Is this property to good to be true?

WhyTheFace

There's a property for sale in a provincial town.

It consists of an office downstairs and a one bed apt above.

It sold for 250K in the boom and is currently on sale for 75K. I've been assured by the seller that it will sell for around 45K. It's in NAMA.

Currently both levels are rented with a combined monthly rent of 800e.

If I put down a 10K deposit and got a mortgage for 40K (I'm in a long term stable job earning 65k per year) repayments would be 250e per month.

That means I'd get 550e per month for myself (minus tax.) when fully rented.

Apart from the usual rates, LPT etc. is there any other things that I need to look out for? Does it seem like a good investment.

3 scernarios as I see it.

1) Fully rented (I make 550e per month less tax)
2) Only one level rented (I make 150e per month less tax)
3) Empty (I pay 250 per month)

jamesbondings

WhyTheFace wrote: »

There's a property for sale in a provincial town.

It consists of an office downstairs and a one bed apt above.

It sold for 250K in the boom and is currently on sale for 75K. I've been assured by the seller that it will sell for around 45K. It's in NAMA.

Currently both levels are rented with a combined monthly rent of 800e.

If I put down a 10K deposit and got a mortgage for 40K (I'm in a long term stable job earning 65k per year) repayments would be 250e per month.

That means I'd get 550e per month for myself (minus tax.) when fully rented.

Apart from the usual rates, LPT etc. is there any other things that I need to look out for? Does it seem like a good investment.

3 scernarios as I see it.

1) Fully rented (I make 550e per month less tax)
2) Only one level rented (I make 150e per month less tax)
3) Empty (I pay 250 per month)

The only id be worried about would be how likely is it that the place can be rented out, after all surely the original owner couldnt get it rented to pay for it hence nama coming in.But it could be a very good investment just to sell on in the future.

Is it in good nick? You shouldnt have to put too much into it to make it habitable and rentable?

WhyTheFace

jamesbondings wrote: »

The only id be worried about would be how likely is it that the place can be rented out, after all surely the original owner couldnt get it rented to pay for it hence nama coming in.But it could be a very good investment just to sell on in the future.

Is it in good nick? You shouldnt have to put too much into it to make it habitable and rentable?

It's fully occupied at the moment. Downstairs have signed a contract til Sept 2014 and so I'm hoping they will renew it.

Upstairs is occupied by an elderly man long term. Once he moves on that will have to be renovated extensively. But downstairs is in perfect nick as was renovated only a few years ago.

The main issue here is that even in the worst case scenario of it not being rented at all I'm still only losing 60e a week.

Victor

What is the local rental market like? Are the current rents sustainable?

Devi

WhyTheFace wrote: »

There's a property for sale in a provincial town.

It consists of an office downstairs and a one bed apt above.

It sold for 250K in the boom and is currently on sale for 75K. I've been assured by the seller that it will sell for around 45K. It's in NAMA.

Currently both levels are rented with a combined monthly rent of 800e.

If I put down a 10K deposit and got a mortgage for 40K (I'm in a long term stable job earning 65k per year) repayments would be 250e per month.

That means I'd get 550e per month for myself (minus tax.) when fully rented.

Apart from the usual rates, LPT etc. is there any other things that I need to look out for? Does it seem like a good investment.

3 scernarios as I see it.

1) Fully rented (I make 550e per month less tax)
2) Only one level rented (I make 150e per month less tax)
3) Empty (I pay 250 per month)

Seems like a good investment. The one thing I will say is expect the sale to drag on for ages. I'm buying a nama house 4 months now, still no sign of completing.

murphaph

It's 800 less tax, not 550 less tax. Only 75% of the mortgage INTEREST is tax deductible, not the entire mortgage payment. Still seems like a great yield at low enough risk. I'd say it'll sell for more. The current commercial tenants would surely be interested in acquiring the freehold on the place at that price.

ted1

You may find it hard to get a 35k mortgage, banks don't want to deal in that small amount

jamesbondings

ted1 wrote: »

You may find it hard to get a 35k mortgage, banks don't want to deal in that small amount

personal loan? credit union?

WhyTheFace

Victor wrote: »

What is the local rental market like? Are the current rents sustainable?

ted1 wrote: »

You may find it hard to get a 35k mortgage, banks don't want to deal in that small amount

There are other units in the town but most are run down and require work. This one looks modern and is well maintained.

Current tenants have expressed interest but I've been told that their offer is less than half of the current asking price of 75K.

I have the savings to pay for half of my bid in cash, a family member is willing to put up the other half as a low interest loan (contract etc.).

I'd prefer to use as little of my savings as possible as I'd like to find 1-2 other similar type properties.

Out of interest how does the tax on rental income work?

If I pay 250e a month in mortgage repayments and receive 800e rent. How much of the 550e am I likely to see?

Kettleson

Vendor keen/desperate to sell? Seems to be something not quite as straightforward as it may seem, but maybe that's me being cynical.

What might solicitors searches reveal, current legal agreement with tenants.

Is there a restriction of use on the office?

Doesn't make sense that current tenants have "expressed an interest". Who told you that?

What is the legal contractual status with the sitting tenant.

I'd advise approach with caution. Get all legal positions clear.

murphaph

WhyTheFace wrote: »

If I pay 250e a month in mortgage repayments and receive 800e rent. How much of the 550e am I likely to see?

See my post above. Revenue don't care what your gross mortgage payment is. They allow you 75% of the interest paid (currently, might be reduced in future!).

You can generally deduct any other expenses like insurance, maintenance etc. and then whatever remains is your taxable income which is simply added to your other income and taxed at the appropriate rate (ie, if you are already paying top rate tax then ALL your taxable rental income will also be taxed at 41%. USC is also due and from 2014 PRSI will also be due, so something like 52% of your taxable rental income will be going to the state.

WhyTheFace

Kettleson wrote: »

Vendor keen/desperate to sell? Seems to be something not quite as straightforward as it may seem, but maybe that's me being cynical.

What might solicitors searches reveal, current legal agreement with tenants.

Is there a restriction of use on the office?

Doesn't make sense that current tenants have "expressed an interest". Who told you that?

What is the legal contractual status with the sitting tenant.

I'd advise approach with caution. Get all legal positions clear.

The estate agent is eager to get rid of the property.

He has told me himself the office tenant had expressed an interest. A family member has also discussed the situation with these tenants and they have said same, thou unable to place a competitive bid on. Not sure why not as their mortgage would be less than their rent! Their contract expires Sept 2014.

The tenant upstairs can stay for as long as he wants should I be able to purchase. Once he goes the apartment will have to be renovated so delaying any further investment straight away.

WhyTheFace

murphaph wrote: »

See my post above. Revenue don't care what your gross mortgage payment is. They allow you 75% of the interest paid (currently, might be reduced in future!).

You can generally deduct any other expenses like insurance, maintenance etc. and then whatever remains is your taxable income which is simply added to your other income and taxed at the appropriate rate (ie, if you are already paying top rate tax then ALL your taxable rental income will also be taxed at 41%. USC is also due and from 2014 PRSI will also be due, so something like 52% of your taxable rental income will be going to the state.

Thanks for that!

Pro Hoc Vice

WhyTheFace wrote: »

There's a property for sale in a provincial town.

It consists of an office downstairs and a one bed apt above.

It sold for 250K in the boom and is currently on sale for 75K. I've been assured by the seller that it will sell for around 45K. It's in NAMA.

Currently both levels are rented with a combined monthly rent of 800e.

If I put down a 10K deposit and got a mortgage for 40K (I'm in a long term stable job earning 65k per year) repayments would be 250e per month.

That means I'd get 550e per month for myself (minus tax.) when fully rented.

Apart from the usual rates, LPT etc. is there any other things that I need to look out for? Does it seem like a good investment.

3 scernarios as I see it.

1) Fully rented (I make 550e per month less tax)
2) Only one level rented (I make 150e per month less tax)
3) Empty (I pay 250 per month)

On the face of it it looks like a good deal at €50k. But a few issues 1 on any commercial investment the deposit should in reality be 25% (so that ok you say 10k I would say 12.5k no big issue) and the term should not exceed 10 years which would bump up payments to about €400 a month still very doable.even at a five year term fixed for the full five years the repayments would be €750 a month, while tight and considering tax would cost you. The ten year term is possibly a better option and remains affordable if the property remains empty.

Kettleson

I presume this is an investment property? ie, you don't at this point intend to move in yourself? If you had to, would you live there?

What might be the possible restrictions on you getting another mortgage if you wanted to buy another property to live in?

You might have to be a landlord to a difficult tenant with rights. The upstairs tenant might be there for a good while, years. Any reports on his situation/behaviour/relationship with owners?

I presume you'll be getting a structural survey and solicitor searches?

How long has it been on the open market? What is the area "really" like. Could you get new tenants for the office easy enough?

Best of luck with it, fair play to you for saving the cash. I would'nt like to see that effort being spent one money pit. Get all the legal checks done.
Don't rush in, but if you do go ahead, I hope it goes well for you.

WhyTheFace

infosys wrote: »

On the face of it it looks like a good deal at €50k. But a few issues 1 on any commercial investment the deposit should in reality be 25% (so that ok you say 10k I would say 12.5k no big issue) and the term should not exceed 10 years which would bump up payments to about €400 a month still very doable.even at a five year term fixed for the full five years the repayments would be €750 a month, while tight and considering tax would cost you. The ten year term is possibly a better option and remains affordable if the property remains empty.

I was hoping longer than 10 years, again just to minimize the impact of periods of potential no rent. But if it was 10 years max then so be it.

Kettleson wrote: »

I presume this is an investment property? ie, you don't at this point intend to move in yourself? If you had to, would you live there?

What might be the possible restrictions on you getting another mortgage if you wanted to buy another property to live in?

You might have to be a landlord to a difficult tenant with rights. The upstairs tenant might be there for a good while, years. Any reports on his situation/behaviour/relationship with owners?

I presume you'll be getting a structural survey and solicitor searches?

How long has it been on the open market? What is the area "really" like. Could you get new tenants for the office easy enough?

Best of luck with it, fair play to you for saving the cash. I would'nt like to see that effort being spent one money pit. Get all the legal checks done.
Don't rush in, but if you do go ahead, I hope it goes well for you.

Thanks Kettleson. The above tenant is a man in his 80's. He pays his rent on time and causes no hassle. However I've been informed that the place is in need of extensive improvement. He's happy the way it is and would resist renovations. As he is so old I presume he will see out his days there, after that I would need to renovate it.

I couldn't live there as it is in the opposite side of the country from where I live and work but not far from my home town. A family member will be available to meet all the relevant persons if I can not make it etc.

I will certainly have all required surveys and checks done.

TBH I have some savings and would like to invest in something. I've no interest in forking out on 200-250k mortgages. I see this property as an opportunity to learn the system. It seems like a relatively good yield with minimal risk. Even if I had to eventually sell it I can't imagine it selling for less than 40-45K. But who knows anymore!!

The_Conductor

The sums seem a bit too good to be true.
I would suspect that the selling price will be significantly higher than 50k- at 50k (even up to 60-75k) it would be more favourable for the commercial tenant to purchase the property.

Kettleson

The_Conductor wrote: »

The sums seem a bit too good to be true.
I would suspect that the selling price will be significantly higher than 50k- at 50k (even up to 60-75k) it would be more favourable for the commercial tenant to purchase the property.

There might well be a fair bit of auctioneer BS, reeling you in, but isn't that always the way?

I personally would be concerned about the distance from the property, and having a real feel for a place when you don't live there. The renovation costs to upstairs would need to be gauged. Any structural work need done? When was it built?

If the current office occupants were doing well, you would have thought they would have wanted to buy. Is the auctioneer getting you involved to put the heat on them..."someone has put an offer on the property" etc.

How come no-one in the town has bought it or put offer on it? How long has it been for sale? It's not sitting right to me.

WhyTheFace

The_Conductor wrote: »

The sums seem a bit too good to be true.
I would suspect that the selling price will be significantly higher than 50k- at 50k (even up to 60-75k) it would be more favourable for the commercial tenant to purchase the property.

Kettleson wrote: »

There might well be a fair bit of auctioneer BS, reeling you in, but isn't that always the way?

I personally would be concerned about the distance from the property, and having a real feel for a place when you don't live there. The renovation costs to upstairs would need to be gauged. Any structural work need done? When was it built?

If the current office occupants were doing well, you would have thought they would have wanted to buy. Is the auctioneer getting you involved to put the heat on them..."someone has put an offer on the property" etc.

How come no-one in the town has bought it or put offer on it? How long has it been for sale? It's not sitting right to me.

It is a family member who has put me on to this as an opportunity to gain experience in investment. They are not interested in such a small investment.

They know the original owner personally who sold it for 237k a few years back who has said it is structurally sound.

The estate agent has said he just wants it off his hands. I guess the appetite isn't there for people to buy these kinds of places.

But yes, there is an element of "it's too good to be true" to this. I very much trust my family member who knows the area relatively well as does his friend who sold it originally.

handlemaster

How strong is the business currently renting ? Turnover profit. If you Dont know take a good estimate can they afford to stay on ? I would take the contract for the unit as vertually gone and be thinking who will be able to or want to rent. What's the rental competition like are there newer units close by ? Location in town ? Tenant up stairs is he paying up to date. What else can I buy for the same money or a little more. With a salary of 65k and knowing nothingore I'd speculate you could get a bigger mortgage for a better town city. Personally outside of Dublin I think property investment is very risky without thinking through all and every option

the_syco

WhyTheFace wrote: »

The tenant upstairs can stay for as long as he wants should I be able to purchase. Once he goes the apartment will have to be renovated so delaying any further investment straight away.

On this; perhaps it needs renovating now, as there could be a lot of small things needing fixing that the previous landlord didn't fix? If they couldn't pay their mortgage, I doubt they'd have paid to get things fixed.

WhyTheFace wrote: »

He's happy the way it is and would resist renovations.

Whilst I acknowledge this, keep in mind it may work out cheaper to renovate the apartment than a million and one little fixes. Remember; you'll be his landlord, not his best friend. You need to look at this with a heart of stone, or else it may end up costing you.

WhyTheFace

the_syco wrote: »

On this; perhaps it needs renovating now, as there could be a lot of small things needing fixing that the previous landlord didn't fix? If they couldn't pay their mortgage, I doubt they'd have paid to get things fixed.

Whilst I acknowledge this, keep in mind it may work out cheaper to renovate the apartment than a million and one little fixes. Remember; you'll be his landlord, not his best friend. You need to look at this with a heart of stone, or else it may end up costing you.

From the existing owner I've been told he's an elderly man who doesn't bother them and pays his rent on time.

In reality if I was to buy it and do it up now, then have him remain for a few more years, it would only have to be re-painted etc. when he leaves. He may be a smoker etc. and I'm not going to enforce a no smoking policy on an elderly man in his 80's and so he'll have the place destroyed with smoke.

I'd leave him be I think. I'm more focused on downstairs for now. It's in very good condition and used as on office for a firm. I'm hoping they will continue to stay after their contract expires in Sept.

Who knows, in 2-3 years the economy might pick up and demand might increase. At the end of the day the rent is only 100e a week!

Victor

WhyTheFace wrote: »

From the existing owner I've been told he's an elderly man who doesn't bother them and pays his rent on time.

And if he goes into care or passes away? Can you deal with the delay or complication?

murphaph

To be honest if the op can secure the property for 45k and can easily cover the mortgage with his wages and or savings then the risks here seem very low. I just don't think it'll go for 45k.

WhyTheFace

Victor wrote: »

And if he goes into care or passes away? Can you deal with the delay or complication?

I would think there might be a delay of 1-2 months.

Again, if the downstairs is rented the top doesn't need to be to cover the mortgage.

The_Conductor

WhyTheFace wrote: »

I would think there might be a delay of 1-2 months.

Again, if the downstairs is rented the top doesn't need to be to cover the mortgage.

It can take a lot longer- one unit here, where a retired priest was living, took fully 2 years to finally resolve. NAMA was involved

Kettleson

If you get the checks properly done, legal and structural, you won't have an awful lot to lose.

Cause you can put it back on the market. You might have some hassle on the way, and you might not. It might work our financially very well for you in a few years time. Good luck with it.

WhyTheFace

The_Conductor wrote: »

It can take a lot longer- one unit here, where a retired priest was living, took fully 2 years to finally resolve. NAMA was involved

Hi Conductor,

What exactly is there to resolve?

The tenant dies/moves to nursing home. Any left over belongings would be boxed up and left for relatives to collect. After a set period if nobody claims them they'd be handed into a charity shop/disposed of.

Kettleson

The_Conductor wrote: »

It can take a lot longer- one unit here, where a retired priest was living, took fully 2 years to finally resolve. NAMA was involved

Was he still alive and they wanted him out to sell the property? Sitting tenant? Or was the ownership of the property unclear?

Some legal documents can take ages to process and confirm. My solicitor was dealing with a property where the bank had "allegedly" lost the deeds. It couldn't be sold as the ownership of property could not be confirmed. Not sure if it was ever resolved.

I think as long as the property is sound, with no compulsory purchases, motorways planned etc, its probably worth a punt. I'd be cautious of the estate agent getting you involved in a bidding war with the occupants of the office.

WhyTheFace

Kettleson wrote: »

Was he still alive and they wanted him out to sell the property? Sitting tenant? Or was the ownership of the property unclear?

Some legal documents can take ages to process and confirm. My solicitor was dealing with a property where the bank had "allegedly" lost the deeds. It couldn't be sold as the ownership of property could not be confirmed. Not sure if it was ever resolved.

I think as long as the property is sound, with no compulsory purchases, motorways planned etc, its probably worth a punt. I'd be cautious of the estate agent getting you involved in a bidding war with the occupants of the office.

Hi. Yes I'm conscious of this. They put a bid in of 35. Mine is at 42K. I'm hoping it will go for less than 45.

Kettleson

Fair play to you...delete you last post! You never know who's watching..!!