Complete meltdown - what to say?

I think we’ve established that.

Back to the property solution…

I’d agree with this advice.

Thank you all for your thoughtful replies, it is really very helpful and much appreciated.

I didn’t mention it in my original post, as I was sticking to the property stuff, but I did at the very start push them to get medical help, which he has done. He’s actually quite a bit calmer now. I think finally telling someone has been a huge release for them both. For my sins I have taken on to speak with both of them regularly, more to act as a sounding board and check that they keep focused on moving things forward than because I’ve any useful expertise - part of their problem was that when they tried to discuss it alone, it ended up being a whole series of “if only…”, raking over past mistakes and not concentrated on the now and the future.

Since I last posted one house has gone on the market and is getting some interest - it’s not the best house (it’s actually the worst) but is empty and in a great location. It looks like it will sell quickly remarkably enough, so that is a start. They have arranged to see an accountant friend of mine who will sit them down and look seriously at their situation, and then plan to meet the bank.

The accountant’s initial feeling is that the fact that they have good houses, in good rentable locations all with solid tenants who look like staying for the foreseeable future has to help when they meet the bank.

On the suggestion of selling their home - it is probably the house that has lost most value, and it is also the one that is the least saleable as it isn’t in a town and is older and more rough at the edges - the rented ones are all in inner suburbs of a city (not Dublin), are 3 beds and relatively recently renovated/decorated/furnished to a very high standard. Moving would mean kids changing schools etc, which would be an enormous upheaval. So I don’t know about that.

The idea of selling the best, most saleable house, to reduce the debt is a good one and one they will talk to the accountant about. I can’t quite grasp what you mean by the term “rent to sale price ratio”. If it helps, they are all getting much the same rent, to within €25 per month. Am I right to assume based on that that it would be the house that is most likely to make the highest price that should go?

Thank you again for your replies.

Great news!

Thanks for the update.

Made my day.

Well I don’t mean to be callous but it sounds like you are getting plenty of good advice for your friend and something that has been puzzling me as I read this is…

you say “they have good houses, in good rentable locations all with** solid tenants** who look like staying for the foreseeable future”. Add to that these are “interest only” mortgages and as a 48 yo PS employee his salary is most probably not a bad one. And yet these rentals still require ALL of his salary.

So what I am wondering is what makes them good investments? Okay he’s bought them now, nothing can be done about that but why would anyone consider holding on to them at all since they seem to offer a very bad return?

If I was in business selling apples for €1 that I bought for €2; it hardly matters that the apples are the best quality and I can find buyers for all the apples I buy. Not a dig at anyone here, I am genuinely baffled as to why these are good houses, why your friend still has them or more importantly wants to keep them? And why is the advice here not simply SELL SELL SELL!?

Yes. I agree with this.
Sell all ASAP. Interest rates are going up soon and frankly the carnage has yet to really start. If he can get his places sold before interest rates go up then he will get considerably more for the properties. One thing to remember, prices will not be returning to 2006 values. They simply won’t. He must not wait for this to happen. It would be a huge mistake.
Also, not nice to say but from the little info you’ve given he won’t be walkin away from this without pain. The sooner he faces this reality, the less the pain will be.
I would sell all immediatly for the best price I could get in no more than one month. I would sell the residence too based on same mentioned criteria. I would then consider declaring myself bankrupt (Might not be too popular a thing to say here but this man has to look out for his family).
He is close to 50 and has to start again. For me this would be an absolute nighmare scenario. He may have to face up to never again owning his own home.

Those last two posts are a bit depressing, but maybe that is the truth. I think it certainly needs to be looked at, though these houses are all kind of close to each other (bar one) so putting them all on the market at the same time, and selling for whatever you could get, might actually further depress the market in the area all by itself. No?

I know quite a bit more about this whole thing than I did when I first posted, and in more detail, but I didn’t update the info here. I’m trying to be kind of careful, as I don’t want to identify these people, but I am very happy to be getting the opinions I’m getting here - it’s really, really helpful. So here is some more info.

There are actually 6 rented houses, plus the home. Plus the empty house that is now for sale. So 8 houses in total. (I am still slightly disbelieving about this, who knew?)

Here is what the houses WERE selling for, at peak values (not what was paid for them). Some sold for more than this, but it’s about right according to what I’m told:

Houses 1, 2 and 3 (same estate, one slightly larger): 275,000, 275,000, 285,000
Houses 4 and 5 (identical, adjoining estate): 250,000
House 6: 240,000 (other side of town)

There is currently a rental income of around 4000 per month from these.

They are all on the same interest only mortgage of around 1 million at 4.3%, fixed until September 2010. The arrangement is apparently that at that point it reverts to a variable rate, but remains interest only until 2016, though I am not entirely clear about that.

It is proposed to use the proceeds from the sale of the empty house to either clear or reduce the other mortgage, secured on the family home, which will represent a reduction in outgoings. More likely there will be a small remaining debt on this, but the monthly cost will be low.

The way I’m seeing it, that leaves each house standing at an average of around 165,000 each to break even. I’m thinking they should sell at this still, in theory at least. Problem is though, there are a good few houses for sale (with signs up) in the same area and I suspect even more for sale with no sign. Presumably these people are also forced to sell. So could they even be sold?

Things are not as bad either on the cash flow front as they seemed when first presented to me - they had a CAT bill to pay on the house that is being sold, plus stamp duty, fees etc, which was funded with short term borrowing which they’ve been clearing and that was what made things so tight until now - but that’s just about paid off.

So with the sale of the one house now on the market, the reduced outgoings and taking into account insurance and so on, they should only have to subsidise by a few hundred a month. For now. That of course does not take into account future increases in taxes or interest, more rent reductions, empty/damaged houses or any of a gazillion other things that may come along to knock the thing out of whack again.

Given that extra information, do you still think that selling now whatever the price is the way to go? Or should they ride it?

Please note that I am 'best guessing here

And best guess is that the repayment rate will jump to around 6% when they come off that fix + the repayment of a lot of capital each month as well as higher interest .

EVEN if they reduced the debt by nearly half ( selling of houses ) there is a possibility that the repayments would be the same from September 2010 when the IO period is over and the repayments start depending on how short the repayment schedule is after the IO expires.

A 30 year mortgage with 5 years IO translates into a repayment mortgage of 25 years after the first 5 years are over…in September 2010 in this example .

Reducing the absolute debt is , to my mind, unavoidable and quite urgent . They have no margin to deal with an interest rate shock in a years time.

Show them this !

drcalculator.com/mortgage/

Interest only is about profit on a regular basis. That mortgage should cost around €3600/month, or around €5600 on capital repayment. Assuming his income tax credits and your previous post of them living off the part time work of his wife, it means an €80k/year job with civil service, paid fortnightly?) plus say 20-30k of the wifes.

It comes down to what is coming in, and what is going out. If there is a net profit, after taxes and levies, every month, then what is it? forgetting about living on the bread line, not able to take holidays etc., which is the path chosen so far, then is the net profit per month after bills, mortgages, etc., positive, or negative. That is where the crux lies IMHO about whether to hang on and “ride it” (:slight_smile: ) until he retires.

Interest only means he will never own it, and it is never going to be an “inheritable” capital asset for his children. If it’s not profitable then it should be dumped, because the long term outcome is that he starts repaying capital payments on the properties when he is 55; that IMO is not doable, unless he is on a career track to an income that can support ~ €7k/month of capital interest repayments (with interest rate increases by say up to 2%), but even then, it will only be for ~ 5 years until retirement.

Because they are interest only, he should be profiting every month, or else they should be dumped (unless, as with the origins of interest only mortgages, the property rises in saleable capital value to realise chunk of profit + payback for the interest-only payments).

Do you remember the days of the Celtic Tiger? I do. I arrived in Jan 2006 to realize that they were selling houses in D15 for 300k they would not even offer to warzone refugees in Germany. I was really wondering if I was missing s.th. . What was so special about the shoeboxes in Ireland. Had they got it all wrong in Germany? Why was a penthouse flat with subway connection in Munich also selling for 300k?

There clearly was some kind of fever here. And you did not need to be a complete fool or ignorant, to be lured into one of these mortgages. You could see the house prices rising on a monthly basis. There seemed to be no easier way to make some money. It seemed a likely scenario to make more profit with a property in a year than with your regular job. So was it not the obvious thing to do what everyone else did?

I can tell you I feel genuinely sorry for people like the guy described here. Ok he was greedy but whon can honestly say he never was greedy one way or the other? I only need to go to Tesco here to see all the long faces of people who have come back to reality.

The Lidl supermarket in Trim that used to be only to be frequented by a few foreigners is now packed with Irish people. Even the damn cat food was sold out.

Ok sorry for off topic and back to this poor guy.

WALK AWAY. Before shooting yourself make a new start somewhere else?

WHY SHOULD ANYONE EXPECT MORE RESPONSIBILITY FROM THIS GUY THAN FROM OUR SMART BANKERS, LENDERS OR EVEN THE CENTRAL BANKS??? THESE BASTARDS ARE NOW ENJOYING THE FRUITS OF THEIR HARD WORK OF RECLESS LENDING OR OF SELLING 10 PROPERTIES PER DAY TO PEOPLE WHO COULDN`T AFFORD . LET US STUPID TAXPAYERS BE MILKED BY THE GOVERNMENTS FOR THAT. AND THANK YOU AGAIN TO ALL INVOLVED IN THIS. I LIKE TO PAY FOR YOUR CRIMES AND STUPIDITY. I LIKE IT EVERY TIME I SEE MY PAYSLIP.

AND BY THE WAY THANK YOU TO THE STATE FOR CUTTINH EARLY CHILDCARE BENEFITS. MY NEWBORN SON IS ONE OF THOSE WHO REALLY APPRECIATE THE GESTURE.

I SAY WALK. IT IS ONLY MONEY.

You do not stand a chance. Even with the money printed everywhere you cant hope for inflation to put things right, because as everyone knows inflation normally leads to rising interest rates. Ok the situation is far away from normal so I would not place a bet on that anymore. If you cant walk away maybe just pray for a hyperinflation. That only means all people with cash savings are f***** but they are f***** anyway as it seems.

Furthermore it is interesting to see how history repeats it itself. Like any major empire or system also capitalism is put at systemical risk by its own leading cast, in this case corrupt bankers :nin .

The best way to go about this is to see the current market value for the other houses that are similar the his in the area, check what they are going for. Then put his own up for a lower price than this. Its all about the right price, you will really need to drop it to get these houses bought if there is no bids being made currently.

In my own opinion his has only one option: sell the whole lot including his own home.

As mentioned previously house prices are going to drop probably another 50% and will never return to 2006 levels which would be a tragedy waiting to happen as well as interest rates rumored to be increased next year. He needs to act now on this before its too late.

Btw How much would he get for his own home do you know and how much mortgage left on it?

Tell the bank his wife is crazy and wants to gamble on things getting better, she wants to “hang on as long as we can”. and that if the bank came up with a deal that allowed them to keep the family home with little debt then he could get her to sell the rest.

But the real key is getting your accountant/ lawyer to ensure any deal frees him from debt going forward. He looks close enough for the bank to cut a deal, they must know if they dont the bad debt will stay on books for a long time…

perhaps missing a couple of payments would help, but an account/ lawyer who deals with debt would know better how to place the stage before anymore meetings.

To some degree this is a no limit poker game, who ever appears to have the best hand and can get in position will win.

Like George Hook, making a mistake is nothing to be proud of, and quite a bit of self-criticism is appropriate. But it happens, and it’s certainly no reason to kill yourself.

I reject the notion that human beings are constructed in such a way as to handle money effectively. Quite simply, science has proven that the vast majority of humans make irrational decisions about money.

Your friend is one of the 5.9 billion people who don’t know how to make rational decisions about money. To hold that against him would be like to despise the Irish soccer team because they are unable to beat Brazil 15-nil in Rio.

Human beings (especially in this country over the last decade or so) have proven they cant handle money (in the form of credit) and its like something from the old testament when you look around at would have probably been called in the past the seven deadly sins being committed as people simply wasted wads of cash on crap and lifestyles, read the sins and see if you get what I mean.
Lust (the new must haves), Gluttony (ever seen so many obese people around),Greed (give me more money I want more money),Sloth (I dont want to work for it I’ll finance it),Wrath ( why cant I have it now?),Envy (she has it so I have to get it or the neighbours are moving to a bigger house so we have to as well),Pride What do you think of my new beemer/plasma/pool/landscaped garden/extension/horse) :angry:

I believe they should speak with the bank (if they have not already) and try to restructure their loans ASAP and only if it comes to a stage where suicide is really on the cards then I would recommend they continue collecting the rental income and stop paying the banks anything including their own PPR repayments until they are about to order repossession, make another payment on each to prevent repossession, collect more income and repeat until the banks finally realise that you have the cash and they still have the debt. Then I would tell the banks to sing for it and head somewhere sunny with my family and forget the banks, they have far bigger problems… His life is worth far more than the banks debt. I know many will disagree with this attitude but at this stage I dont really care about the banks and personal mortgage debts. FFS, its a million odd, 2 months of what Seanie owes Anglo in repayments and hes not paying… 54,000 million is what the banks have put us on the hook for. And If I ever decide to “end” it I’ll be sure to take a banker or two with me :smiley:

Well, it’s been a while!

I forgot about this until today, came across a thread here while looking for something else and decided to update!

I’ve long removed myself from trying to help this couple, partly because I moved away and don’t see them so often now but partly because I ran out of patience with him TBH. Amazingly, nothing much has happened in the 5 years since I last posted here. They still live in their house, the properties have not been sold.

There was, I understand, some negotiation that went nowhere with the banks, who are, and have been for several months now, collecting rent on the rented properties. They still live in the same house, the only property on a different mortgage which is being paid by them and is not, I believe, in arrears. I’ve no idea about equity, but the value of all properties would be well less now than the values I posted back then.

This man never faced the issue at all really. He has been inert most of the time, with occasional half-hearted attempts at sorting things out. If she doesn’t get to the post first (to this day) he just chucks it in the bin or burns it. There have been a number of ‘advisers’ involved, but none seem to have been particularly useful - not all their fault though (though I suspect at least one was well dodgy), according to his wife. They go see someone, he comes out charged up to deal with things, but then just never does anything. Mostly they tell him he is bankrupt.

Hard to believe it’s not come to a head yet - by which I mean they’ve not just had the properties repossessed. I never in a million years thought it would go on this long.

More to the point - the banks never faced the issue at all really !

I’ve mentioned it time and again, about 70% of my landlords are (technically) bankrupt.
This man is in precisely the situation I come across.
Financially bust, but the banks haven’t moved in yet, so the show keeps going on one day at a time.

But it’s only a matter of when, not if.
There’s a huge dam of inevitable sales just building up.
People are fooling themselves if they think the ‘crisis’ is behind us.

Thanks for coming back and posting. I think you’ll find not too many on here will be “astonished” with the outcome or lack thereof. The stock phrase for the last few years has been can-kicking.

Since the standard strategy of all financial institutions when faced with a crisis of their own making is to deny, obfuscate, dissemble, resort to legal action, refuse to take accountability, plead inadequacy to pay, insist upon the status quo and refuse to cooperate while demanding a bailout, all the while maintaining the lifestyle of the Board and senior officers, its hardly surprising that individuals should behave the same way is it?