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Buy to Let

  • 27-03-2019 11:49am
    #1
    Registered Users Posts: 21 ✭✭✭ degra22


    Hi,

    I'm in a nice position where I currently have no mortgage. I have some saving's accrued over the years, lets say 30k. I'm at the stage now where I'd like to start thinking long term, and perhaps putting my savings to some use.

    What I was thinking about doing was buying a 2 bedroom apartment in the Dublin area, perhaps Dundrum and hiring an agency to rent it out.

    I'm not looking to make any money on the property at the moment, even a 1/2k loss per year would be manageable. However, when running the math it looks like a 300k mortgage over 25 years is 1300 or so a month and most rentals are going for 2k plus in the Dundrum Dublin area.

    Anyway, I suppose my question is this.

    Am I mad to even consider this with the market and regulation uncertainty surrounding housing and landlords at the moment, and if so,

    are there better ways to Invest.


Comments

  • Closed Accounts Posts: 610 Andy Magic


    Please leave the housing market alone.


  • Moderators, Business & Finance Moderators Posts: 7,818 Mod ✭✭✭✭ Jim2007


    degra22 wrote: »
    are there better ways to Invest.

    Learn the difference between running a letting business and investing.


  • Registered Users Posts: 21 ✭✭✭ degra22


    Andy Magic wrote: »
    Please leave the housing market alone.
    Jim2007 wrote: »
    Learn the difference between running a letting business and investing.

    Thanks for the detailed feedback and niceties.

    With regards to investment, how is procuring a house with the aim of long term retention and ultimate sale of said asset not akin to investment?


  • Registered Users Posts: 7,494 ✭✭✭ BrokenArrows


    If you want to become a landlord then you need to research exactly what your responsibilities as a landlord are.

    1. The potential rental value is say 2k.
    2. Subtract the income tax due.
    3. Subtract guaranteed yearly maintenance costs (appliance servicing etc).
    4. Subtract possible maintenance costs. eg. Replacing broken appliances (fridge, microwave, diswasher etc)
    5. Subtract landlord insurance costs.

    Now after all this is done you will be left with a value that is likely to be lower than your mortgage costs.

    After all this you need to weigh up the risk of what you will do if:
    1. You cannot find a tenant for your expected rental value and need to reduce rent. This means your expenses increase.
    2. You cannot find any tenant at all.
    3. Your tenant stops paying. In this scenario you will not receive rent until they are evicted and you will need to pay legal fees to get them evicted. (Estimated 6-12 months of no rent + 5k in legal fees)
    4. Your tenant seriously damages the property leaving you with say 10+k in damages.

    These are the risks landlords must live with.

    If you cannot afford to take on these risks or dont want to then you shouldnt be a landlord.

    If you are willing to accept these risks for the potential financial gain then go for it.


  • Moderators, Business & Finance Moderators Posts: 7,818 Mod ✭✭✭✭ Jim2007


    degra22 wrote: »
    Thanks for the detailed feedback and niceties.

    With regards to investment, how is procuring a house with the aim of long term retention and ultimate sale of said asset not akin to investment?

    Because you break all the basic rules of investing, like:
    - No Borrowing to invest
    - Failure to diversify among asset classes and within the class
    - Fully invested in a single high risk asset class

    Generally speaking portfolios holding more than 7% or 8% in property is considered a high risk portfolio. Yours would be at 100%

    You can make and loose money in both, but the rules are different.


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  • Registered Users Posts: 480 ✭✭ FernandoTorres


    You're putting all your eggs in one basket. Actually you're putting all your eggs as well as 10 times more eggs that you've borrowed into one basket! This lack of diversification as well as the costs already outlined above make it a terrible investment idea. I know it may not seem like it from listening to the general Irish public and media but there are an infinite number of better investments than Dublin property right now. Before you invest anything, invest in reading some books. Plenty of good ones for beginners recommended on threads here.


  • Registered Users Posts: 1,282 ✭✭✭ scheister


    If you want to invest in property but the risks above are scaring you off. perhaps consider investing in some of the REITs in Ireland.


  • Moderators, Business & Finance Moderators Posts: 7,818 Mod ✭✭✭✭ Jim2007


    scheister wrote: »
    If you want to invest in property but the risks above are scaring you off. perhaps consider investing in some of the REITs in Ireland.

    Irish REITs are best avoided. Too small and too concentrated.


  • Registered Users Posts: 12,289 ✭✭✭✭ Mad_maxx


    Jim2007 wrote: »
    Because you break all the basic rules of investing, like:
    - No Borrowing to invest
    - Failure to diversify among asset classes and within the class
    - Fully invested in a single high risk asset class

    Generally speaking portfolios holding more than 7% or 8% in property is considered a high risk portfolio. Yours would be at 100%

    You can make and loose money in both, but the rules are different.

    Being a disciple of traditional orthodoxy doesn't make someone a genius, Irish property has vastly out performed the s+p this past twenty years, tenant laws are an issue but concerns about not being diversified are completely overdone


  • Registered Users Posts: 12,289 ✭✭✭✭ Mad_maxx


    Jim2007 wrote: »
    Irish REITs are best avoided. Too small and too concentrated.

    They constantly fail to match the real market too, add to that the yield is no better than a regular stoxx 600 fund


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  • Registered Users Posts: 12,289 ✭✭✭✭ Mad_maxx


    You're putting all your eggs in one basket. Actually you're putting all your eggs as well as 10 times more eggs that you've borrowed into one basket! This lack of diversification as well as the costs already outlined above make it a terrible investment idea. I know it may not seem like it from listening to the general Irish public and media but there are an infinite number of better investments than Dublin property right now. Before you invest anything, invest in reading some books. Plenty of good ones for beginners recommended on threads here.


    Same people who blather on about lack of liquidity and diversification, were saying the same thing in 2012, you will sell a house in any of the main cities and big commuter towns, so what if its not at the click of a mouse


  • Registered Users Posts: 900 ✭✭✭ seamie78


    who is going to lend at 90% ltv ratio for a buy to let


  • Registered Users Posts: 424 ✭✭ Aph2016


    Jim2007 wrote: »
    Because you break all the basic rules of investing, like:
    - No Borrowing to invest
    - Failure to diversify among asset classes and within the class
    - Fully invested in a single high risk asset class

    Generally speaking portfolios holding more than 7% or 8% in property is considered a high risk portfolio. Yours would be at 100%

    You can make and loose money in both, but the rules are different.

    Searching buy to let and this thread comes up, no borrowing to invest? Not sure if serious... maybe verging on trolling.


  • Registered Users Posts: 5,227 ✭✭✭ The J Stands for Jay


    Aph2016 wrote: »
    Searching buy to let and this thread comes up, no borrowing to invest? Not sure if serious... maybe verging on trolling.

    Borrowing to invest is a pro move. Not really to be entertained by someone who needs to ask advice on the basics from an internet forum.


  • Registered Users Posts: 56 ✭✭✭ SpencerJC


    A lot is up in the air at the moment with Irish property and the impact from COVID but there has been and it's likely that there will continue to be a shortage of property in Dublin. I think investing in buy to let property depends very much on your income. Like could you weather a storm? If rents went down significantly and you had to cover the mortgage for a few months or a percent of the mortgage for a longer period of time, could you manage this? Also, tax is a big factor as landlords are heavily taxed in Ireland. I know a lot here will say don't borrow to invest but the great thing about borrowing to buy a property that you will rent is that you might put 20% down and say have a 20-25 year mortgage and at the end, you will own the property. If you are lucky the rent will cover most/ all the repayments and at a minimum, you 5X your money - More than likely a lot more than this. It's not for everyone and there are risks and it goes against the idea of value investing but not everyone is warren buffet and just wants to put 30, 40, 50k to work with little knowledge around stocks which let's face it can be very volatile. Like everything, do your research, I know plenty of folks who have done very well off property in Dublin.


  • Moderators, Business & Finance Moderators Posts: 7,818 Mod ✭✭✭✭ Jim2007


    It's not for everyone and there are risks and it goes against the idea of value investing but not everyone is warren buffet and just wants to put 30, 40, 50k to work with little knowledge around stocks which let's face it can be very volatile. Like everything, do your research, I know plenty of folks who have done very well off property in Dublin.

    So with little knowledge of the risks involved your best solution is to borrow money in an asset class with significant higher risks than equities, fail to diversify etc...

    There will always be people who do well in every from pork bellies to property. But the research on recession after recession shows property does not do well for most investors.

    As for value investing... both Buffet and Munger are on record several times over pointing out that the majority of you should not be involved in value investing but rather a dollar cost averaging strategy on an index or similar fund.

    Volatility and risk are nothing the same thing. Most investment portfolios recovered quickly after the last recession and went on to new heights while properties took years to recover. And just to qualify that I’m talking about proper portfolios not the nonsense some people get up to.

    At the end of the day everyone will make their own decisions and hopefully they will make the right ones for them. But starting out with the premise that property investing is a low risk option is not supported by the facts.


  • Registered Users Posts: 12,289 ✭✭✭✭ Mad_maxx


    i own one residential property and one commercial , the residential i have leased for ten years to limerick city council since 2018 , small two bed terraced house , i dont even know who lives in the property , the local authority are the landord in this instance , im very happy with the return on investment so far , were i to consider buying a second residential property , i think i would chose this option again as the more conventional private letting arrangements are becoming too onerous on landlords , its now entirely politicised


  • Registered Users Posts: 56 ✭✭✭ SpencerJC


    Jim2007 wrote: »
    So with little knowledge of the risks involved your best solution is to borrow money in an asset class with significant higher risks than equities, fail to diversify etc...

    There will always be people who do well in every from pork bellies to property. But the research on recession after recession shows property does not do well for most investors.

    As for value investing... both Buffet and Munger are on record several times over pointing out that the majority of you should not be involved in value investing but rather a dollar cost averaging strategy on an index or similar fund.

    Volatility and risk are nothing the same thing. Most investment portfolios recovered quickly after the last recession and went on to new heights while properties took years to recover. And just to qualify that I’m talking about proper portfolios not the nonsense some people get up to.

    At the end of the day everyone will make their own decisions and hopefully they will make the right ones for them. But starting out with the premise that property investing is a low risk option is not supported by the facts.


    Yes, of course, understand as much as possible the risks involved. Like everything, there are pro's and cons. Property prices like any asset go up and down but do rise over the long term. As you are leveraging the bank's money, once you are in a good position to make repayments should something happen, you are going to come out on top as at the end of it all you will own the entire property, not just 20% - Property does give people the chance to create real wealth.


  • Registered Users Posts: 12,289 ✭✭✭✭ Mad_maxx


    jim takes an ultra orthodox traditional text book view of investing , unfortunately the approach needs to be more nuanced within the context of this country

    ireland is a not a friendly place for those who invest in funds , most people are not well informed enough to pick individual equities but with funds , the taxation policy is very draconian and bad for ones wallet

    there are very good reasons why irish people tend to invest in property


  • Moderators, Business & Finance Moderators Posts: 7,818 Mod ✭✭✭✭ Jim2007


    Mad_maxx wrote: »
    jim takes an ultra orthodox traditional text book view of investing , unfortunately the approach needs to be more nuanced within the context of this country

    ireland is a not a friendly place for those who invest in funds , most people are not well informed enough to pick individual equities but with funds , the taxation policy is very draconian and bad for ones wallet

    there are very good reasons why irish people tend to invest in property

    Ya because taking a high risk and sitting on negative equity is so much more satisfying that paying taxes on an actual gain.


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  • Registered Users Posts: 2,991 ✭✭✭ Taylor365


    Jim2007 wrote: »
    Ya because taking a high risk and sitting on negative equity is so much more satisfying that paying taxes on an actual gain.
    Move to Fermanagh Jim!


    Its raining tax free profits :D


  • Registered Users Posts: 468 ✭✭ PHG


    Hi OP,

    First thing, well done on the savings!! But if you don't have a pension start there before a buying a property to let.

    I don't really see all the points of diversification here (IMO diversification does not necessarily mean equities, Commodities, BTC etc.) and you cant be diversified in different sectors within equities. Also, when the world ends every few years most "diversified' stuff goes down the toilet. A few easy things to manage outside the pension is always a good to have, e.g. with 2000-4000 maybe own 1 or 2 shares, 4000-6000 3 to to 4 shares etc. It is very difficult to manage a portfolio of anything more than 6 shares or whatever else you buy/sell.

    The tax laws here are shocking!! A person in the higher tax bracket has to pay 40% on rental income minus deductions. It is a similar story on CGT on shares and ETFs are even a different beast, IMO stay away from them due to tax purposes. We really are so far behind on our investing tax culture here compared to the UK.

    Landlords are leaving the market at a faster rate then ever and please do not think you will 100% get the rent you see available now. What you see online currently may change in the coming months.

    A poster earlier mentioned the risks, make sure you take them into account like getting a crap tenant. I would also say 10% deposit is not enough. Why? Let's say you cannot rent the accommodation for the first few months, can you afford the mortgage repayments until you get one??? So make sure you have enough cash to survive.


    Hope that helps


  • Moderators, Business & Finance Moderators Posts: 7,818 Mod ✭✭✭✭ Jim2007


    Taylor365 wrote: »
    Move to Fermanagh Jim!


    Its raining tax free profits :D

    I already live in a country that give me tax free profits...


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