WorkingClass
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You say you are buying it as an investment, but then you say you might not rent it out that often. That's crazy. If, as it sounds, you are buying it purely in the hope that its capital value will rise in future, then that's not investment at all, it is speculation, pure and simple.
An investment is something that gives you a regular income. Speculation (which many people mistook for investment during the boom) is about rising and falling capital values. Speculation is very very high risk. Just ask the thousands of amateur buy-to-let speculators who have gotten their hands burnt in recent years buying flats for 250k that are now only worth 100k.
My advice to you would be: if you want to buy a property as an investment, then buy one that will be attractive to renters and rent it out, always. Why leave it empty when it is earning you no income?
I'd look for a good rental yield of about 7%-8%. Calculate how much the property will generate in annual rent, divide that number by 7 or 8 (or whatever yield you are seeking), and multiply it by 100. Then you know the absolute maximum you should pay for the property. Be disciplined, and don't go beyond this price.
Because you have no financing costs (a very inefficient use of capital, by the way), you could probably accept a lower yield.
Sorry if I appeared too strident. On read back, it sounded like I was lecturing you. I wasn't, just urging caution. It is good that you are thinking long term. But I see some risk here for you. This is pretty much all your savings we are talking about here. You don't want to put them at risk.
If you ignore the income element and focus too much on capital appreciation, you may be disappointed by the investment. Let's say you buy tomorrow, house prices fall a bit further, before taking one or even two decades to recover to any great degree beyond today's prices. I think that's a reasonable prediction. You have just locked away all your savings for 20 years - houses are illiquid, you can't just make a withdrawal.
If you were prepared instead to lock your savings away in cash for even 10 years, you could probably get a really excellent deposit rate of maybe 3.5%-4% that will far outstrip the average annual house price rise during that time. Plus, your savings will not have any capital risk attached, unlike owning a house.
But to calculate your real return, you also need to deduct inflation off it to calculate what extra you are really making. Rental income is actually future inflation-proofed, because rents will generally rise in line with inflation in a normal market, unlike deposit rates, which depend on lots of factors and go up and down all the time.
If I were you, I'd forget about making money off a house price rise. If it happens in 10 or 20 years time that you've made money this way, consider it a nice bonus. Focus on getting yourself a good annual return instead - that's how a professional property company would approach things. Think short-term regular returns to make money long term.
I'd buy a good house in a good area that is tailor made for renters. But that might not necessarily be where you want to live, by the way. For example, a good renter area in Dublin might be down around Grand Canal Dock area - there's thousands down there working in Google, Facebook, LinkedIn and plenty more companies due to arrive, your workers in these type of firms are often foreign and transient. A landlord's dream. But it is not an area that would be attractive to most families (perhaps like yours, or mine), because they prefer suburban locations with more space for the kids, parks etc.
Anyway, just some food for thought. Good luck with it!
Very good post re the bit I've highlighted though I'd assume you wouldnt regard Ireland (particularly Dublin as I'm more familiar with myself) at the moment as a 'normal' market. Rents here have to drop because at the moment they're still at mad levels imo, obviously to keep up with the excessive mortgages taken out by the owners in recent years....
A fair summary but points one and three are subjective. I think the OP is suggesting more a case of using the fact that the property is a place to park some savings for now which he feels might be a safer place than a bank in the long run though.- household charge will transition into a property tax over next couple of years and likely to be very significant. Some estimates put this at €1000 - €1500 per annum. This is payable by landlord unlike in other countries, and is not tax deductable
- your rental income is liable for income tax, USC, and PRSI. Likley to be significant particularly if you have no mortgage and therefore won't be eligible for tax relief on interest repayments
- rents likely to reduce for a number of reasons incl large amount of NAMA stock still to be released onto market, further austerity budgets likely to reduce disposable incomes, govt continues to reduce rents it pays to landlords on behalf of SW tenants, high emigration, etc
- high apartment service charges - typically €1500 per annum
- future budgets likely to involve additional taxes on landlords as they are seen as an easy target
Apart from above, being landlord involves being on call 24*7 and you are responsible for everything from faulty appliances to blocked sinks, etc
Very good post re the bit I've highlighted though I'd assume you wouldnt regard Ireland (particularly Dublin as I'm more familiar with myself) at the moment as a 'normal' market. Rents here have to drop because at the moment they're still at mad levels imo, obviously to keep up with the excessive mortgages taken out by the owners in recent years....
- your rental income is liable for income tax, USC, and PRSI. Likley to be significant particularly if you have no mortgage and therefore won't be eligible for tax relief on interest repayments
it does not seem like this is the case. I really don't know much about setting up a business in Ireland and the rules that apply. I'm just wondering a) if this is possible and b) why people don't seem to do it regularly
Without answering any of your questions I would point out that short term lets are a bit more trouble because you would be expected to supply a lot more than your average long term apartment i.e. cutlery, kettles, towels, bed linen to name a few. This brings bigger risk of loss. Also ESB and services can't be changed into different names at willy nilly so you would be taking the risk of high usage with large bills.
W-Class - Please don't take this as patronising..
Some thoughts..
1. If , and it is an IF, property prices increase over the next seven years you won't have to pay any CGT if you buy now.
2. Some people are saying that there is a rental demand because people can't buy. Once they can buy more easily then rents will drop. But surely this means that if it becomes easier to buy ( and there is a pent-up demand) then sales prices will at least stabilise if not increase ?
3. I've got one beds, two beds, plus houses in Dublin area - centre and suburbs. By the far the biggest yield is on the smaller apts. -7-8% after all costs but before tax.
On 3 bed houses -in reasonable suburbs- the yield is only 5%. But the smaller apts have crashed more in price. Confusing ,eh?
4. Even odder is that the yield on houses ,not apts, in somewhat poorer areas is far better than in "better" areas, within a mile of each other. B'fermot v P'ton.. Ringsend v Sandymount etc
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