Buy To Let

0gac3yjefb5sv7

Hi there,

My brother is thinking of buying a one bed apartment for say 160k in Clarehall and letting it out.

He is potentially looking to buy a home himself in 2-3 years but he would be using his deposit savings for this buy to let and then starting again saving.

Anyone have any advice, it would be much appreciated!

DubCount

Buying property is a long term investment. 2-3 years is a very short time horizon for buying a property. There are costs of buying/selling (stamp duty, solicitor fees, Estate agent fees etc.) that will erode any profit if its only being held for a short period.

Its also not a liquid investment. Serving notice to tenants, time lag in selling etc. means it can take months between deciding you want the money back, and actually getting it back.

Finally, its not a risk free investment. Tenants may damage the property or not pay rent for a period. Property prices may go down as well as up.

I would talk to an investment adviser to get advice on alternative investments for this level of money.

thebeerbaron

I believe your brother would also require 20% deposit as he would no longer be a first time buyer.
I bought an investment property and then 1 year later the government said I needed 20% for my own house purchase in future so watch out.

0gac3yjefb5sv7

DubCount wrote: »

Buying property is a long term investment. 2-3 years is a very short time horizon for buying a property. There are costs of buying/selling (stamp duty, solicitor fees, Estate agent fees etc.) that will erode any profit if its only being held for a short period.

Its also not a liquid investment. Serving notice to tenants, time lag in selling etc. means it can take months between deciding you want the money back, and actually getting it back.

Finally, its not a risk free investment. Tenants may damage the property or not pay rent for a period. Property prices may go down as well as up.

I would talk to an investment adviser to get advice on alternative investments for this level of money.

Thanks for the insight. I know 3 years is a short time but the idea would be to have this long term while buy another property to live in after 3/4 years while continuing to let this one. I don't believe he is looking for an annual yield, moreso to get on the ladder as the market values continue to rise.

DubCount

Pheonix10 wrote: »

Thanks for the insight. I know 3 years is a short time but the idea would be to have this long term while buy another property to live in after 3/4 years while continuing to let this one. I don't believe he is looking for an annual yield, moreso to get on the ladder as the market values continue to rise.

To be honest, this just raises more questions for me. Will owning a Buy2let Property impact on his application for a mortgage in 3/4 years time? Would he be better trying to get a 2 bed property and living in one room and renting out another? Is the purchase decision completely driven by what he can afford, or what he thinks will provide the best yield or capital gain?

Spending a small amount of money on independent financial advice will be paid back many times over.

wordofwarning

Pheonix10 wrote: »

Thanks for the insight. I know 3 years is a short time but the idea would be to have this long term while buy another property to live in after 3/4 years while continuing to let this one. I don't believe he is looking for an annual yield, moreso to get on the ladder as the market values continue to rise.

IMO he needs to go to fee based financial advisor and tell him about his 'investment plan', as it is not an investment. It pure mindless speculation. He is investing, not for the yield but rather to speculate on rising house prices...

Investment properties tend to only break even after a few years.Your brother seems to not have a breeze about what he is doing. Plus buying in Clarehall is not a wise decision. I would buy into gentrifying areas eg Parnell St, Capel St etc.

0gac3yjefb5sv7

Following up here. He's done some maths on it and is looking at a place to buy to let in North Dublin county.

2 beds apts are letting for 1200/1400 but assuming 900 at worst case a month.

That's 10800 a year.

- 40pc tax roughly 4200
- PRTB and insurance 500
- Mgmt fees 1500
- Other 1000

Profit 3600 annual which wouldn't cover a mortgage.

These are very ballpark figures but doesn't seem to be a good investment.

Thoughts?

kaymin

Pheonix10 wrote: »

Following up here. He's done some maths on it and is looking at a place to buy to let in North Dublin county.

2 beds apts are letting for 1200/1400 but assuming 900 at worst case a month.

That's 10800 a year.

- 40pc tax roughly 4200
- PRTB and insurance 500
- Mgmt fees 1500
- Other 1000

Profit 3600 annual which wouldn't cover a mortgage.

These are very ballpark figures but doesn't seem to be a good investment.

Thoughts?

Don't you have to pay PRSI on rental income? Btw - income tax is payable on rental income after deducting allowable expenses

What about void periods, tenants that won't pay, interest on the mortgage, government led anti landlord policy, high risk of having to take legal action to get tenants out etc etc

And then your brother has to pay his own rent out of his after tax income

Won't be a first time buyer any longer

Won't qualify for such a high mortgage with existing debt

Risk of job loss impacting his ability to cover mortgage if there's a rent shortfall

And arguably the biggest reason not to proceed and why I wouldn't touch the property market currently - quite possibly he will be buying at a high point in another bubble. If it bursts soon he may not qualify for another mortgage for a long time

0gac3yjefb5sv7

Seems like buying to let is a lose lose. Why would anyone do it so?

Atlantic Dawn

Pheonix10 wrote: »

Seems like buying to let is a lose lose. Why would anyone do it so?

Outside Dublin could be profitable, in an ideal world you might be able to buy 2 or 3 apartments in a country located with a good rental potential for the same as buying 1 in Dublin, the management of 3 in the same location wouldn't be much more work than 1.

0gac3yjefb5sv7

Atlantic Dawn wrote: »

Outside Dublin could be profitable, in an ideal world you might be able to buy 2 or 3 apartments in a country located with a good rental potential for the same as buying 1 in Dublin, the management of 3 in the same location wouldn't be much more work than 1.

Once you go outside Dublin though, rents fall off a cliff.

Atlantic Dawn

Pheonix10 wrote: »

Once you go outside Dublin though, rents fall off a cliff.

So do the price of houses/apartments but rent allowance holds up.

wordofwarning

Atlantic Dawn wrote: »

So do the price of houses/apartments but rent allowance holds up.

IMO it is too risk. If you buy in a hole of a town, when the single major employer like a factory closes, the town is screwed. Rents tank, wages fall etc. Plus there will be little appreciation in a lot of counties over the next few decades due to all the houses built during the boom.

murphaph

Pheonix10 wrote: »

2 beds apts are letting for 1200/1400 but assuming 900 at worst case a month.

"Worst case" is 0 per month and that's not even worst case!

I would not consider this a good idea for 2 or 3 years. Risks far outweigh the rewards (especially on the legislative side...you really don't know if the state will "let" you sell your tenanted property when you need to.

0gac3yjefb5sv7

murphaph wrote: »

"Worst case" is 0 per month and that's not even worst case!

I would not consider this a good idea for 2 or 3 years. Risks far outweigh the rewards (especially on the legislative side...you really don't know if the state will "let" you sell your tenanted property when you need to.

Is there any benefit to being a landlord? Seems on this its the worst idea you could have!

murphaph

Pheonix10 wrote: »

Is there any benefit to being a landlord? Seems on this its the worst idea you could have!

I am a LL but I am "legacy". The govt have been chipping away at landlords rights and giving nothing in return. Taks a year+ to get your property back (and who know in what state) from an overholding tenant. Rents are controlled even for follow on tenants (grossly unfair). Small LLs are leaving the sector, anecdotally at least.

DubCount

Pheonix10 wrote: »

Is there any benefit to being a landlord? Seems on this its the worst idea you could have!

It makes a lot more sense if you are a cash buyer looking for a long term investment. If you get a 3-4% return after tax that is not too bad compared to deposit rates and although there is risk, any investment providing that return will have risk. In the long term, there is the chance of capital gain as well.

However, for those of us who dont have a few hundred thousand floating about in our bank accounts, its almost impossible to get the maths to work. The bank (charging about 5% when ECB rate is zero) will make money on a buy2let mortgage, but its pretty certain the LL will be paying out more cash than he is receiving in.

In short, if you're interested in becoming a Landlord, buy a ticket for the lotto !!

Michael D Not Higgins

Pheonix10 wrote: »

Seems like buying to let is a lose lose. Why would anyone do it so?

Let's use your rough figures from before. (very rough, don't use these as a basis, they're just for demonstration)

10k income, maybe 6k interest on the mortgage deductible, 4k taxable at ~50% so 2k tax, plus 3k other costs. So 5k expenses leaves 5k profit.

Mortgage is about 8k a year, so you need to top up the mortgage 3k a year. You're getting an asset worth 160k for 3k a year for 25 years, i.e. less than half the cost. Factor in inflation and it's even cheaper for a more valuable asset.

The risk comes in the form of bad tenants causing thousands in damage and unpaid rent, the government changing the laws around rentals and tax, etc. In the end, it's a long term investment rather than a short term money tree.

quadrifoglio verde

If he wants to invest in the property market for three years I'd be doing so through reits.
Insulated big time from a single tenant over holding and its still a play on the property market.
Shares in it can be sold tomorrow if he needs the cash.
He will still be a first time buyer when he goes out to buy his own.
Or tell him to look into rent a room scheme. Probably the most advantageous way for a small investor to make a play on the market

0gac3yjefb5sv7

DubCount wrote: »

It makes a lot more sense if you are a cash buyer looking for a long term investment. If you get a 3-4% return after tax that is not too bad compared to deposit rates and although there is risk, any investment providing that return will have risk. In the long term, there is the chance of capital gain as well.

However, for those of us who dont have a few hundred thousand floating about in our bank accounts, its almost impossible to get the maths to work. The bank (charging about 5% when ECB rate is zero) will make money on a buy2let mortgage, but its pretty certain the LL will be paying out more cash than he is receiving in.

In short, if you're interested in becoming a Landlord, buy a ticket for the lotto !!

But it's not just any investment that is 3/4pc...this is one where you end up with a large asset.

brendan86

For starters your not taxed 100% on rental income, the interest of your mortgage is exempt and then also maintenance charges I think and repair costs. Your just taxed on profits. So your figures are a bit off, but as people said 1 bad tenant can put you in a very bad situation so you have to have a reserve but not all tenants are bad it just comes down to bad luck.

As another poster said outside Dublin there's value, I know in my town it's impossible to rent a house. You can get a 3 bed semi detatched for 65,000 and rent is 450-500 per month .. These houses sold for 130k in 2008 , still haven't picked up much since crash but rents still as good as they were back then.

In Dublin the value is gone, Houses has went crazy in past few years, if your brother buys investment property and a crash happens he can say goodbye to his pesonal house if in negative equity and needing 20% deposit unless he earns big.

0gac3yjefb5sv7

brendan86 wrote: »

For starters your not taxed 100% on rental income, the interest of your mortgage is exempt and then also maintenance charges I think and repair costs. Your just taxed on profits. So your figures are a bit off, but as people said 1 bad tenant can put you in a very bad situation so you have to have a reserve but not all tenants are bad it just comes down to bad luck.

As another poster said outside Dublin there's value, I know in my town it's impossible to rent a house. You can get a 3 bed semi detatched for 65,000 and rent is 450-500 per month .. These houses sold for 130k in 2008 , still haven't picked up much since crash but rents still as good as they were back then.

In Dublin the value is gone, Houses has went crazy in past few years, if your brother buys investment property and a crash happens he can say goodbye to his pesonal house if in negative equity and needing 20% deposit unless he earns big.

Can I ask around what area you are mentioning?

Also makes a huge difference to his figures if it's only taxed on profit!

brendan86

Attached image of a 3 bed semi sold for 61,000 gives location, I'm not saying its place to buy mearly saying there's better value out there as other poster said and they go for 450 min and never on market long for rental since built.

marathonic

Yeah, yield is usually significantly higher on cheaper properties. However, an additional problem with such properties is that repairs, when needed, take up a bigger proportion of annual rent. 

For example, a requirement to replace a boiler will likely eat up 4 months worth of rent in a place renting for 450 per month whilst it'll likely take less than one months rent in a place renting for 1800 per month.

Of course, boilers very rarely require replacing so it's a pretty extreme example, albeit one that a landlord of any property needs to be able to cover the cost of.

badboyblast

You are looking at this all wrong , if you want to go buy to let you have to go interest only mortgage and then when the property increases in price in a year or two you flip it and walk away from it

0gac3yjefb5sv7

badboyblast wrote: »

You are looking at this all wrong , if you want to go buy to let you have to go interest only mortgage and then when the property increases in price in a year or two you flip it and walk away from it

Can you explain?

DubCount

Pheonix10 wrote: »

Can you explain?

This is how property investment works in other parts of the world as standard practice. A LL buys a property for €100k and gets an interest only mortgage for €75k. The LL does not have to make capital repayments on the mortgage so does not have to come up with cash payments that are not allowable for tax.

After 5 years, the property is now worth €130k and mortgage stays at €75k because none of the capital has been repaid. The LL can sell ("Flip") the property and get back the €30k profit together with their initial €25k equity they invested. They can then invest in more property in the same way (but with a larger starting equity).

Interest only mortgages make a large amount of sense to property investors. It means they can make a small positive cash flow from the difference between rent received and mortgage interest paid, while enjoying the long term capital gain of a property over time. Unfortunately, Irish banks wont entertain the idea. They expect capital repayments and only look at an interest only period as a way of dealing with financial difficulty.

jamesthepeach

DubCount wrote: »

This is how property investment works in other parts of the world as standard practice. A LL buys a property for €100k and gets an interest only mortgage for €75k. The LL does not have to make capital repayments on the mortgage so does not have to come up with cash payments that are not allowable for tax.

After 5 years, the property is now worth €130k and mortgage stays at €75k because none of the capital has been repaid. The LL can sell ("Flip") the property and get back the €30k profit together with their initial €25k equity they invested. They can then invest in more property in the same way (but with a larger starting equity).

Interest only mortgages make a large amount of sense to property investors. It means they can make a small positive cash flow from the difference between rent received and mortgage interest paid, while enjoying the long term capital gain of a property over time. Unfortunately, Irish banks wont entertain the idea. They expect capital repayments and only look at an interest only period as a way of dealing with financial difficulty.

A sound system, but when it backfires it's bad. That's what happened a lot of people only a decade ago in ireland.

DubCount

jamesthepeach wrote: »

A sound system, but when it backfires it's bad. That's what happened a lot of people only a decade ago in ireland.

The problem with Ireland a decade ago was with the Loan to Value Ratios (LTV), and not interest only. If property values fall, an investor should have sufficient equity invested to absorb (at least most of) any market decline. Interest only is beneficial even when markets do decline, as the LL is likely to be making a positive cash flow even if they are in negative equity. Thats why interest only is used as a measure to deal with some mortgage holders who are in arrears.

Banks giving LTV rates of 90%+ meant significant levels of negative equity when the market fell. Even in the last crash, an interest only mortgage at 50% LTV would not have been a major problem for the banks.

I should also state that interest only does not make sense for home ownership, but for a Buy2Let invetsment, its a pity the banks are not open to the idea.

Samuel T. Cogley

Prices out in Clarehall are at their peak there's too much being built around it that's not on top of a halting site. Very, very bad idea. REIT all the way.