Buy To Let: Possible to Actually Make a Profit in Ireland, or Elsewhere?

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blobert

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Hi there,

Do you guys think it is possible to buy a property in Ireland (at current prices) and rent it at a profit (I'm asuming the answer is no).

Most of the posters here seem that are buying to let seem to accept that they will have to subsidise the mortgage repayments with their own incomes in the hope that their property will increase in value over X years after which they plan to sell. This seems a bit of a flawed idea to me.

So is it possible to find buy-to-let properties in Ireland, the rental income of which will cover your mortage and other charges and fees aplicable to renting?
The idea of buying a slightly run down place and allowing rent allowance letters appeals, but I gather this is not too straightforward to do.

If this is not possible in Ireland, any recommendations on where to look abroad would be appreciated.

Thanks in advance,
Robert
 
I think that a buy to let should be viewed as a pension fund and it has to be financed. You do not expect that your pension will be self financing. There is nothing wrong with having to top it up and unreasonable to expect to get away without having to do so. You just need to get used to the idea.
 
There's far more tax efficient ways to set up a pension fund than some overpriced buy to let in a midlands town.
 
thewatcher said:
There's far more tax efficient ways to set up a pension fund than some overpriced buy to let in a midlands town.
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As soon as you decide what that is I would be delighted to be on the receiving end of your wisdom because I cant decide on a good pension fund other than rental property. I would like to have another option.
 
woods said:
As soon as you decide what that is I would be delighted to be on the receiving end of your wisdom because I cant decide on a good pension fund other than rental property. I would like to have another option.
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The fact that your pension fund is created tax free whilst you're buying the property (overpriced or not doesn't matter) with your after tax income I would have thought would be sufficient, no? Am I missing something?

However this has nothing to do with the original question whereby the OP isn't necessarily looking at capital appreciation but looking for the investment to be self financing, I believe. Without availing of S23, S50s I think this would be hard to do (legally). Essentially I only think it's possible when you have some way getting all your income tax free. Possibly there's still opportunities with residential care / private hospitals but don't know of any vehicles for the small investor to avail of these.
 
Howitzer said:
The fact that your pension fund is created tax free whilst you're buying the property (overpriced or not doesn't matter) with your after tax income I would have thought would be sufficient, no? Am I missing something?
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Yes, you also forgot to mention the additional costs of starting up a property "pension" in the form of stamp duty, solicitor fee's, property valuation, etc, etc...! ;)

I think that a buy to let should be viewed as a pension fund and it has to be financed. You do not expect that your pension will be self financing. There is nothing wrong with having to top it up and unreasonable to expect to get away without having to do so. You just need to get used to the idea.
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I personally think a buy-to-let should be viewed as a business, and I certainly wouldn't be happy to subsidise each of my customers every month.
 
house in my estate which was previously rented is being sold,after stamp duty you would get around 2% rental yield on the purchase price and then you have the maintenace costs insurance etc and tax on your rental income. doesnt make much sense with mortgage rates heading for 5% in next 18months.
 
The original poster is simply looking for profit. he/she did not mention pension or capital appreciation. The answer is easy but does have risks.

Interest only mortgage is the way to go my friend. A property costing 230k will have monthly repayments of 670. The benefit to this is lower bottom line costs per month. Obviously you dont pay off any of your capital.
 
The Punter said:
The original poster is simply looking for profit. he/she did not mention pension or capital appreciation. The answer is easy but does have risks.

Interest only mortgage is the way to go my friend. A property costing 230k will have monthly repayments of 670. The benefit to this is lower bottom line costs per month. Obviously you dont pay off any of your capital.
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670 untill rates rise . i'd assume mortgage rates are heading for 5% which would make interest only repayments around 950euro within 18months,where can you get a property for 230k that rents for 950 a month???????? then you have your costs of owning too.
 
bearishbull said:
670 untill rates rise . i'd assume mortgage rates are heading for 5% which would make interest only repayments around 950euro within 18months,where can you get a property for 230k that rents for 950 a month???????? then you have your costs of owning too.
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This point can't be emphasised enough. A 1% increase in ECB rates (1%? ahh shure dats nutin) will give a 25% increase in interest only mortgage repayments.

Interest only mortgages are meant to be used to capitalise on a quick increase in capital values. Again, I don't believe this is what the OP has his eye on. I could be wrong.....
 
woods said:
I think that a buy to let should be viewed as a pension fund and it has to be financed. You do not expect that your pension will be self financing. There is nothing wrong with having to top it up and unreasonable to expect to get away without having to do so. You just need to get used to the idea.
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Not sure I would agree completely with these statements. If the figures for an investment don't stack up then it doesn't really matter whether it is placed inside or outside a pension structure. The figures that are acceptable depends on one's personal circumstances. Some of us still depend on property (and more specifically BTL) for our income (and not solely for our pension). I currently find it very difficult to justify investment in Irish property. The assets are generally not delivering a rental return in excess of what you would get in a good deposit account (which has none of the associated risks, workload and secondary costs associated with property ownership). Without steady capital appreciation then the assets would be a dead weight in anyone's portfolio. Fortunately rental yields are higher elsewhere.
 
I think that I am being missunderstood here.
I was not suggesting that you put it in a pension fund.
I was suggesting that you can not have something for nothing.
It is unreasonable to expect that you can pick up a property and aquire it for nothing by having the rent meet the repayments. You are getting something that will in many years time be as good as a pension fund and you have to pay for that by subsidising the rent.
We have made purchases that have 100% met their repayments but they were all business and someone had to manage them to get the best out of them. I would not dream of expecting that from a rental property. That is living in cloud cuckoo land.
 
Thanks for all the posts guys, I really appreciate your advice.

I have been reading the Rich Dad series of books on investing etc recently and this is where the thought behind my original post came from. The author ([SIZE=-1]Robert Kiyosaki)[/SIZE] made a lot of his original money through rental property and his basic notion on the subject is not to buy a rental property unless it can make a profit, even if it is only €50 a month after all expenses. He reckons houses can only be classed as assets if they produce a positive cashflow, otherwise (capital appreciation aside) they are costing you money each month.

Now I'd imagine if you bought an apt in Dublin 10-15 years ago, at much lower prices, then right now the rental income would easily cover all expenses and allow for a profit.

But I'd imagine that it is not possible to buy a place at todays (highest ever) prices and do the same thing. I'm hoping I'm wrong.

A lot of these selp help and financial advisor types make big promises to sell more books, perhaps this is what [SIZE=-1]Robert Kiyosaki is doing. Or maybe it's easier to do this in the US . He says he bought in States with depressed housing prices at the time of purchase. Nonethless the property still had to offer a profit. Then in time (when the market picked up) he would sell, thus gaining capital appreciation but also making a small amount in the mean time. It's a great plan, but I'm guessing it's not feasible in the current situation in Ireland.

Any further advice would be much appreciated.

Thanks,
Robert
[/SIZE]
 
First investment property bought 2003 interest only mortgage. GROSS rental yield was 5.6%
Investment property 2 bought 2004 yield 5.1%
Investment property 3 bought 2005 yield 5.1%
Investment property 4 bought 2006 yield 4.2%
I have used for yield (yearly rent divided by purchase price) and I am aware that there are variations on this equation.
The trend is obvious and personally I believe that the window is closing very quickly on Buy to Let property and as I have said before, as soon as you have to supplement your mortgage payments with your own income, your investment is no longer self sustaining and your lifestyle will suffer.
 
woods said:
I was suggesting that you can not have something for nothing. It is unreasonable to expect that you can pick up a property and aquire it for nothing by having the rent meet the repayments. You are getting something that will in many years time be as good as a pension fund and you have to pay for that by subsidising the rent.
We have made purchases that have 100% met their repayments but they were all business and someone had to manage them to get the best out of them. I would not dream of expecting that from a rental property. That is living in cloud cuckoo land.
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Hi Woods ... Apologies if I misrepresented what you were saying. I guess what I'm trying to say is as follows ... If you purchase a property you're likely to have to fork out a deposit and costs. In addition, you will be paying back (assuming a full repayment mortgage) capital and interest over a long period of time. Therefore you are definitely not getting something for nothing.

Like many other asset classes there are alternative uses you can put the property to in order to generate an income. But there is absolutely no guarantee that the property will be rented or will increase in value over the period of the loan. There is also considerable work in managing and maintaining the property. All of this adds up to no small risk and plenty of work.

For me if an asset is not producing an income in excess of what a deposit account would give you then it is time to ask some serious questions. I think there may be better ways of building short-term and long-term (e.g. pension) income. For this reason, it is now extremely difficult to make Irish residential properties work as an investment.
 
landlord said:
The trend is obvious and personally I believe that the window is closing very quickly on Buy to Let property and as I have said before, as soon as you have to supplement your mortgage payments with your own income, your investment is no longer self sustaining and your lifestyle will suffer.
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Hi Landlord ... I would agree with your views. I would go as far as say that if one is not careful then one's lifestyle becomes a slave to the investment (rather than vice versa). One is slaving to keep the asset alive rather than it giving one a life. Fortunately, there are still some good yields to be achieved outside of Ireland but this raises other issues.
 
Carriglee said:
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For me if an asset is not producing an income in excess of what a deposit account would give you then it is time to ask some serious questions. I think there may be better ways of building short-term and long-term (e.g. pension) income. For this reason, it is now extremely difficult to make Irish residential properties work as an investment.
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I think that it a mistake to make hard and fast rules and every opportunity should be judged on it's own merits. We once bought a property that generated no income and we bitched a little to each other about it but when we finally sold it we calculated that we had earned £3K per week (and yes that is old pounds and not euro) for every week that we had owned it.
I know that times were different then but if we had followed investor guidelines we would never have bought it and would have missed a huge gain.
 
It is possible to accept an initial negative cashflow, as rental income will invariably rise over time. I'm not saying this is advisable, just another way of looking at it. I think if one is really serious about property investment, there are double digit yields available in eastern europe, but this will involve considerable time and effort...but as they say no pain no gain!

PS I might add these yields are very unlikely to be found by an off plan type purchase from an rds show...the investor will need to dedicate serious time and effort (effort being fostering relationships locally and investing in possible refurbishments plus multiple annual trips, possibly considerable time spent there)

Also I would be very wary of many eastern european locations as the demographic situation is grim e.g. Berlin....I would'nt pay 50k for an apartment there...
 
Thanks again folks for all the opinions/advice.

I got an interesting PM (which I agree with) that I thought I'd add to this discussion:

hey blobert, I'm also quite the fan of the RD/PD series. However I've also kept quite up to date with his columns & website (I think you may not have). It's funny, before reading his books I was bear-ish on property and after reading them I'm *doubly* bear-ish.

He has written an article which caused alot of waves amongst real estate speculators (note I said speculators, not investors) called 'All booms bust' which you'll easily find via google.

As you probably realised yourself, I find the take-away point of his books to be cash-flow. That's it, if you deviate from cashflow you're a pretty much in gambling territory. He refers to properties where the rent doesnt cover the costs as 'junk properties'.

Look at Ireland at the moment.. pretty much every single property in the country fails the RDPD cashflow test - that is truly shocking. Ireland can only defy the laws of economic gravity for so long.

The lessons Ive taken from the books are that the two greatest income generating assets are businesses & property. Right now, property is junk so Im staying away from it (renting, no investment properties) and focusing on building business.

However, I truly believe in the power of the economic cycle and that some day Ireland will have moved from the current 'euphoric' state in property to 'revulsion' (stages in asset boom-bust cycles). And at that time, properties will appear again that can be cash-flowed and thats when I'll become involved in property, not before.

Anyways, eh sorry for the mini-rant there :) But its interesting (and rare!) to see another Irish RD fan.
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Any more advice would be much appreciated.
 
Thanks for sharing Blobert. I can't help feeling some of the stuff going on with property in this country is crazy I would have no interest in investing in a second property here for the simple reason the rent wouldn't cover the mortgage but hey thats me and everyone has different risk levels some people are happy to rely on Capital Appreciation and have done well out of it. An few interest rate hikes and I can't help feeling it won't be too long before it comes unstuck and a lot of people may get caught with their pants down.
 
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