage, which is what i wanted, re-paying interest & capital, for this more recent property. I am not a FTB but have made profit in previous sales in the property market, really by default. My aim is to have 2 properties together (1 rented, possibly interest only) with pension fund in mind. You lead me to believe that for me its a long shot & unlikely ... what about a joint venture?

 

[Howitzer]

what about a joint venture?

Err, I'm already taken thanks. Joking.

That'd be more likely but what about simply investing in a property fund then? You could start doing this now rather than waiting till, what, January?

 

[flyer4]

Then it becomes a business loan and they will look to;

1. Business plan. I guess your list of Qs form a basis for you to work out the numbers. If the numbers don't work they won't touch you but you may get lucky.

Okay, that I can put together.

2. Their past business relationship with you. 6 months interest only mortgage wouldn't cut it with me but you may get lucky.

I have 3-4 years history of mortgage payments (not FTB), never Interest only, doesn't appeal to me on my main property.

3. Your past success in this field. 6 months interest only mortgage wouldn't cut it with me but you may get lucky.

two quick sales (less than 18-24 months), propably 20-30% return.

4. What you current tax compliance is.

PAYE, but i work on drawings (planning) on a personal level, for which i am not registered. <10k p.a. so not much point.

5. Have you registered with the ptrb. Can't get mortgage interest relief without a registration number.

 

[KeyserSoze5]

Ok thanks for the advice.

 

[Glenbhoy]

So, my questions are: I am a lone applicant & I earn 55-60k, will a bank entertain me?
I don't think so, at any rate not for another year.

Do i need to consider Variable rather than fixed rates when drawing down on my initial mortgage?
We all do, but you I don't think it'd be best, there are penalties involved with fixed mortgages which mean they are very inflexible.

Do i need 10% savings or can i use the strength of the equity alone?
It is possible to use equity.

Stamp Duty?
Possible clawback, or investor rate stamp duty on the second apartment.

Any other areas i need to consider before i make an offer for a 2nd property?
Piles of tax issues - see property investment.

Lads/Ladies,

I apologise if I was a little short earlier. There are numerous things to consider here.
Flyer - you first:
You do not actually own anything or have any equity, you will not have any equity until you can satisfy a bank that the property you own is worth what you think it is. (at present, you don't own it and will not own it until you have completed the purchase). It's difficult to make comparisons with other developments locally because:
a) Stamp duty considerations - this will be payable on yours by a purchaser so deduct that
b) If there's plenty of new apartments on sale in the locale they are more desireable than a second hand apartment, so deduct some more from your prospective valuation.
Then when you have a valuation - say 340K, you paid 250K, your income is 55K. Therefore 90K equity with an income of 55K - say net income of 38K, monthly is 3200, essentially a bank will support total mortgage repayments of about 1400 max, you will get credit for about half of the rent you think you'll bring in say 850 per month - half of this is 425, bringing you with income to service mortgages of approx. 1900 - you're on your own from here, but you can figure out how much of a mortgage that'll give you - i don't reckon it'd be too much, and I also don't think a bank would touch you - whilst they may be greedy, they don't want to expose themselves too much to smaller apartments on the peripherary of the city.
Keyser, your problem is more straightforward - why don't you start to make capital repayments towards your mortgage, interest only is for investors, not buyers. I cannot see a bank touching you unless your gf has a very large income. Why the rush to become a property mogul, the market is high, the fundamentals may not support much more. For further info go check the daily rants we all have on 'the great financial debates' section!!