Closing on an investment property 16.04.2013

MMAGirl

I think its worth a punt at this point.
Im closing on an investment property tomorrow.
Numbers are good.
Basically I put up 25k deposit and then the mortgage is going to cost me no more than a days wages per month and at the moment the rental income will be twice what the mortgage is.

Thats workable and I think i'll be doing it again soon.
Brother in law already has two apartments in the same place.

Galego

MMAGirl wrote: »

I think its worth a punt at this point.
Im closing on an investment property tomorrow.
Numbers are good.
Basically I put up 25k deposit and then the mortgage is going to cost me no more than a days wages per month and at the moment the rental income will be twice what the mortgage is.

Thats workable and I think i'll be doing it again soon.
Brother in law already has two apartments in the same place.

What is the yield in that property?

MMAGirl

Galego wrote: »

What is the yield in that property?

Small bit north of 10%.

There's a great thread called Darren's property portfolio. I did loads of research all over the place but that thread is one of the most useful. He doesn't update it anymore which is a pity.

To simplify it more though. I out up 25k to cover deposit, solicitor etc. I should have no more to put up that doesn't come from the rent. After taxes and expenses I'm looking at getting just less than 10% of that 25k back every year.
So at the end of the day I outlay 25k for a return of 10% After taxes per year and the apartment will be all paid off eventually as a side effect.

Glenbhoy

MMAGirl wrote: »

Small bit north of 10%.

There's a great thread called Darren's property portfolio. I did loads of research all over the place but that thread is one of the most useful. He doesn't update it anymore which is a pity.

To simplify it more though. I out up 25k to cover deposit, solicitor etc. I should have no more to put up that doesn't come from the rent. After taxes and expenses I'm looking at getting just less than 10% of that 25k back every year.
So at the end of the day I outlay 25k for a return of 10% After taxes per year and the apartment will be all paid off eventually as a side effect.

Are bank's happy to give BTL mortgages on apartments though?? I thought that BTL mortgages were proving extremely difficult to obtain and mortgages on apartments are also proving extremely difficult to obtain, so putting them together should have been a total no-no??

Galego

MMAGirl wrote: »

Small bit north of 10%.

There's a great thread called Darren's property portfolio. I did loads of research all over the place but that thread is one of the most useful. He doesn't update it anymore which is a pity.

To simplify it more though. I out up 25k to cover deposit, solicitor etc. I should have no more to put up that doesn't come from the rent. After taxes and expenses I'm looking at getting just less than 10% of that 25k back every year.
So at the end of the day I outlay 25k for a return of 10% After taxes per year and the apartment will be all paid off eventually as a side effect.

10% is an amazing return but to my knowledge you calculate the annual rental yield of a property but annual rental income (less operating expenses) / total invested amount in the property (included all related costs of acquisition).

I was pretty sure that it was pretty much a ROE formula. Please correct me if I am wrong.

Glenbhoy

Galego wrote: »

10% is an amazing return but to my knowledge you calculate the annual rental yield of a property but annual rental income (less operating expenses) / total invested amount in the property (included all related costs of acquisition).

I was pretty sure that it was pretty much a ROE formula. Please correct me if I am wrong.

So the 10% yield is actually 10% on the initial investment of 25K?? Re-reading MMAGirl's post I can see how you'd come to that conclusion.

You are correct of course, yield is not calculated on the amount of cash you invest, but rather on the amount of the investment which must also include all borrowings required to acquire the asset.

MMAGirl

Glenbhoy wrote: »

So the 10% yield is actually 10% on the initial investment of 25K?? Re-reading MMAGirl's post I can see how you'd come to that conclusion.

You are correct of course, yield is not calculated on the amount of cash you invest, but rather on the amount of the investment which must also include all borrowings required to acquire the asset.

The return on the 25k i gave is not a yield calculation. It just happens by coincidence that yield calculation gives roughly the same figure as the yearly return on the 25k. That return is after tax too. There are numerous sources for getting the formula for yield if you google it.

If banks aren't giving mortgages I can't say I noticed any difficulty. But I suppose the bank is the place to ask about that one. I'm sure they refuse some and lend to others at their discression.

Hoop66

Excuse my (maybe) silly question, but does this mean that if I buy an apartment for 100k and the rent is 10k/year, that I'm getting 10% yield?

MMAGirl

Hoop66 wrote: »

Excuse my (maybe) silly question, but does this mean that if I buy an apartment for 100k and the rent is 10k/year, that I'm getting 10% yield?

No. Look up yield calculations and you can work some examples. There will be different formulae and some are more meaningful than others.

flintash

MMAGirl wrote: »

No. Look up yield calculations and you can work some examples. There will be different formulae and some are more meaningful than others.

why do you say no? i see 10% before taxes ,expenses,maintanance,,etc. well,whats left after that its different in each case.isnt it?

Galego

Hoop66 wrote: »

Excuse my (maybe) silly question, but does this mean that if I buy an apartment for 100k and the rent is 10k/year, that I'm getting 10% yield?

Yes. Annual Income/investment * 100 = annual rental yield

This is with the assumption that there are no annual operating expenses or any cost of finance on the 100k.

MMAGirl

flintash wrote: »

why do you say no? i see 10% before taxes ,expenses,maintanance,,etc. well,whats left after that its different in each case.isnt it?

At its simplest If you buy a 100k property it will cost you more than 100k before you rent it out. Just google yield calculations.

Hoop66

OK, I should clear up. If I spend 100k total on a property and I rent it out at 830/month. does THAT mean I get 10% yield?

Next question:

I have (or will have) a cash sum within the next 6 months or so. Would anybody recommend buying a city-centre apartment for cash? The idea being that if there is no mortgage to service, all rent is profit and this makes it much easier to weather any periods where I have no tenant in the apt.

Slightly off-topic, I know, but it could be tenuously related to Dublin property prices.

Galego

Hoop66 wrote: »

OK, I should clear up. If I spend 100k total on a property and I rent it out at 830/month. does THAT mean I get 10% yield?

Next question:

I have (or will have) a cash sum within the next 6 months or so. Would anybody recommend buying a city-centre apartment for cash? The idea being that if there is no mortgage to service, all rent is profit and this makes it much easier to weather any periods where I have no tenant in the apt.

Slightly off-topic, I know, but it could be tenuously related to Dublin property prices.

To be accurate in the answer we would need to know:

From an expense point of view:
- Annual running expenses related to the property.
- If a loan, annual interest paid.
- Any possible taxes paid annually.

From a finance cost:
- Any costs related to the acquisition of the property (e.g. solicitor, stamp duty, etc)

roro2

Hoop66 wrote: »

OK, I should clear up. If I spend 100k total on a property and I rent it out at 830/month. does THAT mean I get 10% yield?

Yes, 10% is the gross yield. It ignores the costs of buying the property, ongoing expenses, tax, etc. And it is not dependent on how the purchase was financed - i.e. with a mortgage or cash. It is probably the most relevant measure when comparing property investments as tax will be dependent on an individual's circumstances and any mortgage financing, while costs may also be different for different people.

Net yield will be lower, it takes account of costs and is probably more useful on an individual basis.

Galego

roro2 wrote: »

Yes, 10% is the gross yield. It ignores the costs of buying the property, ongoing expenses, tax, etc. And it is not dependent on how the purchase was financed - i.e. with a mortgage or cash. It is probably the most relevant measure when comparing property investments as tax will be dependent on an individual's circumstances and any mortgage financing, while costs may also be different for different people.

Net yield will be lower, it takes account of costs and is probably more useful on an individual basis.

+1

Amen to that although cost of finance will play a big role on any investment return.

mari2222

The gross yield on 100,000 apartment whose rent is 10,000 per year is 10%.
The calculation is useful for comparison with, for example, putting the money in a bank for a year, which at present might yield around 4%. The 4% is also "gross" as there will be DIRT deducted.

But having a way of calculating gross yield is useful for either looking at trends (changes over time) or comparing investments in different sectors.

MMAGirl

Hoop66 wrote: »

OK, I should clear up. If I spend 100k total on a property and I rent it out at 830/month. does THAT mean I get 10% yield?

Next question:

I have (or will have) a cash sum within the next 6 months or so. Would anybody recommend buying a city-centre apartment for cash? The idea being that if there is no mortgage to service, all rent is profit and this makes it much easier to weather any periods where I have no tenant in the apt.

Slightly off-topic, I know, but it could be tenuously related to Dublin property prices.

Do a search for Darrens property portfolio.

StillWaters

Whilst all your rent is profit, it also means it is all taxable (bar allowable expenses) with a mortgage, you can offset 75% of the interest against tax. So as well as the adage of spreading your investments, eggs in baskets etc, it can make sense to leverage to buy an investment property.

Really if you are coming into that sort of money you should seek independent financial advice.

murphaph

mari2222 wrote: »

The calculation is useful for comparison with, for example, putting the money in a bank for a year, which at present might yield around 4%. The 4% is also "gross" as there will be DIRT deducted.

This is exactly where gross yield is not useful surely because the DIRT is basically fixed for everyone (so they can give you an AER that accounts for DIRT being deducted, whereas nobody can give you a simple net yield for a given property without knowing many other factors)

The net yield is all that matters at the end of the day, be that the net yield on rents or the net yield on your deposit (after DIRT is all that matters to me at the end of the day)

Glenbhoy

MMAGirl wrote: »

The return on the 25k i gave is not a yield calculation. It just happens by coincidence that yield calculation gives roughly the same figure as the yearly return on the 25k. That return is after tax too. There are numerous sources for getting the formula for yield if you google it.

If banks aren't giving mortgages I can't say I noticed any difficulty. But I suppose the bank is the place to ask about that one. I'm sure they refuse some and lend to others at their discression.

Apologies, I hadn't originally thought that, but it did look a little too coincidental to ignore.

Glenbhoy

Hoop66 wrote: »

OK, I should clear up. If I spend 100k total on a property and I rent it out at 830/month. does THAT mean I get 10% yield?

Next question:

I have (or will have) a cash sum within the next 6 months or so. Would anybody recommend buying a city-centre apartment for cash? The idea being that if there is no mortgage to service, all rent is profit and this makes it much easier to weather any periods where I have no tenant in the apt.

Slightly off-topic, I know, but it could be tenuously related to Dublin property prices.

as someone else noted you want a mortgage in order to maximise the tax benefits. If this was 10 yrs ago, most people would be telling you to buy 10 properties putting down 10K on each!!

super_furry

Still don't think we'll know where we are until the repossessions start in earnest.

gaius c

MMAGirl wrote: »

I think its worth a punt at this point.
Im closing on an investment property tomorrow.
Numbers are good.
Basically I put up 25k deposit and then the mortgage is going to cost me no more than a days wages per month and at the moment the rental income will be twice what the mortgage is.

Thats workable and I think i'll be doing it again soon.
Brother in law already has two apartments in the same place.

The mortgage is a days wages per month for you and the rental income is double the mortgage so somebody can rent the place for a whole year for just 24 days of your salary and you can buy it outright with just 240 days of working.

Once you do some sums for various permutations of your possible salary on a spreadsheet, you start to see just how improbable those figures are:
(have done a little bit of rounding for legibility)

Assumed salary: 40000
Daily salary: 150
Rent: 300
Value: 36k (300*12/10%)
Would a place that sells for 37k really pull in 300 a month rent? That kind of money is garden-shed type stuff.

Assumed salary: 60000
Daily salary: 230
Rent: 460
Value: 55k
Would a place that sells for 55k really pull in 460 a month rent?

Assumed salary: 80000
Daily salary: 310
Rent: 620
Value: 74k
Would a place that sells for 74k really pull in 620 a month rent?

Assumed salary: 100000
Daily salary: 385
Rent: 770
Value: 92k
Would a place that sells for 92k really pull in 770 a month rent?
That's one bed in Dublin city one bed apartment-level rent but you'd be doing well to get those for 92k.

It gets even more improbable the higher you go.

MMAGirl

gaius c wrote: »

The mortgage is a days wages per month for you and the rental income is double the mortgage so somebody can rent the place for a whole year for just 24 days of your salary and you can buy it outright with just 240 days of working.

Once you do some sums for various permutations of your possible salary on a spreadsheet, you start to see just how improbable those figures are:
(have done a little bit of rounding for legibility)

Assumed salary: 40000
Daily salary: 150
Rent: 300
Value: 36k (300*12/10%)
Would a place that sells for 37k really pull in 300 a month rent? That kind of money is garden-shed type stuff.

Assumed salary: 60000
Daily salary: 230
Rent: 460
Value: 55k
Would a place that sells for 55k really pull in 460 a month rent?

Assumed salary: 80000
Daily salary: 310
Rent: 620
Value: 74k
Would a place that sells for 74k really pull in 620 a month rent?

Assumed salary: 100000
Daily salary: 385
Rent: 770
Value: 92k
Would a place that sells for 92k really pull in 770 a month rent?
That's one bed in Dublin city one bed apartment-level rent but you'd be doing well to get those for 92k.

It gets even more improbable the higher you go.

Oh, my very own stalker.
Not that you are there yet, but even on your last calculation, you can buy a place for and rent for those numbers easily in Dublin.
But I have to ask. What is the point of your post?
To make yourself feel better if I was lying?

Your calculations are fundamentally flawed too.
You dont know my daily rate. You dont know how many days I work. You dont know my tax rate. You dont know if I get a bonus. There are so many variables you dont know and i'm not inclined to publish them either.

If you want proper calculations talk to this guy
http://www.boards.ie/vbulletin/showthread.php?p=79604340

Now please go get a life.

RATM

@MMAGirl, I don't think it is about stalking, its just your figures stand out. When I read your post yesterday and saw that it is possible to buy an apartment with one days salary per month and also that the rent was twice what the mortgage is I too was surprised. In fairness to anyone on an average salary your numbers seem to good to be true.

But like you said there are other variables, if you are earning €120k+ then you can more than afford the mortgage even if interest rates rise a good bit from where they are now.

L1011

gaius c wrote: »

Assumed salary: 100000
Daily salary: 385
Rent: 770
Value: 92k
Would a place that sells for 92k really pull in 770 a month rent?
That's one bed in Dublin city one bed apartment-level rent but you'd be doing well to get those for 92k.

Think that's the sweet spot where it might be possible on those calculations. There's 11 one beds in Daft's idea of the city centre under 100k. Some of them are actually pretty central: http://www.daft.ie/searchsale.daft?id=710477

Would you get 770 for that though, I dunno.

murphaph

MYOB wrote: »

Think that's the sweet spot where it might be possible on those calculations. There's 11 one beds in Daft's idea of the city centre under 100k. Some of them are actually pretty central: http://www.daft.ie/searchsale.daft?id=710477

Would you get 770 for that though, I dunno.

Aside...do many apartments (built in the last 20 years like that place) in Ireland have real fireplaces? I can't say I've ever taken much notice but I would have thought it unusual?

MMAGirl

RATM wrote: »

@MMAGirl, I don't think it is about stalking, its just your figures stand out. When I read your post yesterday and saw that it is possible to buy an apartment with one days salary per month and also that the rent was twice what the mortgage is I too was surprised. In fairness to anyone on an average salary your numbers seem to good to be true.

But like you said there are other variables, if you are earning €120k+ then you can more than afford the mortgage even if interest rates rise a good bit from where they are now.

You can see why your figures are useless then. Sure you don't even know what the mortgage is or what perc deposit I paid.
You just pulled figures out of thin air. yet you come in with workings like they actually mean anything.

nomoreindie

MMAGirl wrote: »

You can see why your figures are useless then. Sure you don't even know what the mortgage is or what perc deposit I paid.
You just pulled figures out of thin air. yet you come in with workings like they actually mean anything.

Your figures look too good to be true.
You are stating that what you earn in 1 day will pay the monthly mortgage on your investment property and that the rent coming in is twice the mortgage.

Anynama141

MMAGirl wrote: »

Now please go get a life.

Your defensive attitude just cements the notion that you are making this stuff up.

And if you are not factoring in the opportunity cost of your investment, the whole point is nonsense anyway. I could buy a place with a 1% mortgage (if anyone would lend it to me) and 99% deposit and claim I'm paying for a property before 10am on the first Monday of every month.

Without numbers, your post is also totally pointless.