Young Family with Investment Property , unsure.

F

frederic

Registered User
Messages
13
Age: 31
Spouse’s/Partner's age: 31

Annual gross income from employment or profession: 50k+ bonuses ( up to 5k )
Annual gross income of spouse: 40k

Type of employment: e.g. Civil Servant, self-employed - Professional ( IT ) , wife works for government

In general are you spending more than you earn or are you saving? We have a small amount going into a saving fund , and also both have decent pensions. But we are usually just covering both mortgages .

Rough estimate of value of home Our House - 400k , Investment 350K
Amount outstanding on your mortgage: 400K , Investment 294k 5.99 % , 60k@ 5.85 ( this was used a remortgage used to pay the deposit on our new house )

What interest rate are you paying?

400k 3year fixed 4.99%
294k 5.99 % , 60k@ 5.85

Other borrowings – car loans/personal loans etc

Car Loan for 15K from a parent , no interest.
Personal Loan with Cormarket 7.9% 5k over 3 years.

Do you pay off your full credit card balance each month? Usually.
If not, what is the balance on your credit card?

Savings and investments: Pension , Investment property and Savings .

Do you have a pension scheme?
Yes
Do you own any investment or other property?
Yes
Ages of children:
1 year old and one on the way
Life insurance:
yes

What specific question do you have or what issues are of concern to you?


We recently bought an investment property , we went interest only ( variable ) The mortgage was barely being covered , and now interest rate has increased and we are 200 euro down a month , if one person moves out we could be down as much as 600 euro a month . we have one baby under 2 and another on the way . Considering the amount of worry and time involved in the investment property , is it worth it or are we better off looking for another way to invest our money..
 
We bought the investment property in 2004 . It was our original home , then we moved closer to our workplaces , which is the new house we currently live in .

As for negative equity , we had it revalued for the 60k remortgage in march , i did a check on myhome and daft and it is still at about the market rate ..
 
You have borrowings over 7 times your combined annual wages. You have financially stretched yourselves to the limit and with another baby on the way, you are going to find it extremely difficult to make ends met. I reckon, the best option is to try and sell the investment property.
 
I agree with the above post. Which iresponsible lending practise allowed you to borrow over 7 times yr current income?!!!

Does the bank know that the deposit for your new house came from an equity release? Je wizz, you made a very risky descion that you might have to live with for a long time.

Sell and cut yr losses. Then you can sleep at night. I hope you are lucky enough to sell and repay the mortgage. At least yr borrowing would then be only 4 and abit times yr joint income.
 
I have no problems sleeping at night .. not that stressed out about it , if it comes down to it , we simply sell , or hang on to it at a loss ... our combined wages are in excess of 90k , the bank not only gave it to us . they recommended it ... We were very unsure about keeping the original house as an investment , but he reassured us that we would be fine and explained that there would be no problem renting it out for the value of the mortgage.

I think we will speak with a estate agent this weekend and see what our options are.
 
You dont mention creche/childminding fees, with 2 children and your wife working I assume they will be quite high.
If it were me I would try to sell the investment property as soon as possible at a reasonable market price to get it shifted.
 
My wife is back to work for 8 weeks and then off again for baba no.2 , she gets a year off for baby due to the nature of her work , so she is returning to work and then off again , wasnt planned by us this way , just happened like that , so we should be avoiding creche fees for the immediate future ( next year anyway )
 
I don't think there are many "simple sells" out there at the momment!!

You suggest worst case senerio you will lose 2,400-7,200 euros a year covering the mortgage on the investment property. May be you should look at saving this amount just in case? Not a great investment really as it's giving you a negative return but i guess that was yr risk to take.

If you do keep the rental property because you can't sell, how are you saving to repay the principle loan amount given its interest only?

I would also change my bank for providing such a stupid recommendation.
 
frederic said:
the bank not only gave it to us . they recommended it ... We were very unsure about keeping the original house as an investment , but he reassured us that we would be fine and explained that there would be no problem renting it out for the value of the mortgage.
Click to expand...

That was back in the good old days in 2004 when interest rates were at a record low, things have altered alot since.
 
frederic said:
the bank not only gave it to us . they recommended it ... We were very unsure about keeping the original house as an investment , but he reassured us that we would be fine and explained that there would be no problem renting it out for the value of the mortgage.
Click to expand...

From what you say though you are down €200 a month on an interest-only mortgage (before considering any other expenses) so that doesn't cast your banks advice in a very good light.

What area is the investment property in? Are properties there selling & renting at the asking price? If prices drop much further will you be in negative equity? How would you cope with any vacant periods?

IMHO, there are too many uncertainties involved with an investment property that is losing money both from an income & capital point of view. As the other posters say, with a young family you should give serious consideration to selling up.
 
webtax said:
From what you say though you are down €200 a month on an interest-only mortgage (before considering any other expenses) so that doesn't cast your banks advice in a very good light.
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I agree , keep in mind that the house is no where near negative equity , it has 290k left on it and it is worth 350k ( it is a 4 bed fully detached house )

What area is the investment property in? Are properties there selling & renting at the asking price? If prices drop much further will you be in negative equity? How would you cope with any vacant periods?
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it is in Navan , close to the town but still in a very quiet area . Considering the M3 opening , the new hospital being opened , and Quinn direct basing its european headquarters in Navan , we thought we would have no problem getting rental , but this will meaning hanging on with the house for at least another year .

The value would need to drop by around 55k to put us in negative equity , and houses in the area of this standard are going for this price. Vacant periods would be a big problem , we are flying by the seat of our pants as it is , but if there is a strong possibility that things will even out in the next year i think we would be willing to hang on to it and weather the storm , but maybe we are being too wishful .

IMHO, there are too many uncertainties involved with an investment property that is losing money both from an income & capital point of view. As the other posters say, with a young family you should give serious consideration to selling up.
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I think this might be the answer , but take a look over my responses above before commiting to this , at the end of the day , you have to take a risk to get a return , but if this is too much of a risk i think we are ready to cut it loose .
 
To be honest with a young family you cant really afford to be taking risks. In a year when your wife goes back to work you will have childcare to pay on top of already paying out on the investment property and could find yourself in a very messy situation.
Also assuming your wife gets paid maternity from her job for 26 weeks thats 26 weeks of the year on one income so even this year could be a struggle.
 
Also assuming your wife gets paid maternity from her job for 26 weeks thats 26 weeks of the year on one income so even this year could be a struggle
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She gets paid for the full year .
 
Frederic,

You are taking a very sensible approach by considering all your options. My advice is for you and your wife is to first think about what are your investment goals i.e. are you investing so that you can take early retirement, career break/reduce hours, children’s education fund etc. It becomes easier to plan once you know what your goals are. You are both young and have potentially 70 years of earning left between you before you retire(!) so you have plenty of options. Your have complementary public/private sector jobs and your wife will have the option of working flexible or reduced hours while still retaining a great pension and benefits.

There is no doubt that, like a lot of people, you have all your investment eggs in one property basket, and mortgage repayments are going to be your main financial challenge for the next few years. Certainly have a chat with a couple of estate agents - if you can sell the investment property and reduce your mortgages then this might be the best option. But be aware that you will be at the mercy of a very negative market - banking lending has dried up for now and the few people who are considering buying are finding they cannot get mortgages. Also, the large overhang in housing stock means that it will take a few years to clear the oversupply so be aware that it could be difficult to sell for several more years.

If selling is not an option then there are a few things you can look at. You could look at extending the term of your mortgage to reduce the monthly repayments. You could talk to your bank about going interest-only on the mortgage on the house you live in. The goal here is not to run away from your debts but to reduce your monthly repayments for, say, five years until rising salaries and inflation make the mortages more manageable. In five years time the banks will hopefully be giving out mortgage loans again and the property market will hopefully be more balanced between buyers and sellers, and you can sell on at that stage. In the meantime, make sure your investment property remains very well maintained, so that it is a place that people will want to rent and also, in time, to buy. Don't rely on agents to find tenents for the house, do the leg work yourself.

The worst case scenario is that you are going to have a few tough years financially, but you have a good level of income already and your best earning years are ahead of you. There are plenty of threads on how you can cut back on day to day spending. I prefer to concentrate on alternative ways of generating additional income. As you are in IT, do you have any options for overtime, nixers, moonlighting etc? You have no spare income for investing at present but that will change in time so, if you are serious about investing for the future, then now is the time to make yourself financially literate. The Irish property boom is over but there will be lots of financial opportunities over the years and there are lots of great books and resources out there that can help you make the most of them. Although it probably doesn't feel like it right now, the whole process you are currently going through is actually a useful learning exercise for the next time you make an investment. Its good to get the views of banks and investment brokers, but be wary of taking their advice - their job is to sell financial products and those products may not suit you.

Good luck with whatever you decide to do, and much more importantly, best of luck with baby no. 2.

Ret
 
Thanks for careful and considered response , we have arranged a meeting for next week with estate agent and will see what comes out of that , leave the options open ..
 
Income = ~ 90+k

frederic said:
Age: 31
Spouse’s/Partner's age: 31

Rough estimate of value of home Our House - 400k , Investment 350K
== €750k

Amount outstanding on your mortgage: 400K , Investment 294k 5.99 % , 60k@ 5.85 ( this was used a remortgage used to pay the deposit on our new house )
== €754k

Car Loan for 15K from a parent , no interest.
Personal Loan with Cormarket 7.9% 5k over 3 years.
== €20k
Click to expand...

frederic said:
I agree , keep in mind that the house is no where near negative equity , it has 290k left on it and it is worth 350k ( it is a 4 bed fully detached house )
Click to expand...

I can't work this out. To me you are in negative equity.
Total property value 750k, borrowings attached to properties 754k and that's before other borrowings.

Am I wrong here?

IMO you are in deep trouble.
If at all possible, sell the investment property asap.

You seem a bit blasé about the whole thing. Am I reading something wrong?
 
SidTheDweeb said:
Income = ~ 90+k

I can't work this out. To me you are in negative equity.
Total property value 750k, borrowings attached to properties 754k and that's before other borrowings.

Am I wrong here?

IMO you are in deep trouble.
If at all possible, sell the investment property asap.

You seem a bit blasé about the whole thing. Am I reading something wrong?
Click to expand...

we owe 360k (400k was the entire price -40k deposit = 360k i forgot ) on the house in dublin we live in , this is our house and we have no problems making this mortgage .

We are only short 200 euro PM on rent in the house in Navan , and there is a prosperous rental market there . Also keep in mind the opening of major roads , businesses i alluded to earlier ( did you read that ? ) ...

so the mortgage for navan is covered with the exception of 200 euro , we easily make the mortgage for our dublin house , how are we in DEEP TROUBLE ?

We have 3 viewings set up for this weekend for the last room , which only became vacant last weekend ...

The reason for the post was to see if it was a wise investment considering our circumstances , we are far from being in Deep Trouble ( yet ) , and of course if we lost tenants , our jobs etc.. that would be a problem ..
 
What is the term of your mortgages, and your montly repayments? Also what is the montly rent, is the property in the best part of Navan for renting? What do you mean by if one person moves out you would be down 600, do you rent by the room or is 600 the rent/mortgage? In relation to be stressed about renting, you must treat it as a business, you should calculate that the rental income will be 10 months per annum (for void periods), how would a drop in rents affect you, how would an increase in interest rates affect you - that's some of the things you should be looking at. You've got high salaries and one goverment job so I'd be more positive about your situation, I understand you've no savings with all the dramatic changes recently in your life (house plus move plus new house, plus baby, plus new baby) but you need to start on the savings now.
 
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