Want to Buy, Large Deposit, Low Income

Hi, I need some advice on whether or not this plan is doable. Im 32, no dependents, no debt, very little outgoings in a month due to general frugality, no car. Earn 30k a year in secure job, hopefully rising to 32 this year. I save about 50-60% of my earnings every month and have done for the last 6 years. No pension, no other plans or large financial decisions.

I want to buy a house as Im sick of renting and want to do something with my savings and start getting a bit of a return, I basically want to copy my current landlords system which works well for him and buy a 3 bed house to live in in Bray where I work. Ill take on 2-3 tenants for hopefully 450-500 Euro a month each, tax-free on Rent a room, this will also free up the 450 a month I currently pay in rent for bills and expenses, there is currently no issue renting a room in Bray, demand is crazy.

I have 105k in savings, this is made up of 50k in Prize Bonds, 25k in Post office, 10k in shares of the company I work for and 20k in cash.

Looking at Daft and MyHome Ill need to stretch to 275-300k minimum to get a house I would want to live in altough I have seen the odd one go for lower than that. I like Bray, my job is here that Ill stick with, any other companies that might recruit me are well within commuting distance if that ever changes.

Is there a way to pull this off? Whats the best way to go about this? Any advice appreciated.

I only have 105k though, I want to know if theres any way to stretch it to ~275k. I might be able to tap my parents for another chunk aswell…

The sentence in the OP is very confusing.

It suggests you have 105k in savings **and ** "50k in Prize Bonds, 25k in Post office, 10k in shares of the company I work for and 25k in cash. "

As for your business plan you are obviously sharing living quarters with strangers in Bray in your early 30s. Do you still want to be doing this in your early 40s?

With savings and mortgage you could probably buy a basic 1-bed apartment in Bray for just over 200k. Would that not be preferable?

Okay sorry for confusion, Ive clarified it now.

Nah the apartment option doesn’t appeal to me, especially one bedroom living alone with all associated expenses, I want an asset that generates cash as I live in it, I can readjust later if I change my mind in my forties. I really dont mind living with people as long as I have my own room, I live pretty frugally.

Why do you want to generate cash if you can live frugally?

I mean I could pay 1500 a month to the mortgage just on my wages no problem and live off the rest even without the tenants in the picture, I know the banks will be cagey but is there a broker or something that would do it? Are the limits set in stone these days? I doubt there are that many people with 100k deposits targeting the lower end of the market like Im doing…

What if I got my parents to kick in 40-45k bringing it to a 50% deposit?

Who should I even talk to about this?

Because I want to generate enough that I can be paying a mortgage while travelling or just taking a year out or switching careers or anything, freedom basically instead of paying my landlords mortgage (who has a great life doing exactly what I want to do with a 3 bedroom house.) I like my current job though and have no problem sticking with it even for the low wage.

Its also frustrating to have a large amount of money that you worked hard for sitting there doing nothing because theres sweet f all to invest in in the current environment.

I also want a bit of a change, a bit of a challenge and a project I can be working on instead of living in someone elses house.

Something like this would be absolutely ideal:

daft.ie/wicklow/houses-for-s … w-1200949/

You’re an ideal candidate for a mortgage, based on your steady income and your ability to save while paying rent. Hopefully a lender will see this. However, the amount you need is a bit high relative to your income (I doubt lenders will be willing to factor in the rent a room option). Hope it works out for you.

Hi,

You should only take 2 tenants if the rent will be €450 to €500 per month each as you need to ensure that you will receive no more than €12,000 from tenants during the year (an average of €1,000 pcm). By doing this, the rent you receive will be tax free. If you even receive €12,001 then the whole amount becomes taxable at your standard rate, which will be around 49.5% as your employment income of €32,000 eats up most of your standard rate tax band of €33,800. This is obviously a future consideration, I’m merely mentioning this now as if you are trying to make a case to the bank that you can make €1,500pcm/€18,000pa from renting rooms, you may come across as having not given it proper consideration. €12,000 tax free is much better than €18,000 fully taxable. However as another poster mentioned, banks are not likely to consider the future rent a room income when assessing your application anyway.

Full guide to Rent-a-Room here: revenue.ie/en/about/foi/s16/ … -01-32.pdf [Download]

+1
To be fair, you are the ideal candidate for a LTI exception for a bank. Because your LTV will be so good as to minimise their exposure if it all goes wrong. Still, generally the exceptions to the 3.5 LTI tend to stretch to 4/4.2. That might not be enough for you.

I would try applying to 3 or 4 banks to see what they will do - then go with the best of them.

Posters have rightly posted out the very favourable tax treatment available for landlords who live with their tenants compared to those who don’t.

Pure speculation on my part, but the policy on this may not always be as favourable to your business model as at the moment.

  1. get hitched to someone else with an income
  2. don’t have kids
  3. buy.

Is there a way I should be organising my finances in the meantime like a direct debit of €1200 to Bank of Irelands mortgage account or something like that to demonstrate my ability to repay? I suppose that much sitting in Prize Bonds doesnt look too good and might even look a bit dodgy…

On the other hand, in the unlikely event your numbers come up you won’t be needing Bank of Ireland :smiley:

This seems potentially a bit over-dependent on the current rental market situation, which is probably temporary. If, in a few years, proper supply comes on, it seems likely that rent-a-room rents will fall dramatically, as it’s presumably largely made up of people who can’t afford to rent on their own/with friends at current rates; as rents drop relative to income that’ll become a smaller and smaller market.

That’s all assuming that the supply problem ever gets sorted out, of course…

Its not over dependent though, I could afford repayments living on my own, I just like the idea of owning my home and having people paying me to stay there instead of pumping 20% of my wages into someone elses account every month.

Has anyone done the math on probability of winning on prizebonds in any year?

Seeing that savings accounts no longer give any interest and looking forward banks might start charging for “privilege” of giving them money to invest and the government taxes the interest punitively, this NTMA prizebond thing and other state savings options start to look more attractive

My parents bought our kids prize bonds when they were born.

I scoffed.

Our daughter has doubled her money already however :smiley:

Yes. The thing that most people don’t get is that the “lumpiness” of the return is more important than the probability. Returns on Prize Bonds have been hammered in the last couple of years so that you can now expect only a 0.58% return tax free. However, consider that the minimum prize is €50 and 0.58% of a single €6.25 prize bond is 3.625c. Divide that into the minimum prize denomination. In the current low interest rate environment you might be happy with a 0.58% return after tax but would you be happy to wait 1,379 years on average to achieve it?

In other words you have to buy lots of Prize Bonds for the odds to even out so that you have a reasonable chance of achieving the average 0.58% return each year. I reckon €100k or more is sensible, but an absolute minimum of several tens of €k is needed. Personally, the administrative hassle of cashing all those €50 cheques would not be worth it to me for a couple of hundred extra a year on €100k. I’d consider it if the margin between deposit rates and PBs reverted to those of a couple of years ago, but that’s unlikely. Ditto for most of the State Savings too.

On the other hand, working out the probabilities and lumpiness is quite a lot of fun. I have a neat spreadsheet with a macro for a logarithmic version of Sterling’s approximation for factorials, due to Excel not being able to cope with the astronomical permutations involved. :smiley: