Buying 1 bed apt as investment..

Mickey Dazzler

Ok Ok.... just let me say my piece before the abuse begins....

So lets just say.... I have a spare €90k earning sweet FA in an deposit account.

I buy a one bed apt on the north side of Dublin for approx €80k. I put €5k into it to get it liveable in. Monthly rental income is around €800pm. I live and own my own apt (no mortgage) in this area so know the market well. I have checked and these prices are pretty accurate.

So the gross yield would be 12% and net would be 9%. I calculate rental expenses as follows:

Mgmt fee: €1000
Insurance:€100
NPPR: €200
Property tax:€150
various exp: €1500
Total Rental Expenses: €2950

Total rental Income: €9600

Gross Profit: €6650
Tax(@20%): €1330
Net Profit: €5320

Return on investment (€85k) apres tax: 6.2%

This looks like there is value there to me.

These are not life savings and this amount will be earned and saved again in a couple of years so I am prepared to take a risk.

I understand the gov is talking about reducing the rental allowance which may push rents down in the city but as things are the rental market is pretty strong.

What have I missed? Why am I a complete bloody idiot for even considering this?

(Edit: I realise I have calculated the taxation incorrectly but please just use the above as a rough guide)

size5

Mickey Dazzler wrote: »

Ok Ok.... just let me say my piece before the abuse begins....

So lets just say.... I have a spare €90k earning sweet FA in an deposit account.

I buy a one bed apt on the north side of Dublin for approx €80k. I put €5k into it to get it liveable in. Monthly rental income is around €800pm. I live and own my own apt (no mortgage) in this area so know the market well. I have checked and these prices are pretty accurate.

So the gross yield would be 12% and net would be 9%. I calculate rental expenses as follows:

Mgmt fee: €1000
Insurance:€100
NPPR: €200
Property tax:€150
various exp: €1500
Total Rental Expenses: €2950

Total rental Income: €9600

Gross Profit: €6650
Tax(@20%): €1330
Net Profit: €5320

Return on investment (€85k) apres tax: 6.2%

This looks like there is value there to me.

These are not life savings and this amount will be earned and saved again in a couple of years so I am prepared to take a risk.

I understand the gov is talking about reducing the rental allowance which may push rents down in the city but as things are the rental market is pretty strong.

What have I missed? Why am I a complete bloody idiot for even considering this?

Stand corrected BUT iam sure tax is way more than 20% double I think:-( if it was only 20% it would be happy days. But some one will post up exact amount.



No NPPR just properly tax to pay:-).

D3PO

NPPR is gone, PRTB fees need to be added in.

Tax rate is based on what income tax band you fall into. I'm suspecting that's the 41% bracket as most people who have 90k to spend on an investment that isn't their life savings and already own their own home mortgage free would be in this bracket.

100 yoyo for insurance seems low for an estimate although Im sure you have checked this out.

If your not going to manage yourself take into account EA fees, also need to account for advertising for rental so daft fee etc.

Finally when calculating yield the agreed formula is to calculate off 11 months occupancy per calendar year and not 12 to allow for vacant periods.

That aside seems like theres potential for it to be a solid investment

Oh and PSRI is due too.

desertcircus

Are apartments with a price of 80k really getting 800 a month? That seems way out of whack: I'd be very wary of anything that sounds that good.

desertcircus

If you make just two adjustments (calculate rental income as 700*11 rather than 800*12 to allow for a drop in the market, and assume taxation at 41%), the yield drops to under 3.5%. If it lies unoccupied for one extra month, it goes below 3%. I'd be inclined to look at other potential investments that don't carry so much risk and potential for ongoing costs.

D3PO

desertcircus wrote: »

If you make just two adjustments (calculate rental income as 700*11 rather than 800*12 to allow for a drop in the market, and assume taxation at 41%), the yield drops to under 3.5%. If it lies unoccupied for one extra month, it goes below 3%. I'd be inclined to look at other potential investments that don't carry so much risk and potential for ongoing costs.

I don't think calculating for 10 months occupancy has any relevance. Yield calculations for property rentals should be done off 11 months (if you get 12 that's a bonus)

however you do raise some valid points regarding the taxation rate and 11 months occupancy and the impacts that will have to the yield.

the OP says he lives in the area and knows the market well so calculating off what he believes is an achievable rental rate of 800 a month has to be taken as a given when providing feedback to the initial post TBH.

desertcircus

D3PO wrote: »

I don't think calculating for 10 months occupancy has any relevance. Yield calculations for property rentals should be done off 11 months (if you get 12 that's a bonus)

however you do raise some valid points regarding the taxation rate and 11 months occupancy and the impacts that will have to the yield.

the OP says he lives in the area and knows the market well so calculating off what he believes is an achievable rental rate of 800 a month has to be taken as a given when providing feedback to the initial post TBH.

I agree that calculations should be done on an 11-month basis, and that if achievable rent is 800 a month then that's what should be used - but principally for comparing to other property investments. When discussing other investments, the potential for falling rents or fallow periods really should be taken into account. A savings bond that offers 2.5% over one year isn't particularly attractive as an investment option when you're comparing to a starting rental figure of 800*11, but if there's any possibility of either of those numbers falling, then that savings bond starts looking a lot better.

Geomy

Don't get caught in that trap, that's what the ruination of people during the celtic tiger.

There's house's in Liscannor Co Clare going for sfa....

I could afford one but ill enjoy my money rather than try to make more....

Santa Cruz

I would go for it. You seem like a person who knows what they are on about. As a medium to long term investment it is fine. The obvious advice as in any business is to manage costs such as refurbishment, decorations and any other cost which you can control and get competitive rates for the others. And of course apartments are like taxis, not making money unless there is someone in it. A good choice of tenant who may be there long term is also important.

D3PO

Geomy wrote: »

Don't get caught in that trap, that's what the ruination of people during the celtic tiger.

There's house's in Liscannor Co Clare going for sfa....

I could afford one but ill enjoy my money rather than try to make more....

Comparing a house in Liscannor in Clare to an investment property in the largest population centre in the country is a nonsense.

This post doesn't even warrant any more discussion than the above.

D3PO

desertcircus wrote: »

I agree that calculations should be done on an 11-month basis, and that if achievable rent is 800 a month then that's what should be used - but principally for comparing to other property investments. When discussing other investments, the potential for falling rents or fallow periods really should be taken into account. A savings bond that offers 2.5% over one year isn't particularly attractive as an investment option when you're comparing to a starting rental figure of 800*11, but if there's any possibility of either of those numbers falling, then that savings bond starts looking a lot better.

I hear ya. Personally Id be investing the 90k in the Twitter IPO if you can get the shares at $16 a pop they are grossly undervalued and have a realistic market value of $28 a share although with the hysteria these kind of IPO's garner you will see them probably spike to $40 plus before they settle back to a realistic valuation.

Significant profit to be made with a short sell if you get in early. But I digress ......

djimi

desertcircus wrote: »

Are apartments with a price of 80k really getting 800 a month? That seems way out of whack: I'd be very wary of anything that sounds that good.

I wondered the same, but have a look on Daft and there seems to be plenty of €80k-€90k 1 bed apartments on the northside for sale in complexes where the rent of similar properties is €800 and above.

Personally I wouldnt be getting into property as an investment as I believe that there are easier ways to make your money work for you than becoming a professional landlord and all the potential heartache that comes with the job, but if you know what you are getting into (ie make sure you know exactly what it means to be a landlord and dont just be blinded by figures on the page) and are sure that you can afford it and it yields the return that you want them power ahead I guess.

Geomy

D3PO wrote: »

Comparing a house in Liscannor in Clare to an investment property in the largest population centre in the country is a nonsense.

This post doesn't even warrant any more discussion than the above.

Yeah you're right, your post doesn't warrant any more discussion than the above....

odds_on

Originally posted by djimi. Personally I wouldnt be getting into property as an investment as I believe that there are easier ways to make your money work for you than becoming a professional landlord and all the potential heartache that comes with the job, but if you know what you are getting into (ie make sure you know exactly what it means to be a landlord and dont just be blinded by figures on the page) and are sure that you can afford it and it yields the return that you want them power ahead I guess.

I agree with djimi. The OP seems to have forgotten what happens if the rental goes haywire etc. There can be a lot of heartache as a landlord, even if you have good tenants - you have to be available for emergency calls more or less 24x7x365

Bigus

It's a no brainer go for it,

In the TC days we'd be telling you to buy 10 apartments with 9k deposits for your 90 k and borrow an extra 800k.

On the plus side Your not accounting for any benefit of a rise in the market which will happen, especially when it's cheaper to buy than today'sbuild cost,even excluding site and development costs and inflation.

P. Breathnach

You should bear in mind that you might some day want to liquidate your investment. That means taking a view on the future re-sale value of the property.

I wouldn't like to be making that judgement.

D3PO

odds_on wrote: »

I agree with djimi. The OP seems to have forgotten what happens if the rental goes haywire etc. There can be a lot of heartache as a landlord, even if you have good tenants - you have to be available for emergency calls more or less 24x7x365

Every investment has risks, its about weighing up the risks and then making a decision. Of course you need to go in with your eyes wide open and consider the pitfalls, but that's only part of the consideration as to weather a buy to let is a worthwhile investment.

Just one further thing to add to the OP.

If you do redo your maths and decide its the right thing to do. DO NOT buy the property with your cash.

Get a BTL mortgage. Why do this when you have the money to buy outright you ask ? As it stands interest (or 75% of it) can be offset against your taxable liability.

So for example if you got a BTL at say 8% interest (You will get a cheaper BTL rate but plan for a higher one) your essentially getting the money at 2% once you can make your savings work for you to return a better rate than that 2% its actually more financially beneficial to you (and there are savings products that would do just that)

on top of this you have also reduced your taxable liability so you would be mad not to.

you then still have that money for rainy days should you need it rather than liquidating your investment or should the government eventually drop the interest relief component of renting you can pay off the mortgage with the money you had on deposit.

desertcircus

Honestly, if this is money you can afford to lose, why not look at investment funds? It's possibly riskier (although sinking 85k into the Irish property market isn't exactly playing it safe), but offers much higher potential returns. Alternative energy funds, for example, could produce huge returns, and probably aren't much riskier than a one-bed in Ireland.

D3PO

desertcircus wrote: »

Honestly, if this is money you can afford to lose, why not look at investment funds? It's possibly riskier (although sinking 85k into the Irish property market isn't exactly playing it safe), but offers much higher potential returns. Alternative energy funds, for example, could produce huge returns, and probably aren't much riskier than a one-bed in Ireland.

This is true or of course you could invest in one of the 60 crypto currencies currently floating around. Find the one with the biggest bubble and make a killing.

Bitcoins have spiked in value 25% in the past few weeks :P:D

Disclaimer I seriously wouldn't do this post meant as tongue in cheek !!!

djimi

D3PO wrote: »

Every investment has risks, its about weighing up the risks and then making a decision. Of course you need to go in with your eyes wide open and consider the pitfalls, but that's only part of the consideration as to weather a buy to let is a worthwhile investment.

Its not just about risk though. Its not just an investment; you are effectively starting a business. You have obligations towards your tenants and when issues arise its your responsibility to deal with them in a timely fashion. Even if it means shelling out hundreds to replace a boiler or whatever.

If the OP is aware of what becoming a landlord entails then more power to them. But too many landlords in this country bought only as a way to make a few quid, and seem to see dealing with their tenants as an inconvenience and expense that they cant be bothered with. Its not an easy way to make a few quid from an investment, and its important that people understand this when considering investing in a rental property.

D3PO

djimi wrote: »

Its not just about risk though. Its not just an investment; you are effectively starting a business. You have obligations towards your tenants and when issues arise its your responsibility to deal with them in a timely fashion. Even if it means shelling out hundreds to replace a boiler or whatever.

If the OP is aware of what becoming a landlord entails then more power to them. But too many landlords in this country bought only as a way to make a few quid, and seem to see dealing with their tenants as an inconvenience and expense that they cant be bothered with. Its not an easy way to make a few quid from an investment, and its important that people understand this when considering investing in a rental property.

I did say go in with your eyes wide open implying you need to know your rights and your tenants rights and knowing that it isn't a case of just collecting 800 quid every month.

I agree with you many landlords are amateurs and many quite frankly are accidental landlords, doesn't absolve them from their ignorance but unfortunately its how things are.

That's a whole different discussion mind you. OP wanted feedback on weather its a reasonable investment and for feedback as to what they have missed.

Its important to point out that the work involved in being a LL, but its equally importnant not to let that derail the thread completely.

syklops

800 a month for a flat on the northside seems a bit high. Im currently looking for a flat on the southside and there are several for 800.

Sussex Road, D4, 2 minute walk to Luas = 800.

I used to live about 5 doors down from that particular one and its a lovely area. If its still there after payday I'll probably take it(which it probably won't).

D3PO

syklops wrote: »

800 a month for a flat on the northside seems a bit high. Im currently looking for a flat on the southside and there are several for 800.

Sussex Road, D4, 2 minute walk to Luas = 800.

I used to live about 5 doors down from that particular one and its a lovely area. If its still there after payday I'll probably take it(which it probably won't).

Sorry what has that flat on the southside got to do with anything ? Its already been determined that 800 doesn't seem a bit high both on checks from daft and also by the fact the OP lives and knows the area hes talking about well.

You also seem to be implying that the southside is better/more expensive weather you intended to or not. Which is of course a nonsense and extremely condescending and snobbish.

Its a ridiculous attitude and that's coming from a southsider who has lived that all my life.

Just to add comparing a flat with an apartment isn't a reasonably comparison. Futhermore that flat you have linked is shabby at best have you actually looked at the photos, the grime on the tiles in the bathroom is revolting, the state of the walls in that bedroom is also disgusting.

djimi

syklops wrote: »

800 a month for a flat on the northside seems a bit high. Im currently looking for a flat on the southside and there are several for 800.

Go onto Daft and look for apartments for sale on the northside for around €80k. Then look at the rental price of properties in the same areas. I was surprised but there definitely seems to be €80k apartments renting for €800 and in some cases more.

djimi

D3PO wrote: »

Its important to point out that the work involved in being a LL, but its equally importnant not to let that derail the thread completely.

Im not trying to derail the thread; just hoping that the OP knows what they are getting into, and understands that there is a lot more to property rental than just an investment.

Also financial obligations need to be taken into account when calculating returns. The OP has €1500 down for "other expenses" which could be to cover this, but if they arent taking this into account then they have to bear in mind that replacing something like a boiler or even a washing machine will dramatically eat into the rent gained for that particular month.

syklops

djimi wrote: »

Go onto Daft and look for apartments for sale on the northside for around €80k. Then look at the rental price of properties in the same areas. I was surprised but there definitely seems to be €80k apartments renting for €800 and in some cases more.

I'll take your word for it. I was simply giving my input that 800 for the northside seems high when flats 10 minutes walk from the city centre on the southside can be had for the same amount, and nice flats in nice areas at that.

D3PO

djimi wrote: »

Im not trying to derail the thread; just hoping that the OP knows what they are getting into, and understands that there is a lot more to property rental than just an investment.

Also financial obligations need to be taken into account when calculating returns. The OP has €1500 down for "other expenses" which could be to cover this, but if they arent taking this into account then they have to bear in mind that replacing something like a boiler or even a washing machine will dramatically eat into the rent gained for that particular month.

True but it will also eat into their taxable liability, this is part of the reason you would look at a yield of higher than other investment in general to offset these kind of things.

P. Breathnach

D3PO wrote: »

...

If you do redo your maths and decide its the right thing to do. DO NOT buy the property with your cash.

Get a BTL mortgage. Why do this when you have the money to buy outright you ask ? As it stands interest (or 75% of it) can be offset against your taxable liability.

So for example if you got a BTL at say 8% interest (You will get a cheaper BTL rate but plan for a higher one) your essentially getting the money at 2%....

Oh dear!

Interest can not be set off against tax liability; it is set off against taxable income.

Back of envelope: if you borrow at 8% the effective tax relief will be about 2.7%, so you would need to achieve an income of 5.3% on your savings to make it a good option to borrow.

D3PO

syklops wrote: »

I'll take your word for it. I was simply giving my input that 800 for the northside seems high when flats 10 minutes walk from the city centre on the southside can be had for the same amount, and nice flats in nice areas at that.

So basically you don't know what your talking about. Perhaps you should educate your snobbish attitude on the northside rental market before passing comment ?

D3PO

P. Breathnach wrote: »

Oh dear!

Interest can not be set off against tax liability; it is set off against taxable income.

.

Oh dear reducing your taxably income reduces your taxably liability.

Offset : something that counterbalances, counteracts, or compensates for something else; compensating equivalent.

Perhaps learn what the word offset means before being a smart arse :rolleyes:

syklops

Actually you know what, forget I said anything.