# Best property type for investment return



## Smallfry (13 Sep 2007)

Hi all, I wonder has anyone done a study of all the different house/apartment types, taking into consideration the areas they are in, and come up with what type/area gives the best return on an investment. For example, a 3-bed house in Dun Laoghaire worth 1 million Euro can only really hope to get a rent of about €1800per month, or €21600pa. This gives a max return of 2.16%pa (am I right?), which is not a good return on an investment. What property types/areas give a higher return than this? Thank you.


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## ClubMan (13 Sep 2007)

Moved from .


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## New_Buyer (14 Sep 2007)

You'd be very lucky to get 4% anywhere in Ireland


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## Shano79 (15 Sep 2007)

Check out 1 or 2 bed apartments in city centre locations. Its actually possible to get 5%-7% returns. 
As an example There are 1 bed apts for sale on Gardiner Street for 250k that rent for 1,200 per month - 5.76% return  As a general rule prestigeous houses in up market areas usually give poorer rental yields.


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## mo3art (15 Sep 2007)

Have you looked at commercial property?


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## sandymount (15 Sep 2007)

Shano79 said:


> Check out 1 or 2 bed apartments in city centre locations. Its actually possible to get 5%-7% returns.
> As an example There are 1 bed apts for sale on Gardiner Street for 250k that rent for 1,200 per month - 5.76% return  As a general rule prestigeous houses in up market areas usually give poorer rental yields.



You don't take into account stamp duty -10k, legal fees 1k min, service charges(at least 1200) , insurance(400), repairs and time empty(1/2 month per year min) between lets. This would give a yield of about 4.5%.


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## New_Buyer (16 Sep 2007)

sandymount said:


> You don't take into account stamp duty -10k, legal fees 1k min, service charges(at least 1200) , insurance(400), repairs and time empty(1/2 month per year min) between lets. This would give a yield of about 4.5%.



Which is pretty poor when you can get around the same in a deposit account with zero risk


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## Persius (16 Sep 2007)

New_Buyer said:


> Which is pretty poor when you can get around the same in a deposit account with zero risk


 
Which deposit account would that be? Northern Rock?
I wouldn't call that "zero risk". You're guaranteed about 90% of your capital up to about €50000. And that's actually over twice a generous as the guarantees for accounts overseen by the Irish authorities. See thread in savings and investments forum.


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## New_Buyer (16 Sep 2007)

Persius said:


> Which deposit account would that be? Northern Rock?
> I wouldn't call that "zero risk". You're guaranteed about 90% of your capital up to about €50000. And that's actually over twice a generous as the guarantees for accounts overseen by the Irish authorities. See thread in savings and investments forum.



If you are smart you can spread your deposits over a number of banks meaning that it is pretty much risk free. Still significantly less risk than property investment.

And to be honest, there is still very little chance that NR will go bust as of yet.


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## macbri (17 Sep 2007)

Don,t see your point new buyer.

Rental yields should go up especially in a tight market like Dublin City Centre so 5.76% is a great starting point especially with ECB rate at 4%.

Vacancy rates in inner city are extremely low and demand is rampant as rents have increased 15-20% in the last year.

Why is property high risk if u are getting a 6% yield with low vacancy rate,cost of debt 5%,rampant demand  and limited new inner city supply coming on market-where is the risk?


Finally,sticking your money in a bank will erode through inflation(time value of money) and is not risk free as Barings bank/BCCI investors & depositors will relay to u.

Bank of England have stated they bailed Northern Rock out as they were solvent-in other words if in BOE eyes Northern Rock not solvent,depositors would have lost their money over 30-50k safety net.


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## webtax (17 Sep 2007)

macbri said:


> Why is property high risk if u are getting a 6% yield with low vacancy rate,cost of debt 5%,rampant demand  and limited new inner city supply coming on market-where is the risk?



have you not noticed that prices are dropping? i'm sure if you think there's no risk that plenty of people would gladly let you take their property off their hands!


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## sandymount (17 Sep 2007)

macbri said:


> Why is property high risk if u are getting a 6% yield with low vacancy rate,cost of debt 5%,rampant demand  and limited new inner city supply coming on market-where is the risk?



It's high risk because you can't get 6%. Please provide examples of properties that give a 6% yield when you take into account stamp duty, legal expenses and letting expenses.


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## MichaelDes (17 Sep 2007)

sandymount said:


> It's high risk because you can't get 6%. Please provide examples of properties that give a 6% yield when you take into account stamp duty, legal expenses and letting expenses.


 
I'll sell an Irish property to anyone willing to take it off my hands. Even throw in a guaranteed yental yield even if it sits empty. Catch a falling knife sums up Irish property at the moment. Any other conclusion is denial.


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## macbri (17 Sep 2007)

I'm getting rental yield from previous poster who stated that 1 inner city property had yield of 5.7%.
As well,daft had a report on rental yields for July coming in at 5-5.25% in dublin-this presumably is an average so presumably some properties are giving a higher yield.As well this yield is based on historical prices and if prices are dropping,by definition yield is increasing.

You can check their website for details www.daft.ie

In a falling market,u should easily get 6% as your offer will always fall short of asking prices.

As said before 6% is a great return and should leave u cash flow positive on your investment even if your 100% geared(cost of debt around 5%)

If your worried about interest rates,then fix long term 10-20 years,capital depreciation not an issue in short/medium term as u are cash flow positive.

As well,u should be able to increase rent by at least inflation which shouold cover maintenance costs and a nice little annual profit.

Again,I ask the question where is the risk especially in inner city dublin which has greatest demand for renters?


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## xb_deai (18 Sep 2007)

it may be wise to invest in commercial property as the leases are longer than residential with rent reviewed upwards only. The commercial property market is strong at the moment and if you currently hold resi properties it might be wise to spread the risk to your investment.  Commercial yeilds vary quite a bit depending on type and location. Take a look at some of the large agencies websites where they have annual and quarterly reviews. Also the bible of commercial property is the Irish Times property section on Wednesdays. Do some research - you can never do too much.


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## asdfg (18 Sep 2007)

> As well,u should be able to increase rent by at least inflation which shouold cover maintenance costs and a nice little annual profit.


 
Revenue will also want their share of the nice little annual profit. See [broken link removed]


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## bacchus (18 Sep 2007)

New_Buyer said:


> Which is pretty poor when you can get around the same in a deposit account with zero risk


 
Have you ever approached  a bank to get say €250k loan to invest in a deposit account?


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## webtax (18 Sep 2007)

bacchus said:


> Have you ever approached  a bank to get say €250k loan to invest in a deposit account?



but gearing has a very negative effect in a falling market:
if you have €50k and invest in shares that fall 10% you are down €5k
but if you mortgage to invest in a €500k house that drops 10% you are down €50k


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## macbri (18 Sep 2007)

If u are cash flow positive from your investment,then it doesn,t matter if you make a notional capital loss as its' unrealised,obviously if u decide to sell your property its' different but why would u sell when property is making u money. 

Another poster mentioned that u would have to pay tax on your investment,to me thats' great news as it means your property is making u money.

Interestingly,Fed cut interest rates by .5% today


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## gonk (19 Sep 2007)

macbri said:


> If u are cash flow positive from your investment,then it doesn,t matter if you make a notional capital loss as its' unrealised,obviously if u decide to sell your property its' different but why would u sell when property is making u money.


 
If there is a fall in property prices generally, this will tend to reduce rents. So you start off at, say, a 6% yield, but due to falling prices similar properties to yours come on the market at lower rents. You may have to cut your rent and reduce your yield to compete, possibly making you cash flow negative.


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## bacchus (19 Sep 2007)

new_buyer said:
			
		

> Which is pretty poor when you can get around the same in a deposit account with zero risk


 


			
				bacchus said:
			
		

> _Have you ever approached a bank to get say €250k loan to invest in a deposit account? _


 


			
				webtax said:
			
		

> but gearing has a very negative effect in a falling market:
> if you have €50k and invest in shares that fall 10% you are down €5k
> but if you mortgage to invest in a €500k house that drops 10% you are down €50k


 
i don't get your point in the context in the above context....


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## DerKaiser (19 Sep 2007)

Everybody should read the question.  Best property type for investment return is what is being asked.  So what property will gives the best rent to value.  From what I can see:
1.  Rents vary less than property values so no point in going for a plush area.
2.  I would assume the more bedrooms the better.
3.  People who rent value local services like shops, buses, so villages rather than suburbs would be better.
4.  Rents are similar for apartments than houses (Same number of bedrooms), whilst houses are dearer.

After all that!  Somewhere like crumlin, €450k for a 4 bedroomed house, will yield €2000pm rent (5.3% ignoring tax and expenses).  

You can pretty much get 5% risk free/effort free these days.  In my opinion, going to the hassle of buying a place & taking on the risk for no return above this 5% is a waste of time and effort


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## webtax (19 Sep 2007)

bacchus said:


> i don't get your point in the context in the above context....



I assume (correct me if i'm wrong) that your point about not getting a €250k loan for a deposit is that you can do this with an investment property.
In the past having say €25k to invest meant you could gear it up with a mortgage to buy a €250k asset. Made perfect sense when the asset you were buying was rising in value, but if it's falling you are multiplying your loss.

To keep to the original post, my point is that imho the question should not be which is the best property type, but is property the correct investment at all in the current market?


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## Shano79 (19 Sep 2007)

First of all there is INCREDIBLE demand at the moment for rented accomodation in Dublin at the moment.  Take it from me I have personal experience of renting 11 rental properties around the city centre.  I could rent each one 20 times over.  Each time one is advertised i get about 20 replies of people wanting to view it THAT day with half saying they want the apartment on spec.

Secondly,  there ARE no vacent periods.  The VAST majority of apartments are rented solid for many years.  In fact its a myth that people move apartment every year, from my experience most people stay in the same apartment for 2/3 years and are then re-rented within one week.

Regarding expenses, yes there are expenses but they are usually limited to managment fees ( which incidentally include insurance by the way).

With most of my apartments i havent heard from my tenants in one or two years.  And thats not because im being neglectful, its simply because most apartments are essentially maintenence free.  Most have been built in the last 10 years anyway.  My tenants have my phone number but they never have the need to call.

So to summarise,  many properties bought within the last 2/3 years are now bringing in 6%-8% after expenses.  This is a fact.  If people dont want to believe it  - fine.  All my mortgages are at 4.75%.  So every month the properties are generating free cash.  

What many people dont understand is that many investors dont care if the property values fall a bit in the short term.  It makes no difference unless you sell.  The transaction costs associated with property are so high that it is unwise to sell just because the market has slowed a little.

Any astute investor is in it for the long run  - 10 years plus. Indeed, many investor will NEVER sell and will have their properties for  40+ years and will pass them to their children when they die.  

So while the asset values gos up and down in the short term, in the long term it ALWAYS goes up, and all the while the rental yield from the properties are exceeding the cost of borrowings.

And that my friends is a short explaination of why property investing is so popular.  


ps Try finding a commentator or economist who will tell you that house prices will be lower in 20 years time.........you wont find one believe me.


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## lopin10 (20 Sep 2007)

*So to summarise, many properties bought within the last 2/3 years are now bringing in 6%-8% after expenses. This is a fact. If people dont want to believe it - fine. All my mortgages are at 4.75%. So every month the properties are generating free cash.* 

As an invester i completly agree with above. Also when you write interest payments off against tax you are reducing interest payments by almost 50%. PTSB have launched a new investment product for experience investers 110% rental cover based on 75% loan to value self cert


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## sandymount (20 Sep 2007)

lopin10 said:


> *So to summarise, many properties bought within the last 2/3 years are now bringing in 6%-8% after expenses. This is a fact.*


 
Can you give an example?


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## bacchus (20 Sep 2007)

Shano79 said:


> So to summarise, many properties bought within the last 2/3 years are now bringing in 6%-8% after expenses. This is a fact. If people dont want to believe it - fine. All my mortgages are at 4.75%. So every month the properties are generating free cash.


 
Hard to believe unless you are talking about gross yield.
Are your mortgages not interest only ?
Discusted  in this thread.


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## minion (21 Sep 2007)

Myself and some partners have recently put a lot of work into finding out the very thing the op is asking.

We have done research on different property types and areas.

Our conclusion, which we are about to act on by buying 4 apartments is the following.  (We are closing on the first 2 in the next 2 weeks)

Swords is the best area to invest for us so i'll explain how we came about this to you.
Others come close though, so we may split half Swords, half a different area.
Property is reasonably priced.  It is not as far from the city center as Dun Laoghre or Bray.  This is not priced into the market at the moment and will not be until the Metro is closer to starting and in the news.

What makes it attractive is.  Metro will be in Swords in a few years.  This makes Swords much much closer to the city.  Puts it Up on the all-important commuting level with Dun Laoighre and Bray, Malahide, Portmarnock, etc.
This will make the area more desirable to live and more importantly is not priced into the market at the moment.

We believe this will have a positive impact on Property prices.

On the type of apartment.
2 of my partners have other properties of 1, 2 and 4 bed buildings and have had a huge say in the amount of beds we will be investing in.
1 Bed apartments are the best investment for us for the following reasons.
Much easier to let.
Lower entry cost.
Lower Maintenance. No Gardens. Less wear and tear and only 1 or 2 tenants to deal with. (The less tenants at a time the better)

We have found Applewood in Swords to be the best value in 1 bed apartments.  Though only those apartments from the first 2 phases.  These a very large apartments compared to the shoe boxes that you get in Holywell and Boroimhe and the later phases in Applewood and will rent much easier than shoe boxes.
These apartments are for sale from between €260K and €270K at the moment.

Rents in these apartments is about €1000 - €1100PM at the moment.
From our research these apartments td not remain empty more than a couple of days.  (Watch your chosen area on DAFT.ie and  visit a few too) 

As there are 4 of us and we are investing in 4 properties we feel that any vacant periods are manageable, even if all at the same time for long periods (worse case scenario).

Its long term, so we arent that concerned about property values falling in the short to medium term.  We are looking at 20 - 25 years of investment.

OP i hope this is of use to you.  The main thing i would say is to do research into the area and type of investment you are thinking about.  Dont be afraid to bail out if the figures arent adding up and try to spot areas that have something to offer in the future that is not priced into the market yet.
Also make sure that you pick a type with the least amount of work and investment for the maximum gain.
There are probably better places and types of buildings to invest in, but the above is the best we have found for us.  You may find something else to be a better investment.  If you do let me know.

Rents
http://daft.ie/searchrental.daft?s%...t%5D=&s%5Badvanced%5D=&s%5Bprice_per_room%5D=

Prices
http://www.daft.ie/searchsale.daft?...t%5D=&s%5Badvanced%5D=&s%5Bprice_per_room%5D=


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## MaxIII (22 Sep 2007)

Watch your local builders / developers, if they are hard pressed for finance, they will be the first to lower prices, as they do so the local market will look over priced.  As reality dawns people will have to reduce their prices.

There is no shortage in housing - people would rather shoot themselves in the foot than buy into a falling market.  Thus plenty of stock for sale, I read recently that there is nearly million homes for sale in the UK now.  And if people cant sell - but have to move what do they do?

Ans?  They let their old properties out = glut in let supply = fall in yields.


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## z106 (22 Sep 2007)

Shano79 said:


> First of all there is INCREDIBLE demand at the moment for rented accomodation in Dublin at the moment. Take it from me I have personal experience of renting 11 rental properties around the city centre. I could rent each one 20 times over. Each time one is advertised i get about 20 replies of people wanting to view it THAT day with half saying they want the apartment on spec.
> 
> Secondly, there ARE no vacent periods. The VAST majority of apartments are rented solid for many years. In fact its a myth that people move apartment every year, from my experience most people stay in the same apartment for 2/3 years and are then re-rented within one week.
> 
> ...


 
You hit the nail on the head there.

I also concur as an investor - particularly with the p.s. bit.


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## Howitzer (23 Sep 2007)

Shano79 said:


> ps Try finding a commentator or economist who will tell you that house prices will be lower in 20 years time.........you wont find one believe me.


I doubt you would have found anyone in 1980's Tokyo who would have predicted property would be lower in value today than it was then, yet low and behold 15 years of falling prices later ......

No serious economist would ever claim that ANY commodity was so overpriced that it would be worth less in 20 years (unless you were just an attention seeker). It's just too long a time frame that you're bound to be made look foolish. However an examination of history finds plenty of assets that have fallen, some quite dramatically. If prices only ever went up then no one would ever sell, there would be no risk and prices would spiral out of control. That's what happens in bubbles until eventually risk is reappraised and realistic prices are arrived at.

At least with property you can make some pretty easy calculations of rent versus costs (interest + transaction costs) and see if a price is realistic. Though in a bubble not everone can accept when the numbers don't add up. http://www.askaboutmoney.com/showthread.php?t=63336


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## z106 (23 Sep 2007)

Camry said:


> So as a counter to the PS point that you won't find anybody who will say that prices wiull be lower in 20 years time. You won't find anyone who would gurrantee that they will be higher (taking inflation into acount of course.)
> 
> Try this. After adjusting for inflation house prices in the UK were lower in 1997 than they were in 1977. There's 20 years for you. You would have made a better return by leaving money on deposit.


 
I disagree with teh above
I've had this tussle before with members in this web site and i was dismissed. However I am certain that it was them that wre wrong and not me.

The reason I disagree is because it is not real terms that apply but nominal terms.
That is assuming of course money was borowed to buy the property and the rent pays the mortgage interest which in most cases it will assuming for arguments sake an 80% LTV maortgage.
(Had the property been bought outright then it would indeed be real terms that are rlevant and not nominal terms - this is very rare though)

So to take your example above in which you say that a person would have made a better return by putting their money on deposit - this is simply wrong. 

Lerts look at an example - if someone had put £100k on deposit at an average interest rate of 7.2% per year over the 20 years then that would be worth £400k after 20 years. 

Had that person gotten an 80% mortgage instead they would have been able to buy £500k worth of property 20 years ago.
Lets also assume that this someone had the smarts to buy in a good area where there will always be rental demand then the rent received would have paid for their mortgage interest.
(There is also an element of managing your cashflow responsibly of course)
That property portfolio would now be worth millions - not to mention the opportunity they would have to remortgage to reinvest further in property over the years to compound their returns even more.

Again - I stress - that assuming the properties are let,and money was borrowed to buy the property, then is nominal terms that apply and not real terms.

Getting back to the main point of whether propeties will be more or less expensive in 20 years time inevitably the answer is more expensive - in nominal terms.
Some poster gave the example of Japan. I don't know average prices over the last 20 years there but if that was the case then fair point.
However in teh overwhelming majority of times,property will be worth more in 20 years time in pretty much all places.

It's as safe as houses !!


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## minion (23 Sep 2007)

qwertyuiop said:


> I disagree with teh above
> I've had this tussle before with members in this web site and i was dismissed. However I am certain that it was them that wre wrong and not me.
> 
> The reason I disagree is because it is not real terms that apply but nominal terms.
> ...



I Completely agree with the above.
Also Camry, 
any particular reason why you chose the 20 years previous to 1997.  Why not the 20 or 25 years previous to 2000 or 2003.  You would get a different answer there.  I think you picked the worst case scenario you could find 

Property investment is all about gearing.  Comparing what you would get on deposit is not really relevant unless you are going to deposit the same amount as your properties are worth.


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## Howitzer (23 Sep 2007)

qwertyuiop said:


> .........


 
All assuming your tenants stay and you don't get stiffed by your agent no doubt?

http://www.askaboutmoney.com/showthread.php?t=64215


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## z106 (23 Sep 2007)

Of course


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## minion (23 Sep 2007)

Any property investor i know prices in 2 months vacancy a year into their calculations.  
They also do extensive research, and make sure they invest in a popular area.
Havent heard of anyone whos had more than 2 weeks vacancy yet though who has done this.

But havin said that.  It is possible that a bomb could hit the property and its empty for 6 months.  Unlikey though, i think.


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## Howitzer (23 Sep 2007)

minion said:


> Any property investor i know prices in 2 months vacancy a year into their calculations.
> They also do extensive research, and make sure they invest in a popular area.
> Havent heard of anyone whos had more than 2 weeks vacancy yet though who has done this.
> 
> But havin said that. It is possible that a bomb could hit the property and its empty for 6 months. Unlikey though, i think.


 
The reason why they price in 2 void months is because in the long run (20 years) the property will be hit by a bomb, or more likely a similarly disasterous event. 

There are any number of threads where investors question what to do when a tenant doesn't pay. They get stuck for literally years in some cases with a property containing a tenant not paying and doing god knows what to the property.

These kinds of expenses are never apparent when an investor first buys the property and it's all new and shiney, as are the neighbouring units, but after 10 years when the quality of the unit, and the tenant that you can attract, has diminished substantially then signifnicent reinvestment is often required.


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## minion (23 Sep 2007)

True, just goes to show, the importance of doing homework, on the property you are investing in, the potential costs of things going disasterously wrong, which type of property minimises these costs and the tenants you let to is paramount.

Also, the tax system helps an investor out an awful lot when the sh!t hits the fan.  Tends to even out the good and bad times even if there is a bomb.

But i know, what if there was an earthquake or the tax system changed or there was a nuclear leak in Sellafied ....... etc.  Well there are risks to everything.  Ask Northern Rocks customers.

Anything is possible, but property investment is not as gloomy and full of the worse case scenarios that people are trying to make it out to be.  In fact its still quite a good way to invest and make a few Bob.


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## Howitzer (23 Sep 2007)

If you buy at an appropriate price.


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## janskar123 (24 Sep 2007)

As the [broken link removed] is in high demand you will get a maximum return on the investments where ever you invest. I think it is possible to get 5%-7% returns by investing on apartments and probably more than that by investing on houses.


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## Thomas22 (24 Sep 2007)

Howitzer said:


> If you buy at an appropriate price.



How do you know what the appropriate price is?


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## Howitzer (24 Sep 2007)

janskar123 said:


> As the [broken link removed] is in high demand you will get a maximum return on the investments where ever you invest.


Insightful.


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## z109 (24 Sep 2007)

janskar123 said:


> As the [broken link removed] is in high demand you will get a maximum return on the investments where ever you invest. I think it is possible to get 5%-7% returns by investing on apartments and probably more than that by investing on houses.


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