Rental Income covers mortgage

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Kelmar

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Last week I met a work colleague from the UK who told me he has been investing in property for the past 3 years and now has 5 different houses in his portfolio. His approach is simple- he buys a house with about 10% deposit then rents it out; the rental income covers the mortgage costs and the general running costs for each house.

Are there any areas in Ireland where rental income would cover the mortgage and running costs like this?
 
You have to weigh up the capital appreciation side also. There may be places where rental income will cover the mortgage but the capital appreciation outlook may be gloomy e.g. dodgy areas, social disorder etc.
 
What is your colleague's yield on these properties and how does it compare to alternative investments? Does he have interest only mortgages on the properties? What does he do when the properties are vacant between lettings? How much time does it take to manage/maintain the rental properties?

Whatever about there being areas in which the rent may cover the mortgage and other costs (including tax) one really needs to crunch the numbers for a specific opportunity before deciding whether or not it's viable.

And, as Budgie says, capital appreciation and the risks to same is something that needs to be factored into the equation too.
 
Kelmar said:
Last week I met a work colleague from the UK who told me he has been investing in property for the past 3 years and now has 5 different houses in his portfolio. His approach is simple- he buys a house with about 10% deposit then rents it out; the rental income covers the mortgage costs and the general running costs for each house.

Are there any areas in Ireland where rental income would cover the mortgage and running costs like this?
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What I wish most Irish "investors" would realise is that the above scenario is actual property investment, and fair play to the guy, sounds like he's doing well.

But what most irish people are doing is speculation not investment. Once capital appreciation and inflation start seeing eye to eye.... it wll interesting to see what happens to the irish property market when the speculators start to leave..
 
House prices in England and Wales fell for the 14th straight month in August for an annual rate of decline of nearly 4 percent. (Announced today on hometrack).

On a portfolio that size (5 houses), that could be a sizeable hit depending on where they are located. Any details on this ?

Also, Soma, your point reminded me of a nice simple definition of how asset bubbles form:

The proper definition of a bubble is "Speculative buying of appreciating assets, without regard to underlying investment returns (in the case of real estate that would be rents), solely on the anticipation of future price appreciation."
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http://www.kitco.com/ind/Schiff/aug252005.html

 
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Kelmar, do you know the ICES group? Their thinking is pretty much the same as your colleagues and yourself www.theicesgroup.com and it makes a lot of sense in my opinion. I have been to their Tuesay meetings in Dublin and they are well worth checking out.
 
Another Robert Kiyosaki/Cashflow 101 crowd? You should read up on previous discussions on this stuff before getting involved. Use the search to find earlier threads.
 
Yes, Clubman you are right, as with any investment, you should read up as much as possible before embarking on anything and ensure you are comfortable with the risks and returns associated.
 
Kelmar said:
Last week I met a work colleague from the UK who told me he has been investing in property for the past 3 years and now has 5 different houses in his portfolio. His approach is simple- he buys a house with about 10% deposit then rents it out; the rental income covers the mortgage costs and the general running costs for each house.
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Is he including his tax liability in 'general running costs'?
 
People reading that can save their misplaced envy of 'far off hills being greener'. Your colleague is fortunate given the current property situation in the UK where there is now a dip in both number of sales and selling price at the same time as there is an oversupply of properties available to let, many of them empty and deteriorating for long periods between 'lets'. It is difficult to understand how he can be basically acquiring five properties at the cost to himself of 10% of their purchase value given that 20% of the rental goes to Revenue and there are of course council taxes, water rates, etc., etc.
 
Marie said:
at the same time as there is an oversupply of properties available to let, many of them empty and deteriorating for long periods between 'lets'.
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I dont think think there's a 'backlash' or anything, but I gather that there are those in the UK who hold Irish investors partially responsible for this oversupply due to their habit of buying almost anything anywhere.. there was some ridiculous statistic I read a while back.... and apologies that Im really making a guess based on a hazy recollection.... but it was something along the lines of 1 in 3 new apartments in the UK that were sold off the plans were sold to Irish investors.
 
You've got to pity them, struggling to find ways to dispose of all that excess dosh ;) but I still don't understand how there can be a profit for an Irish speculator buying UK given (a) issues of currency exchange rates and (b) given that the very cheapest deals in buy-to-let mortgages are between 5% - 6.5% .
 
Irish 'Investors' in the UK buy in groups and in bulk obtaining what they consider to be a discount. Many of those buying are developers and builders who dont seem to be too intrested in buying Irish residential property. These 'Investors' consider that they have purchased below market value, however these transactions are considered fair comparables by surveyors undertaking valuations for secured lending purposes. Its a crazy spiral;
 
I watched a programme before on this subject, people in the UK with normal jobs and incomes, buying property after property to gain a portfolio. But it was all very much on the edge as it gave the success story and the disaster story. They were buying old council houses, renovating them and then renting them out to Social Welfare or anyone who would hand over money. Everything went fine once you hand god tenants, bought well and the market went your way.



One lady had ten properties, but hardly a shilling in the bank and very pressured to keep focused on her own job. It was all the promise of tomorrow and it ticked over until she had to sell some properties to keep the cash flow moving, everything was just far too tight for me.



Then you had the disaster story of another buyer who had three properties with only one unit let and having to pay the mortgage on the other two since they bought badly and bought into areas where it could have gone so right or so wrong. Unfortunately, it all went wrong. Very worrying, I feel people are investing beyond their means and living very close to the edge. We all know that property is a sound investment over the long term but it is the many storms over the long term that you need to weather. Once one piece of the puzzle falls foul, job loss or cash flow, you will have a domino effect on your assets, their is nothing wrong with the posters friend if he can guarantee cash flow and income for lean times, which is a big ask given 5 properties.

There is far too much speculation now in the Dublin market, I went to one sale at the weekend of 55 apartments on the Malahide Road, all sold within 2 days. Mostly to investors, the complex when fully built will have over 700 apartments at the Dublin Hilton, another 5000 houses have been practically being chewed up off the plans along Donaghmede, again a large proportion of investors. I have a feeling that properties for rent over the next few years will require allot more maintenance, better design, better features and that the older rented properties will then go to the market and become residential targets as their rentability will have dwindled.

It is a very unstable and unsure market at the moment, not a case for a burst bubble, but far too much expectancy about rent and values.



I believe those two on Locations, Location, Location have allot to answer for!

 
90210 said:
I believe those two on Locations, Location, Location have allot to answer for!
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To be fair, individuals ultimately have to make decisions for themselves and in the (I would assume unlikely) event that somebody makes a decision to invest in (or speculate on) property based solely or mainly on the contend of such a TV programme then it's really the individual's responsibility.
 
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