The "New Broke" - SBP Aug 24

sbpost.ie/post/pages/p/story … qqqx=1.asp

Interesting social commentary in todays SBP…

[Two years ago they were assuming massive risks by betting heavily in the property ponzi scam. Now its gone sour. They need to raise capital by selling one or more of their properties and begin repairing their household balance sheet.]

[You mean they can’t sell it for the price they want. Meanwhile their finances deteriorate and they become more and more vunerable to things going fatally wrong. Cut the asking price, find a buyer, pay down debt.]

[What will it take for reality to set in? Sell ASAP, exit the bet! When massive leveraged bets on a scale many mutliples of annual income go sour they invariably devastate peoples lives, and not just financially.]

[There’s no help on AAM. Just more of the same old busted philosophy of property, property, property, and sidelining anyone who disagrees with it. Surely there is sane, fee-based financial advice to he found in Ireland?..

But… theres more]

[The intense herd mentality or making sure there is enough people in your situation perhaps worked when being in the right “tribe” is all that mattered in Ireland. Back when being the strongest and loudest and most numerous mattered more than the principle of individual responsibility and fairness. In the bad old days pre-Modernisation (pre-90s) the number of people in this predicament probably did matter, today I think, is quite different.]

here’s the AAM thread…

askaboutmoney.com/showthread.php?t=88759

Post number 9 in that thread :smiley:

askaboutmoney.com/showthread … post681888

They are getting around 11% return?? Oh wait, that’s actually not what the AAM thread says. It says:

Big difference. The 98,000 is being reduced by 1,000 a month.

That article in the SBP should be titled “Why can’t we have our cake and eat it too?”, I sorry but the sense of entitlement from that couple frankly disgusts me.

The predicament of being simultaneously “Asset Rich” and “Cash Poor” is not a new or uncommon one.

You can end up in this situation in a number of ways.

In good times, people can over invest spare cash and end up tying it up into lean cash times. Similarly, many, many people in the teeth of the property bubble found themselves sitting on (or rather in) a rapidly appreciating asset that had exploded in value, vastly beyond what they had paid or borrowed for it and for quite a few, well beyond levels they would have reasonably expected. Those on lower incomes would have, in a matter of a couple of years been catapulted into this category … then the Equity Release flimflam began.

Another senario could be early retirees or recently unemployed, who burn off their available cash holdings while having savings invested in pension funds that they are unable to release the wealth from without financial or tax penalties, or indeed, locked in unsellable property.

I’m sure the 'pin Brain Trust could think of several more.

Blue Horseshoe

The thing is, this couple don’t appear to be willing to grasp the nettle and sell their assets at market rates, from their post on AAM its clear that they could substantially lower their asking prices for their assets and still come out ahead.
I sorry, but these people don’t get one ounce of sympathy here. Its not that they are unable to release their asset value, its more that they are unwilling to do so.
As I said, they want their cake…

“please help us”

is this guy for real ? 100k in savings, 3 properties and they want help.

sell both your “investment properties” for what u can get ( they are overvalued and what got u into trouble in the 1st place, then use half ur savings to pay off some of your whopping 450k mortgage before it puts u on the street you bloody big child.

Negative equity on there pp residence and two investment properties. I suspect that those weren’t originally investment properties and they just didn’t sell there existing homes when they moved in together. They have a cash flow problem, but are their assets really less than their borrowings?

The big problem is that before the boom, all money was used to pay off the mortgage, and it was only when the home is owned outright would people consider any investments or savings (other than pensions and small short term savings). A few more risk-inclined people would get endowment mortgages and invest in an insurance policy linked to the stock market, but for most people, paying the mortgage off was priority numero uno. Moreover, whenever someone won the lotto or otherwise came into a large amount of money the first thing to do was pay off the mortgage.

However, during the boom, the idea of leverage entered into the public consciousness in a big way. The simple explaination was if you have €50k, you could use this as a deposit for 1 house (valued at say €200k) and have a mortgage of €150k, or you could get 2 houses with mortgages of €175k or 5 houses with mortgages of €190k. Now if in 3 years time these houses would be worth €275k each (guaranteed, or so it was thought), the person who has paid off a greater part of their primary mortgage is not as rich as the person who bought 5 houses.

Thus, if this couple were in the 1980s, they would have one mortgage that is nearly paid off, small savings, and would now be considering buying a second home as an investment. Instead they have paid the minimum possible off their mortgages on the basis that the more money they pay off the mortgages the less they will have to buy their 3rd investment property. Paying off some of the mortgage to have a greater share of the equity is, in this sense, dead money.

As an aside, this couple are in an ok situation, they are still solvent and have some good assets (taken at face value). The kicker though is that people like that stand to lose much more money over the next few years than those who are actually in a bad position now. They look set to slowly eat away their assets until they are only left with 3 properties in negative equity.

It’s called greed. Sense of entitlement is how it manifests, but it’s plain old greed.
It must be a frightening thought to have only one house and several tens of thousands in the bank. They may even have to sell one of their SUV’s.

Huh? Ok so they would have had 2 incomes at some stage but - take home €3,300, €98k in funds, 2 rentals and a primary residence?
This cant be right (all on €160K equity?)

Flipping gone wrong?

Gone flipping wrong

:slight_smile:

I’m just waiting from Country Tom to come out and talk loads of Shiite about affordability etc.,etc., :laughing:

LOL
and they got banned too :smiley:

Why?

Is the original articles (subtext of) fear of falling prices reflective of the broader view? Why can we not allow prices to fall and get on with it?

High property prices have now fully strangled this country. We need to reverse this mistake, take the pain now, adjust, and move on. High quality, spacious, environmentally efficient, well-located and serviced accommodation at the lowest possible price is what will sustain the wealth we have fought hard for in the last 20 years. Denying this will result in not only retarding but turning back our economic progress.

Property is a means to an end, not the end in itself. Clearly, land and property are real assets. They provide very important services, keeping the rain off our heads and keeping us warm in our beds. But beyond that it is a very narrow form of wealth.

Wealth is produced by thinking and doing, creating new processes and ways of doing things, new widgets or improving on old designs, and for a small domestic market like Ireland, exporting this creativity to foreigners willing to pay for it. Whether its machines, machines that make machines, or new abstract process in software or finance etc. this is what builds and sustains wealth.

If there is anything worse than makling a mistake it’s not learning for it. Are we doomed on this little island to never learn what true wealth is? ‘Horse trading’ property amongst ourselves, where ever higher prices are funded by indebting each other with foreigners money, is a fools paradise. We WILL end up exporting our young again if we continue with the zero sum of property hoarding.

I fear that the political majority, the tribal populism of FF, in this country will impoverish us all in its obsession with high property prices at all costs. High property prices and the hoarding of property via high prices will stunt our growth and return us to the bottom of the EU pile.

There is a sheer lack of professional landlords and investors and this particular story illustrates the point quite clearly.

Prior bubble , just about everyone (sans Pinsters 8) ) thought they could become wealthy millionaires simply by leveraging themselves beyond the Twilight Zone. Lack of intelligence and blindly following the ’ Sheeple Principle ’ caused this Bubble and it’s exactly this lack of intelligence which is slowing considerably the correction to the market.

Amateur investors with their head in the sand ignore all the warnings and continue to hold firm because they think the fundamentals are good and their obstinance of not selling below what they paid.

No amount of interest rate hikes (ECB or inter bank) , no amount of enlightening blogs , no amount of media articles , ESRI statements etc will quicken the correction. The market will realise correctly when one and all amateur investors have fully bled to death. Like lemmings to the slaughter , painful to watch but nonetheless inevitable to happen.