Buying first property to let?

Joneser

Hi All, I am just looking for advice and feedback from anyone I can at the moment.

First a little background on my situation as this obviously affects what I should do. I am 23 and currently living at home. I finished university a year ago and I'm lucky to find myself in permanent employment in a pretty secure job and have been saving frantically since I started in order to try and scrape together a deposit for a property.

Basically what I would like to do is buy a property within the next year (preferably for about 150-200k) and rent it out. Then save up for another couple of years before purchasing a second property and moving out to that myself. I'm just trying to get the opinions on whether this is a good idea or if it's financial suicide.

With the property market being low at the moment I am thinking it would be a good time to get a relatively good property for a fairly cheap price, but then what are the chances of me actually being able to rent it out to anyone? Should I buy a rental property with the aim to target certain demographics (students, young professionals, families etc.)?

Any feedback on this would be greatly appreciated, thanks.

AlmightyCushion

Given the way the property market is now and given the uncertainty out there I think it's a terrible idea. If it was a few years from now where things had stabilised some what then it maybe worth considering but right now I wouldn't do it.

You're 23, do you really want a 20/25/30 year mortgage hanging over your head? In a few years time you'll be 26/27 do you really want 2 mortgages hanging over your head before you're 30. I'm 26 now and I don't fancy one mortgage and won't even consider it until I'm well settled in an area that I know I won't be leaving for some time and until things stabilise. Plus being a landlord isn't exactly the easiest job in the world. What happens if you get some tenant who makes shíte of the place and isn't paying rent, do you really want to have to go through all the hassle of trying to get them evicted (it isn't as easy as just turfing them out on the street).

I think you're mad to consider this. You're young, enjoy yourself and don't burden yourself with a mortgage and the responsibility/hassle of being a landlord. Keep saving your money, I'd say most people in their early twenties aren't saving very much at all so you're doing well financially. You sound like you're saving every penny you earn trying to get this deposit so I would recommend you start enjoying your money a bit. Still continue to save but don't go crazy about it and live a little.

Milk & Honey

I bought my first property when I was 26. there is nothing wrong with buying when you are young. What you should do is look at properties which are on the rental market. See how much the rent is and how long it takes to rent them. Rents are gradually firming up because there is so little building and more investors are leaving the market than coming in.

MagicMarker

Is it 2006 again?

noxqs

You seem to be under the delusional impression that buying a property to let is some sort of genius investment scheme. It isn't.

But the good news is the banks wouldn't even consider giving you a buy-to-let mortgage anyways so you can't do any harm trying.

If you really want to invest - you should look at stocks and bonds instead - over the next 30 years it will easily outperform a property. Property is a terrible asset:

1) It requires maintenance
2) It requires active management (more so than a basket of stocks/bonds)
3) Its a geared investment - you're borrowing money in the hope that income+appreciation is higher than total cost of ownership (good luck with that).
4) You have to deal with tenants (enjoy).
5) You're straddling yourself with a mountain of debt - given that you'd like a second mortgage how do you think your odds are when you already have 200K debt? Given the current market and the next 5+ years of 0 growth and further escalation of the debt crisis given that Greece is about to burn by all accounts?

You're living in an alternative universe where the financial world didn't crash and burn in 2008.

Joneser

Thanks for the feedback guys, the general idea seems to be that it is the stupidest thing imaginable to do which is fair enough, I have my doubts too but wanted to get the general consensus from people with inifinitely more experience than myself.

@noxqs Are stocks and bonds not as risky? I can see someone investing a load in stocks and then the company goes bust, at least with property you would have something whereas with stocks you could potentially end up with nothing to show for from the money you invested? If you have some good reasoning for why stocks are better I'd be interested to hear. As for bonds I have never looked into them before so will do some research when I can on this.

Thanks again.

noxqs

All investment is risky - thats why you dont put all your eggs in one basket (say .. a house?).

Theres various market funds you can buy which holds stocks in an entire industry or tracks an index (like DOW/S&P). This means you dont have to buy individual stocks, you buy a share of their investment pool into hundreds of companies. So you get a distributed risk this way.

Stock market - historically including all recessions - gives 12% per year over the last 100+ years, with huge variations of course, +30% one year, -30% the next. But it averages out. So you being young with savings, is a good time to start building a portfolio.

When I started I put 1000 eur into a market segment whenever I hit 1000 eur savings so I had some alternative energy, some IT, some medical, some heavy industry, etc. Then once you have a suitable spread in different industries/countries you keep adding to them over time.

The Irish mentality of a house being the only suitable way to invest money is paleolithic at best. A house is non-productive. Invest in productive businesses.

You don't see Warren Buffett (most successful investor in history) invest in houses. Because they dont produce anything, and they historically havent yielded anything inflation didn't eat (look it up, I urge you to research for yourself).

Joneser

Thanks a million for the information, I'll definitely look into this. Cheers

tashiusclay

Please be very careful with stocks, its a very volatile global marketplace at the minute and you could lose your shirt in a moment by either being
careless or over confident or trading with emotion involved.

I don't agree with everything noxqs says in his/her post, but there is some good points there, and one thing I can't agree strongly enough is the first
sentence in that post-diversify diversify diversify!

Think of maybe stocks, metals, cash, hard assets etc for spreading your
savings and minimising risk to your hard earned cash. Try and hold as little
fiat currency in your portfolio as possible, unless you trust governments and
central banks to maintain your savings purchasing power in the years ahead.

Milk & Honey

Joneser wrote: »

Thanks for the feedback guys, the general idea seems to be that it is the stupidest thing imaginable to do which is fair enough, I have my doubts too but wanted to get the general consensus from people with inifinitely more experience than myself.

.

It is this kind of group= think which has caused all the current problems in the first place! People bought property at inflated prices because "everyone" told them it would be the stupidest thing imaginable not to.
Now the group-think is that nobody should buy at all. Most good decisions in property are made in a contra-cyclical manner. Making decisions by asking around and going with the majority is a recipe for regret in later years.
One of my early mentors said to me "people will tell you you are mad to buy x or y property, why aren't you buying whatever the general consensus is?. Wait 5 or 10 years and see what they say". How right he was.

noxqs

No offense Milk & Honey - but I have no idea what you tried to say in your post.

Anyways; We're talking about buy-to-lets and investment value or lack of. You'r advice is basically buy when everyone else is selling? If people followed that advice they'd be destitute. I saw people trying to catch falling knives in NASDAQ and the property bubble, not only in Ireland but Spain etc. 'Ahh shjure it's good value now, i'll buy more so my average aquisition price is lower, and shjure it'll be back any day now'. Well that didn't happen.

So let's look at from a neutral historical angle.

House prices rise with inflation + growth in real salaries. That is if inflation is 2% and rise in salaries above inflation is 1%, simplistically you could say a house goes up in value roughly 3%. Net gain versus inflation and cost of living - neutral. The best possible scenario in a normal market is that you'll come out PURCHASING POWER on par with what you put into the house minus interest + upkeep.

This is a loosing bet in all decades without a property bubble which seem to occur every other decade to lesser or greater extent, always returning to pre-bubble trend.

So; How can a house which is essentially a mountain of debt, ever compete with an investment in a productive asset such as stocks when they yield on average 12% per year and don't come with all the special downsides of bricks and mortar?

AS AN INVESTMENT - a property is about as useful as putting money under the mattress. It's not an investment, its a way of storing wealth -

if you're lucky you hedge for inflation at the cost of:

(insurance+upkeep+interest) - (appreciation in value)

In any event, being 23 and taking out an investment mortgage is about the dumbest thing I've ever heard. And i'd personally write a letter to the financial regulator if I heard about a 23 year old with a few pennies saved getting a buy-to-let now.

(Although the financial regulator is probably back to being sound asleep at the wheel, but thats another thing).

Dan133269

noxqs wrote: »

You don't see Warren Buffett (most successful investor in history) invest in houses. Because they dont produce anything, and they historically havent yielded anything inflation didn't eat (look it up, I urge you to research for yourself).

That is factually untrue. Are you saying that someone who bought property in Ireland as an investment in 1990 and sold it in 2005 didn't make a return when inflation was factored in?

noxqs wrote: »

So; How can a house which is essentially a mountain of debt, ever compete with an investment in a productive asset such as stocks when they yield on average 12% per year and don't come with all the special downsides of bricks and mortar?

What is the annual yield on stocks from 2008 until now?

noxqs

You are cherry picking.

A bubble, like housing prices, is not a normal market. Sure if you bought in 1995 and actually sold in 2005, you would have made a nice profit. But look at the graph of house prices divided by CPI - you'll see a roughly flat line with a deviation starting in 1996 to 2007. Which has now receeded to par, which means house prices have dropped to 1999 prices.

If you bougth shares in a DJIA (Dow Jones Industrial Average) in 2008, you'd have lost 7% face value but made more than up for it in fund dividends (yield 2.48% in DJIA on average). Say you put 100 euro in DJIA fund in Jan, 2008. You'd have 93 EUR face value but made 2.48 * 4 = 9.92 EUR for a total of 93 + 9.92 = 102.92 or a 2.92% return. Not staggering but the stock markets will return to growth faster than the irish housing market ever will.

If you bought a house in 2008 you would have lost 60%. If you bought DJIA in Mar, 2009, you would have made 110%. You cant win on timing in the stock market but over time you will be better of.

If you bought DJIA in 1998 you'd have made 62% + Dividends which again, average 2.5-3% per year. Better than your return on a house you bought in 1998 as prices have receded to 1999 levels (currently). So, bubbles are just abnormalities, you can't invest in a pipe dream. Invest in productive businesses.

beeroclock

noxqs wrote: »

You are cherry picking.

A bubble, like housing prices, is not a normal market. Sure if you bought in 1995 and actually sold in 2005, you would have made a nice profit. But look at the graph of house prices divided by CPI - you'll see a roughly flat line with a deviation starting in 1996 to 2007. Which has now receeded to par, which means house prices have dropped to 1999 prices.

If you bougth shares in a DJIA (Dow Jones Industrial Average) in 2008, you'd have lost 7% face value but made more than up for it in fund dividends (yield 2.48% in DJIA on average). Say you put 100 euro in DJIA fund in Jan, 2008. You'd have 93 EUR face value but made 2.48 * 4 = 9.92 EUR for a total of 93 + 9.92 = 102.92 or a 2.92% return. Not staggering but the stock markets will return to growth faster than the irish housing market ever will.

If you bought a house in 2008 you would have lost 60%. If you bought DJIA in Mar, 2009, you would have made 110%. You cant win on timing in the stock market but over time you will be better of.

If you bought DJIA in 1998 you'd have made 62% + Dividends which again, average 2.5-3% per year. Better than your return on a house you bought in 1998 as prices have receded to 1999 levels (currently). So, bubbles are just abnormalities, you can't invest in a pipe dream. Invest in productive businesses.

Thats interesting thanks for posting as I don't know alot about mutual funds, stocks etc and am weary of people saying buy shares as a generic piece of financial advice

What about the fact that someone else effectively pays your mortgage off for you i.e your tenants? Hard to get someone else to buy you shares
Granted you pay tax, nppr, maintenance etc but if OP bought now he would have a paid for property in say 20 years (funded to a large degree by tenants). Surely one needs to look at property as being more than hoping the price of the asset will increase as if rent pays the mortgage in 20 years you have a paid for house.

So if the OP invested now, by late 40s he has a house he can live in or sell then if needs be

I'm not saying buy the house by the way Im just asking peoples opinions on this angle!

Joneser

beeroclock wrote: »

Granted you pay tax, nppr, maintenance etc but if OP bought now he would have a paid for property in say 20 years (funded to a large degree by tenants). Surely one needs to look at property as being more than hoping the price of the asset will increase as if rent pays the mortgage in 20 years you have a paid for house.

So if the OP invested now, by late 40s he has a house he can live in or sell then if needs be

I'm not saying buy the house by the way Im just asking peoples opinions on this angle!

Yes this is exactly it, I'm thinking of it as a long term thing, so that in 20 years or so I will have some kind of semi-reliable (after upkeep, times when it is vacant etc.)It's not something I want to try and sell for a profit in a couple of years time.

fasttalkerchat

Why not buy something cheap and stable now and move into in? In a few years you can go for something better and let out the current one. Just check that the bank are OK that you plan to let out the house.

latenia

Where are you going to get the 200k? This whole thread is moot because there's no way in hell anyone let alone a 23 year old is going to get a BTL mortgage for the foreseeable future. Where's the money for the second (presumably more expensive, because now you're a playa) house going to come from? If you decide to lie to the bank and/or government saying the first one is your PPR there are serious financial implications.

noxqs

I get the point about "someone paying off your mortgage".

In theory you get 200,000 eur free at the end of the 30 years. Right?

Well - if you borrowed 200,000 EUR in the bank and put it in some stocks, you are doing the same trick. You're gambling that you can recover the interest + capital of the money from an external source over time, whatever that is. A tenant or the stock market or loan sharking doesnt really matter.

It's gearing and its dangerous.

1) What happens if you cant find a tenant?
2) What happens if upkeep + insurance + taxes + levies + mortgage is higher than rental income ? Then you're screwed for the next 30 years putting money down an endless pit which may or may not have appreciated noteworthy in value. Given the slump in Japan which has seen house prices remain stagnant for 30 YEARS, I would think LONG and hard about this one. Prices going up - even over a long period - is no guarantee. I urge you to look at Japan as a case study.
3) WHY does anyone believe the bank will give them 200,000 EUR to go 'invest'? And then also get another mortgage for another house in a few years. As if the Banks are just there to issue money to people who want to do things. May I remind you that the banks are insolvent exactly because of such exuberance ? They wont be allowed to do this.

The Idea that someone will pay your mortgage for you is fine. We all understand that. But it just doesnt necessarily work out that way, and if it goes south for whatever reason you're in serious trouble. If you're out of work + can't get a tenant or its not enough to pay the mortgage you're up to your eyeballs in pain.


Saving without being greedy (ie borrowing to "invest") will give a good return and unlike a buy-to-let you will be in the black and can do whatever you want - and not be in debt.

What Im trying to hammer in with big nails is that a 200K mortgage is not a good idea - its a big burden with real life risk of loosing everything if anything goes bad, and god forbid you have two mortgages and loose your job and your tenant - and there is no mortgage moratorium on reposession at that time.

Think about it.

PS: Our friends at the Property Pin would like you to see the following: http://www.thepropertypin.com/viewtopic.php?f=10&t=30657

beeroclock

I thought about it 10 years ago and touch wood things have been OK. I agree 110% with this:

"If you're out of work + can't get a tenant or its not enough to pay the mortgage you're up to your eyeballs in pain." Obviously you need cash and plenty of it to buffer against this. OP this is a serious point here and consider it and all the expenses that go along with it. As others have pointed out there are costs but you are thinking long term which is a good and thats how I look at it also.

Being a landlord is not for the faint hearted, that being said it can work out well just like you could have lost lots of money in AIB shares of gained alot in Coca-Cola shares depends on alot of factors (I think Warren Buffet has lots of coke shares!! but I don't know much about shares and markets so cant comment on it)

Its interesting to hear different points of views here and yes there are most certainly risks involved but its up to each person what risks they take on.

wexford12

If I was to do it again and to be honest I don't think id bother but but but. There are houses in Wexford one iv been looking at for 50k for a 4 bed 3 story new ish town house. this could be rented any day for €550 pm which is a great return.
Id stay away from 200k houses and take my gamble on the lower range once the area is not a kip and lets hope they can't get much lower in price. If you live in Dublin look outside the box you don't need to live close to a rented house