# Long term view of property investment: a viable form of long term savings.



## maybelline (8 Jan 2008)

In general, is it a good or bad idea if two early thirtysomethings (with good jobs and their own house already) have to subsidise an investment property, if it doesn't cause them financial hardship to do so and their view is that in 30 years time when considering retirement they will have a valuable asset to contribute to their pension?


I guess I was wondering if it is a viable form of long term savings, regardless of market conditions, in people's opinions?


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## CrazyWater (8 Jan 2008)

*Re: Long term view of property investment*

Hi
We have done this for the same reason that you have outlined. We are in our late 30's and we purchased an apartment (2 years ago) with a view to having it as part of our pension provision (no get rich quick, multiple purchase interest only options, too risk averse). Our estimates are that we will have to subsidise the mortgage for 8 of the 20 years and that after that it should be paying for itself. By the time we reach 58 it will be paid off and our options will be to sell and fund early retirement, continue to rent for the extra income, revamp for personal use. 

For us this was a long term investment and we sought to mitigate our risks and hassel. Our basic principal was BUY LET FORGET

So some of the advice I would give is:
First and foremost this is an investment property so buy it as such and deal with is as such so zero emotional attachment.
Buy a property that will appeal to the local market, long term, professional, clients. 
Consider a fixed rate mortgage, but consider factors such as penalties for early payoff etc.
Factor in property management/letting fees.
Buy in a market with a strong renting culture (we bought in France). 
Leave yourself enough financial scope for other investment opportunites in the future (eggs and baskets comes to mind).
Use (very) conservative estimate for rental income growth and captial appreciation.
Run the numbers in excel and see if you are happy with the projections. 

Is is a good idea? Honestly, I don't know. We have done the sums and as part of our overall longterm financial planning we think it is, but one can only really know the final score when the game is over. 
CW


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## Stifster (8 Jan 2008)

*Re: Long term view of property investment*

say for example the cost was €300, value of property now €300,000.

If prices didn't move for 30 years you would be left with an asset worth €300,000 (alos assume that the place washes its face).

If you invested €3,600 a year for 30 years at 4% you would end up with just over €200,000.

(you could invest twice that in a pension fund at the same cost)

Now consider all the variables. price rises/falls, CGT, interest rates, savings rates, pension fund performances.

My feeling is that if property prices settle and then start to rise at small increments but steadily, perhaps at the level of inflation, then property, due to the fact that for a small initial investment you get a large asset, is a good investment.


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## Markjbloggs (8 Jan 2008)

*Re: Long term view of property investment*

Why property?   With all the uncertainty out there, have you considered stocks, savings accounts etc.  With the timeframe you are lookng at, compounding is your friend....


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## maybelline (8 Jan 2008)

*Re: Long term view of property investment*



Markjbloggs said:


> Why property? With all the uncertainty out there, have you considered stocks, savings accounts etc. With the timeframe you are lookng at, compounding is your friend....



That's ok, I guess I was trying to keep the question as generic as possible, more suitable for "The Great Financial Debates" than other sections, which probably didn't help my cause!

As for the question "why property?" note the number of people involved! I've yet to be convinced of the arguments (probably from reading too many threads on this site ) so I was just looking for other opinions on the strategy in general. But the plan is something similar to that described by CrazyWater (thanks for the reassurance that we're not the only ones!) but even more unemotional in approach that eventual personal use is not a priority at all.


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## Brendan Burgess (8 Jan 2008)

Generally, equities give a better long term return than property. There is also far less work involved. 

The big attraction of property is that you can borrow cheaply to buy it and you get tax relief on the interest you pay. So if you are prepared to borrow, and if you are prepared for the hassle of being a landlord, then investing in property is probably better than investing in shares. 

Even over the long term, there is no such thing as a risk free investment. Borrowing to invest in property or shares increases your risk. You must be sure that you can handle a sustained loss in value of either.

As you are thinking very long term, you should also be looking at maximizing your contribution to your pension schemes. 

Brendan


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## CrazyWater (8 Jan 2008)

I should stress for us this is just one part of our overall long term financial policy. We are both members of good pension schemes, have investments in equites and even some in art (god help us but there's a gamble!!). And I agree with Brendans points.


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## z106 (8 Jan 2008)

I think property is the best investment you can make over the long term.

THe main advantage is very high LTVs,and income to pay off any onterest.(assuming the location is good)

Yes - you can also get high leverage with stocks - but in reality due to margin calls you can't really as you need to keep large reserves for that eventuality.
WHile stocks may produce higher % returns in the long run,its downfall compared to property is its volatility.
As a result,the % return on your own investment is higher in practice wih property in my book.

If you can afford any temporary shortfalls then I say you have made the right decision - personaly I think property is the way to go and that's where i have put most of my money - and will continue to do so at every available opportunity.


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## z106 (8 Jan 2008)

*Re: Long term view of property investment*



Stifster said:


> If you invested €3,600 a year for 30 years at 4% you would end up with just over €200,000.


 
That's teh wporst thing you could do with your money.
What's that in real terms?
Probably very little if any gain at all.


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## z106 (8 Jan 2008)

Sorry stifster - my post above didn't fully get the original point you were making.

I now see the point you were making
i.e. instead of putting €300 a month into an asset that stands still, put it into a deposit account account.

Fair enough point by you in theory - totally irrelevant in practice thoiugh.
THere's nbo way the asset will not go up significantly in nominal terms over the course of the 30 years.
ANd assuming reasonably high leverage,it is nominal terms that matter most in that instance.


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## Stifster (9 Jan 2008)

qwertyuiop said:


> Sorry stifster - my post above didn't fully get the original point you were making.
> 
> I now see the point you were making
> i.e. instead of putting €300 a month into an asset that stands still, put it into a deposit account account.
> ...


 


hence my conclusion!



> Now consider all the variables. price rises/falls, CGT, interest rates, savings rates, pension fund performances.
> 
> My feeling is that if property prices settle and then start to rise at small increments but steadily, perhaps at the level of inflation, then property, due to the fact that for a small initial investment you get a large asset, is a good investment.


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## Thomas22 (9 Jan 2008)

By far the best way to save long-term is through a pension invested in a balanced portfolio of equities, bonds, cash, private equity, PROPERTY and hedge funds.

The main advantages of this type of pension over property are

1. This portfolio has a significantly higher expected return than property.
2. Contributions get the equivalent of an immediate almost 100% return due to the tax status of a pension(assuming you pay tax at the higher rate)
3. Much less hassle than being a landlord.(Collecting rent, finding tenants, fixing the place up, dealing with tenants in general)
4. Your pension is professionally managed your property is most definitely not.
5. Much much less risk than on a single property.


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## !RAY (9 Jan 2008)

Hi All
 I have a apartment that i rent out.the mortgage is interest only and the rent just about covers this.I do have to  the cost subsidise of management fees to a tune of about 200 euro per month.I do feel (hope) that this will pay off in the future so crazywater i think property is a good long term inverstment. If i made a profit i would put it in to my AVC .
Cheers
!RAY


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## Flax (9 Jan 2008)

!RAY said:


> Hi All
> I have a apartment that i rent out.the mortgage is interest only and the rent just about covers this.I do have to the cost subsidise of management fees to a tune of about 200 euro per month.I do feel (hope) that this will pay off in the future so crazywater i think property is a good long term inverstment. If i made a profit i would put it in to my AVC .
> Cheers
> !RAY


 
Hi Ray, I don't really understand.

You are hoping the increase in property value is where you'll make your money?


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## !RAY (9 Jan 2008)

Hi FLAX
I bought the apartment two years ago.It has increased by about 90-100 thousand. I pay my mortgage interest only (1100 euro per month)and the rent is 1,100 .The management fee is 200 per month which i pay myself.Anyway i feel that i will only have to pay this for 1 to 2 years and in 5 years time the apartment will be worth a lot more.I am in the lucky postion of been able to subsidise the apartment at the mo.
Cheers
Ray


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## CCOVICH (9 Jan 2008)

!RAY said:


> Anyway i feel that i will only have to pay this for 1 to 2 years



Why do you feel you will only have to pay the management fee for 1-2 years?

Some of the points you made in this thread were interesting to say the least.


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## !RAY (9 Jan 2008)

Hi CCOVICH
I feel that interest rates will decrease, the price of the property will increase.As will my own wages to help offset this. The rent i charge is about 100euro under the going rent ,so the rent can be increased (Did not use a estate agent so took this off the rent ).Its a gamble but i can afford to subsididise at the mo so i am in a lucky position.Also all loses i show against the property i can offset against capatial gains tax.
Ray


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## Thomas22 (9 Jan 2008)

!RAY said:


> Hi FLAX
> I bought the apartment two years ago.It has increased by about 90-100 thousand. I pay my mortgage interest only (1100 euro per month)and the rent is 1,100 .The management fee is 200 per month which i pay myself.Anyway i feel that i will only have to pay this for 1 to 2 years and in 5 years time the apartment will be worth a lot more.I am in the lucky postion of been able to subsidise the apartment at the mo.
> Cheers
> Ray



In my opinion this is a poor investment.

You are basically renting the property from the bank and sub letting it to your tenant as you are paying nothing off the outstanding balance.
You also have other costs such as wear and vacant periods. 
Can I just ask what makes you think the property has gone up €90k-100k? And what makes you think it will go up in value in the future?


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## CCOVICH (9 Jan 2008)

!RAY said:


> Hi CCOVICH
> I feel that interest rates will decrease, the price of the property will increase.As will my own wages to help offset this. The rent i charge is about 100euro under the going rent ,so the rent can be increased (Did not use a estate agent so took this off the rent ).



None of that explains why will only pay management fees for another 1-2 years?



			
				!RAY said:
			
		

> Its a gamble but i can afford to subsididise at the mo so i am in a lucky position.



Indeed! On both counts.



			
				!RAY said:
			
		

> Also all loses i show against the property i can offset against capatial gains tax.



Can you explain this?  If you make losses on the rental of the property, these cannot be set against any capital gains liability.

Or do you mean that if you sell the property for less than you paid, you will be able to set the loss against gains on other assets?


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## !RAY (9 Jan 2008)

Hi Thomas22
I bought the property for 280,000 and they are sell for 385,000 t0 395,000 now.For the last 7 to 5 years we have heard that the price of property will stop increassing .It has stoped now but for how long ? If we only new. Ireland has a population boom at the moment and i think it will continue.Also i know i will be shot for this but property in prime locations in dublin are not over priced .Look at london,Paris,Sidney.I was lucky to buy at a good time.If the property increases by 2.5% per year this in nearly 19,000 of a increase.Its a gamble that i am happy to live with .I think it is a good investment
Cheers
!Ray


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## TTV (10 Jan 2008)

and so if inflation is running at what 5%(?) then you are already down 2.5% in real terms, not to mention the 200 per month that could be better invested. I dont think the population boom will last much longer as the work has dried up and apparently some of the eastern europeans are already on the move. (The next census should be interesting)...I'm afraid that buying into the mantra of property only rising will cost you in the long term...at the moment you are basically losing money by renting the apt for cheap ( i would love to be your tenant, they are propbably investing their savings wisely at your expense)...

Have you accounted for

1. Properties for rent increasing - rental prices coming down/unable to secure tenants due to population decrease/not rising.
2. House Prices not increasing but dropping/standing still in the medium 5-10 years?
3. Interest rates increasing not decreasing as only Mr. Hughes or Mr. Parlon would have you believe.

I think you may have been better off visiting the casino...it would be more fun and wouldnt drag out over the next decade or two...


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## shnaek (10 Jan 2008)

It pays to have a well balanced portfolio, which includes international stocks, government bonds, commodities, cash and property. Putting all eggs in one of these baskets would not be wise. 



!RAY said:


> property in prime locations in dublin are not over priced .Look at london,Paris,Sidney.


London, Paris and Sydney are cities of at least 4 times the population of Dublin. The prices of property in these cities is bound to reflect this. You should compare property prices in Dublin with similar sized capital cities in other countries to get a more accurate reflection of value. Of course I do take your point on prime locations - this is always a key factor, reflecting the old 'location' mantra, which is overused but always true. 



!RAY said:


> Its a gamble that i am happy to live with .I think it is a good investment


You call it a gamble and an investment in one line!


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## floydmuppet (23 Jan 2008)

I think It's the old addage of trying to spread your risk and of having a diverce portfolio of investment.For me property has to be one of these investments but certanly not the only one.


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## z104 (23 Jan 2008)

Pension, property,cash

What else can you do to spread the risk? Buying shares ? Is this not the same as your pension but without the tax benefits? 

I think property is a good investment. Pension is a good investment and both together is a sensible way to go. 

Having neither is not the way to go unless somebody has a better suggestion on where to invest.


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## badabing (23 Jan 2008)

TTV said:


> and so if inflation is running at what 5%(?) then you are already down 2.5% in real terms, not to mention the 200 per month that could be better invested. I dont think the population boom will last much longer as the work has dried up and apparently some of the eastern europeans are already on the move. (The next census should be interesting)...I'm afraid that buying into the mantra of property only rising will cost you in the long term...at the moment you are basically losing money by renting the apt for cheap ( i would love to be your tenant, they are propbably investing their savings wisely at your expense)...
> 
> Have you accounted for
> 
> ...



Take the most dynamic cities across the US; 
http://money.cnn.com/2006/06/20/real_estate/fastest_growing_cities/index.htm

Most of them are smaller than Dublin..and dublin is up there in growth rates. But unlike most of the fastest growing cities, young economic migrants arriving instead of retired baby boomers and the workforce that follows them.

Along with London, and a handful of other fast groawing cities in Europe Dublin has to be up there with the best of them. And current economic downturn aside (which we will come out of in a while) there is no reason not to expect Dublin to experience continued growth.

We get more migrants per capita than any other country and have the second highest fertility rates in Europe. Take someone living in small town Poland listening to the news, they here alot about Ireland and the positive exeriences alot of immigrants are having here. This is the land of opportunity for alot of people that are making their fortunes, who otherwise would have had no opportunities at home.

And before you suggest them going back home...most of the eastern european economies are like a crappy car driving at speed without good brakes, a crash and they are finished. They are just managed badly and the recent boom has covered that up.

Having Lived in the US for some time it's interesting to see how we react to down turns comared to them. They expect them as naturally as the seasons and expect to come out of them. We will too, and are better placed to do so than most with one of the most globalised economies in the world.

Less of the overblown pessimism please, or at least try and back it up well..


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