My partner and I managed to buy a rental property with a Buy To Let mortgage in Dublin, Ireland during the Covid-19 pandemic. It took ages though, just going from sales agreed to keys in the hand took over 6 months.
In this post I want to describe how the process looked like for us after the seller accepted our offer. You can find a very good article about how this process generally works at citizensinformation website. I would recommend reading that before you bid on the properties.
In this post, I won’t talk about the exact numbers on this deal, I have made a youtube video about it back in November that you can see here.
Closing process and the required team
To get your offer accepted when you are buying with debt you need to have a mortgage pre-approval, which tells the seller that you are likely to get a mortgage.
When I was buying my primary residence in Dublin, we used AIB which had good rates and had an office very close to work. However, the process of dealing with the bank was very painful. We talked directly to the bank representative and they wanted a document on absolutely everything. I have told them that I recently purchased a property in Poland (in cash), they needed to have purchase completion documents translated and provided to them. Another annoying thing was that since I had an account in UK that I opened there when I was doing a internship in London back in 2015 for three months - they wanted me to get a credit check from UK. This was very hard, since I didn’t have enough proof of address, since I wasn’t living there. The bank was making it super stressful to me. I managed to sort it all out and also simplified my finances in the process, but I decided to work with the broker next time.
My partner and I chose https://www.fcfs.ie/ as our broker. They seemed to have decent reviews online and a nice website. They had very nice software for the mortgage application and they were very responsive to our emails. The fee was 500 euro that we paid after the transaction closed. We could have gone with someone else or go to the bank directly, I don't think it would change that much. It's easy to look for the best rates with the sites bonkers.ie.
As soon as the seller (vendor) accepts your offer, you need a solicitor (lawyer). We could have gone with the one we used previously (kenkennedy.ie) in Dublin and that was really great, but I was cheap and I went with a solicitor recommended by our broker that was about 1000 euro cheaper. It wasn't disastrous, but in retrospect, we wished we went with the more pricey solicitor.
Valuation and Survey
After the seller (also known as vendor) agrees to your offer, you need to do the valuation and inspection (survey). The valuation is for the bank and the survey is mainly for you, so you know what are the problems with the property. We ordered both as soon as it was possible to avoid delaying the process.
We were working with ICS Mortgages that uses VMS Ireland for valuations: https://www.vmsireland.ie/. You can do everything online and setting up a valuation should take less than 20 minutes. It cost us 185 euro. Valuation is a detailed report which a bank uses to assess the value of the property and its potential risks. As a buyer you get your own copy of the valuation report as well.
Our valuation report didn't come out super clean.
The value of the property came lower than we agreed to buy it for and there were risks related to fire safety that could lead to problems with selling it later.
The value was assessed based on the sell prices of similar apartments nearby, however our offer included contents. Our offer price that got our offer accepted was 221k, the value of the property itself without contents estimated by the valuer was 216k. I wouldn't value the existing contents realistically at 5k, 2k-3k at most. Did we overpay? Possibly, but I believe we still got a decent investment.
So what happens if there is a gap like this? If the value estimated by the bank valuer is lower than the purchase price you can still proceed with the transaction, but the bank will not lend you all the money necessary. They will lend you up to 70% of the estimated value. You will need to cover the difference yourself. You can also renegotiate with the seller or walk away from the transaction and lose the small amount of money you've already spent on various fees. You can also try a different bank and see if their valuation will give you a different number since those valuations are not exact science.
Separately from the valuation, you also need a survey. We worked with a surveyor we worked in the past that was recommended to us by an estate agent. The survey cost us 440 euro and was a 4 page report, 3 pages of which were useful info and the rest were disclaimers. We knew that the property wasn't in ideal condition, it was older than 15 years old and had some deferred maintenance. It's the surveyors job to find the defects and they found plenty of them, mostly small ones, but nothing huge.
Some examples of small issues found:
- the auto-closers from the doors have been removed
- there were no window restrictors,
- taps are hard to close, hinges might need adjusting etc.
The two biggest issues they pointed out were problems with the water pump and one of the windows being drafty and needing maintenance.
Similar to the valuation, you can just accept it, walk away or try to renegotiate. We decided to renegotiate. I wrote a detailed email that described the issues and supported them with the survey report and quotes. I suggested a 2k euro concession based on some research. The seller wasn't super happy about it and countered to 1k, to which we agreed. We got a final price of 220k.
Delays, delays, delays
As I mentioned earlier in the post, the process took us more than six months from our offer being accepted to getting the keys.
Before buying this specific property, I had bought two investment properties in Poland and also with my partner we bought a primary residence in Dublin. My purchases in Poland took less than a week from sale agreed to keys in hand. Buying our apartment in Dublin took about 2-3 months from a sale agreed to sale complete and I knew that in Ireland the process can drag on.
After valuation and survey were complete and we renegotiated the price, our solicitor started the legal process and our broker was dealing with the bank. We had all those finished already at the end of November. I expected that the bank would request more data from us, since the pre-approval didn’t require a ton of documents, but it turned out not to be necessary. They sent us a loan pack by post in early January without needing any additional documentation from us. This was a positive surprise.
In the meantime our solicitor was struggling getting all the documents together - there were still some missing pieces that the vendor (seller) was taking a long time to provide - it took them from late November to eight of February.
Once we had all the documents from the vendor that looked fine our solicitor produced contracts that we had to sign and send back by post. At that point our sale agreement would become binding and if we wanted to walk away after that we would be losing the deposit. We had the documents all ready as soon as possible, but it took the vendor multiple weeks to sign it. This is one of the messages we got:
Yes contracts has been signed last week. There are also a number of declarations that needs to be signed/ witnessed for closing. We are arranging a time now with Notary Public to witness.
It takes a bit longer to get an appointment due to COVID restriction.
We expect to have all in order for closing the sale this week.
We finally got the information that the vendor sent back all the documents back on 18th of March. Once we had contracts signed from both parties, our solicitor requested the money from the bank.
Not surprisingly, there were still some documents missing from the vendor that the bank needed and we needed to wait. On the 22 of April (a month after the solicitor requested the funds from the bank), our broker requested the most recent account statements, wage slips and a declaration about not being affected by Covid signed. Some time later we needed to sign another direct debit mandate. The bank had concerns about being given the wrong fire safety certificate, eventually they got the right one, but it was May already.
Then our valuation got out of date because it's been more than 6 months! As soon as we got this info, we ordered the re-valuation online (additional 85 euro). At this point we were quite upset with how long this was all taking, but we were aware that we can't go around doing the second valuation and wanted to be done with it ASAP. Even the vendor that was so slow before got impatient!
We got following message from our solicitor:
the closing date has passed along time ago and the Vendor is threatening interest and forfeit of money paid to date – am sure they will be ok once we can tell them it will complete this week
It didn't happen that week, but we managed to close finally on 21st of May and got our keys on 23rd.
Throughout this time whenever we had to do something, we tried to be as prompt as possible, which usually meant printing, signing and sending the documents the same or next day. I really recommend having a printer at home for that. We printed so many documents, we ran out of ink!
We haven’t been silently waiting during this time though. If we didn't get any news for a week, we would keep reminding our solicitor and the vendor about ourselves by asking about progress. We have also sent probably more than a hundred follow up emails. I guess we could probably win the most annoying client award with such behavior, but I wanted to make sure we move the process forward. Total silence will for sure not work in our favor.
It’s been a trying six months, but we prevailed at the end. The deal could probably be better, but we have learned quite a bit in the process.
Content or no?
I’m not sure if buying the apartment with contents was a great idea. The furniture looked for the most part fine and having couches, a dining table, beds and so on looked like it would save us trouble in the future.
But I don’t think the contents were worth 5k estimated by the valuer. Maybe 2k. After closer inspection, once we bought the place it turned out to be in worse shape than we remembered and we will be replacing some of it and need to pay for cleaning. By buying new furniture we would be able to take advantage of the tax deduction as in it would be easier to show receipts. Nevertheless, even if it was a financial mistake it wasn’t a huge one. What I know for sure is that it helped us get the highest offer and get the deal. The market in recent months has been very competitive and investors I know have been struggling to get deals at decent pricing.
Renegotiating is an option
Renegotiating after your offer got accepted is possible and can succeed. And I did it completely over email! You should at least try, it’s very likely you will get some concession, just because you asked for it, even if it’s less than you asked for. 1000 euro thanks to one email, totally worth the discomfort of doing it and next time I will be better at it. Negotiation is a useful business skill and I did some research before it. Turns out it’s quite different from reading a book (like this one) about it but having some knowledge about negotiation tactics helped.
Broker or directly?
As I mentioned earlier, it's very easy to check the rates online to get the best deal and using the broker is not actually necessary. It's possible that they can be very helpful if you have a very complex situation, but our case was simple. We paid 500 euro to save ourselves the hassle of interacting with banks and it was very smooth on that front, however it's hard to say if it was the magic of the broker or if just ICS Mortgages bank was more reasonable than AIB.
Buying completely remotely
It took us forever, but we have done everything remotely. Our solicitor was based in Limerick, we never saw him or our broker or anyone from the bank! I’m still quite impressed that we managed to buy a place without leaving home (apart from the initial viewing), with just a couple phone calls, letters and a million of emails.
We could have probably been more aggressive with pushing the deal forward, for example by threatening that we will walk away, especially before we signed the contract that did bind our deposit. However, we were doing all of it remotely and the country was under full lockdown, so some delays were unavoidable. Since we were not actually thinking seriously about walking away, we didn’t play that card.
I hope this post was useful for you, feel free to comment below if you have any questions. I'm planning to follow up with another post about the process of getting the property rented after getting the keys.