Buying an investment property

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Aloysius

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I have savings burning a hole in my internet banking due to earning virtually no interest. I was thinking of buying an investment property as my income is quite low at the moment and I would rather be using earnings from my savings rather than eating into the savings themselves.
Question is where or what you buy. I live in Dublin and was thinking either a 3bed semi in the burbs or a 1 bed apartment in a more central location, price and rental income in both looks similar. Going to spend about 220k, can go up a little if I have to.
 
What suburb are you getting a 3 bedroom semi detached house for in Dublin?
What kind of yield are you getting?
Are you borrowing?
Have you looked at dividend paying share portfolio?
Are all your eggs going into one, very illiquid basket?

Steven
www.bluewaterfp.ie
 
A classic case of the Irish obsession with property.

Why not invest in a diversified share portfolio which should include some property exposure?

Or if it's property you want, why not invest in a basket of REITs to avoid exposure to a single property or a single region (and the hassle of being a landlord)?
 
Short answer is because I don't know anything about them and haven't got much trust in financial advisors having been badly advised before. Tell me more.
I wouldn't say I'm obsessed with property, if I was I'd have bought a few places long ago.
If buying a house it would be in Lucan.
Not borrowing.
 
Try and find a fee based advisor. Someone who isn't a product pusher and who won't get remunerated opaquely by insurance companies.
 
Aloysius said:
Short answer is because I don't know anything about them and haven't got much trust in financial advisors having been badly advised before. Tell me more.
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For that level of money, you can get a bespoke portfolio built for you by a fund manager, paying CGT of 33% instead of 41% exit tax and getting dividends too if a regular income is that is what you are looking for.

Gordon Gekko said:
why not invest in a basket of REITs to avoid exposure to a single property or a single region (and the hassle of being a landlord)?
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REITS are expensive and a lot of people have questioned whether they are worth the expense.

Steven
www.bluewaterfp.ie
 
Aloysius said:
Question is where or what you buy. I live in Dublin and was thinking either a 3bed semi in the burbs or a 1 bed apartment in a more central location, price and rental income in both looks similar.
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Aloysius said:
Short answer is because I don't know anything about them and haven't got much trust in financial advisors having been badly advised before.
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It seems to me that you don't know much about property either. Most people think that they understand property and therefore they think it's a good investment.

The great thing about buying shares directly is that you actually don't need to know anything about them. If you buy a portfolio of blue chip shares, the market values them for you.

I presume that you own your own home mortgage-free? If not, then your first priority would be to buy a home for yourself and to pay off the mortgage.

If you have an income taxable at the top rate, you should also be considering contributing to a pension.
 
Aloysius said:
Short answer is because I don't know anything about them and haven't got much trust in financial advisors having been badly advised before.
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Well I'd suggest that you press the pause button and take the time to learn about investing before you do anything else because right now:
- You are about to invest in a high risk asset class
- You are failing to diversify the risk
- You are ignoring asset classes that have historically produced better results at lower risk levels

Don't let the heart rule the head, property is a high risk investment despite all the hype in Ireland about getting on the property ladder. In the industry we consider portfolio's with more that about 6 or 7 percent in property to be high risk portfolios. And if you take for example the and look at their holdings, you'll see that they tend to keep to this rule of thumb as well.

And while I agree with Steven that REITs can be expensive, I believe you could still get good exposure to property by investing in a Real Estate ETF. For example the STOXX Europe Real Estate index produced a return of around 17% pa over the last 5 years - so investing in a ETF tracking that index over the last years would have doubled your investment! And this was achieved at a much lower risk level than you are proposing as a result of diversification. Given that you state you will not be borrowing, this is very relevant to your situation.
 
As far as investments go I would suggest investing in property is not necessarily high risk. It depends where you buy, what you buy, when you buy.

Its probably a judgement call on the part of the investor as to whether investing in property will pay off. a 3 bed in lucan at 220 I would suggest is a good investment.
 
Gordon Gekko said:
Who?

"REITs are expensive"? That's way too sweeping a statement.
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Just read and heard it from different fund managers. Some of them won't touch them.

jim said:
As far as investments go I would suggest investing in property is not necessarily high risk.
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I think the fall in house prices during the recession debunked the marketing approach that property was a "medium" risk investment. Add in the level of borrowing and the length of the mortgage that is usually involved, it is a long term investment strategy in which a lot can go wrong.

Steven
www.bluewaterfp.ie
 
i dont think there is a hard and fast rule of thumb that states property is a high risk investment. some properties are some arent...it all depends, as i said, on what you buy when you buy it where you buy how much you pay, your personal outlook on the economy.
 
If he owns his property outright he does not have much to lose, if prices fall they will rise again, there are ups and downs with shares as well. There is currently a huge shortage of rented properties in Dublin so he has everything to gain. True there is hassle getting it ready for rental market but once he screens his tenents well, he will have steady income source. It beats having it sitting in a zero interest, online current account. Goodluck with it OP.
 
Gordon Gekko said:
A classic case of the Irish obsession with property.
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So what, us Irish are also obsessed with drinking tea and having our fry up on a weekend morning, nothing wrong with our cultural attributes:p, Maybe it has something to do with the fact that property is a solid tangible investment and of course don't forget property ownership is deeply ingrained in the Irish psyche so our obsession with it is here to stay whether we like it or not.
 
moneybox said:
So what, us Irish are also obsessed with drinking tea and having our fry up on a weekend morning, nothing wrong with our cultural attributes:p, Maybe it has something to do with the fact that property is a solid tangible investment and of course don't forget property ownership is deeply ingrained in the Irish psyche so our obsession with it is here to stay whether we like it or not.
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Which is why people need to be educated about diversification and risk.

It makes far more sense to invest across the asset classes by way of a diversified portfolio.

One would have hoped that the financial crisis at least put an end to the gombeenary seen prior to that.
 
jim said:
As far as investments go I would suggest investing in property is not necessarily high risk. It depends where you buy, what you buy, when you buy.

Its probably a judgement call on the part of the investor as to whether investing in property will pay off. a 3 bed in lucan at 220 I would suggest is a good investment.
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You can suggest all you like, but the stats do not support it - do you know anyone who doubled their money investing Irish property over the last 5 years, 10 years... From the discussion here it would appear that even a good BTL will only achieve between 2 and 4 percent return, while the consensus expectation on a solid portfolio of equities is between 6 and 8 percent. So not only are you likely to obtain a poorer return, you do so at much higher level of risk because you forfeit the opportunity to diversify.
 
jim said:
i dont think there is a hard and fast rule of thumb that states property is a high risk investment. some properties are some arent...it all depends, as i said, on what you buy when you buy it where you buy how much you pay, your personal outlook on the economy.
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But that is the very essence of a high risk investment - just look at all the conditions you have set out in your statement. Get anyone one of your conditions wrong and it is not just a part of your investment gone, it is the entire investment gone! Why would you go betting everything on one outcome when you can get as good or even better with less risk.
 
moneybox said:
If he owns his property outright he does not have much to lose, if prices fall they will rise again, there are ups and downs with shares as well.
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The fact that he owns the property makes no difference to the argument, since investing in another asset class will result in ownership of tangible assets too. The fact remains that he would be holding a more risky investment delivering a lower rate of return than he needs to. And a couple of other points to keep in mind, while equities indeed fall in price like other assets, they do how ever recover much quicker that property, an equity portfolio is more liquid than property and finally it is usually much easier to use equities as collateral for a loan that property.
 
Jim2007 - I take all of your points and agree with you. How does one (with say 40k to invest) go about investing it in equities? Can Joe Soap set up an online a/c and do it or is it better to engage a professional? I am kind of myself at a crossroads regarding this decision so any insight would be greatly appreciated.

Thanks,
Jim
 
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