Buy to let apartment - good investment?

Barr

Hi All

My Uncle has been made redundant and is looking to invest the money wisely and try and get some income coming in. He will putting his savings in and taking a small part loan.

He had found an Apartments for €125k , 2 bed very nice area.

Rents are making about €800 p/m.

This is solely an investment and will be rented out.

What do ye reckon? Feedback welcome

Timmaay

http://www.independent.ie/business/personal-finance/property-mortgages/money-in-bank-is-a-better-bet-than-property-warns-expert-3036633.html

Very good read in yesterdays indo!

homer911

Well thats a yield of 7.7% if he can let it out, and has the opportunity for capital appreciation in the future..

Thargor

homer911 wrote: »

Well thats a yield of 7.7% if he can let it out, and has the opportunity for capital appreciation in the future..

Are you factoring in taxes and maintenance and other expenses there? Or the fact that property prices are still falling and this has to be considered when working out the return.

Have a look at thepropertypin.ie OP, ask your question in the Sell Buy or Rent section and they'll tell you everything about the area an whether its good value or not.

Atlantic Dawn

Barr wrote: »

Hi All

My Uncle has been made redundant and is looking to invest the money wisely and try and get some income coming in. He will putting his savings in and taking a small part loan.

Having no other income and also taking a loan out to fund an investment in property like this is madness. If he had say €200k lying around and was buying the apartment outright for €125k, that may be a worthy investment but buying one in part with a loan with no other income is insane. Too many variables here, he could get a bad tenant who won't pay or will wreck the place and then all his eggs are in one basket.

Sonnenblumen

homer911 wrote: »

Well thats a yield of 7.7% if he can let it out, and has the opportunity for capital appreciation in the future..

And by the time you pay taxes? In a falling capital market and rents at best reasonable, I would reluctant to get involved in a buy to let scheme.

In contrast to the many headaches for a newbie investor, your uncle would be much better to put money on longterm deposit with Post Office and get approx 4%+ pa tax free, for doing absolutley nothing. Although go for a mix investment P.O. for security and a 25% mix of global blue chip stocks (paying divis and & possibly some capital appreciation)?

Which is far better than making an extra 1% or 2% for being tormented with the whole tenancy nightmares.

Cute Hoor

In my opinion Barr your uncle would be mad to go for this.

Allied to property prices continuing to drop (with no sign of a floor on the immediate horizon) you have, buy costs like legal fees, initial furnishing and every subsequent time you change tenant, empty time, risk of tenants wrecking the gaff, collection costs, maintenance costs and hassle, tax issues, sale costs, etc etc.

A safe bet would be the Post Office as suggested, or a high dividend bluechip stock (such as Annaly Capital which pays a dividend of something like 15%) with minimum buy & sell costs and no ongoing costs or hassle.

People appear to have a fetish about property without taking real account of the actual costs and hassle involved.

Just my tuppence worth.

Barr

The General Consensus seems to be its not worth the hassle for the return.





Just to clarify when you say Annaly Capital - is this buying shares? The return seems great Is there much risk involved ?






.

coylemj

Barr wrote: »

Just to clarify when you say Annaly Capital - is this buying shares? The return seems great Is there much risk involved ?

The greater the return, the greater the risk. Applies all the time, every time. Anything currently claiming to pay out 15% involves a reasonable amount of risk, otherwise every pension fund in the world would be piling in.

Annaly Capital's website says that they refinance residential mortgages. Excuse me but wasn't that the cause of the Lehman's collapse? As I recall, mortgages were bundled into 'securities', given AAA rating (for a fee) by the ratings agencies, they then collapsed and plunged the world's financial markets into recession and burst the property bubble in our little economy thereby landing us into the situation we're in today.

Avoid.

martyoo

Is there much risk involved ?

Yes, there are many risks involved with investing in Mortgage REITs however Annaly would be considered one of the least riskiest due to it's history, management, type of debt it holds and the amount of leverage it uses.

radioactiveman

Barr wrote: »

Just to clarify when you say Annaly Capital - is this buying shares? The return seems great Is there much risk involved ?

Hi OP
Yes there is some risk involved. Annaly Capital are a REIT which means that they are obliged to pay out a fixed proportion of their profits to shareholders, which is why the dividend yield is around 15%.

They make their money on the spread between interest rates (in US now very low) and what they charge to punters (this is my limited understanding of how they work ).

If the interest rates increase, their profit margin declines considerably. So for the moment they will continue to pay out this dividend but it might not be sustainable if US interest rates increase. In fact the share price could tank if US interest rates go up a lot. You can see it in the history of the share price (NLY is the symbol).

Also, consider the exchange rate risk. If the euro goes up say 20% against the dollar, your investment will lose 20%. If your investment goes up 20% and the euro rises 20%, you'll still be only even. etc etc.

Also: consider that dividend taxes in Ireland are over 50% now. So the yield is actually only 7.5% including PRSI and USC. But we're rich investors right? Sure we can afford to pay it.

Plus side is that if you get away with it, a 7% yield over 10 years will double your money.

Don't know about the apartment, the prices are getting to the level of being an actual good investment but the reality is that prices could fall a lot more. Then you also have the work over years and years of dealing with tenants.