Rental Yield

infamous

Hi
I have identified a property with a 12% rental yield. I have the cash to buy the property or could get a mortgage/loan to cover it, which option would you take? I have a few other investments at present with higher yields so I dont want too tie up all my cash in this property. I feel the 12% yield is quite acceptable or do other's feel borrowing to invest in property is madness?

Regards,
Infamous

strmin

I might be wrong, but if you don't pay mortgage on rented property your tax bill will be huge.

infamous

its 42% of rental income as oppossed to rental income less mortgage interest *42%. So still gives a net yield of just below 7% beats sitting it in the bank.

click_here!!!

You should pay with cash, unless:

• You aren't sure you can cover any risks that may occur from rental income fluctuations.
• You might need those funds again due to unforeseen circumstances in your other investments or your life. Make sure you will have enough extra cash left over, life insurance, etc.
• You might want to keep your funds for future speculation (i.e. you might get better yields in the future – I'm not offering any judgement here, it's your opinion that counts)
• Make sure you have adequate diversification. You don't want all your assets in property, especially not in the same area.
• Check the tax implications also.

It completely varies depending on how much cash you will have left over, your age, opinions and so on.

Also, 12% seems very high. I've only seen properties with around 3%-5%. Could you tell us where this property is and give more details about it. Don't give too much information or you might get extra bidders though!

Tech3

If its Irish property then its surely a no brainer to stay well away from it. Lets not forget the value of the property could decline over the next few years. (It's very likely).

click_here!!!

Tech3 wrote: »

If its Irish property then its surely a no brainer to stay well away from it. Lets not forget the value of the property could decline over the next few years. (It's very likely).

Why? If it isn't a good time to buy property in a boom before a downturn, and it isn't a good time to buy after a downturn when the price:income ratio is better – then when? I think that's a knee-jerk reaction.

The value of property might indeed decline, but the rental yield and future price increases could make up for it.

Interest rates on deposit accounts are down alot since 2008 (e.g. due to higher DIRT tax). So there's less opportunity cost to buying now with your own cash (if you can handle reduced liquidity).

If anything, now is a great time to buy, as there is reluctance among the other investors to buy, and you can take advantage of lower prices.

coylemj

Tech3 wrote: »

If its Irish property then its surely a no brainer to stay well away from it. Lets not forget the value of the property could decline over the next few years. (It's very likely).

It depends on what kind of property it is, remember that it's commercial so the 'value' is very much dependent on it's ability to produce a healthy rental stream. For example, if it was a premises in the centre of a large town and he got Tesco to sign a 20 year lease on it, it wouldn't a matter a toss if the 'value' of the property declined.

femur61

What new stealth property taxes will be introduced? Now we have water and a property tax imminent rent over the years will be effected. There’s already the NPPR tax on rental properties, last year that had to be paid early so will that be increased? Water charges, overall property tax, window tax?

xertpo

femur61 wrote: »

What new stealth property taxes will be introduced? Now we have water and a property tax imminent rent over the years will be effected. There’s already the NPPR tax on rental properties, last year that had to be paid early so will that be increased? Water charges, overall property tax, window tax?

This is a very good point. Who knows how many more taxes will be imposed on would be landlords. The PTRB and NPPR is already bad enough on top of overpriced unregulated management fees.

On top of this, there will undoubtedly be more defaults in the coming 12 months if the interest rates rise as predicted. People will feel the squeeze.

Rental prices will be forced down as landlords become desperate to fill properties. Remember it's better to drop the price of a €1200 per month rental by €100, then to lose more than one month's rent.

Tech3

click_here!!! wrote: »

Why? If it isn't a good time to buy property in a boom before a downturn, and it isn't a good time to buy after a downturn when the price:income ratio is better – then when? I think that's a knee-jerk reaction.

The value of property might indeed decline, but the rental yield and future price increases could make up for it.

Interest rates on deposit accounts are down alot since 2008 (e.g. due to higher DIRT tax). So there's less opportunity cost to buying now with your own cash (if you can handle reduced liquidity).

If anything, now is a great time to buy, as there is reluctance among the other investors to buy, and you can take advantage of lower prices.

I'm against any investment in property when the yield could reduce significantly over the next few years with the incoming taxes.

As another poster has noted the interest rate on mortgages will increase over the next 2-3 years also as the ECB will have to increase interest rates due to the high level of inflation.

irishh_bob

click_here!!! wrote: »

Why? If it isn't a good time to buy property in a boom before a downturn, and it isn't a good time to buy after a downturn when the price:income ratio is better – then when? I think that's a knee-jerk reaction.

The value of property might indeed decline, but the rental yield and future price increases could make up for it.

Interest rates on deposit accounts are down alot since 2008 (e.g. due to higher DIRT tax). So there's less opportunity cost to buying now with your own cash (if you can handle reduced liquidity).

If anything, now is a great time to buy, as there is reluctance among the other investors to buy, and you can take advantage of lower prices.

interest rates on deposits are way up since 2008 regardless of the increase in dirt

Buzzliteyear

If you can get the funds to cover the purchase take! You have other properties so you know the game. As sure as the year goes on other opportunities will appear. If you have the cash you can always lower your leaverage at a later point if that makes sense.. if better opportunities don't arise. Just double-check your projected cashflow and allow for a downside. Make hay while the opportunities are there. Just protect your downside.