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Is this a good deal on a buy to let investment

  • 16-06-2019 2:47pm
    #1
    golfdiva
    Registered Users Posts: 222 ✭✭


    Hi All

    I caught up with an old college buddy this weekend. He has been working in the middle east the last 10 years and has managed to save a sizable amount in cash.

    He is from Cork and looking to buy an investment property there. It will soley be used to provide an income as he is will be moving back shortly and looking to give up work.

    He has looked at quite a few places but seems to have narrowed it down to one in particular. It is a 5 bed house ( all 5 beds ensuite ) . Good condition with a decent size kitchen /living room.

    Its price is €280k but he will be lucky enough to need no mortgage .

    House is let individually into 5 bedrooms. Each tenant pays €600 per month. It brings in €36k a year . The current agent will do the letting so takes 10%.The landlord pays bins , broadband & heating so will have expenses.



    Seems a good return to me but I am no expert/experience. The house is 10 minutes from the city on the north side so don’t think it will ever appreciate much but this isn’t the reason he is buying.

    What ye reckon about this deal? He has never been a landlord so may be a baptism of fire.


Comments

  • #2
    ted1
    Registered Users Posts: 23,241 ✭✭✭✭ted1


    I’d question paying an agent 3,600 euro. What does he do for that?


  • #3
    Spanish Eyes
    Registered Users Posts: 15,865 ✭✭✭✭Spanish Eyes


    Sorry, I don't wish to sound mean, but if friend is in the lucky position to be able to buy a property for cash, he can afford some professional legal/taxation advice also.

    No point relying on internet replies, they can give a steer but that's all. Many factors to consider really.


  • #4
    antoinolachtnai
    Registered Users Posts: 9,773 ✭✭✭antoinolachtnai


    Ultimately it depends on how much he knows about the property in particular and property in general in Cork, and if he is satisfied it will go up in price. There will be a good bit of ongoing work with a property like this. He would be extremely unwise to buy the property whilst it is occupied. He would need to have vacant possession. He needs to understand the tax implications. He needs to compare the price with what neighbouring properties are getting and he needs to have professional advice to be happy with the title and that the structure is sound.

    But if he doesn't mind paying tax and doesn't mind a bit of hard work, and is confident in Cork house prices, it could be good.


  • #5
    Lumen
    Registered Users Posts: 31,008 ✭✭✭✭Lumen


    Relying on 3k/month rent from a house in an apparently unattractive area of Cork city seems a bit brave, but since it's unleveraged the risks are mostly limited to a poorer than expected yield.


  • #6
    AndrewJRenko
    Registered Users Posts: 28,324 ✭✭✭✭AndrewJRenko


    It would also depend on his overall financial position, his appetite for risk and how much of his personal wealth he wants to focus on the Irish residential property market.


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  • #7
    [Deleted User]
    Posts: 0 ✭[Deleted User]


    He'll no longer be Irish domiciled and he'll need to consider other tax issues if moving back to Ireland.


  • #8
    Mad_maxx
    Registered Users Posts: 13,505 ✭✭✭✭Mad_maxx


    Apartments are better BTL investments if income is the number one priority, higher yield and cheaper maintenance


  • #9
    redarmyblues
    Registered Users Posts: 972 ✭✭✭redarmyblues


    Mad_maxx wrote: »
    Apartments are better BTL investments if income is the number one priority, higher yield and cheaper maintenance

    Mid terrace 2 beds in mature local authoritiy estates are the best BTLs, they can yield 10 to 15% have no management fees, low maintenance, ready to rent, are easy to insulate cheaply, are done to similar designs and generally hold surprises, no risk of the upstairs neighbor flooding and collapsing your ceiling, no common areas etc, etc


  • #10
    pwurple
    Closed Accounts Posts: 12,449 ✭✭✭✭pwurple


    Ok, where to start with this one!


    First of all, if it is such a good investment, think about why is it being sold? Instability in the rental market is an issue for landlords. Loads of issues, but one your friend may not be aware of, is that tenants can overhold (stop paying rent) for up to 2 years, before you can evict them. Can he sustain 2 years of no income? There is a rent pressure zone in Cork, which means he will not have control over the rent he sets after the first year, and god only knows what other changes govt will make, they have changed the rules on renting every year for the last decade.


    You're not factoring in Tax. This is critical, as it's what wipes most landlords out. Property tax, tax on rental income. PRTB registration fees. Preliminary tax (paying tax on the income you didn't receive yet). Etc etc etc.

    Covering all utilities is leaving himself open for service abuse. I have a set of Portuguese tenants who have the thermostats set to 30 degrees, they REALLY like the heat. Their heating bill is around 400 a month. Those expenses also can't be offset against tax as far as I know, but check it.


    The agent is a necessity.

    No comment on location as not enough info given.


  • #11
    Mad_maxx
    Registered Users Posts: 13,505 ✭✭✭✭Mad_maxx


    redarmyblues wrote: »
    Mid terrace 2 beds in mature local authoritiy estates are the best BTLs, they can yield 10 to 15% have no management fees, low maintenance, ready to rent, are easy to insulate cheaply, are done to similar designs and generally hold surprises, no risk of the upstairs neighbor flooding and collapsing your ceiling, no common areas etc, etc

    In terms of yield perhaps but a two bed apartment in a middle class area for the same purchase price is a better asset


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  • #12
    Mad_maxx
    Registered Users Posts: 13,505 ✭✭✭✭Mad_maxx


    pwurple wrote: »
    Ok, where to start with this one!


    First of all, if it is such a good investment, think about why is it being sold? Instability in the rental market is an issue for landlords. Loads of issues, but one your friend may not be aware of, is that tenants can overhold (stop paying rent) for up to 2 years, before you can evict them. Can he sustain 2 years of no income? There is a rent pressure zone in Cork, which means he will not have control over the rent he sets after the first year, and god only knows what other changes govt will make, they have changed the rules on renting every year for the last decade.


    You're not factoring in Tax. This is critical, as it's what wipes most landlords out. Property tax, tax on rental income. PRTB registration fees. Preliminary tax (paying tax on the income you didn't receive yet). Etc etc etc.

    Covering all utilities is leaving himself open for service abuse. I have a set of Portuguese tenants who have the thermostats set to 30 degrees, they REALLY like the heat. Their heating bill is around 400 a month. Those expenses also can't be offset against tax as far as I know, but check it.


    The agent is a necessity.

    No comment on location as not enough info given.

    Why it's " being sold" is irrelevant, people sell all the time for a myriad of reasons, in the case of myself I made a horrible decision to sell an apartment over two years ago, saw a 37% gain in the sixteen months I owned it but that was because I bought it silly cheap, person who bought also got it cheap and is able to charge 50% higher rent than I was getting

    People sell for all sorts of reasons


  • #13
    pwurple
    Closed Accounts Posts: 12,449 ✭✭✭✭pwurple


    Mad_maxx wrote: »
    Why it's " being sold" is irrelevant, people sell all the time for a myriad of reasons, in the case of myself I made a horrible decision to sell an apartment over two years ago, saw a 37% gain in the sixteen months I owned it but that was because I bought it silly cheap, person who bought also got it cheap and is able to charge 50% higher rent than I was getting

    People sell for all sorts of reasons

    They sure do. Hence, always a good idea to find out why!
    Arm yourself with info.


  • #14
    the_syco
    Registered Users Posts: 37,295 ✭✭✭✭the_syco


    golfdiva wrote: »
    House is let individually into 5 bedrooms. Each tenant pays €600 per month. It brings in €36k a year . The current agent will do the letting so takes 10%.The landlord pays bins , broadband & heating so will have expenses.
    36k before tax. Also, does the €600 include bills?


  • #15
    redarmyblues
    Registered Users Posts: 972 ✭✭✭redarmyblues


    Mad_maxx wrote: »
    In terms of yield perhaps but a two bed apartment in a middle class area for the same purchase price is a better asset

    Those old terraces and the problems they have, are known knowns, mostly the formation of mold, also the original chimney will fail due to expansion of cracking in the concrete caused by ice. Recent apartment builds potentially have all sorts of problems hidden from view. Terraces if you pick your neighbourhood tend to gentrify slowly. I lived in an apartment that was in a sought after block, river view with balcony etc, when I moved in there were Doctors for neighbors when I moved out junkies to the right, travelling whorehouse to the left.


  • #16
    fash
    Registered Users Posts: 2,271 ✭✭✭fash


    My family and I have several rental properties in Cork and I reasonably understand at least parts of the market. My views are from a buy to hold, look at yield perspective.

    From a yield perspective etc., the proposed purchase sounds good.
    I would have no concerns about the RPZ and being “stuck” renting at the current levels - the yield is already great (and frankly at the limits of affordability for people paying rent) - hence why would/should you be concerned about increasing it? Why would you not be satisfied with a 10% yield?
    In any case, as an old fully owned property, there are likely opportunities (full insulation retrofit etc.) if you really, really wanted to increase yield.
    I would also be unconcerned about the amount of time to kick out a bad tenant - the proposal is to rent room by room - so the risk is significantly lower. (Although there is a small risk that you would have someone who was borderline anti-social but not sufficiently to get kicked out. From the scenario you describe, I would be slightly concerned about the fact that it sounds like this is to be the only source of income).
    I would also not be worried that someone is selling a 10% yielding property - they could have all sorts of reasons for doing so: they need the money, the don’t want the hassle, the owner died and the property is being sold to divide among multiple beneficiaries etc.

    The location of the property would be very important. Is the property outside the city? Or inside - inside the city, there is a reasonable demand in the north of the city because of the Blackpool centre IT places as well as Apple. It is best if the property is within walkable distance of wherever it needs to connect to (especially one where people are renting room by room - which indicates the kind of compromises the renters are making).
    It is good to think about how attractive the location is if there is a downturn. Areas around Wilton or Blarney for example during the downturn (both the lull around 2001 and the one starting 2008/9) are worse affected than city centre locations. The “would I be happy to live here” way of thinking is a good mindset to have to test whether it is good idea to purchase.

    In addition, it would be important to understand whether the property needs much work either immediately or shortly (roofs, windows, heating system, electrics, plumbing etc.).
    If someone is getting into landlording, they’ll also need a good electrician, plumber, gas servicing person (if applicable) builder and carpenter on standby.
    Your friend should also understand that some work will be required and that it is best if he is interested in and cares about the place he plans to purchase.


  • #17
    Mad_maxx
    Registered Users Posts: 13,505 ✭✭✭✭Mad_maxx


    pwurple wrote: »
    They sure do. Hence, always a good idea to find out why!
    Arm yourself with info.

    And how can you know whether the reasons presented are correct?


  • #18
    Mad_maxx
    Registered Users Posts: 13,505 ✭✭✭✭Mad_maxx


    redarmyblues wrote: »
    Those old terraces and the problems they have, are known knowns, mostly the formation of mold, also the original chimney will fail due to expansion of cracking in the concrete caused by ice. Recent apartment builds potentially have all sorts of problems hidden from view. Terraces if you pick your neighbourhood tend to gentrify slowly. I lived in an apartment that was in a sought after block, river view with balcony etc, when I moved in there were Doctors for neighbors when I moved out junkies to the right, travelling whorehouse to the left.

    I own a two bed terraced house in Limerick city that is over a hundred years old, it's amazing how well they were built, I've mine let to the council for ten years, the house cost 72 k to buy and I get paid 850 per month with no responsibility for the tenant

    Place I bought won't gentrify however


  • #19
    sk8board
    Registered Users Posts: 3,157 ✭✭✭sk8board


    Person moves abroad 10 years ago, does well, looks to move home with cash in hand and has a view of the homeland from abroad - he could be any one of thousands of people this year alone.

    Ask him does he want to be a landlord? Actually want to be a landlord.

    The agent will only act as your phone answering service and handyman/plumber-booking - in reality they’ll still need you to approve any work or tenant changeovers.
    The last thing the market needs is another guy with cash, looking for an investment return, without considering that tenants are humans and do human things (both good and bad things!).

    If the answer is yes, then go by what the calculator says - if the yield is good, and he wants to be a residential landlord, then work away.

    I’m a full time LL btw, in similar situation to your friend.
    Always trust your calculator - Do the calculations with 10-15% lower rent, subtract a few of the monthly rental payments for the inevitably higher tenant changeover he will have (5x12 = 60 annual payments).
    Subtract all costs and property taxes and don’t make the mistake of assuming there will be low maintenance - there will be plenty maintenance in a place with the wear and tear of 5 adults, and their fiends or partners coming by too.

    Now he’s got to the taxable amount (let’s say that’s €28-30k, I’m just surmising).
    PWC have a great budget 2019 income calculator which says he’ll have just about €2k in monthly post tax income to live on.

    We haven’t even begun to look at this persons future financial planning for family, illness, cars, pensions etc, but even from 2 mins of reading here, I can tell he won’t be living off this single property unless he has huge investment yields from other verticals (equities, ETFs, shares, bonds, deposits etc).
    We also assume he’ll be buying somewhere to live himself in cash and has no mortgage etc.

    I have no mortgage on my current PPR, and have rental income from 4 single-family houses to make ends meet (all in dublin commuter areas, and only 2 small mortgages <50% ltv), and we don’t have a flashy lifestyle!

    I think he might be another returning emigrant with cash and a dream - which is fine, if he dreams bigger and has enough cash for more passive income than just this one property. Otherwise he needs a job to supplement his income.


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