# Have an investment property but rent is falling short by €170/mth to cover my costs.



## wino

I have an investment property but the rent is falling short by 170 a month to cover my costs. The equity is worth about 150K. Would I be better off selling and puttting the equity to better use ,considering the current lack of growth in the housing market. 

Wino


----------



## ClubMan

*Re: investment property*



Moved from Mortgages and Buying and Selling Homes.


----------



## Purple

*Re: investment property*

In my opinion yes, you should.


----------



## --2cents

*Re: investment property*

Use the money to buy below market value property and you should end up with big profits.

Kess


----------



## ClubMan

*Re: investment property*

Buy low sell high - profound advice.


----------



## webtax

*Re: investment property*



wino said:


> The equity is worth about 150K.



Have you tried negotiating a better mortgage rate with your lender (or shopping around)?


----------



## z106

*Re: investment property*

Definitely don't sell.

How about you remortgage instead ?
E.g. Lets say you can release €100k in equity.

This would cost you a further c. €5k a year in interest repayments. Along with your c. €2k you have to supplement at the moment that would be an extra c. €7k a year you would have to supplement.

SO - let say you put aside €15k of that €100k that would see you through 2 years of these extra repayments.(And maybe longer if you contimue to supplement say €100 yourself each month if you can afford it).

In that time  hopefully rents will continue to rise along with your salary which should make things easier in 2 - 3 years time.

That way you will also avoid paying CGT if you sell which should also save you at a guess tens of thousands.

ANd you aslo retain an asset which will rise in the long term.

ANd you still have the €85k leftover to invest elsewhere.

You can tweak the fugures above to suit your situation but you get my point.


----------



## z103

*Re: have an investment property but the rent is falling short by 170 a month to cover*



> How about you remortgage instead ?
> E.g. Lets say you can release €100k in equity.
> 
> This would cost you a further c. €5k a year in interest repayments. Along with your c. €2k you have to supplement at the moment that would be an extra c. €7k a year you would have to supplement.
> 
> SO - let say you put aside €15k of that €100k that would see you through 2 years of these extra repayments.(And maybe longer if you contimue to supplement say €100 yourself each month if you can afford it).



Are you suggesting that the OP should re-mortgage in order to pay back their mortgage?


----------



## z106

*Re: have an investment property but the rent is falling short by 170 a month to cover my*

Yes - read my post again  - it says it all there.


----------



## Persius

*Re: have an investment property but the rent is falling short by 170 a month to cover my*

And how do you avoid CGT in this scenario? I though top up morgages could only be used in such a manner if the funds are actually used to renovate the house and thus increase it's original value.


----------



## z106

*Re: have an investment property but the rent is falling short by 170 a month to cover my*

You only pay CGT when you sell.

SO - if you wanna avoid paying CGT then NEVER sell !!


----------



## moneygrower

*Re: have an investment property but the rent is falling short by 170 a month to cover my*

is that not like saying if you've no income you don't pay income tax??


----------



## z109

*Re: have an investment property but the rent is falling short by 170 a month to cover*



Persius said:


> And how do you avoid CGT in this scenario? I though top up morgages could only be used in such a manner if the funds are actually used to renovate the house and thus increase it's original value.


Does a top-up mortgage used in this manner also mean that the interest on the top-up is not claimable against income (i.e. it is not tax deductible), so while it may ease payment worries for a while, it will result in trouble further down the line (you will not get a decent yield as the after tax income will not be enough to pay the top-up mortgage). I haven't worked the figures out, but this is my gut feeling on this.


----------



## ClubMan

*Re: have an investment property but the rent is falling short by 170 a month to cover*



yoganmahew said:


> Does a top-up mortgage used in this manner also mean that the interest on the top-up is not claimable against income (i.e. it is not tax deductible)


Interest on loans/topups can only be offset against rental income if the money is actually used to purchase/renovate the investment property.


----------



## kkelliher

*Re: have an investment property but the rent is falling short by 170 a month to cover my*

Another way to look at this is that for every €170 you are putting into the property someone else is putting in substancially more and the rate of return on your capital investment is not that bad at all.

You should only sell if you need to. there is a large surplus of housing but there is not a large surplus of decent (as most renters will tell you) well furnished and maintained rental properties.


----------



## z106

*Re: have an investment property but the rent is falling short by 170 a month to cover my*



kkelliher said:


> Another way to look at this is that for every €170 you are putting into the property someone else is putting in substancially more and the rate of return on your capital investment is not that bad at all.
> 
> You should only sell if you need to. there is a large surplus of housing but there is not a large surplus of decent (as most renters will tell you) well furnished and maintained rental properties.


 
Good point.


----------



## z109

*Re: have an investment property but the rent is falling short by 170 a month to cover*



kkelliher said:


> Another way to look at this is that for every €170 you are putting into the property someone else is putting in substancially more and the rate of return on your capital investment is not that bad at all.
> 
> You should only sell if you need to. there is a large surplus of housing but there is not a large surplus of decent (as most renters will tell you) well furnished and maintained rental properties.


Or indeed, you could say that you are subsidizing your tenants to the tune of 170 a month.

Are you on an interest only mortgage? If not, is the 170 more than the capital being paid off each month? If either of these statements is true (that you are paying some of the interest on the mortgage), you are leasing the house from the bank and sub-leasing at a loss to your tenants.


----------



## z106

*Re: have an investment property but the rent is falling short by 170 a month to cover*



yoganmahew said:


> Or indeed, you could say that you are subsidizing your tenants to the tune of 170 a month.
> 
> Are you on an interest only mortgage? If not, is the 170 more than the capital being paid off each month? If either of these statements is true (that you are paying some of the interest on the mortgage), you are leasing the house from the bank and sub-leasing at a loss to your tenants.


 
And your point is ?
That therefore they should sell?


----------



## Thomas22

*Re: have an investment property but the rent is falling short by 170 a month to cover*



kkelliher said:


> Another way to look at this is that for every €170 you are putting into the property someone else is putting in substancially more and the rate of return on your capital investment is not that bad at all.
> 
> You should only sell if you need to. there is a large surplus of housing but there is not a large surplus of decent (as most renters will tell you) well furnished and maintained rental properties.



 This capital investment is terrible! 
The person is on an interest only mortgage therefore the renters are paying nothing off his mortgage.

If the investor sold the property and released the €100,000 equity and put in a RISK FREE investment they would be better off by €524pm. Thats €6,300 per year.

Investing this money into a pension and assuming the investor pays tax at the higher rate this would be worth over €350,000 in 20 years. And they would still have the €100,000 in the bank.

Anyone seriously suggesting he should keep this investment needs to re-examine the figures because they just don't stand up.


----------



## z109

*Re: have an investment property but the rent is falling short by 170 a month to cover*



qwertyuiop said:


> And your point is ?
> That therefore they should sell?


My points are:
1. There is insufficient information in the OP to decide if this is a loss-making exercise.
2. The lowest acceptable return is that the interest and running costs are being paid by the mortgage. If the OP has to top up the capital repayment, then at least he will own the house at the end of the mortgage term. If the running costs (interest/maintenance/fees) are not being covered by the rent, then the OP is subsidizing the cost of living in the house.


----------



## z106

*Re: have an investment property but the rent is falling short by 170 a month to cover*



Thomas22 said:


> This capital investment is terrible!
> The person is on an interest only mortgage therefore the renters are paying nothing off his mortgage.
> 
> If the investor sold the property and released the €100,000 equity and put in a RISK FREE investment they would be better off by €524pm. Thats €6,300 per year.
> 
> Investing this money into a pension and assuming the investor pays tax at the higher rate this would be worth over €350,000 in 20 years. And they would still have the €100,000 in the bank.
> 
> Anyone seriously suggesting he should keep this investment needs to re-examine the figures because they just don't stand up.


 
I would have to disagree.
We don't know the value of the property of the OP but for arguments sake lets say it is worth €400k.
Lets say it increases at an *average* rate of 5% per year for the next 20 year period. (which is conservative going by historical data).
That will be worth over €1,050,000 in 20 years.
(let salso assume for arguments sake that the monthly cashflow is zero - (in fact it would most certainly be positive over the 20 year period due to inflation and wage growth).

Keep in mind, your idea of putting the equity in a deposit account means in real terms it pretty much doesn't increase at all.


ALso remember that inflation doesn't nearly have the same eroding effect on a geared investment than it does on a non-geared investment which the pension would be.


----------



## Thomas22

*Re: have an investment property but the rent is falling short by 170 a month to cover*



qwertyuiop said:


> I would have to disagree.
> We don't know the value of the property of the OP but for arguments sake lets say it is worth €400k.
> Lets say it increases at an *average* rate of 5% per year for the next 20 year period. (which is conservative going by historical data).
> That will be worth over €1,050,000 in 20 years.
> (let salso assume for arguments sake that the monthly cashflow is zero - (in fact it would most certainly be positive over the 20 year period due to inflation and wage growth).
> 
> Keep in mind, your idea of putting the equity in a deposit account means in real terms it pretty much doesn't increase at all.
> 
> 
> ALso remember that inflation doesn't nearly have the same eroding effect on a geared investment than it does on a non-geared investment which the pension would be.



A couple of points.
1. 5% return on residential property is about right, it is NOT conservative.

2. I have assumed an investment in a risk free asset over the 20 years.

3. A pension invested in equities would yield about 8.5%pa over the long-term.

4. If the OP wanted a higher return they could just select a leveraged investment within their pension. You get a higher return because it is high risk. This phenomenon is not unique to property.  

5. Since the OP is using an interest only mortgage you haven't deducted the mortgage, €250k based on your assumptions, this gives a final accumulated value of €750k.

  6. Periodic investment (to take advantage of the tax benefits) in a non-leveraged pension would be worth €1,250,000 after 20 years.

7. If the OP likes the leverage return that they are getting on the property they could do the same in the pension. Assuming a leveraged equity return of 10%(This is conservative). The accumulated value would be well over €1,500,000 after 20 years.


----------



## z109

*Re: have an investment property but the rent is falling short by 170 a month to cover*



qwertyuiop said:


> I would have to disagree.
> We don't know the value of the property of the OP but for arguments sake lets say it is worth €400k.
> Lets say it increases at an *average* rate of 5% per year for the next 20 year period. (which is conservative going by historical data).
> That will be worth over €1,050,000 in 20 years.
> (let salso assume for arguments sake that the monthly cashflow is zero - (in fact it would most certainly be positive over the 20 year period due to inflation and wage growth).
> 
> Keep in mind, your idea of putting the equity in a deposit account means in real terms it pretty much doesn't increase at all.
> 
> 
> ALso remember that inflation doesn't nearly have the same eroding effect on a geared investment than it does on a non-geared investment which the pension would be.


Your assumptions are based on certain future-looking events which may or may not happen. Past performance is not a reliable indicator of future gain. 

I can see no evidence that house prices will increase by an average of 5% over the next twenty years.

Monthly cashflow is currently negative to the tune of EUR 170, so your assumption of zero cashflow to make your numbers look good is dishonest. Negative cashflow has a large effect on geared investments. 

As a side issue, discussion of house prices is suspended on AAM. Your assertion that prices will increase by an average of 5% is providing a forward-looking statement about house prices. For those of us who don't subscribe to the permanent inflation theory, it is unfair that posts that say that house prices are going to increase is permitted, but posts that say the opposite are not. This is not debate, nor moderating to the site rules, it is allowing one side of the argument only.

So lets make up some more nonsense figures.

Why not say house prices decrease on average by 2% a year over the next 20 years (in inflation adjusted terms)?
Why not say that interest rates move back to their long-term Bundesbank average and are 5% over that period (a 25% increase over what the OP is currently paying)?
Why not say that rents remain flat in nominal terms as over-supply keeps rents low?


----------



## Howitzer

*Re: have an investment property but the rent is falling short by 170 a month to cover*



yoganmahew said:


> Your assumptions ...


Agree 100%

Would be interesting to hear back from the OP now that best and worst case scenarios have been presented.


----------



## z106

*Re: have an investment property but the rent is falling short by 170 a month to cover*



yoganmahew said:


> Your assumptions are based on certain future-looking events which may or may not happen. Past performance is not a reliable indicator of future gain.
> 
> I can see no evidence that house prices will increase by an average of 5% over the next twenty years.


 
Of course it is based on assumptions - Is not every suggestion anyone makes about investing based on guesswork / assumptions ? Like - no one here has a crystal ball - isn't it all about opinions- i thought the whole point of this site was to ecxchange opinions no? 

And ya - Past performance is no *guarantee* of future performance - however it is certainly a good indicator. I'm not talking the last 5 years - try looking at the last 50+ years ! 
Unless you have very good reasons to think that something drastically different is going to occur in the next 20 years then I'd suggest that historical data is as good as any method for predicting what will hapopen in the future - that would certainly be the conventional thinking anyway !



yoganmahew said:


> Monthly cashflow is currently negative to the tune of EUR 170, so your assumption of zero cashflow to make your numbers look good is dishonest. Negative cashflow has a large effect on geared investments.


 
Yes - *current* monthly cashflow is negative.
Are you seriously trying to tell me that the OP will most probably still be in negative cashflow with the current mortgage they are on in 10 years time
? 
Well if you are then that is absurd. 
In fact - it is pretty much a certainly that the aggregate cash flow for the 20 years ahead will be in positive territory due to inflation !
And wIth a bit of luck there may be no shortfall as soon as 2-3 years time - let alone 20 yrs !!




yoganmahew said:


> As a side issue, discussion of house prices is suspended on AAM. Your assertion that prices will increase by an average of 5% is providing a forward-looking statement about house prices. For those of us who don't subscribe to the permanent inflation theory, it is unfair that posts that say that house prices are going to increase is permitted, but posts that say the opposite are not. This is not debate, nor moderating to the site rules, it is allowing one side of the argument only.


 
You are quite right in that discussion of house prices on AAM is banned. However - given the way I interpret that banning I very much doubt the way I discussed it is banned.
The short to medium term prospects on house prices are the difficult discussions to moderate - hence the banning. I think that me briefly stating one fundamental assumption relating to property by claiming that over a 20 year period I expect house prices to rise is not going to cause too much difficulty for the moderators.
That said - if the moderators have any issues with that statement then I apologise to them and am more than happy for them to delete my posts.




yoganmahew said:


> So lets make up some more nonsense figures.
> 
> Why not say house prices decrease on average by 2% a year over the next 20 years (in inflation adjusted terms)?


 
The big thing about a geared investment is that it is the nominal increases that matter most - not inflation adjusted figures !

E.g. I have a property that is worth €100k with for arguments sake and simplicity a 100% mortgage - after 1 year inflaion is 5% and property appreciation is also 5%.
Have i made money should i decide to sell? Of course i have.
I have made 5k - however,due to the 5% inflation, that €5k after the year is only worth around €4,800 in todays money - i.e. the inflation only eats into the capital gain.

That is why i said i an earlier post that inflation erodes far more into a nongeared investment rather than a geared investment.
To reiterate - it is nominal terms that matter most with property - not real terms (assuming the property is geared - the more highly geared the less impact )
SO only to discuss property increases after inflation misses the point.



yoganmahew said:


> Why not say that interest rates move back to their long-term Bundesbank average and are 5% over that period (a 25% increase over what the OP is currently paying)?


 
Irrelevant - there were very very high interest rates in the past and over the long term prices still rose.



yoganmahew said:


> Why not say that rents remain flat in nominal terms as over-supply keeps rents low?


 
Historical data strongly suggests otherwise. As i said earlier no one has a crystal ball but we may as well look outcomes that are _*more*_ likely rather than outcomes that are *less* likely when making our assumptions.
Put bluntly I think it is fair to say with certainty that your theory on rents over a 20 year period is wrong.


----------



## z106

*Re: have an investment property but the rent is falling short by 170 a month to cover*



Thomas22 said:


> A couple of points.
> 1. 5% return on residential property is about right, it is NOT conservative.
> 
> 2. I have assumed an investment in a risk free asset over the 20 years.
> 
> 3. A pension invested in equities would yield about 8.5%pa over the long-term.
> 
> 4. If the OP wanted a higher return they could just select a leveraged investment within their pension. You get a higher return because it is high risk. This phenomenon is not unique to property.
> 
> 5. Since the OP is using an interest only mortgage you haven't deducted the mortgage, €250k based on your assumptions, this gives a final accumulated value of €750k.
> 
> 6. Periodic investment (to take advantage of the tax benefits) in a non-leveraged pension would be worth €1,250,000 after 20 years.
> 
> 7. If the OP likes the leverage return that they are getting on the property they could do the same in the pension. Assuming a leveraged equity return of 10%(This is conservative). The accumulated value would be well over €1,500,000 after 20 years.


 
Some interesting points there which i would need to think about further.


----------



## Vanilla

*Re: have an investment property but the rent is falling short by 170 a month to cover*



yoganmahew said:


> Or indeed, you could say that you are subsidizing your tenants to the tune of 170 a month.
> 
> Are you on an interest only mortgage? If not, is the 170 more than the capital being paid off each month? If either of these statements is true (that you are paying some of the interest on the mortgage), you are leasing the house from the bank and sub-leasing at a loss to your tenants.


 
Is this necessarily a bad thing? After all if one looks at it as a longterm investment, in 20 years  ( assuming not interest only or what ever term) the OP will own outright this investment property having heavily subsidised his repayments with the rent taken. Of course there is a possibility that in the meantime the rent will increase to cover the mortgage payment ( taking taxes into account).


----------



## Howitzer

*Re: have an investment property but the rent is falling short by 170 a month to cover*



Vanilla said:


> Is this necessarily a bad thing? After all if one looks at it as a longterm investment, in 20 years ( assuming not interest only or what ever term) the OP will own outright this investment property having heavily subsidised his repayments with the rent taken. Of course there is a possibility that in the meantime the rent will increase to cover the mortgage payment ( taking taxes into account).


But he's NOT subsidizing his repayments, the rent is only subsidizing the interest. He has to make ALL the repayments himself AND still cough up an extra E170 (at the moment) to cover the cost of interest on the mortgage.

This still takes no account of other costs, of which anyone involved in property knows well can be high, especially over the long term. Insurance, maintenance charges, tenancy voids, furniture, kitchen appliances, beds, roof getting blown off in a storm. You don't encounter these costs every year, and some you may never encounter, but over the long term (which the positive argument is based upon) and with enough properties these costs will be encountered.

PRTB registration, accountants fees, new carpets, broken window needs to be fixed, central heating breaks down, advertising, new wallpaper, new welcome mat.


----------



## Vanilla

*Re: have an investment property but the rent is falling short by 170 a month to cover*



Howitzer said:


> But he's NOT subsidizing his repayments, the rent is only subsidizing the interest. He has to make ALL the repayments himself AND still cough up an extra E170 (at the moment) to cover the cost of interest on the mortgage.
> 
> This still takes no account of other costs, of which anyone involved in property knows well can be high, especially over the long term. Insurance, maintenance charges, tenancy voids, furniture, kitchen appliances, beds, roof getting blown off in a storm. You don't encounter these costs every year, and some you may never encounter, but over the long term (which the positive argument is based upon) and with enough properties these costs will be encountered.
> 
> PRTB registration, accountants fees, new carpets, broken window needs to be fixed, central heating breaks down, advertising, new wallpaper, new welcome mat.


 

I don't understand this at all. Are you assuming that the mortgage is interest only and that when the OP refers to the rent not covering his 'costs' that he has NOT factored in all expenditure?


----------



## Howitzer

*Re: have an investment property but the rent is falling short by 170 a month to cover*



Vanilla said:


> I don't understand this at all. Are you assuming that the mortgage is interest only and that when the OP refers to the rent not covering his 'costs' that he has NOT factored in all expenditure?


Yes and yes.


----------



## teachai

*Re: have an investment property but the rent is falling short by 170 a month to cover*

In my opinion, You have to take a long term view with property.

You are currently making a small loss.  These losses can be set against profit in the following year.   Also only the interest paid can be offset against the income, not any money paid to reduce capital.  For this scenario, you will be better off with an interest only mortgage.

Others have suggested shopping around for a better rate. This is a situation in which I would prefer a fixed rate rather than a variable rate as your main expenditure is known. 

First thing to consider is can you do anything to the property to increase the rent, in the way of new decor, furnishings etc.   If you have good tenants (ie ones that pay rent on time and look after your property) you will probably be better off trying to keep them, and they will probably be happy to pay slightly more if you maintain the property well or even enhance it. 

The other thing to consider , is at least you are getting rent. Its better than the property lying idle, which would cost you far more.  

If you're going to sell, will you make a profit (after estate agents fees, CGT etc). 

If you are going to sell, ask your tenants if they would be interested in  buying. You could save a whack on estate agents fees.


----------



## z106

*Re: have an investment property but the rent is falling short by 170 a month to cover*



teachai said:


> If you are going to sell, ask your tenants if they would be interested in buying. You could save a whack on estate agents fees.


 
I wouldn't go along with this suggestion.

Yes - you will save money on estae agents fees.

However - for all the OP knows, they may easily undervalue the property by say,€5k- €10k - or more !
To avoid this risk I think they are better to put it on the open market decide the real value.


----------



## Vanilla

*Re: have an investment property but the rent is falling short by 170 a month to cover my*

So can I ask what might be percieved as a naive question- in general terms if one buys an investment property, has a capital plus interest loan, has factored all the expenses, tax etc into the equation and say after the rent, in order to meet all other costs and the balance of the monthly loan payment one must pay a couple of hundred euro into, is this not a form of saving?


----------



## demoivre

*Re: have an investment property but the rent is falling short by 170 a month to cover*



Howitzer said:


> But he's NOT subsidizing his repayments, the rent is only subsidizing the interest. He has to make ALL the repayments himself AND still cough up an extra E170 (at the moment) to cover the cost of interest on the mortgage.



How do you deduce that from the op  _Wino's_ one and only post 



> I have an investment property but the rent is falling short by 170 a month to cover my costs. The equity is worth about 150K. Would I be better off selling and puttting the equity to better use ,considering the current lack of growth in the housing market.
> 
> Wino


----------



## Thomas22

*Re: have an investment property but the rent is falling short by 170 a month to cover*



qwertyuiop said:


> Some interesting points there which i would need to think about further.



 Did you have time to think further about the points yet?


----------



## teachai

*Re: have an investment property but the rent is falling short by 170 a month to cover*



qwertyuiop said:


> I wouldn't go along with this suggestion.
> 
> Yes - you will save money on estae agents fees.
> 
> However - for all the OP knows, they may easily undervalue the property by say,€5k- €10k - or more !
> To avoid this risk I think they are better to put it on the open market decide the real value.




Nothing to stop you calling an agent for a free valuation.  You don't have to actually sign up with one.


----------



## z106

*Re: have an investment property but the rent is falling short by 170 a month to cover*



teachai said:


> Nothing to stop you calling an agent for a free valuation. You don't have to actually sign up with one.


 
Ya - that's true.

However - a lot of people don't even look past myhome.ie - not being on that site seriously decreases the number of potential buyers resulting in less chance of a bidding war.

A bidding war would most probably compensate for the few thosand extra the agent costs.

Obviously it's a gamble - in my opinion i reckon it's a safer bet though.


----------



## z106

*Re: have an investment property but the rent is falling short by 170 a month to cover*



Thomas22 said:


> A couple of points.
> 1. 5% return on residential property is about right, it is NOT conservative.
> 
> 2. I have assumed an investment in a risk free asset over the 20 years.
> 
> 3. A pension invested in equities would yield about 8.5%pa over the long-term.
> 
> 4. If the OP wanted a higher return they could just select a leveraged investment within their pension. You get a higher return because it is high risk. This phenomenon is not unique to property.
> 
> 5. Since the OP is using an interest only mortgage you haven't deducted the mortgage, €250k based on your assumptions, this gives a final accumulated value of €750k.
> 
> 6. Periodic investment (to take advantage of the tax benefits) in a non-leveraged pension would be worth €1,250,000 after 20 years.
> 
> 7. If the OP likes the leverage return that they are getting on the property they could do the same in the pension. Assuming a leveraged equity return of 10%(This is conservative). The accumulated value would be well over €1,500,000 after 20 years.


 
Ok - My knowledge of pensions is minimal.

However - am I correct in saying that you cannot borrow against a pension that has risen in value during the course of the term to invest further?

Obviosuly you can do this in property by remortgaging and reinvesting further when possible which enables you to grow your asset base significantly - the difference over a 20 year period between property vs equities would then be many multiples in favour of property would it not ?

But firstly - Is my initial assumption about borrowing correct?

If so, I have gone through the figures and this would be a major reason to go with property resulting in returns of many milluons profit - even with infrequent remortgaging.

I have an example which i could enter to illustrate the significant difference if you wish to go through my figures ?


----------



## Thomas22

*Re: have an investment property but the rent is falling short by 170 a month to cover*



qwertyuiop said:


> Ok - My knowledge of pensions is minimal.
> 
> However - am I correct in saying that you cannot borrow against a pension that has risen in value during the course of the term to invest further?
> 
> Obviosuly you can do this in property by remortgaging and reinvesting further when possible which enables you to grow your asset base significantly - the difference over a 20 year period between property vs equities would then be many multiples in favour of property would it not ?
> 
> But firstly - Is my initial assumption about borrowing correct?
> 
> If so, I have gone through the figures and this would be a major reason to go with property resulting in returns of many milluons profit - even with infrequent remortgaging.
> 
> I have an example which i could enter to illustrate the significant difference if you wish to go through my figures ?




Yes, please post your figures. 

But re-mortgaging simple means you are continually increasing your leverage.  
Yes, you may get a higher return but you are only getting a higher return because you are taking on more risk each time.

My example assumes that the risk level is about the same as a non-leveraged property. I could repeat my example by assuming that the person is investing in highly leveraged assets like your are.

To me demonstrating that you are getting a higher return by taking on higher risk is just stating the obvious. Long-term Higher Risk = Higher Return.


----------



## z106

*Re: have an investment property but the rent is falling short by 170 a month to cover my*

Ok - see the figures below - you don't have to go through all the figures as it may wreck your head - just look at the bottom line.
Also - note the LTV isn't all that hight in the example below.
The main point I am trying to illustrate here is that due to the ability of being able to release equity in property and reinvest further it therefore is far more rewarding than any leveraged pension investment.

Firstly - a few assumptions.
Lets say currently the OP has a mortgage of €300k on a €400k property - current LTV 75%.
Lets also assume growth of exactly 5% per year for the 20 years.
Lets also say the OP remortgages and reinvests every 4 years - which isn't all that frequent and remortgages 4 times over teh 20 year period - year 4,8,12,16.
Lets also assume the bank will want to give max LTV of 80%.

And most importantly - my whole point is that over the long term prices will rise - there is no great risk.
I say it is low risk / high return - and not hig risk/high return as you state.

SO -
On year 4
Property worth c. €485k - they could release c. €90k.
Can now purchase another property worth,say,€400k.
They now have an asset base worth €885k - with a mortgage of €700k. Current LTV 79%

On year 8 
Properties worth c. €1.075 million - they could release a further €160k - this could buy another property worth c. €600k. 
They now have an asset base worth c. €1.675 milion with an outsatnding mortgage of c. €1.3mil. Current LTV 77.5%

On year 12 
Property worth €2.035 million - they could release a further €330k - this could comfortably buy property worth €1 mill. 
THey now have an asset base of €3.035 mill. with an outstanding mortgage of €2.3 million. Current LTV 75%.

On year 16
Properties worth €4.6 million - they could release a further €650k - could comfortably buy €2mill.
Now have an asset base of €6.6mill - outstanding mortgage of €4.3 mill. Current LTV 65%

On Year 20
Properties worth over €8 mil. Outsatnding mortgage of €4.3 mil.

Pretty much €4 mill profit on an annualised rate of appreciation of just 5% and remortgaging only 4 times during that 20 year period with a 50% LTV.
With a 50% LTV this would produce a very healthy cashflow as well.

Had someone decided to be more aggressive with the gearing then profits could even have been far greater.

And also keep in mind yuo will still have assets worth €8 mill appreciating at a rate of 5% per year.
Presumably this borrowing could not be done with equities - not least because presumably dividends wouldn't nearly pay the interest on the borrowings.

So - here's my question - am I correct in saying somthing similar could not be done with geared equities?
The reason being that the interest would have to be paid on the loans as dividends presumably would not go towards paying the interest.

Also - are you not more exposed to margin calls with equities ?


----------



## ubiquitous

*Re: have an investment property but the rent is falling short by 170 a month to cover*

It is hard to take seriously any proposition that a property worth €400,000 today could be worth €8,000,000 in 20 years time, in the absence of hyperinflation in the general economy.


----------



## z106

*Re: have an investment property but the rent is falling short by 170 a month to cover my*

You misunderstood my post.

Repeatedly remortgage to reinvest - using the 5% rate of inflation above and the LTVs involved then the portfolio would be worth that amount. 

Obviously you can tweak the figures used above in my example but you see the point i am making.

For what it's worth I started with €85k, (a similar figure to what the OP has available) 3 and a half years ago and using teh approach described above the portfolio is now worth €1.85 mill.
In another 16.5 years if I continue to use that approach - which i plan to do - then I would be very confident of the portfolio being worth signiicantly more than €8 mill.


----------



## ubiquitous

*Re: have an investment property but the rent is falling short by 170 a month to cover*



qwertyuiop said:


> Repeatedly remortgage to reinvest - using the 5% rate of inflation above and the LTVs involved then the portfolio would be worth that amount.


...only if property prices continue to rise sharply _ad infinitum_


----------



## z106

*Re: have an investment property but the rent is falling short by 170 a month to cover*



ubiquitous said:


> ...only if property prices continue to rise sharply _ad infinitum_


 
Well that's the whole point I'm amking - *over the long term* property prices *do* continue to rise - so it's more than reasonable to assume that they will continue to rise over the long term in teh future. And that is the assumption I am going on.
And using a 5% *average* appreciation rate per year you can get the results I've shown above.
And 5% cannot be described a s sharply by any means - historic data would suggest it is conservative in fact.

I don't see it as being in any way overly optimistic going by data from the last 50 years.


----------



## bacchus

*Re: have an investment property but the rent is falling short by 170 a month to cover*

What's about borrower repayment capacity?


----------



## z106

*Re: have an investment property but the rent is falling short by 170 a month to cover*



bacchus said:


> What's about borrower repayment capacity?


 
Ok - if you make it your business to buy in good location then you will maximise rental potential thereby decreasing voids and maximising rent.

Note the LTV - even in todays climate rents can pretty much cover an 80% LTV.
To reduce risk someone could also think about going into fixed term mortgages.

However - This does take us back to the original posters question and back to my original point.
n the event where you may have to subsidise a little bit every month then i think the long term rewards due to capital appreciation more than compensate for it.

That is why in one of earlier posts I suggested that if the OP has difficulty topping up then they should remortageg and use this remortgage to ease their cashflow. 
Check out my earlier post if you wanna see in more detail what I said.

Also note that in my example above the LTV actually decreased to 50% by the end of the 20yr term - thus resulting in a cashflow positive at that stage.

Obviously someone can decide what LTV they are happy with when they reinvest.


----------



## bacchus

*Re: have an investment property but the rent is falling short by 170 a month to cover*

Why are you bringing in the notion of LTV to answer my question about repayment capacity?


----------



## z106

*Re: have an investment property but the rent is falling short by 170 a month to cover*



bacchus said:


> Why are you bringing in the notion of LTV to answer my question about repayment capacity?


 
You're on about paying off the loan to the bank ya?
If not then I don't understand ur question..
if you are,then the lower the LTV the less you oweto the bank.

E.g. If i have a propert worth €1m with a yield of say,4%,then that's €40k i receive in rent.
Out of that €40k i must pay the bank back it's interest.

The lower the LTV the less I owe the bank.

With say a 50% LTV at say 5% I owe the bank €25k. i.e. a surplus of €15k.

If I have misunderstood ur question then can you rephrase it please.

PEhaps you mean paying off the capital ? At the end of the 20 year term you could just sell the lot if you wish for a €4m profit before tax.
Personally I wouldn't sell though. I'd never sell\ in fact.


----------



## lopin10

*Re: have an investment property but the rent is falling short by 170 a month to cover my*

Hi qwertyuiop

I like a lot of the points you make. Also the advantage of property leverage is that you can write interest payments off against your tax bill. To give you an example i purchase property in the 1984 and sold 3 years later for 10% less than what i paid for the property (interest rates 15% and 16% unemployment) if i held the same property until 1989 i would have got 20% more than what i paid for it. Its all about taking a long term view at least 5 years provided you dont have to put any money to make up the rent shortfall. Also for anybody considering investing in property try and keep LTV at 75% or less with yelds of at least 4.5% and at least €1,200 pm rent (remember you have the same hassel for 600pm as 1200pm. There are plenty of these properties for sale at the moment


----------



## Howitzer

*Re: have an investment property but the rent is falling short by 170 a month to cover my*

It's good to see the only expenses incurred in property are the interest charges. I might as well be talking to the wall.


----------



## minion

*Re: have an investment property but the rent is falling short by 170 a month to cover*



Howitzer said:


> But he's NOT subsidizing his repayments, the rent is only subsidizing the interest. He has to make ALL the repayments himself AND still cough up an extra E170 (at the moment) to cover the cost of interest on the mortgage.
> 
> This still takes no account of other costs, of which anyone involved in property knows well can be high, especially over the long term. Insurance, maintenance charges, tenancy voids, furniture, kitchen appliances, beds, roof getting blown off in a storm. You don't encounter these costs every year, and some you may never encounter, but over the long term (which the positive argument is based upon) and with enough properties these costs will be encountered.
> 
> PRTB registration, accountants fees, new carpets, broken window needs to be fixed, central heating breaks down, advertising, new wallpaper, new welcome mat.



How much averaged over say 20 years would you say all of these various costs might add up to per year.

Would you say 1 months rent per year should cover it, 2 Months?  
From my experience ongoing costs are much, much lower than you might think.  Not even near 1 months rent.  They also have an impact on taxes and losses (if you have them, as the OP does) carried forward.


----------



## dodo

*Re: Have an investment property but rent is falling short by €170/mth to cover my cos*

If you where to look at this house as a pension in say 30yrs.So about 80% of that pension is paid in by someone else ,that surely cant be bad and also the mortgage is getting smaller each year and in 30years time the house no douth will be worth more than it is today,even with the slow market of today.
So in 30years time (estimate) you have no mortgage house value eg 500K of which you paid 100k and someone else paid 400K, so if you bought house for 150K eg, profit 250K of which you pay CGT 50K, 200K for pension seems ok to me.I know several people who for 30yrs  saving in pension fund thought they would have super pension in 30yrs time but rarely does that happen,


----------



## dodo

*Re: have an investment property but the rent is falling short by 170 a month to cover*

Where does he say it is an interest only mortgage?


Thomas22 said:


> This capital investment is terrible!
> The person is on an interest only mortgage therefore the renters are paying nothing off his mortgage.


----------



## z106

*Re: have an investment property but the rent is falling short by 170 a month to cover my*



Howitzer said:


> It's good to see the only expenses incurred in property are the interest charges. I might as well be talking to the wall.


 
Howitzer - Not sure how much experience you have in letting properties.
But these supposed expenses in practice with property are very small.

In my experience costs on property really are minimal.

Costs for me on multiple properties including void periods and management charges over the last 3 years would add up to €10k max.

Multiply that by 7 (for a 20 year period) and it will have a very small dent on €4mill profit.


----------



## Thomas22

*Re: have an investment property but the rent is falling short by 170 a month to cover*



qwertyuiop said:


> Ok - see the figures below - you don't have to go through all the figures as it may wreck your head - just look at the bottom line.
> Also - note the LTV isn't all that hight in the example below.
> The main point I am trying to illustrate here is that due to the ability of being able to release equity in property and reinvest further it therefore is far more rewarding than any leveraged pension investment.
> 
> Firstly - a few assumptions.
> Lets say currently the OP has a mortgage of €300k on a €400k property - current LTV 75%.
> Lets also assume growth of exactly 5% per year for the 20 years.
> Lets also say the OP remortgages and reinvests every 4 years - which isn't all that frequent and remortgages 4 times over teh 20 year period - year 4,8,12,16.
> Lets also assume the bank will want to give max LTV of 80%.
> 
> And most importantly - my whole point is that over the long term prices will rise - there is no great risk.
> I say it is low risk / high return - and not hig risk/high return as you state.
> 
> SO -
> On year 4
> Property worth c. €485k - they could release c. €90k.
> Can now purchase another property worth,say,€400k.
> They now have an asset base worth €885k - with a mortgage of €700k. Current LTV 79%
> 
> On year 8
> Properties worth c. €1.075 million - they could release a further €160k - this could buy another property worth c. €600k.
> They now have an asset base worth c. €1.675 milion with an outsatnding mortgage of c. €1.3mil. Current LTV 77.5%
> 
> On year 12
> Property worth €2.035 million - they could release a further €330k - this could comfortably buy property worth €1 mill.
> THey now have an asset base of €3.035 mill. with an outstanding mortgage of €2.3 million. Current LTV 75%.
> 
> On year 16
> Properties worth €4.6 million - they could release a further €650k - could comfortably buy €2mill.
> Now have an asset base of €6.6mill - outstanding mortgage of €4.3 mill. Current LTV 65%
> 
> On Year 20
> Properties worth over €8 mil. Outsatnding mortgage of €4.3 mil.
> 
> Pretty much €4 mill profit on an annualised rate of appreciation of just 5% and remortgaging only 4 times during that 20 year period with a 50% LTV.
> With a 50% LTV this would produce a very healthy cashflow as well.
> 
> Had someone decided to be more aggressive with the gearing then profits could even have been far greater.
> 
> And also keep in mind yuo will still have assets worth €8 mill appreciating at a rate of 5% per year.
> Presumably this borrowing could not be done with equities - not least because presumably dividends wouldn't nearly pay the interest on the borrowings.
> 
> So - here's my question - am I correct in saying somthing similar could not be done with geared equities?
> The reason being that the interest would have to be paid on the loans as dividends presumably would not go towards paying the interest.
> 
> Also - are you not more exposed to margin calls with equities ?



Yes that is a good demonstration of how in the long term a highly leveraged bet on residential property can pay off.

But this pension provision lacks one of the most basic concepts of long-term investing, diversification. The phrase all your eggs in the one basket doesn't even begin to describe this type of pension provision.

Despite, what you think these returns could be replicated in a pension but it would be madness to do so. Long-term, YES property generally grows at inflation plus 3-4%.
  BUT if you look at international property markets then there have been times when even over 20 years property has been a very poor investment. Japan and the UK spring to mind, and there are many more. To ignore these incidents as one off is to ignore how property markets operate.

  Long periods of above trend growth , 5-6%, followed by periods of below average growth and sometimes negative growth.

  Timing this cycle is very difficult but betting the bulk of your pension on the belief that you can is naive. If this was the only way People saved for their pension then every now and then we could have generations that would have little or no pension.

  I believe many in the current generation may have fallen into this trap.


----------



## minion

*Re: have an investment property but the rent is falling short by 170 a month to cover*



Thomas22 said:


> Timing this cycle is very difficult but betting the bulk of your pension on the belief that you can is naive. If this was the only way People saved for their pension then every now and then we could have generations that would have little or no pension.



I agree completely.  I dont believe anyone should invest in property or anything else for that matter for the long term until they and their spouse have already maxed out their pension anyway.


----------



## Thomas22

*Re: have an investment property but the rent is falling short by 170 a month to cover*



minion said:


> I agree completely.  I dont believe anyone should invest in property or anything else for that matter for the long term until they and their spouse have already maxed out their pension anyway.



 Very few people in Ireland max out their pension entitlements before investing in property


----------



## minion

*Re: have an investment property but the rent is falling short by 170 a month to cover*



Thomas22 said:


> Very few people in Ireland max out their pension entitlements before investing in property



You are right and i would even go so far as to say that very few people , investors or not, max out their pension in Ireland.

If most people examined their pension situation as well as they should examin any investment opportunity they would find that it doesnt cost them as much as they might think to max out their pension.

But we're probably veering slightly off topic now though.


----------



## webtax

*Re: have an investment property but the rent is falling short by 170 a month to cover*

The fees & charges associated with pension contributions and the lack of clarity in terms of how much they cost you, having to purchase an annuity when you retire and confusion about what happens in the event of death are some of the reasons why some people prefer investing in property - an investment that they understand & can manage themselves.


----------



## Thomas22

*Re: have an investment property but the rent is falling short by 170 a month to cover*



webtax said:


> The fees & charges associated with pension contributions and the lack of clarity in terms of how much they cost you, having to purchase an annuity when you retire and confusion about what happens in the event of death are some of the reasons why some people prefer investing in property - an investment that they understand & can manage themselves.



The fees and charges are much much higher for property investment.
The confusion could be cleared up by talking to a professional about the benefits you are entitled to.

I agree with you that these are reasons people avoid a pension. Just because the individual can manage it themselves it doesn't make it good, sometime a professional is just what a person needs. 

For the same risk a pension is a vastly superior method of saving for retirement than property investment.


----------



## z106

*Re: have an investment property but the rent is falling short by 170 a month to cover*



SPC100 said:


> can you point me at a good long term source of property prices in ireland?


 
Just stumbled on a post from 2004 tonight. These figures are from NCB stockbrokers.

Real growth in values from 1976 to April 2004

Dublin Property * * * * 386% 5.81% per annum
National Property 255%* * * * 4.62%
Irish Equities 652%* * * * 7.47%

Note that it states REAL growth - add in inflation at say, 4%, then you're looking at 10% nominal terms for the last 30 years for dublin property- which as i pointed out in an earlier post it is the nominal returns that matter most with property not real terms.(assuming gearing)
Keep in mind the example I used earlier was only using 5% - had I used 10% - thereby also allowing more frequent remortgaging and reinvesting - then potential returns would have been far greater. Many multiples in fact.

As you can see equities have outperformed property - however,as discussed throughout this thread,I believe property to be the real winner due to leverage. You simply cannot borrow the same way with equities due to their volatile nature resulting in the investor requiring VERY large amounts of cash in reserve to cover margin calls - cash reserves that instead could have been used to leverage further had the money been used for property in the first place. 


See full post here - it's from a few years ago started by Brendan.

http://www.askaboutmoney.com/showthread.php?t=8138&highlight=spreadbetting


----------



## Thomas22

*Re: have an investment property but the rent is falling short by 170 a month to cover*



qwertyuiop said:


> Just stumbled on a post from 2004 tonight. These figures are from NCB stockbrokers.
> 
> Real growth in values from 1976 to April 2004
> 
> Dublin Property * * * * 386% 5.81% per annum
> National Property 255%* * * * 4.62%
> Irish Equities 652%* * * * 7.47%
> 
> Note that it states REAL growth - add in inflation at say, 4%, then you're looking at 10% nominal terms for the last 30 years for dublin property- which as i pointed out in an earlier post it is the nominal returns that matter most with property not real terms.(assuming gearing)
> Keep in mind the example I used earlier was only using 5% - had I used 10% - thereby also allowing more frequent remortgaging and reinvesting - then potential returns would have been far greater. Many multiples in fact.
> 
> As you can see equities have outperformed property - however,as discussed throughout this thread,I believe property to be the real winner due to leverage. You simply cannot borrow the same way with equities due to their volatile nature resulting in the investor requiring VERY large amounts of cash in reserve to cover margin calls - cash reserves that instead could have been used to leverage further had the money been used for property in the first place.
> 
> 
> See full post here - it's from a few years ago started by Brendan.
> 
> http://www.askaboutmoney.com/showthread.php?t=8138&highlight=spreadbetting



If you stripped out the bubble like returns from 2000 to 2004 what would Irish property returns look like. Long-term property generally returns inflation plus 2-3% while equities return inflation plus 5-6%.

The only reason the property investment has a higher return is because of the extra leverage. And YES you can replicate this easily with equities. 
Property is still well behind mean the equity pension simply because the tax breaks for investing into a pension are so high.


----------



## z106

*Re: have an investment property but the rent is falling short by 170 a month to cover*



Thomas22 said:


> The only reason the property investment has a higher return is because of the extra leverage. And YES you can replicate this easily with equities.
> Property is still well behind mean the equity pension simply because the tax breaks for investing into a pension are so high.


 
We'll have to agree to disagre on this one.
It definitely cannot be done in my book.

The reason being margin calls. Very signigficant amounts of cash would be required in reserve to cover these margin calls which are inevitable due to equities volatile nature.

If you're bored sometime I would very much appreciate an example from yourself using figures.
I would genuinely want to be proven incorrect on this one because if i was then that is the approach i would take in the future rather than property as the returns on averge are better than property.
The intricities of teh workings of equities is their downfall.


----------



## JohnBoy

*Re: Have an investment property but rent is falling short by €170/mth to cover my costs.*

Equities are certainly more volatile (on a short term basis at least) but they are substantially more liquid, trade in a much more transparent market and have much lower transaction costs. Admittedly, margin calls are painful but you do not have to gear up to invest in the stockmarket whereas almost all property investors do. Blithly predicting positive real returns for propery ad infinitum will always make borrowing to invest look like a wise move. Property cycles unfold over a long periods. After such massive outperformance some underperformance has to be expected. But there is every chance that many of today's property investors are paying mortgages on a depreciating asset - so gearing can be painfull for property investors too.


----------

