What happens to rents during a recession up? down? stay the same?

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Paddyboy0576

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I have a chance of buying a property in the centre of cork from my uncle.

I would be able to renovate the property and bring it up to standard myself but the worry i have is this.

I have the money to buy the house and renovate it.

Because the house is near UCC i would be able to rent the rooms to students consistently.

What I am afraid of is what if the rent drops over time? If that happens and or interest rates increase again....I wouldnt be able to meet the repayments.

Can anyone give me an idea of how rents react in a recession?

Am i right in saying that when people cant get loans to buy houses the rental market will maintain itself?

Thank you in advance for your help
 
Paddyboy0576 said:
I have a chance of buying a property in the centre of cork from my uncle.

I would be able to renovate the property and bring it up to standard myself but the worry i have is this.

I have the money to buy the house and renovate it.

Because the house is near UCC i would be able to rent the rooms to students consistently.

What I am afraid of is what if the rent drops over time? If that happens and or interest rates increase again....I wouldnt be able to meet the repayments.

Can anyone give me an idea of how rents react in a recession?

Am i right in saying that when people cant get loans to buy houses the rental market will maintain itself?

Thank you in advance for your help
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i think you are assuming students want to live in houses instead of the load of apartments built - is this true, also students only rent 8/9 months of the year - thats not consistent rent, Is there parking - most students would request this now as well as professional renters..
 
A big uni like UCC will always attract a large number from far away who need rental accomodation. However, colleges seem to be building more student accomodation and in general students prefer to be on-campus with other students......

Like any investment you will need to budget for all sorts of potential challenges like interest rate hikes - problem tenants - maintainance - vacant periods...

Is your uncle giving you a special deal? And will the price be attractive in a years time...

From my experience of student life is that accomodation near the college is always the most sought after by students.
 
Thanks for your relpy. Yes there is hopping demand at the moment. I attribute this to the fact that the house id md way between the city centre and the university.
The number of new student apartments doesnt seen to have affected the rents at all. I have no parking but i suppose there is still lots of people who attend uni but dont have a car?
Can i fix my mortgage for a prolonged period folks to prevent against any further interest rate rise and for the peace of mind...?
I wonder about a comparison with other european countries who have experienced 'down times' - is there a trend regarding rental rates?
Thanking you.
 
Paddyboy0576 said:
Am i right in saying that when people cant get loans to buy houses the rental market will maintain itself
Click to expand...

But if people aren't buying then people aren't selling - I understand the number of properties available for rent on daft has tripled in the last year. From there it is simple supply & demand...
 
Thanks rmelly,
Yes i suppose its all about location & supply & demand. Im sorry about the rethorical questions but im just afraid of things going sour. thats all. Does anybody know if i can fix my proposed mortgage for a few years for peace of mind?
Thanks again.
 
Only your mortgage provider will be able to answer that one for you definitively. There are plenty of fixed rate products out there from anything from 1 to 10 yr fixed.
Would this also be your PPR where you are renting the rooms out while living there or have you a separate PPR?
 
To get back to the original question.
In a downturn such as we are experiencing now, rents will intially stay steady but are unlikely to rise with inflation as they tended to do heretofore. However as the numbers of emigrants reduce and return home, and unfinished schemes come on line, then supply/demand economics kick in and rents are likely to reduce. This will be triggered by small investors who take the view that any rent is better than no rent, and price cutting will start. Of course there will be additional renters available from the pool of people who are waiting to buy, but it won't change the fundamentals much.
We saw it all before, in the eighties when property prices collapsed. Nowadays there is a better selection of available property for rent, so no reason to expect that rents will do anything but fall.
 
You can see how the number of properties for rent on the Daft website has soared from 5,000 in June 2006 to 17,000 now at the following website:

http://daftwatch.atspace.com/ (scroll down a bit)

The number of properties for rent in Cork has risen from approx 400 to 1,800 over the same period.

http://daftwatch.atspace.com/daftcounty_15.html

This increase in supply is only going to mean that rents will have to reduce.

You can see how the number of properties for sale has also risen on this website. If developers cannot sell new properties, they often try to rent them out, thereby increasing the supply of rental accomodation further.
 
Paddyboy0576 said:
I have a chance of buying a property in the centre of cork from my uncle.

I would be able to renovate the property and bring it up to standard myself but the worry i have is this.

I have the money to buy the house and renovate it.

Because the house is near UCC i would be able to rent the rooms to students consistently.
Click to expand...

What kind of return are you expecting to get from your investment, by comparison to (say) putting your money on deposit?
 
How many bedrooms does the house have and what sort of rent were you expecting?
Rents in Cork have softened somewhat.
City Centre locations fared better in the last slight downturn (back in 2001), in that they generally stayed rented (unlike places further out such as Wilton, Bishopstown etc.) - though the current downturn is likely to be scales of magnitude worse.
I would expect softening of rents of c.10-15% over the next two years and then rents to stay put (i.e. be eaten by inflation) for a number of years after that - but I am rather pessimistic on the state of the economy.

What would that do to your calculations?
 
Thanks Superman, you sound like you have a sound knowledge of the cork rental market. Here are my firgures so if you get time you might let me know what you think?

Purchase Price €300,000
Stamp €12,250
Renovations Fixtures & Fittings €62,000
Professional Fees €5000
Misc €5000

My investment €75,000 (loan from parents)
Cost of carrying loan while renovating (4 months) €9233.08
Mortgage Amount € 393,483.08
Monthly Repayments €2362.23 - €28346.76 pa

I have carried out 3 test run adverts & have go a massive response. The rent i quoted is as follows;
3 double ensuite rooms - €115 per week - €17,940
6 single rooms - €100.00 per week - €31,200
Total Rental Income € 49,140 pa

Gross profit €20,793.24

So these are my calculations. Fell free to disect any of the above. Maybe I am missing something. I have renovated houses on contract for other investors in the past but not for myself. Maybe someone can help out and offer some guidance and outline any pros & cons?
Thanks
 
Complainer said:
Tax?
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He has stated "Gross" profit and has listed allowable tax deductions so I dont think this is forgotten.

Sidzer points out that students prefer to be on Campus. This is not necesarilly true.
I have a unit in Liverpool rented to older uni students. The demand is consistent for this unit, from the older groups of students as they DO NOT want to be on campus due to the more hectic party etc and distractions that come with it.

These older students tend to be more focussed on the quiet life in achieving their exams etc than the fresher party life style and in my opinion are far better tenants. They are less likely to have massive parties and puke every where and trash the place !
They also tend to stay over the summer from y experience. My father has a unit also near by and is experiencieng the same as I have described.

You should focus on this group IMO, but the large house share you describe is more geared towards individual letting ( more hassle ) or larger groups which by very nature are harder on a property.
 
Paddyboy0576 said:
Thanks Superman, you sound like you have a sound knowledge of the cork rental market. Here are my firgures so if you get time you might let me know what you think?

Purchase Price €300,000
Stamp €12,250
Renovations Fixtures & Fittings €62,000
Professional Fees €5000
Misc €5000

My investment €75,000 (loan from parents)
Cost of carrying loan while renovating (4 months) €9233.08
Mortgage Amount € 393,483.08
Monthly Repayments €2362.23 - €28346.76 pa

I have carried out 3 test run adverts & have go a massive response. The rent i quoted is as follows;
3 double ensuite rooms - €115 per week - €17,940
6 single rooms - €100.00 per week - €31,200
Total Rental Income € 49,140 pa

Gross profit €20,793.24

So these are my calculations. Fell free to disect any of the above. Maybe I am missing something. I have renovated houses on contract for other investors in the past but not for myself. Maybe someone can help out and offer some guidance and outline any pros & cons?
Thanks
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Your numbers assume 52 weeks per year occupancy for each and every room. This isn't unlikely, it's impossible, especially when renting to students.

40 week occupancy equates to a rental return of 37800, still a healthy return on investment but you've also to account for the fact that you'll be renting out 9 rooms. Over the course of a year that equates to a lot of work.
 
Anybody considering taking on a mortgage of €393K, as well as taking a loan of €75K to buy a property when property prices are plummeting, the worlds banks and stock markets are in a crisis and the Irish economy is going into a recession must be living on another planet or cloud cuckoo land!
 
Steve D said:
Anybody considering taking on a mortgage of €393K, as well as taking a loan of €75K to buy a property when property prices are plummeting, the worlds banks and stock markets are in a crisis and the Irish economy is going into a recession must be living on another planet or cloud cuckoo land!
Click to expand...

that was my thoughts also

why not come back to this in a year's time OP?
 
Are you a quick fix to a problem your uncle has? Have you verified the market price of this property?
 
Steve D said:
Anybody considering taking on a mortgage of €393K, as well as taking a loan of €75K to buy a property when property prices are plummeting, the worlds banks and stock markets are in a crisis and the Irish economy is going into a recession must be living on another planet or cloud cuckoo land!
Click to expand...

I suppose the proopsed profit doesn't matter at all?
 
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