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plummeting_prices

Just Bought A Property....

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Hey everyone. Just thought i'd post to see what advice/criticisms i'd get here when I tell you that I've finally purchased my first house.

I am currently living in Peterborough, East Anglia but intend to eventually move back home to Ireland (could be a year, could be ten).

I do believe that UK houseprices are on the verge of meltdown which is why I've decided to continue renting here for now.

It is true that there is a huge bubble in Ireland too but I believe it is going to go on for a little bit longer. Interest rates are low (variable rate mortgages are available at 3.4%) and employment is high. Also, for some reason, there has never been a crash in Ireland.

Now for some figures, the house is a self-build (a relative is a property developer). He has given me a plot of land from a large plot he purchased for cost price. Therefore, instead of €37,500, which a similar plot of land sold for recently in the area, I have acquired it for €27,500. The plans my relative got drawn up are for two 2-bedroom flats (1 upstairs, 1 down) and the building cost has been estimated at €95,000 giving a total of €122,500.

I haven't seen any similar (2*2 bedroom flat) properties for sale so can't give exact figures for selling prices but the property has been valued at around €180,000 by my dads friend (who works in a local EA).

Including planning permission, I have been told it'll take around 10 months to complete before I can rent them out. Therefore, I need to pay the mortgage from my salary initially.

I am a 22-year old software engineer on £21,000 p/a which is about €30,450 p/a. This gives a salary multiple of 4.023. The mortgage repayments are €870 per month which I can easily manage from my disposable income.

Then, each flat can rent for €500 per month. This means that I'll be paying €870 out of my salary when both flats are empty, €370 when one is empty and will have €130 in my pocket when both are occupied.

There is no council tax or water rates in Ireland so I don't need to worry about this while flats are empty.

Am I missing something or have I been fortunate enough to "bag a bargain"

Thanks

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It sounds OK for you, can you let the second flat for 500Euros, is it in a location where jobs are plentiful?

Right place right time, and dont mind risk of some negative equity over a longer time span.

If the foot fits the sock, shove it in..eh

Think of yield and capital gain/loss as totally separate.

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Am I missing something or have I been fortunate enough to "bag a bargain"

Unfortunately not all of us are lucky enough to have wealthy relatives who can give us cut-price land, otherwise we would do what you have done in a heartbeat.

Edited by IPOD

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Doesn't sound too crippling on paper.

Having said that the Eiregentina economy cold conjour up quite a few surprises over the next decade one sidestep from the low rate wonderland and it could be a whole different ballgame B) .

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hey, thanks for the positive replies - i was expecting loads of negative "what have you got yourself into" type comments.

The yield is enough to pay the entire mortgage (15 year repayment) with a little extra to cover maintenance. Voids I can handle from my salary.

With regards to capital loss - the house will cost me about 30% less than value initially. Hopefully there's not too much capital gains as it'll make it more difficult to move up the ladder when I move to Ireland, but 1 step at a time, eh.

With regards to cut price land, it isn't the thing thats helping me most. It's the fact that this is a self-build. Its true my relatives experience is an advantage but you should check out Interactive Investor's website. This is the UK's leading investment website which states on this page that you can save around 35% by building yourself

I'm not sure if there's any truth to this but I'm gonna look into it a bit further (as should anyone with an interest in self-building). Another advantage of this is that you can design your own property with your chosen room sizes, etc. You could even attach a small, self-sufficient flat to rent out. it may require more effort but it's probably worth checking out..

Edited by plummeting_prices

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I've very little outgoings. £21000 equates to £1320 per month after tax.

My rent is £250 (shared accomodation), food £150 and travel £50. Those are the essentials which come to £450 leaving around £850. Haven't got no debts - in Ireland we don't have university fees (at least not that I know of) yet.

€870 equates to £600, leaving £250 per month for beer.. lol

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Plummeting Prices

It is true that there is a huge bubble in Ireland too but I believe it is going to go on for a little bit longer. Interest rates are low (variable rate mortgages are available at 3.4%) and employment is high. Also, for some reason, there has never been a crash in Ireland.

Well I won’t pass judgment on your investment decision just point out that house prices fell in Ireland from 1980 to 1993 (inflation adjusted). I am curious why you are so sure there is a housing bubble in Ireland and what impact the bursting of the bubble will have on you and the market and your perceptions of the possibility of rental growth in the investment market in the near term.

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house prices fell in Ireland from 1980 to 1993 (inflation adjusted)

Duplex, out of interest may I ask where you got this information from? The only statistical record of Irish house prices I have been able to find so far is the ESRI house price index, which only goes back to 1996.

http://www.esri.ie/pdf/HPI2005Jul_Table.pdf

Edited by IPOD

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Sounds a good deal. But always remember its a business. Re-evalute your investments as values change, I'm sure you could predict the top of the Ireland bubble easily enough - then might be a good time to sell!

Good luck. :D

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Duplex, out of interest may I ask where you got this information from? The only statistical record of Irish house prices I have been able to find so far is the ESRI house price index, which only goes back to 1996.

CSO based stats if I remember correctly, quoated in a report that I'll try and find.

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...

The mortgage repayments are €870 per month which I can easily manage from my disposable income.

Then, each flat can rent for €500 per month. This means that I'll be paying €870 out of my salary when both flats are empty, €370 when one is empty and will have €130 in my pocket when both are occupied.

...

but if you take into account insurance, maintainance, and other expenses, will the investment 'wash its face'? Or will you have to subsidise it with the your own income.

If the latter (and I think you're dangerously close to that) then you're relying on captial gains, in a market which in your own words is a massive bubble. Or could rents go down? You may be right about the bubble continuing, but are you sure?

If it's really 30% bmv then why not just flip it?

Otherwise I think it's a high risk for a low reward.

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Duplex, out of interest may I ask where you got this information from? The only statistical record of Irish house prices I have been able to find so far is the ESRI house price index, which only goes back to 1996.

http://www.esri.ie/pdf/HPI2005Jul_Table.pdf

In John Calverley's "Bubbles and How to Survive Them", on p77 he has a table of house price busts in OECD countries, according to this Irish real prices fell 26.2% between 1979-86

His source is - Goldman Sachs, Global Economics Weekly, April 30th, 2003, p.7

The persistent myth that Ireland has never had a period of land/property price deflation is due to:

a. no data

b. The 1979-86 bust being in real, not nominal terms (I understand that nominal prices rose)

I'd also add that maybe there's no memory of price falls, even among the older generation, because we've never been 'rich' enough to care about these things... until now.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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