Buy to let - Does it worth as an investment?

Domicio · 09-10-2021 11:50pm #1

I'm 33 years old and my wife is 32 years old and we are currently thinking to get a buy to let mortgage with around 4% of interest rate and we were wondering if it worth as an investment.

Please find our current financial situation below:

We have a mortgage on the property that we live. The house worth today 300k and I've a 215k debt mortgage
I have 40k on a pension plan and I will keep adding money into it regardless the new investment
I have 60k in stocks
60k sitting in the bank

My plan'd be to get a buy to let mortgage up to 300k and use the 60k as a deposit and fees needed to buy the property. So I could potentially rent it out for up to 2k and I'd use it to pay both mortgages while I have two property that would be building up equity over time.

Does it make sense as a good investment?

893bet · 09-10-2021 11:57pm

https://www.boards.ie/discussion/2058212412/buy-to-let-does-it-worth-as-an-investment

Deposit of 60k prob not enough on a buy to let. Usually need 30 percent + I think.

Also the rent is taxable and 2k after tax is not going to service both mortgages.

kippy · 10-10-2021 12:05am

How secure are your jobs?

What type of investment property are you looking at?

Have you factored in higher interest rates and deposits for investment properties/tax on rental income/missed rental payments?

What is the term and rate on your existing mortgage?

Domicio · 10-10-2021 12:05am

https://www.boards.ie/discussion/comment/117999343#Comment_117999343

thanks for the quick reply. I'm flexible on shifting the current 40k in stocks into the buy to let if needed but ideally, the new house would be up to 250k.

Buying a property by 250k with 30% as deposit would bring the monthly mortgage payment down to a rough e800. I current pay e900 on my mortgage so the 2k taxable is not going to be too far away from the goal, right?

Also I'm currently saving 2k a month (after pension), so I'd have no problem on covering part of the second mortgage as well.

Domicio · 10-10-2021 11:29am

https://www.boards.ie/discussion/comment/117999363#Comment_117999363

I'm not working at the public sector but both of us work for a big US tech company so I would say as long as I want to stay, it is a quite secure job.

I would be looking for a house up to 3 beds. If it is ready to rent out is ok, otherwise I can also add an extra money to revamp it and earn money in the equity down the road. Does it answer your question?

Higher interest rates and a missed rental payments would defo be an issue but having in mind that a house in Dublin is increasing its price by avg. 10% a year, would it not worth the risk?

My existing mortgage is a 29 years term with 3% interested rate.

Domicio · 10-10-2021 1:13pm

My idea is with 120k setting in the bank/stocks, through stocks I could easily get 10% of it per year that I would reinvest for sure. After 3 years, I would have 160k.

Let's say that I bought a house for 240k with 50% as deposit (120k). After 3 years through the property market, I could sell the house for 319k (10% increase a year).

So it means that owning a buy to let house, I would have earn the same 10% mentioned above at the same time that I would also earn 10% from the 120k that I borrowed. Therefore, after 3 years I would have 160k from my own money plus another 40k from the house valuation and this last piece is what I'm seeing as a great investment as I would have someone else paying my mortgage through the rental payments.

dotsman · 10-10-2021 2:40pm

There are a lot of factors that you are not considering.

Firstly, when it comes to property vs shares, you are forgetting that the property in your case is leveraged. So you should really compare property investment to margin trading. And if you think margin trading is high risk (which it is!), it might also highlight that property investment (through debt) also is.

The 10% return figure you are using for shares is because, for the past 50 years, that has been the average return for the S&P 500. And while shares are volatile, the good news is that, your portfolio does recover and continue to grow dramatically after a crash (assuming no leverage), therefore, you can look to that 10% average return. However, with leveraged investing such as mortgaged buy-to-let, there is strong chance you won't survive a crash, will not only lose everything, but lose beyond that (your other money/home etc). Therefore, you need to greatly concern yourself with the individual annual growth/decline. Even predicting that house prices will grow by 10% a year for the next 3 years is a very wild and dangerous prediction. With Irish property prices extremely expensive and rental amounts even more so, and we still haven't seen the end of the economic affect of the pandemic, an investor does need to appreciate the risk of a deep collapse in prices/rents in the near future.

Do you mind me asking where you are looking to purchase for 300K and get a monthly rent of 2K? That looks like an excellent return, but I would be wary of other factors as it is unsustainable.

Which brings me to "location, location, location". Far too many amateur investors got burned in the last crash because they began buying anything anywhere towards the end of the Celtic tiger, and often at huge leverage. When looking at a location, don't just look at it's popularity today, but what it will be like into the future. What type of tenant are you looking at? Students? Young Professionals? Families? Tourists? Temp Workers? High/middle/low earners? Depending on the tenant type you are focusing on, you need to ensure that the location is is not just in demand today (because everywhere is with people being desperate), but will continue to be high demand long into the future (even with a change in the economy and property market).

Other factors to consider include assuming only 11-months rent per year when calculating annual rent, outlay for continuously keeping the property and internal décor up to spec (assume you will regularly need to repaint, refloor and replace furniture/fittings etc far more often that you would your own home as wear and tear will be far higher). You also need to have at least a year's rent in cash on standby - remember you are buying a single property, so all your eggs are in one basket, so a single bad tenant can destroy you (not pay rent for over a year before you can evict/do considerable damage to the property etc). Would you let the property directly, or through a letting agency? Have you factored in property taxes and management company fees? Have you factored in income taxes as ~half that rent is going straight to the tax man?

Another thing is I think you need to appreciate how much you will need for the initial outlay. Firstly, most banks will insist on a max LTV of ~70% for a BTL. Next, the interest rates are much higher than for purchasing you own home, so assume 5% for now. Next, you will need to put in a lot of money to furnish the place. If looking at the higher end of the market in terms of tenants (and rents), you will need to really do up the property to a high spec (possibly new kitchen/bathrooms/flooring/lighting and exterior/gardens if a house). You will also need to consider legal fees and other small fees.

Just one final observation. Why do you have 60K in stocks and 60K in cash? Why isn't all that money in stocks appreciating nicely? Is it because of risk aversion (which is fine!)? If so, putting all that into property is greatly increasing your risk exposure (far more than if it was all in stocks), so you need to make sure you and your wife are comfortable with that risk.

I'm not trying to talk you out of investing! But you will notice that a common theme on the accommodation forum is about amateur investors getting out of property investment. To me, far too many people get into it dreaming of the "happy path" without considering/planning for the numerous risks and downsides. There absolutely is great money to be made over the long term, but it is not as much, nor as easy, nor as "guaranteed" as many people originally think.

One final thing - buying a property and selling it 3 years later is not "property investment". It is "flipping". Property investment is where the focus is on the long-term rental yield and about buying with the intention of holding for decades (often for life, before passing on to the next generation through inheritance etc). Flipping is about trying to cash in on short-term growth in the property price and is pure gambling, and made a lot of people a lot of money (on paper anyway) at the start of the millennium. But it also burned countless people in the 08' crash. If you are looking at that sort of "investment", I would suggest crypto (not joking!).

someissues · 11-10-2021 10:39am

Snip: deleted content of duplicate post

someissues · 11-10-2021 11:04am

The main problem at the moment is government and opposition anti sentiment to private landlords due to populism and lazy thinking. I was literally about to transact on BTL but have pulled the plug on the idea now.

The opposition are pushing a bill through at the moment,(which the government say they will not oppose) that means a landlord cannot evict on grounds that they need to sell the property. This means you need to sell on with tenants in situ. There is a high risk the property would only sell at a significant discount.

Also, they are talking about rent freezes for next 3 years, and making the entire country a RPZ.

someissues · 11-10-2021 11:08am

Also to add, having been viewing apartments, it is very very obvious lots of private landlords are currently selling up and getting out. I've come across sales of multiple apartments in the same block by the same landlord (not institutional according to the agent) being sold in 2 at a time.

ted1 · 11-10-2021 11:15am

https://www.boards.ie/discussion/comment/118000260#Comment_118000260

3% is vey high these days. I suggest the first thing you should do id to get a lower rate.

ted1 · 11-10-2021 11:19am

https://www.boards.ie/discussion/comment/118000577#Comment_118000577

you will have capital gains tax, management fees, solicitor fees, estate agent fees (could be 5-7k). all taking away so your figures will be off. also 10% growth is very optimistic. as a rental and with fixed rent increase you wont see the gain as the yield is limited, as any potential rent is restricted.

billyhead · 12-10-2021 11:58am

Whatever about the current governments policy on renting which imo they have a self interest in keeping rental prices high if and it looks likely Sinn Fein get into power in the next Government they will be anti private landlord.

Static M.e. · 13-10-2021 2:53pm

@dotsman What do you think about BTL when you rent the house to the County Council for 20 years? I have heard about it but don't know too much apart from that they pay you 80% of the going rate in the area. It seems like a good long term investment strategy if you have a second home and want to keep it by renting.

Shedite27 · 13-10-2021 3:00pm

If you're buying as an investment you have to think a little differently to buy to live. Essentially you want the most rental income for the least outlay. The rental market at the moment is fairly propped up by HAP, that is causing a floor. You can by a 2 bed in Balbriggan for €150k, get €1600k a month income, and have the whole house paid off in about 12 years. If you buy a €300k house somewhere, are you going to get double the income? Unlikely. How long will that last, nobody knows, if you had that in 2008 you would be stuck with it for sure.

Example Balbriggan to buy: https://www.myhome.ie/residential/brochure/57-bremore-pastures-way-balbriggan-county-dublin/4536748

To Rent: https://www.daft.ie/for-rent/apartment-barons-hall-grove-balbriggan-co-dublin/3566142