Buy to Let

degra22 · 27-03-2019 11:39am #1

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.

Samuel T. Cogley · 27-03-2019 1:10pm

You'll need c.25% deposit for a BTL, AFAIK.

Is that 1300 calculated on the much higher rates BLT mortgages run at?

degra22 · 27-03-2019 2:51pm

Fair enough, I'll change my initial post slightly,

I would be classified as a first time buyer, so looked at the rates that way.

With this in mind, what do you think?

Samuel T. Cogley · 27-03-2019 2:56pm

degra22 wrote: »

Fair enough, I'll change my initial post slightly,

I would be classified as a first time buyer, so looked at the rates that way.

With this in mind, what do you think?

FTB doesn't apply to BTL. Are you buying the apartment to live there also? If so you can avail of rent a room tax relief.

You may lose your status as a FTB if you purchase a BTL property. A BTL mortgage would be significantly more than 1300 although interest can be offset against tax.

degra22 · 27-03-2019 2:58pm

Samuel T. Cogley wrote: »

FTB doesn't apply to BTL. Are you buying the apartment to live there also? If so you can avail of rent a room tax relief.

Thanks Samuel, understood. Wasn't aware FTB required you to live there but I see that now.

Okay, so say I could accrue another 30-40k over the next 3 years or so. Is it worth it or should I put my 75k somewhere else?

Samuel T. Cogley · 27-03-2019 3:00pm

degra22 wrote: »

Thanks Samuel, understood. Wasn't aware FTB required you to live there but I see that now.

Okay, so say I could accrue another 30-40k over the next 3 years or so. Is it worth it or should I put my 75k somewhere else?

It's really anyone's guess what the rental market will be like in 3 years or so I'm afraid.

SteM · 27-03-2019 3:06pm

Don't just look at rental in Dundrum now, look at what rental in Dundrum was during the last recession. Then ask yourself if you'd still be in a comfortable position if the rents were to drop to close to that again. Maybe Dundrum rental was high during the last recession, I'm not sure.

zreba · 27-03-2019 3:18pm

degra22 wrote: »

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.

You want to invest money or borrow money to speculate? If former then maybe. If the later, then you're basically asking for trouble. First economic downturn and you're going down the drain.

degra22 · 27-03-2019 3:38pm

SteM wrote: »

Don't just look at rental in Dundrum now, look at what rental in Dundrum was during the last recession. Then ask yourself if you'd still be in a comfortable position if the rents were to drop to close to that again. Maybe Dundrum rental was high during the last recession, I'm not sure.

zreba wrote: »

You want to invest money or borrow money to speculate? If former then maybe. If the later, then you're basically asking for trouble. First economic downturn and you're going down the drain.

Thanks all, very informative and helpful, much appreciated. I have a lot of thinking to do.

In an economic downturn with my current job and no mortgage commitments I could probably cover the cost of the mortgage if worst came to worst and it wasn't occupied for a number of years.

I suppose I'd steer away from FTB and BTL. I assume I could get a mortgage with 10% deposit at the moment without any of those schemes and without the stipulation that it be owner occupied?

Bandana boy · 27-03-2019 3:40pm

Income
2000 *10 (good practice to assume one month lost in between rentals and 1 month to firm to manage it for you )
20,000
tax ~8,280(22,000-3600(tax relief))

11,720

Outgoings
Mortgage 15, 600
maintenance 1,400
property tax 585

Total 17,585

So you will pay #5,865 from personal money to keep mortgage paid

for 25 years 146,625 plus your 30K deposit

assuming property stays stable you will invest 176k for a return of 330K or ~4.2% return on investment

There is both downsides and upside to the above scenario you would want to apply some tests to rent dropping 10-20% interest rates increasing to see if still viable for you

zreba · 27-03-2019 3:55pm

The high rents have been pushing the property market up. People do exactly what you just did. They calculate the return under the current rents assumptions. Current rents level is not sustainable. Rents are so high because of the supply crisis, which is being slowly addressed. A drop in rent costs will take some heath off the property market. People like to calculate the ROI and when it looks as good as 10% ROI per annum then what do we do? We BUY, BUY, BUY.

Assume the long term ROI on rental of 4-5% with your calculation and see how this works out for you. If you can keep such investment up then go for it.

With such assumption a 300k property would generate 1200-1250 EUR rental income per month and not the 1600-1800 achievevable today.

There's also this risk, that property prices go down and so your rental income...

Bandana boy · 27-03-2019 4:03pm

Assuming you pay top tax rate the €5,800 a year you need to supplement the rental income would probably perform better with far lower risk in a Pension plan.

That said its not the worst idea in the world to have more than one type of pension plan .

Claw Hammer · 27-03-2019 4:05pm

There are relatively few people buying, even with the current high rates of return. The hassle factor and taxes and the regulatory regime are very off-putting. the property market is cyclical and timing is key. A well timed purchase of a BTL can be a life changing move as can a poorly timed investment. The time to buy is before the end of a downswing. The time not to but is at the end of an upswing. rents have been rising for years in Dublin but the froth is beginning to blow off and rents are slipping back slightly. It would be better to avoid getting into a service charge regime in a BTL.

Fian · 27-03-2019 4:41pm

Make sure you understand that if you buy in Dundrum, which is in a RPZ, you are restricted to 4% per annum increases based off the last rent charged in the appartment - you don't get a fresh start at market rent just because you have just bought the place.

I have an appartment in Dundrum, happy with it as an investment but be aware that even though i bought in 2013 close to bottom of the market I continue to subsidise the appartment. Which is fair enough since in 2033 I will own it mortgage free and presumably something between now and then the after tax rent will be enough to cover the mortgage payments + management charge in full.

august12 · 27-03-2019 4:44pm

What is your current living arrangement? The least hassle would be buying a property you would live in, this gives you FTB status if you haven't previously bought and you could rent a room tax free within the limits which avoids the RTB rules.

DubCount · 27-03-2019 8:25pm

There is so much to consider here.
- A Buy2Let mortgage will require a minimum LTV of 70%, so 30k will not go very far as a deposit
- A Buy2Let mortgage will have higher interest rates than a homeowner mortgage. Think circa 5%
- Capital repayments on mortgage repayments are not allowable for tax, so its possible that total outgoings exceed total income, and to still end up with an income tax liability
- You need more money behind you in case of emergencies (repairs, works to comply with HAP, non-paying tenants....)
- Rental yields in leafy south Dublin are too low, as prices are pushed up by demand from buy2occupy buyers.
- Comparative returns from other investments have not been considered.

I think there is more homework required to understand the risk/return of this type of investment before going down this route.

Buy to Let

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