buyers remorse

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galway_blow_in

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i bought a property recently ( BTL ) at auction and went 4.5% above where i promised myself ( and didnt really expect it to go for that much ) i would pull out , i suspect there were fake bidder working for the auctioneer or flies on the wall bidding , i have been looking for an investment property for a while and it has been incredibly frustrating , despite having the funds , on several occasions , the auctioneer could not get the green light to sell due to banks having a stranglehold on the seller ( or so i was told ) , been to a few auctions as well and prices paid dropped below my 6% minimum threshold for return on investment

ive checked the property price register ( i know i should have checked prior to auction ) and while as recent as 2011 , prices of more than 12% above my price have been paid , the most recent property in this development has sold in may of this year for 20% below what i paid ( its a two bed apartment )

when i take insurance , property tax and other expenses into account , im looking at a 6% yield , i am a cash buyer , i would never ever consider buying a property with a yield below 6% as there are plenty of blue chip stocks which pay 6% in dividends ( i think those who borrow money for properties with 6% return are insane )

im asking myself whether it would be insane to forfeit the 10% deposit and walk away from the property ( deposit was only paid ten days ago ) and either buy a cheaper BTL or simply invest in some blue chips ( id loose 12 k by walking away )

i dont think i paid an insane price for the property and those who paid 100 k for identical units in early summer got real value but i have no love for property per say , its all about return on money for me , i believe that over the long term , equities deliver higher capital growth and i do have quite a bit of cash

maybe im being incredibly reactionary by even contemplating walking away , i could at worst hold it for two years , collect the 6% rental yield and even i got 10 k less for it than i paid , i would be no worse off than dumping it now
 
Hi GBI

I'm afraid the vendor can issue proceedings to force you to complete the contract so it may not simply be a case of forfeiting your deposit and walking away from the deal. The vendor would be motivated to go down this road if they thought that they would not be able to secure a better price for the apartment if they were to simply put it back on the market.

Maybe take a step back for a minute.

You are projecting a net yield on the apartment of 6% (which equates to a gross yield of around 9%). Assuming the apartment is in an area with well paid and diverse employment opportunities, that strikes me as a very respectable net yield. The fact that somebody else may have got a better or worse deal on a similar apartment is not really relevant to your circumstances.

A single apartment is obviously a very concentrated investment so you need to be compensated for the lack of diversification. The FTSE 100 currently has a twelve month trailing yield of around 3.2% so I would have thought that a projected net yield on your apartment of 6% stacks up reasonably well.

It may not be a spectacularly good deal but it's far from a disaster.
 
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Sarenco said:
Hi GBI

I'm afraid the vendor can issue proceedings to force you to complete the contract so it may not simply be a case of forfeiting your deposit and walking away from the deal. The vendor would be motivated to go down this road if they thought that they would not be able to secure a better price for the apartment if they were to simply put it back on the market.

Maybe take a step back for a minute.

You are projecting a net yield on the apartment of 6% (which equates to a gross yield of around 9%). Assuming the apartment is in an area with well paid and diverse employment opportunities, that strikes me as a very respectable net yield. The fact that somebody else may have got a better or worse deal on a similar apartment is not really relevant to your circumstances.

A single apartment is obviously a very concentrated investment so you need to be compensated for the lack of diversification. The FTSE 100 currently has a twelve month trailing yield of around 3.2% so I would have thought that a projected net yield on your apartment of 6% stacks up reasonably well.

It may not be a spectacularly good deal but it's far from a disaster.
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sorry , i think we have a different way of working out yield , mine may be incorrect

the rent on this property ( or the other units in the development as the lease is actually up a few weeks but tenants are still in situ , i met them prior to auction and they wish to stay on but of course rent was not discussed ) is expected to be 750 per month or 9000 euro per anum , the managment fee is a grand and i am valuing property tax and insurance at 500 euro , i am not including miscellaneous costs like repairs etc at this point , that leaves me with 9000 - 1500 for managment fees and insurance , property tax = 7500 , the property cost me 120 k , ive rounded the yield down to 6%

its unlikely i will forfeit , had a long walk and thought about it , someone in 2011 paid twenty five grand more than me for a neighbouring unit , i realise this means nothing as 2011 is a very long time ago and i dont know there circumstances or motives , i think il treat it as a high yield bond investment , i might never make any capital gains on it but the income should be reasonable
 
i made a large sum of money by getting lucky investing in glanbia around five years ago , the stock went up more than four fold , im fortunate in that i had a large sum of cash to spend , i still have another 120 k in cash , im thinking of spreading it between four stocks yielding over 5% as of yesterday , one telecom , one bank ( chineese - british ) , one energy major , an american REIT which manages nursing homes , combined with this apartment , should deliver an income of around 13500 euro per anum on a 240 k spend before tax

property is harder to buy than it looks
 
I think you are right to ignore possible capital appreciation in your projections. Over the very long term, real estate has historically really just tracked inflation. If you do get any real capital appreciation during the time that you own the apartment, simply treat that as a bonus.

On the basis of your figures, I would calculate that as a projected net yield of around 5%.

First off you will have closing costs of around €3,000 (to include stamp duty, land registration fees, your solicitor's professional fee, searches and other outlay, your surveyor's fee (assuming you engaged one), VAT and a pro-rata share of this year's OMC fee).

So your projected gross yield will be around 7% (€9k/123k) or a net yield of around 5% (70% of 7%).

To arrive at a net figure I would reduce the gross yield by 30%. This does not mean that costs will account for 30% of your projected rental income every year - the figure represents an average over a long term holding period.

Firstly, the 30% figure allows for voids and over holding periods (i.e. where a tenant fails to pay their rent but remains in the property). It also allows for recurring costs such as LPT, PRTB registration fees, the annual OMC fee and any levies, mortgage protection premiums, landlord insurance premiums, letting and management agent commissions, advertising, accounting and legal. Finally, it includes a provision for (hopefully) less regular costs such as maintenance and repairs, painting and decorating, replacing furniture, white goods and other fittings.

Even if you intend to manage the property yourself you should include a provision for your own time (assuming you don't work for free!) in order to calculate a net yield that can be compared against alternative investments. You also need to be careful not to underestimate the cost of maintenance and repairs.

5% is still a pretty decent net yield in a world where 10-year German bonds are yielding 0.5%.
 
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Sarenco said:
I think you are right to ignore possible capital appreciation in your projections. Over the very long term, real estate has historically really just tracked inflation. If you do get any real capital appreciation during the time that you own the apartment, simply treat that as a bonus.

On the basis of your figures, I would calculate that as a projected net yield of around 5%.

First off you will have closing costs of around €3,000 (to include stamp duty, land registration fees, your solicitor's professional fee, searches and other outlay, your surveyor's fee (assuming you engaged one), VAT and a pro-rata share of this year's OMC fee).

So your projected gross yield will be around 7% (€9k/123k) or a net yield of around 5% (70% of 7%).

To arrive at a net figure I would reduce the gross yield by 30%. This does not mean that costs will account for 30% of your projected rental income every year - the figure represents an average over a long term holding period.

Firstly, the 30% figure allows for voids and over holding periods (i.e. where a tenant fails to pay their rent but remains in the property). It also allows for recurring costs such as LPT, PRTB registration fees, the annual OMC fee and any levies, mortgage protection premiums, landlord insurance premiums, letting and management agent commissions, advertising, accounting and legal. Finally, it includes a provision for (hopefully) less regular costs such as maintenance and repairs, painting and decorating, replacing furniture, white goods and other fittings.

Even if you intend to manage the property yourself you should include a provision for your own time (assuming you don't work for free!) in order to calculate a net yield that can be compared against alternative investments. You also need to be careful not to underestimate the cost of maintenance and repairs.

5% is still a pretty decent net yield in a world where 10-year German bonds are yielding 0.5%.
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thank you for that in depth analysis , i might add that this property is in a city where rents are still a long way behind other regional cities so i think a monthly rent of 850 might be on the cards within four or five years

im feeling less negative about it than i was , i guess i feel i lacked ambition as there are still pockets of deep value outside dublin and galway right now in locations with populations of over fifty thousand people yet i bought only reasonable value , on a seperate not , il say it again , i cannot understand why anyone would borrow to buy an investment property unless it was providing yields well in excess of 8% , why sign up for such hassle when there are plenty of quality companies paying 4% in dividends , after a mortgage is paid , i doubt many investors have 4% left for themselves

am i missing something here ?
 
No, I don't think you're missing anything.

Leveraged residential property investments almost never make sense for an individual investor at today's achievable yields, RIP mortgage rates and the fact that 25% of interest payments are non-deductible for income tax purposes. The result, of course, are increasing rents without corresponding property price increases as landlords are increasingly exiting the market.

All other things being equal, you would expect a rental property in a smaller town to have a higher yield than a rental in a major urban centre for the simple reason that it's a higher risk investment. Many small towns are highly reliant on a relatively small number of employers - if the jobs go, so do your tenants.

Incidentally, a high yield share portfolio comprised of only 4 stocks looks very concentrated to me. You might want to consider dialling down the average yield slightly and adding some dividend growth stocks and/or investment trusts to the mix.
 
Sarenco said:
No, I don't think you're missing anything.

Leveraged residential property investments almost never make sense for an individual investor at today's achievable yields, RIP mortgage rates and the fact that 25% of interest payments are non-deductible for income tax purposes. The result, of course, are increasing rents without corresponding property price increases as landlords are increasingly exiting the market.

All other things being equal, you would expect a rental property in a smaller town to have a higher yield than a rental in a major urban centre for the simple reason that it's a higher risk investment. Many small towns are highly reliant on a relatively small number of employers - if the jobs go, so do your tenants.

Incidentally, a high yield share portfolio comprised of only 4 stocks looks very concentrated to me. You might want to consider dialling down the average yield slightly and adding some dividend growth stocks and/or investment trusts to the mix.
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i didnt actually buy in a small town , i bought in irelands third largest city

i suppose i could add the likes of GM which has nearly a 4% dividend and with a forward PE of below 10
 
Fair enough but I was responding to your comment that you could have got better value elsewhere - I may have misunderstood your comment.

You might also want consider adding a few investment trusts like City of London - over 100 underlying holdings, 44 consecutive years of dividend increases and currently trading at a trailing yield of around 4%.
 
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