Would institution lends any amount if the property pays for itself?

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FeuFollet

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Here is my conundrum:

I understand that a mortgage broker or bank would lend me about 4 times my income (i.e. say 200K) towards property; that isn't very much. Now let's say that I wanted a buy-to-let property for 800K (all costs included in this figure).

Would the bank/broker lend me the money if I could show that the property 'pays for itself'?

E.g.:

Monthly Mortgage repayments @ 4% = 2700
Monthly Rental income - minus charges = 3000
Cash flow (positive!) = 300 p.m.

Would this be acceptable? Or would the cash flow have to be a lot more? Any expert advice? Similar experience by anyone?

I'm a first-time property investor with only savings to show and little more in terms of guarantees like other property.

Thanks
 
d2x2 said:
Here is my conundrum:

I understand that a mortgage broker or bank would lend me about 4 times my income (i.e. say 200K) towards property; that isn't very much. Now let's say that I wanted a buy-to-let property for 800K (all costs included in this figure).

Would the bank/broker lend me the money if I could show that the property 'pays for itself'?

E.g.:

Monthly Mortgage repayments @ 4% = 2700
Monthly Rental income - minus charges = 3000
Cash flow (positive!) = 300 p.m.

Would this be acceptable? Or would the cash flow have to be a lot more? Any expert advice? Similar experience by anyone?

I'm a first-time property investor with only savings to show and little more in terms of guarantees like other property.

Thanks
Click to expand...

Who covers the rent when its not rented ? (at that price it could be on the market for a while)

What if interest rates go to 5% ?
 
A bank will usually only lend up to 80% of the value of an investment property

This is the first half of the basic criteria

The second half relies on repayment capacity

So in your situation you would have to have a depost of €160k plus stamp duty

If you do have €200k plus in savings you should not be looking at putting it all into one asset (be it property or anything else)

I would not advise anyone to invest in the situation you outlined, even if a bank would agree to it

[email protected]
 
Thanks to stuart and jhegarty for your replies.

More details:
* the rental is for multiple units in a property i.e. the rental of each unit would be an affordable €300 to 400 p.m.

* Regarding the deposit and stamps: without going near 100% finance some banks offer, I would consider other sources of financing than my own assets.

The advice to not invest all savings into one class of assets is a good one although it looks like very few people in Ireland abide by it (and could they ever buy aproperty if they did!)
Having said that, doesn't every new homebuyer put all their savings into one asset?
 
d2x2 said:
Thanks to stuart and jhegarty for your replies.

More details:
* the rental is for multiple units in a property i.e. the rental of each unit would be an affordable €300 to 400 p.m.

* Regarding the deposit and stamps: without going near 100% finance some banks offer, I would consider other sources of financing than my own assets.

The advice to not invest all savings into one class of assets is a good one although it looks like very few people in Ireland abide by it (and could they ever buy aproperty if they did!)
Having said that, doesn't every new homebuyer put all their savings into one asset?
Click to expand...

you will always have a tenant (you) in your own house :D
 
d2x2 said:
E.g.:

Monthly Mortgage repayments @ 4% = 2700
Monthly Rental income - minus charges = 3000
Cash flow (positive!) = 300 p.m.
Click to expand...
What about your tax liabilty on your rental income?
 
>>> What about your tax liabilty on your rental income?
In the above example consider 3000 (rental - charges) to be the next after charges, fees, insurance, taxes.

My question is not so much how will I cope with the income I get out of the property (and I do hope that it puts me in a position to pay hundreds to the Revenue, that would be a good sign!) but what would the bank's objections be to my borrowing their money.

All the answers so far have been very helpful, thanks to the collective brains of AAM!
 
d2x2 said:
>>> What about your tax liabilty on your rental income?
In the above example consider 3000 (rental - charges) to be the next after charges, fees, insurance, taxes.
Click to expand...
Are the figures you are quoting the real ones for your case? If so, are you really, really sure that they are realistic? I'm thinking about the old adage that 'if it seems too good to be true, it probably is'. If you post the gross figures (i.e. before charges, fees, insurances, taxes etc) it might help us to understand your situation. How many months vacancy each year have you allowed for? Do you own your own home? If so, do you have any equity here that you could use?
 
The figures quoted are not real ones, RainyDay but pretty much the type of deal I'm after!
 
I would be surprised if a bank would advance 100% finance for any investment. Have you made any inquiries since your original post in this thread?
 
If you find a place where you can get those sort of returns d2X2 do let the rest of us know please!
 
There are properties that will give returns that you are talking about but they will not be either basic or passive property investments

www.gwd.ie will have pre-63 properties that would fit the criteria you are talking about

I have no connection to them and am also not purporting that any pre-63 property is a good or bad investment

I checked quickly on unison.ie and found the following

August 26th 05 - 3 RETAIL 5 apts income 70,000 pa 695k Tony Dunne 2830033 ( Irish Independent)

Here is the link
http://www.unison.ie/classifieds/property/index.php?classified_category=51&keyword=&per_page=10&classified_title=&residential_sub_cat=&search_classifieds=Find+A+Property
(Not sure if it will work)

Despite the name, I have no connection to this person either

100% mortgage cost 2316 (cost at 4%, ignoring stamp duty and fees)
rental income 5833 (70,000 divided by 12)
monthly excess 3517

This is the most basic review and does not allow for any other costs at all. I have no opinion on this property

But there was a post asking for the returns you quoted and here they are (even slightly better)

[email protected]
 
Hi Dusty, I would like to know the answer to that as well. AFAIK and according to [broken link removed] SBP article the only thing that pre '63 allowances offer is that you can offset the cost of maintaining and upgrading the property and the interest on the loan to buy it. This might have been a big thing in the Bacon report era but I don't see the big deal now.
The returns do seem to be very good but I would say it would be hard work.
 
It relates to properties that were rented accomadation prior to 1963 when the planning acts came into force

Certain aspescts of planning regulsations do not apply, e.g no of kitchens per proeprty

Helath and safety requirments are still relevent though

It doesn't relate to tax incentives

[email protected]
 
Just to add banks usually require the cashflow from the property is over 140% of the interest on the loan.Pre63 properties should yield higher returns than other income properties eg:3 bed semi.
I totally agree that you should spread your investment for example commercial property gave greater returns tahn residential properties in the last year or two.
 
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