# Getting the most out of this property investment?



## Noor77 (4 Mar 2005)

I know someone in the following situation:
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Principal residence: - Worth €450,000 - €500,000, mortgage approximately €60,000

Investment property One (apt): Worth €260,000 to €280,000, no mortgage, rental income €800 p.c.m

Investment Property Two (house): Worth €200,000, mortgage about €160,000, rental income about €650 p.c.m

Investment Property Three (apt): Worth €215,000, mortgage €230,000 (because only purchased recently), rental income about €750 p.c.m
____________________________________________________

Personally, I think this person could be doing a lot more with their property investment, but I lack the financial know-how to see exactly how.

Any ideas?

Thanks
Gross annual salary, without considering rental income, is approximately €90,000
Gross annual salary of partner is €20,000

_Title edited by ClubMan._


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## ClubMan (4 Mar 2005)

*Re: What next?*

Would they not consider diversifying into something other than property to spread the risk a bit?


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## EAMONN66 (4 Mar 2005)

*.*

what exactly is wrong with the outlined scenario.


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## ClubMan (4 Mar 2005)

*Re: .*

Is that directed at me? If so, assuming the properties represent a significant proportion of the individual's overall wealth, then the concentration on a single asset class and geographic region (I'm assuming all _Irish_ properties) leaves them exposed to risk that could be mitigated by diversifying across a wider range of asset classes, grographic regions and risk/reward profiles.


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## Noor77 (4 Mar 2005)

*Re: .*

All properties are in Ireland. This person is a bit nervous about investing in property abroad, although I myself think it would be a good idea. What kind of foreign market would you suggest?


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## ClubMan (4 Mar 2005)

*Re: .*

Actually I was thinking that they'd might want to diversifying into assets other than property - e.g. equities/shares etc. - to spread the risk and create a more diversified/balanced portfolio. Investing all or most of one's wealth in a single asset class may not be the most prudent approach to take.


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## Noor77 (4 Mar 2005)

*Re: .*

Yes, but I didn't think (and again, I'm pretty clueless in this area!) that returns where as good in other investment areas as they are in property?


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## Chrisb (4 Mar 2005)

*Re:*

Is the investment return really that good?
Take your friends latest purchase for example. I presume he/she paid 230000 for the property and is receiving €750 per month rent.
750 x 12 = 9000
9000/230000 * 100 = 3.913%
That is the return before subtracting costs, tax etc. Not sure what subtractions are common, but they will surely reduce the return substantially. Now, it is possible that older investment properties were purchased at lower prices and therefore might deliver a higher percentage in regards to the original investment, but certainly not when making the relation to the current value.


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## ClubMan (4 Mar 2005)

*Yes, but I didn't think (and again, I'm pretty clueless in this area!) that returns where as good in other investment areas as they are in property?*

Perhaps - but (assuming the person doesn't have other significant non property investments) concentrating so much in a single asset class and geographic region would not generally be considered a prudent approach to spreading risk and diversifying one's investments. If, for example, there was a property crash or a significant slump in the rental market then having all one's eggs in the one basket might not be such a good idea.


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## carriglee (5 Mar 2005)

Hi 

I would tend to agree with Clubman and would worry about having all eggs in the one basket.  Therefore, looking at other investment classes may be worthwhile.  If investing in more property then perhaps look at diversifying i.e. perhaps by property type (residential vs commercial, single family vs multi-unit, etc.) geographical location, etc. 

I would agree that the rental return on the asset values are quiet low.  However, this doesn't necessarily mean that the cash ROI (return on investment) is poor.  

For example on the 200,000 euro house, the mortgage is 160,000 euro and assuming a 40,000 euro deposit was paid then the ROI (before expenses/loan repayments) would be 19.5% ( i.e. (650*12)/40000 ).  Not so bad!  However, once you take expenses and repayments into account then I think it could struggle to be cash positive unless an interest only mortgage is used.  If the monthly outgoings are (say) 600 euro per month then the cash on cash ROI would be 1.5% (i.e. (50*12)/40000 ) which is sub-inflation and illustrates the downside of a weak rental market.  Therefore, the investor would be depending on growth in equity to drive the ROI. 

Regards,
Paidi


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## rogermure (5 Mar 2005)

*What next*

Noor77
Are any of  the properties Section 23 type properties if not then there would be a significant benifit in getting into this section if they want to stay in Ireland.

Roger.


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## dubinamerica (5 Mar 2005)

*What lender?*

I am so curious on this !!! Which lender does this person go with for these properties. The LTV looks good . The income to outgoings ratio is right at the 45%  - I've heard that lenders will normally lend around 40% but some will stretch to 45%  - do you happen to know which lender ?  I'll be trying to do something similar..


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## jdwexford (6 Mar 2005)

*Re: What next?*



> Investment Property Three (apt): Worth €215,000, mortgage €230,000 (because only purchased recently),



How did they get  a mortgage fr more than ther value of the property?


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## Noor77 (8 Mar 2005)

*Re: What next?*

Hi again

I edited my first post because I had overstated the mortgage on the principal residence by €120,000! And also, the house is worth a bit more.

Re: mortgages: all are from AIB

This person views investing in property as a form of compulsory saving (their words), but I'm not so sure ...


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## Noor77 (8 Mar 2005)

*Re: What next?*

Oh, also, they borrowed more than the cost of the last house so they would have money to buy furnishings etc...


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## jdwexford (9 Mar 2005)

*Re: What next?*

and the mortgage company is happy that the mortgage is for moe than the value of the property?
jd


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## EAMONN66 (9 Mar 2005)

*Re: What next?*

the mortgage company would base their ltv calculation on the value and income from entire portfolio not the value of a specific property. i think in most circumstances a family home would be excluded from this, hence the reason that people often get top-up equity releases to fund investment deposits.


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## Noor77 (9 Mar 2005)

*Re: What next?*

Perhaps the bank is okay because 2 of the properties are virtually mortgage free ???


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## EAMONN66 (9 Mar 2005)

*Re: What next?*

i would say that that is the case. it woud not be because of the rental incomes which are pretty dismal, given the values.


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## Noor77 (9 Mar 2005)

*Re: What next?*

So is this person most definitely doing the wrong things financially???


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## EAMONN66 (9 Mar 2005)

*Re: What next?*

If they are happy and can cover the mortgages, then no, they are not doing anything wrong. They might get a higher return elsewhere, but perhaps that would also come with higher risks. Some people just like bricks and mortar and historically, it has been a very sound investment. at the end of the day, it is a personal choice.


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