Jesus Wept!!!!! What happened to personal responsibility!!!

[MickB]

I think I can honestly say, in all of my humble 30 something years on the planet, I have never gotten so hernia-inducingly infuriated with the utter absurdities, drivel and claptrap being pontificated by people with absolutely no earthly clue about the implications of what they are saying. Some of it I believe is truly wicked, born out of begrudgery and self-serving cronyism; more still born out of plain ignorance and stupidity. Most of it would be mildly amusing if not hilarious, except for the truly dire state our country is in. What I find most irritating is that most interviewers have been exposed as simply people with attractive sounding voices, who do not have enough knowledge themselves to spot when the interviewee has just spluttered out a canard of such magnificence, that a 5 year old could roast it for dinner.

This candidate occurred over the weekend, which would nearly have given my family a group discount at beaumonts coronary care unit:

The GRA's call for mortgage forgiveness
I have a lot of respect for most Gardai......I think they should be well rewarded due to the nature of their job so please don't take this as an attack on them in general. But their representative organisation is calling for the government to pass emergency legislation to have the outstanding balance on all mortgage balances reduced by 20%.

http://www.gra.cc/gra_calls_for_mortgage_relief.shtml

HELLO!!!!!! WAKEY WAKEY!!!!!!! The outstanding mortgage debt of the country is in excess of €300bn. Meaning they want us to take an immediate bad debt hit across the board of €60bn+. Wahey!!!!!!!! Lets all go and have a mortgage reduction party!! Lets reward people who borrowed irresponsibly!!!!! Oh, and lets raise all our personal tax rates by about 40% to cover the immediate doubling of the national debt that will ensue!!! You ****ing retards!!! How in the name of god can an organisation appoint someone whose solution to our problem is so utterly fatuous???? Is that the best they can do???

In case you hadn't guessed, I'm with Rick Santelli on this one

http://www.youtube.com/watch?v=bEZB4taSEoA

I don't mean to overly pick on gardai, this is merely the latest example of the attitude being replicated all over the place at the moment. People in general still have no real understanding of the scale of our problem. They seem to feel that we can somehow design a fiscal code that miraculously caters for all little interest groups so that somehow, a FAT CAT out the there can pay. They want someone else to blame.

When are people going to get it? When are they going to realise that TENS IF NOT HUNDREDS OF THOUSANDS OF PEOPLE ARE GOING TO EITHER LOSE THEIR HOMES OR SPEND THE REST OF THEIR LIVES IN NEGATIVE EQUITY OR DEBT PENURY!!! Its going to be awful!!!! Its going to be shocking!! But there is no way to sort it out so that each interest group can be protected.

The only thing that can happen is to deal with the public finances & taxation in general terms and let the chips fall where they will. Across both Public and Private sectors, thats going to mean that people will ultimately have to be responsible for bad decisions they personally took during the celtic tiger years. People who overextended themselves and got 35 years mortgages at ludicrous salary multiples based on short term earnings power, without ever askign themselves the question of whether they could be certain they could earn that money for the entire duration of the mortgage, are going to have to live with the consequences of that decision.

So while I feel mildly sorry for the Garda who got a mortgage of €1m on the basis that his earnings temporarily spiked to €150k per annum due to overtime earned policing certain lands to make sure that a foreign oil company weren't bothered by locals with genuine concerns for their own safety, I really am not sorry at all. You should have known what "Overtime" meant before you borrowed up to the hilt.

None of this by the way, is to absolve the Government, Regulators, Bankers etc for their overarching role in this whole fiasco. The whole episode proves why a strong central bank (unfortunately we lost control of interest rates when we joined the euro) and strong fiscal policy is required to control populations at a macro level, because individuals will arbitrage any opportunity they can find. However, when government fails, people still have to be responsible for their own actions.

I don't even know why I'm writing this to be honest. I think its because I feel like a member of a threatened species with no representation at all in the fscked up social partnership that is currently running the country. A high earning PAYE worker who has paid his fair share of taxes and has no way to avoid them. Part of that 6.5% of PAYE workers that pay 50% of the PAYE taxes. I am hated by the media simply because of the amount of money I earn; the fact that I got to where I am by entirely fair means and due to many years of study, graft and the sweat of my own brow is irrelevant. I have not done anything reckless, nor borrowed ludicrous sums of money. In fact I have no debt at all. I have no overseas property, unlike many public sector workers I know. I never believed in the celtic tiger and have positioned myself accordingly. I have this inescapable feeling however that I am in the income group now that is going to be expected to bail out the developers etc that earned tens of millions while paying no tax. I am going to have to pay to keep public sector workers that have absolutely no function whatsoever in their jobs and cushy pensions. I am a member of a suffering silent majority of this country that all political parties have deserted.

So tell me this, Mr GRA. If we forgive 20% of all mortgage debt tomorrow, can I just have a €600,000 flat cash payment for the mortgage I could have had last year but chose not to on the basis I didn't believe it was a prudent decsion?

I just needed to get that off my chest.

[Ming the Merciless]

Sadly I don't think the GRA are alone. Yeah I'm coming around to your view, and that is despite my natural optimism.

I must dig up a very interesting graphic on negative equity from the US which I think is our future.

More later.

[Ming the Merciless]

I love this one:

"Mr Stone said the Government should immediately pass legislation that would reduce the value of mortgages on residential dwellings by 20 per cent.

He said it would show that the Government had “the interests of the people of Ireland closer to their heart than the interests of big business”."

How can the people deal with this when their leaders are coming up with such startlingly irresponsible twaddle?

The Gardai deserve their leader, they elected him. He has the potential to do more damage to the State than the Shinners could ever have done before they, ahem, embraced democracy.

[Ming the Merciless]

Here we are, from my old buddy Paul Kedrosky (anyone care to prepare a map of Ireland/Dublin 12 months' hence):

http://img.photobucket.com/albums/v723/McKennaJ/Octane%20pics/090214mortgages1-1.jpg

[MickB]

It will look very similar Ming. There is a half hearted attempt out there at the moment to try to arrest the slide in the housing market, but it is doomed to failure.

Most people aren't aware of the macro forces at work in the economy at the moment, but there are a few fundamental shifts taking place in the lending environment that will snowball in the next 12-18 months and house prices (in Dublin in particular) are going to get hammered. I suspect anyone buying after 2000 on a 90% mortgage will be in negative equity.

[El_Marko]

When are people going to get it? When are they going to realise that TENS IF NOT HUNDREDS OF THOUSANDS OF PEOPLE ARE GOING TO EITHER LOSE THEIR HOMES OR SPEND THE REST OF THEIR LIVES IN NEGATIVE EQUITY OR DEBT PENURY!!! Its going to be awful!!!! Its going to be shocking!! But there is no way to sort it out so that each interest group can be protected.


Couldn't agree more.

It's really refreshing to hear someone speak the truth on this, and your posts are really appreciated.

The country is in utter denial about how sickeningly bad the situation is, but it will soon get to the stage where people will have no option but to get their heads out of the sand.

[DMZ]

To be honest, there is always a risk associated with talking down the economy and I would expect a government to present a reasonably upbeat picture. The reason we're pumping lots of liquidity into banks is to get the wheels rolling again. Panicking about one's circumstances is not really what we want.

Having said that, living in a dreamworld where naming or nailing some fat cats will magically solve everything is far from ideal either.

[Toad]

I suspect anyone buying after 2000 on a 90% mortgage will be in negative equity.

Most already are.

[MickB]

Dmz I am finishing a post on that issue (why pumpng the banks with liquidity won't solve those problems) based on 12 years of experience. I just wanted to make sure I had my thoughts organised before posting.

[cannyboy]

I suspect anyone buying after 2000 on a 90% mortgage will be in negative equity.

Let not go too mad here.

I don't know what business ye guys are in, but there are plenty of people doing relatively ok at the min.

Only a relatively small percentage of the population is up to their balls in grief at the moment, and I'll suspect that will stay that way for people who are sensible with their finances.

Sooner of later the ECB is going to realise that if the US is going to inflate it's way out of this mess, they may as well join the party, in order to keep some sort of relationship between their currencies somewhere stable - everyone else will follow.

Couple of years of 15% inflation would do the world of good in wiping out any negative equity for those who are in bother.

Fix your interst rates while you can.....Printing money will solve the big issue. We can deal with the smaller ones then...

Clean up the corruption that is an open wound in our nation today, demand higher standards from those in positions of power, along with some semblance of an education in the area where they are supposed to be experts in.

Privatize many of our semi state disasters, break up the quangos that are a blight on our society, and who knows - you'd probably have a fine country in a few years. Bit more civic engagement from the masses, and bobs your uncle.

Then, we could pool our resources into making a machine to improve the weather.

A quick glance at a history book will demonstrate that our history has in general, been a series of disasters. We're well used to creating them, and have a knack for getting out of the in the end.

[eoin]

Its only negative when you want to sell do aint it!
Sit tight a while id say!

[MickB]

Canny

I'm not going mad. Anyone who bought after 2000 in those conditions will be in negative equity. Whether or not thats a problem for them and whether or not they are forced to sell is a different matter.

I also the think link between EU Stimulus via hyperinflation and individual countries benefitting is not clear: one of the things that got us into this mess is the fact we had no control of interest rates while sharing a currency but not sharing taxation policy. We still don't share those things so weird things are likely to happen if the EU just starts printing money.

Mick

[Jack]

My mate "Johnny" is currently chewing over an interesting proposition where his employer would like him to think about upping sticks and move from their London office after 8 years and go to their office in Dublin on a permanent basis to sort out some strategically important stuff for them.

Prior to this recent development, Johnny has been following the 'interesting' economic events in Ireland particularly over the last couple of months with some trepidation.

In particular, the cost of living and property costs (ie eye watering rent) have Johnny concerned/flomuxed as to what a sensible comparable is to what he currently enjoys (relatively speaking). Johnny reckons the cost of living is probably 50% more and rent v his current UK mortgage repayment is more like 100%+ more (easier to benchmark). So what is the view over there on those assertions how that is likely to change in the next 12/18 months ?

J

[T.J.]

I suspect anyone buying after 2000 on a 90% mortgage will be in negative equity.

Interesting.

Age 25 I bought a 3 bed semi for €165k in 2001 with an 88% mortgage as that was what I saved to date and I felt it was as well to get on the ladder with the way things were going. I lived in it until 2006 when I married.

So the 3 bed semi was rented from 2006 (to the same Irish tenants, I dropped this month unprompted from €930/month to €880 to remain competitive as I'm very happy with them), and less than €130k left on the mortgage now.

I fixed interest for 10yrs @ 4.75% when I started renting, held tough on raising my mortgage repayment (a reasonable move to offset the greater rental income with repayment interest) as I felt rental market would have to drop in the unsustainable climate of 2006/07/08 and while raising the mortgage repayment is easy with the bank, dropping it is tough.

So I'm not too concerned in rental incomes dropping too much, but am interested in if it will actually go into negative equity with it, which is why I see your comments as interesting Mick. Personally I don't think it will go to negative equity - I reckon its value should drop to around €200k give or take €10k.

I suppose the next question is should I sell? I don't want to, as it is a long haul investment for me (15Yrs+) and I think, bar catastrophe, it should tip away paying for itself through the current climate and out the other side. And it should release some nice money at the end. You could argue on the opportunity cost of the 'investment', based on circa €100k interest repaid over the duration, inflation etc etc against what house values will be like then though.

I'd be interested, having presented the figures, in what some of you would have to say on it.

[MickB]

TJ

I did mention "Dublin in particular" as its a special case. The prices got way out of whack in Dublin relative to the rest of the country. I assume the house you refer to is not in Dublin.

I have a friend, similar to yourself, with rented properties all over the country. A lot of his stuff (outside Dublin) is still relatively ok (I actually think he should be losing money when looked at in a pure return sense, and his figures are buoyed by the fact he doesn't declare his rental income for tax purposes which is another story), particularly anything more than 50 miles from Dublin which never really got too crazy in price terms anyway.

However, his Dublin stuff is way under water. He is holding on to it as most of it is still paying rent, and he couldn't sell it anyway. But he reckons that anything he bought in Dublin post 2002 would be negative now if he had to sell it.

I am therefore predicting as the effect of increased taxes starts to hit peoples incomes next year, that further downward pressure on rents will occur and 2002 will get pushed further back.

As regards the decision to sell, I guess the question is how much further prices have to fall, and whether the marginal return you are making in rental terms over the period will offset the fall in value. I have no crystal ball.

Facts more than likely are, if you had sold the house in 2006, you would be better off now. If you so wished, you could probably have sold the house, banked the profit and bought it again now for much cheaper. You have lost money therefore. (this is not a criticism btw, noone has a perfect crystal ball nor can predict the exact top or bottom of any market)

The question is, looking forward to 2011, will the same lookback test look similar? I wouldn't be brave enough to predict that in your particular circumstances but I suspect in Dublin the answer will be yes.

[flyingalexf68]

TJ, fair play for buying a house at 25. And fair ply for being clever.

A problem that many people that bought in '00 - '02 might be in is that they re-mortgaged the house to 'free up' some of the hidden value. Every 2nd ad on tv was for a finance company willing to give you money for whatever you wanted to buy. An extension, a holiday, a new car, a holidy home in Spain etc, and (not that I have any exact figure) I recon far too many people did that. They go in with their €185k mortgage and come out with a €100,000 in their back pocket and God knows how big a mortgage. €300k? €400k? Over 35 more years??

And the money they got was indeed spent on worthwhile investments like home improvements, but they also bought that lovely BMW 318i. A great car, but a little painful to have to pay for it for 35 years.

I know some people who did this. And now, instead of having a lovely house with a 23 years left on their 30 year mortgage of €185k, they have 34 years left on their magical new mortgage. Now what happens to them when they lose their job???

I'm kind of glad I didn't buy a house ten years ago because I'd be exactly the type to have gone in for the free money re-mortgage. And I would have flittered the moeny away on a nice car, and holidays......

[MickB]

TJ one piece of information needed to work this out is how much would the house sell for now, realistically??

Also who picks up expenses (esb, gas, insurance) etc

[T.J.]

I wouldn't consider myself that smart Alex - just goal-orientated and quasi-conservative. I wanted a roof over my head, but on my terms and minimizing my loan as much as possible!

Mick, they are on the market for around €280k, but are slow to sell I believe. To ensure a swiftish sale I reckon €255/260k would get it moved. House is fully furnished, elec paid by tenants, gas still DD to me with bill sent to rental property and they pay cash retrospectively, house insurance paid by me and offset against rental income.

I had thought about sale when the prices started dropping, and in one of the doomsday scenarios I have contemplated I can afford to have the house unrented for 11months during a sale period before it starts compromising my lifestyle.

I'm aware that I have lost circa €90k by retaining - €90k that could have gone into our other mortgage for example. But at the time it was not stretching us (and isn't now), and we weren't motivated by either greed/financial acumen (delete as appropriate!) to sell up or watch the value to continue climbing. We approached simply as something that was there for the longer term (i.e. if we decided to extend our new place or simply to keep until an early retirement/clearance of the new mortgage). Perhaps we were too relaxed about it.

[Jack]

Anyone got a view on how negotiable house rents are in Dublin ?

J

[El_Marko]

Anyone got a view on how negotiable house rents are in Dublin ?

J

We got our latest one down from 1650 to 1300 pm

Bargain Hard.

[Jack]

20% ! How recent was that ? I have been looking on the appropriately named Daft.ie, are there any other sites I should look at ?

J

[T.J.]

@ Alex to give you the other side of the spectrum, I knew a chap back in the day who loved to rake up debt on retarded stuff that he couldn't afford to pay back. Examples are HP-ing a car then having to sell & continue paying off, buying giant TVs & camcorders on £x per month, flash living, tips to hairdressers etc etc.. while on a very modest income.

Eventually his dad decided to sort him (& one of his brothers) out by giving him £30k to clear debt and provide a deposit for a gaff. This was a big once-off gesture from middle income parents to give him a giddy up onto the straight & narrow. So guy goes to bank, figures out he didn't have to declare the credit union debt, puts the £15k on a gaff but blows a big chunk on a newish car for his old doll (now wife) who was only starting driving & who promptly crashed it (3rd pty insurance). Blows rest on repairing both cars so it doesn't have to go on insurance.

Hence my comments on not being clever, just conservative (read not stupid!) Ah the heady days of the Celtic Tiger!

[Ming the Merciless]

20% ! How recent was that ? I have been looking on the appropriately named Daft.ie, are there any other sites I should look at ?

J

Myhome.ie

Also there is a property section on Boreds.ie and see also thepropertypin.com

As regards rents, why doesn't Johny find a few he likes and say he'll come and see it but only if the rent is €x. He'll find out soon enough.

I was renting a house for €1500 and agreed to reduce it to €1250 for a two year lease about last October.

[crank_case]

Anyone got a view on how negotiable house rents are in Dublin ?

J

Very negotiable. Like TJ, My landlord dropped my rent totally unprompted so if you actually pushed things, you can get what you want. Availability is also a big thing now, you don't have to take the first place you see. When I moved up first, you had to go see an apartment with cash in your hand because there would be at least one other person going to see it. If you got lost and were late, forget it, the place was gone, you had to check Daft.ie every ten minutes.

Now you can just tell overoptimistic landlords to go shove it and take a look at the next place. :D

[flyingalexf68]

Nowhere near enough people have started bargaining yet on rental properties. It'll start soon enough though. My 2 sisters rent. One renewed the yearly lease without a discount in January, but she got an allowance for doing up the bathroom a little. My other sister just took on a 2 bed appartment in Blanch for €1000 a month. I told her not to rush into it and shop around, but she just wanted to get a place asap without any bargaining or questions. I suppose it's not too bad, but I'm sure a better deal could have been made.

[MickB]

I'm aware that I have lost circa €90k by retaining - €90k that could have gone into our other mortgage for example. But at the time it was not stretching us (and isn't now), and we weren't motivated by either greed/financial acumen (delete as appropriate!) to sell up or watch the value to continue climbing. We approached simply as something that was there for the longer term (i.e. if we decided to extend our new place or simply to keep until an early retirement/clearance of the new mortgage). Perhaps we were too relaxed about it.

TJ

I think this is fairly representative of the attitudes of non-professional landlords (i.e. people who do this for a living rather than an investment on the side). My friend has often used similar terms, i.e. its tipping along, it washes its face etc, without any regard to the opportunity cost of the investment. I think this is why a lot of people who bought investment properties in the last few years are screwed.....they didn't really understand if they were actually making a return or not. They had a simple formula:

If Rent > Mortgage => I am doing fine.

I personally don't understand it, maybe its my profession....I tend to think of everything in terms of rate of return. I managed to convince my friend by flipping the question on its head. I asked him, "if I gave you €x, and you went to a bank to deposit the money with them and they said they would give you a negative interest rate, what would you do?". The answer is he would run a mile. That is exactly what he is doing with some of his investment properties but its disguised to him because he doesn't see his equity as real money and only thinks in terms of Rent vs mortgage.

Looking at your own particular circumstances.

If you sold the property for €250k now, lets asssume you clear €100k after repaying your mortgage, costs and CGT. CGT might not be that much as it was your PPR until 2006 but lets be conservative.

You can easily invest that cash now for 4% for a 1 year fix.

This yields €4k per annum less DIRT @ 23% = €3k approx.

The situation for cash is better if you repay existing borrowings since you don't have the tax effect. FTB/MI relief comes into play also.

If you continue renting the property you will have:

Rent €880 x 12 = €10,560

Mortgage interest €130k x 4.75% = (6175)
Costs (insurance etc) = (€1,000)

Net Rental Profit = €3,385

Tax @ 41% = (€1,385)

Net Return = €2k.

------------------------------------------------------

Unless I've made any fundamental errors there, it would therefore appear to me that you are losing money even on an absolute basis. Even if you do not declare your rental income for tax, the property is purely equalling the after tax return on cash at the present time. This is before the fact that you should actually be making at least a 2% premium to cash for the risk of holding that asset, and before we factor in any further possible loss of value.

To me this is a no brainer. People bought houses like this for years on the way up, and it didn't matter because the capital appreciation justified the risk and your equity was constantly growing. But its magnified in the opposite direction on the way down.

To be fair, the way interest rates are going, when the cash deposit rolls over, you are not likely to receive the same return, although if you have existing borowings you can repay those.

Also, its doesn't factor in the break penalty on your 10 year loan which could be substantial.

So to my mind, unless I have some of the facts or calculations wrong, that property is giving you a negative rate of return. The decision to hold it or not would be based on a view on where the capital value of the property is going.

I am not advising you either way, btw.

[T.J.]

Thanks Mick! :)

I haven't investigated the buyout from the 10yr fixed rate move. I did it as a move to fix outgoings over the period, and it seemed pragmatic at the time based on how rates were going.

As I said, I do realise the opportunity cost of retaining. You didn't factor in the value of 8yrs mortgage payments, although it was my personal accomadation for 5 of those so I suppose the return equation is skewed a little.

Also the wear/tear/depreciation of the furnishings goes into that taxable profit (€25k @ 12.5% pa) so the nett tax liability is down to zero and profit exceeds the nominal 4% deposit account you have used as an example.

Rather than a return on the potential profit from a sale, I'd be more interested in using the money to reduce the term on the current residence as the interest rate there is > 3% nett yield got from depositing the money. Plus it provides family security, less outgoings down the line etc etc

Food for thought all the same. If I go to sell I run the risk of a long unrented period too for viewings etc. if the tenants decide to go in the interim.

[MickB]

As I said, I do realise the opportunity cost of retaining. You didn't factor in the value of 8yrs mortgage payments, although it was my personal accomadation for 5 of those so I suppose the return equation is skewed a little.

TJ

Not being smart, but capital repayments on a loan are mathematically irrelevant to the return calculation.(you knew I was going to say that, didnt you? :)) You have €120k in Equity, the question is how you protect it.


Also the wear/tear/depreciation of the furnishings goes into that taxable profit so the nett tax liability is down to zero.


Well then as I said earlier you are basically getting a return equal to the return on cash, while bearing all the risks associated with the property including loss of equity.

The question is, if you had €120k in cash right now, would you invest it in this property for those returns or would you leave it in cash? If you can answer that question to yourself honestly, then you have your answer.

[T.J.]

The obvious way to protect the existing equity is to release it from what is currently a depreciating asset, and put it somewhere else that matches or exceeds the rate of return, and is more stable.

On a tangent, how in Gods name do you bring yourself to buy a new M3, Mick?

[MickB]

Touche!!!!!!!!!!!! :D

We all need our toys TJ.

[sjbrophy]

I consider a Fiat Coupe Turbo a blue (stone) chip investment when compared to property or banks shares. :D

[alfarocks]

I consider a Fiat Coupe Turbo a blue (stone) chip investment when compared to property or banks shares. :D

Damn right. My old GTV has gone up in value over the last few years :D :D

[T.J.]

Touche!!!!!!!!!!!! :D

We all need our toys TJ.

Chalk it. :'D Personal responsibility only goes so far, like.

[flyingalexf68]

Jeepers. It can be hard to get free finanncial advice, but keep it coming Mick.

What's the risk with cash vs. the house, say in TJ's case? If he keeps the house, and has tennants paying rent he'll end up with a house that is fully paid for after a period of time. (20 years?) If he sells it and comes out with €130k in cash and invests, would he have enough after 20 years to buy a house outright? Who knows how much a house will cost then? Will inflation wipe out the interest earned on the cash? (Could that even happen)?

Nothing too serious here by the way. I'm just curious.

[Jack]

Myhome.ie

Also there is a property section on Boreds.ie and see also thepropertypin.com

As regards rents, why doesn't Johny find a few he likes and say he'll come and see it but only if the rent is €x. He'll find out soon enough.

I was renting a house for €1500 and agreed to reduce it to €1250 for a two year lease about last October.

Cheers - rents seem to be going only one way, though as I am looking in a fairly confined area there does seem to be quite a difference in comparable properties. Last time I had to do something like this I had to queue outside the property, beg the landord or their agent and be prepared to pay more than anyone else !

J

[MickB]

Jeepers. It can be hard to get free finanncial advice, but keep it coming Mick.

What's the risk with cash vs. the house, say in TJ's case? If he keeps the house, and has tennants paying rent he'll end up with a house that is fully paid for after a period of time. (20 years?) If he sells it and comes out with €130k in cash and invests, would he have enough after 20 years to buy a house outright? Who knows how much a house will cost then? Will inflation wipe out the interest earned on the cash? (Could that even happen)?

Nothing too serious here by the way. I'm just curious.

Alex

On the one hand, you are asking for a crystal ball. There are way too many variables that could change.

All that can be stated with certainty based on current facts is that the property is yielding a return similar to cash. Whether thats a sufficient return for holding a property or if in 2 or 20 years time this is still the case depends on a whole load of factors. Where will rents be? Where will interest rates be?

All things being equal, and interest rates & rents remaining unchanged, the cash would yield as much as the house and if reinvested would yield enough to purchase that house. Inflation is technically irrelevant as it affects both the cash and the house.

The risks of cash are: collapse of the banking system, the irish government etc Interest rates could go down also, but broadly speaking cash has traditonally been considered secure.

[T.J.]

So in summary right now I am getting a baseline return comparable to cash (which is acceptable to me).

In 5 yrs time, my depreciation of contents will be complete, so I'll have to pay alot more tax on profit than a cash & DIRT option. In addition, my fixed interest rate will be gone in 7yrs, changing the comparision again (in which way who knows yet).

Of more immediate concern are rents; another drop reduces my return put simply, and means the opportunity cost compared to cash is greater, which should prompt a change in my equitys investment.

And what I have left at the end of it is also crystal ball stuff at present but hopefully it will have appreciated greater than inflation.

In summary - buy a TVR? Or an E92 M3 :) :)

[Autofix]

TJ’s scenario and MickB’s responses are exactly what prompted me to start one of the other threads here.

Crystal ball indeed, and food for thought.

About a year ago an identical house to my family home sold for approx 25% more than mine did 6 weeks ago. I only had a very small mortgage, but the difference in price was enough that I could have sold at the peak, cleared my mortgage, rented and repurchased similar with a small profit.
I went sale agreed in Dec and am firmly of the opinion that prices have taken a further step down, and will continue to do so.
I cant see how rents will possibly stay anywhere near as high as they are now. If property prices tumble surely rents must follow.

The equity in investments is another matter. In my view the longer you hold onto an investment the less the equity will be and the harder it will be to get out.
Looking at TJ’s example Micks explanation of it makes perfect sense. I cant see the point in an investment like that in such a high risk market. (btw, must stress, not anyway qualified to offer advice). I was lucky enough to have some equity in investments that I liquidated as well.
I made the decision to transfer my notional worth into cash before the credit crunch hit the headlines and so far cant see that it was a bad decision. This decision was prompted by a major life change more than anything else but another factor was the fall in equity versus the rental income. I made the decision that I would rather have the equity.

Another up side to liquidating is the availability of cash for any short term opportunities that may arise. Half price, distressed sale, Ferrari anyone?

[El_Marko]

20% ! How recent was that ? I have been looking on the appropriately named Daft.ie, are there any other sites I should look at ?

J

Just two weeks ago. We move into the new place this weekend.

Play the estate agents off each other. They've still got the remnants of upptiness from the boom times, so don't be surprised if you encounter a few arseholes, but there's massive wiggle room on any price, I reckon.

[Ming the Merciless]

Some other thoughts to throw into this melting pot. Selling a property is not like selling a share - you can't just decide to sell it and then realise whatever the market will pay and walk away with your cash. If it is let, you have to fire the tenant. This is usually possible, but not straightforward. Also, you will have to deal with a vacant property which will need to be monitored and looked after and which is likely to be on sale for a very long time (and not producing any income) unless sold at what is currently possibly a total knock down price. Lots of sales at bargain levels are falling through, by the way. Now I think 450,000 out of work and lots of Dublin houses being quietly repossessed and put up for sale is quite likely in the next year, and that this ain't going back to some kind of "normal" for another 2-5 years for Ireland.

But I think that making most forms of investment decision based on a very short term investment horizon is often not the way to go. While it is undoubedly true that property generates inferior returns to cash, it isn't as easy to redeploy as cash is, so if you have it and it is returning cash, there is some merit in leaving it there. If you have vacant rental property the correct strategy is to put it up for sale or rent and see what happens. For commuter belt stuff, there is no positive future. For long term stable rented well located stuff close to Dublin and other places which will remain (relatively speaking) employment centres, property can be regarded as a reluctant hold as opposed to a bale out.

Then again I have been wiped out in Bank shares and lots of other stuff that investment advisers put me into so don't listen to me. They were wrong, and so was I, and I suspect that this situation is so different that no-one will be correct except as a matter of luck. Even Buffet has clearly made mistakes. There could even be a mini boom around the corner if the US gets off its ass - it is still possible - this situation is so unstable and sentiment driven that I have given up either trying to predict or listen to the experts. None of them know either.

[MickB]

Ming

I was not advising TJ to do anything, merely analysing the facts of his current situation. It was also based on the fact that he said the houses were selling for one price but his firesale price still left him with good equity.

I appreciate that houses are not as easy to sell as shares, and stamp duty and other costs mean they can't be traded as easily. It doesn't invalidate the basic analysis though.

I think if many people had bought houses based on a real analysis of return in the last few years, we might not be in as much of a mess now.

[DMZ]

Neither here nor there, but my neighbour has been trying to sell his house for something like the last year. It was rented out before then but it's obviously been empty since he started trying to sell it. It's difficult to see the sense in this as he would have been getting nice rent for a year on that house. There's been a steady stream of viewings too so there is some interest in the market, but I'm sure it's difficult to close a sale in a deflationary environment.

[T.J.]

I was not advising TJ to do anything

*pauses from hammering 'For Sale' sign up whilst beating away tenants solicitor*

Ya what now??

:'D :'D :'D

[MickB]

Lol this is getting too painful. I will keep my mouth shut in future :)

[T.J.]

This one is for MickB - RIP!! *lol*

As I was candid in my original posts, I said I'd provide a public update to this - I closed the sale of our rental property. So the Celtic Tiger is now dead for me, and I'm no long a property magnate!

Upside from the sale is:
1. No personal loans on cars (& therefore no personal loans at all).
2. A big project on the house boundary will be done alot sooner which I'm thrilled about.
3. The repayment duration on our primary residence is shortened by 10yrs with a LTV of approx 40% (& that's assuming a 39% drop on what we had it valued at 2.5yrs ago).

So PHEW glad it's all over and I'm feeling alot less exposed going forward.... deep down I'm a conservative lad! I could have tried to do something more creative with the cash now, but I think clearing the mortgage is the biggest return; we'll be in a position in 12-15yrs time of no home loan and having significant disposable income for (hopefully) a growing families education and security. And a well-depreciated R8/997 of course - Alfaguys purchase has given me renewed hope and motivation! :D

[steveirl]

What happened to MickB ??

[sjbrophy]

What happened to MickB ??

History, like MickB, is Bunk...

[steve06]

He reached 666 posts and then turned evil and left!

[T.J.]

that's a bit freaky alright!!

[turbobar]

This one is for MickB - RIP!! *lol*

As I was candid in my original posts, I said I'd provide a public update to this - I closed the sale of our rental property. So the Celtic Tiger is now dead for me, and I'm no long a property magnate!

Upside from the sale is:
1. No personal loans on cars (& therefore no personal loans at all).
2. A big project on the house boundary will be done alot sooner which I'm thrilled about.
3. The repayment duration on our primary residence is shortened by 10yrs with a LTV of approx 40% (& that's assuming a 39% drop on what we had it valued at 2.5yrs ago).

So PHEW glad it's all over and I'm feeling alot less exposed going forward.... deep down I'm a conservative lad! I could have tried to do something more creative with the cash now, but I think clearing the mortgage is the biggest return; we'll be in a position in 12-15yrs time of no home loan and having significant disposable income for (hopefully) a growing families education and security. And a well-depreciated R8/997 of course - Alfaguys purchase has given me renewed hope and motivation! :D


fair play TJ, you got in and got out of the market nicely. 10 years off the mortgage:shocked: thats sweet!

[flyingalexf68]

Congrats TJ. Well done.

[T.J.]

Thanks Alex! It would have probably been ALOT better done 2yrs ago, but such is life. I consider myself both lucky & fortunate that I'm out with something to show for it.