# Buy To Let: Possible to Actually Make a Profit in Ireland, or Elsewhere?



## blobert (20 Apr 2006)

Hi there,

Do you guys think it is possible to buy a property in Ireland (at current prices) and rent it at a profit (I'm asuming the answer is no).

Most of the posters here seem that are buying to let seem to accept that they will have to subsidise the mortgage repayments with their own incomes in the hope that their property will increase in value over X years after which they plan to sell. This seems a bit of a flawed idea to me.

So is it possible to find buy-to-let properties in Ireland, the rental income of which will cover your mortage and other charges and fees aplicable to renting?
The idea of buying a slightly run down place and allowing rent allowance letters appeals, but I gather this is not too straightforward to do.

If this is not possible in Ireland, any recommendations on where to look abroad would be appreciated.

Thanks in advance,
Robert


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## woods (21 Apr 2006)

I think that a buy to let should be viewed as a pension fund and it has to be financed. You do not expect that your pension will be self financing. There is nothing wrong with having to top it up and unreasonable to expect to get away without having to do so. You just need to get used to the idea.


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## thewatcher (21 Apr 2006)

There's far more tax efficient ways to set up a pension fund than some overpriced buy to let in a midlands town.


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## woods (21 Apr 2006)

thewatcher said:
			
		

> There's far more tax efficient ways to set up a pension fund than some overpriced buy to let in a midlands town.


As soon as you decide what that is I would be delighted to be on the receiving end of your wisdom because I cant decide on a good pension fund other than rental property. I would like to have another option.


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## Howitzer (21 Apr 2006)

woods said:
			
		

> As soon as you decide what that is I would be delighted to be on the receiving end of your wisdom because I cant decide on a good pension fund other than rental property. I would like to have another option.


 
The fact that your pension fund is created tax free whilst you're buying the property (overpriced or not doesn't matter) with your after tax income I would have thought would be sufficient, no? Am I missing something?

However this has nothing to do with the original question whereby the OP isn't necessarily looking at capital appreciation but looking for the investment to be self financing, I believe. Without availing of S23, S50s I think this would be hard to do (legally). Essentially I only think it's possible when you have some way getting all your income tax free. Possibly there's still opportunities with residential care / private hospitals but don't know of any vehicles for the small investor to avail of these.


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## conor_mc (21 Apr 2006)

Howitzer said:
			
		

> The fact that your pension fund is created tax free whilst you're buying the property (overpriced or not doesn't matter) with your after tax income I would have thought would be sufficient, no? Am I missing something?


 
Yes, you also forgot to mention the additional _costs_ of starting up a property "pension" in the form of stamp duty, solicitor fee's, property valuation, etc, etc...!  



> I think that a buy to let should be viewed as a pension fund and it has to be financed. You do not expect that your pension will be self financing. There is nothing wrong with having to top it up and unreasonable to expect to get away without having to do so. You just need to get used to the idea.


 
I personally think a buy-to-let should be viewed as a business, and I certainly wouldn't be happy to subsidise each of my customers every month.


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## bearishbull (21 Apr 2006)

house in my estate which was previously rented is being sold,after stamp duty you would get around 2% rental yield on the purchase price and then you have the maintenace costs insurance etc and tax on your rental income. doesnt make much sense with mortgage rates heading for 5% in next 18months.


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## The Punter (21 Apr 2006)

The original poster is simply looking for profit. he/she did not mention pension or capital appreciation. The answer is easy but does have risks. 

Interest only mortgage is the way to go my friend. A property costing 230k will have monthly repayments of 670. The benefit to this is lower bottom line costs per month. Obviously you dont pay off any of your capital.


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## bearishbull (21 Apr 2006)

The Punter said:
			
		

> The original poster is simply looking for profit. he/she did not mention pension or capital appreciation. The answer is easy but does have risks.
> 
> Interest only mortgage is the way to go my friend. A property costing 230k will have monthly repayments of 670. The benefit to this is lower bottom line costs per month. Obviously you dont pay off any of your capital.


670 untill rates rise . i'd assume mortgage rates are heading for 5% which would make interest only repayments around 950euro within 18months,where can you get a property for 230k that rents for 950 a month???????? then you have your costs of owning too.


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## Howitzer (21 Apr 2006)

bearishbull said:
			
		

> 670 untill rates rise . i'd assume mortgage rates are heading for 5% which would make interest only repayments around 950euro within 18months,where can you get a property for 230k that rents for 950 a month???????? then you have your costs of owning too.


 
This point can't be emphasised enough. A 1% increase in ECB rates (1%? ahh shure dats nutin) will give a 25% increase in interest only mortgage repayments.

Interest only mortgages are meant to be used to capitalise on a quick increase in capital values. Again, I don't believe this is what the OP has his eye on. I could be wrong.....


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## Carriglee (21 Apr 2006)

woods said:
			
		

> I think that a buy to let should be viewed as a pension fund and it has to be financed. You do not expect that your pension will be self financing. There is nothing wrong with having to top it up and unreasonable to expect to get away without having to do so. You just need to get used to the idea.


 
Not sure I would agree completely with these statements. If the figures for an investment don't stack up then it doesn't really matter whether it is placed inside or outside a pension structure. The figures that are acceptable depends on one's personal circumstances. Some of us still depend on property (and more specifically BTL) for our income (and not solely for our pension). I currently find it very difficult to justify investment in Irish property. The assets are generally not delivering a rental return in excess of what you would get in a good deposit account (which has none of the associated risks, workload and secondary costs associated with property ownership). Without steady capital appreciation then the assets would be a dead weight in anyone's portfolio. Fortunately rental yields are higher elsewhere.


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## woods (21 Apr 2006)

I think that I am being missunderstood here. 
I was not suggesting that you put it in a pension fund. 
I was suggesting that you can not have something for nothing. 
It is unreasonable to expect that you can pick up a property and aquire it for nothing by having the rent meet the repayments. You are getting something that will in many years time be as good as a pension fund and you have to pay for that by subsidising the rent.
We have made purchases that have 100% met their repayments but they were all business and someone had to manage them to get the best out of them. I would not dream of expecting that from a rental property. That is living in cloud cuckoo land.


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## blobert (21 Apr 2006)

Thanks for all the posts guys, I really appreciate your advice.

I have been reading the Rich Dad series of books on investing etc recently and this is where the thought behind my original post came from. The author ([SIZE=-1]Robert Kiyosaki)[/SIZE] made a lot of his original money through rental property and his basic notion on the subject is not to buy a rental property unless it can make a profit, even if it is only €50 a month after all expenses. He reckons houses can only be classed as assets if they produce a positive cashflow, otherwise (capital appreciation aside) they are costing you money each month.

Now I'd imagine if you bought an apt in Dublin 10-15 years ago, at much lower prices, then right now the rental income would easily cover all expenses and allow for a profit.

But I'd imagine that it is not possible to buy a place at todays (highest ever) prices and do the same thing. I'm hoping I'm wrong.

A lot of these selp help and financial advisor types make big promises to sell more books, perhaps this is what [SIZE=-1]Robert Kiyosaki is doing. Or maybe it's easier to do this in the US . He says he bought in States with depressed housing prices at the time of purchase. Nonethless the property still had to offer a profit. Then in time (when the market picked up) he would sell, thus gaining capital appreciation but also making a small amount in the mean time. It's a great plan, but I'm guessing it's not feasible in the current situation in Ireland.

Any further advice would be much appreciated.

Thanks,
Robert
[/SIZE]


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## landlord (21 Apr 2006)

First investment property bought 2003 interest only mortgage.  GROSS rental yield was 5.6%
Investment property 2 bought 2004  yield 5.1%
Investment property 3 bought 2005  yield 5.1% 
  Investment property 4 bought 2006  yield 4.2%
  I have used for yield (yearly rent divided by purchase price) and I am aware that there are variations on this equation. 
  The trend is obvious and personally I believe that the window is closing very quickly on Buy to Let property and as I have said before, as soon as you have to supplement your mortgage payments with your own income, your investment is no longer self sustaining and your lifestyle will suffer.


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## Carriglee (21 Apr 2006)

woods said:
			
		

> I was suggesting that you can not have something for nothing. It is unreasonable to expect that you can pick up a property and aquire it for nothing by having the rent meet the repayments. You are getting something that will in many years time be as good as a pension fund and you have to pay for that by subsidising the rent.
> We have made purchases that have 100% met their repayments but they were all business and someone had to manage them to get the best out of them. I would not dream of expecting that from a rental property. That is living in cloud cuckoo land.


 
Hi Woods ... Apologies if I misrepresented what you were saying. I guess what I'm trying to say is as follows ... If you purchase a property you're likely to have to fork out a deposit and costs. In addition, you will be paying back (assuming a full repayment mortgage) capital and interest over a long period of time. Therefore you are definitely not getting something for nothing. 

Like many other asset classes there are alternative uses you can put the property to in order to generate an income. But there is absolutely no guarantee that the property will be rented or will increase in value over the period of the loan. There is also considerable work in managing and maintaining the property. All of this adds up to no small risk and plenty of work. 

For me if an asset is not producing an income in excess of what a deposit account would give you then it is time to ask some serious questions. I think there may be better ways of building short-term and long-term (e.g. pension) income. For this reason, it is now extremely difficult to make Irish residential properties work as an investment.


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## Carriglee (21 Apr 2006)

landlord said:
			
		

> The trend is obvious and personally I believe that the window is closing very quickly on Buy to Let property and as I have said before, as soon as you have to supplement your mortgage payments with your own income, your investment is no longer self sustaining and your lifestyle will suffer.


 
Hi Landlord ... I would agree with your views.  I would go as far as say that if one is not careful then one's lifestyle becomes a slave to the investment (rather than vice versa).  One is slaving to keep the asset alive rather than it giving one a life.  Fortunately, there are still some good yields to be achieved outside of Ireland but this raises other issues.


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## woods (22 Apr 2006)

Carriglee said:
			
		

> .
> For me if an asset is not producing an income in excess of what a deposit account would give you then it is time to ask some serious questions. I think there may be better ways of building short-term and long-term (e.g. pension) income. For this reason, it is now extremely difficult to make Irish residential properties work as an investment.


I think that it a mistake to make hard and fast rules and every opportunity should be judged on it's own merits. We once bought a property that generated no income and we bitched a little to each other about it but when we finally sold it we calculated that we had earned £3K per week (and yes that is old pounds and not euro) for every week that we had owned it.
I know that times were different then but if we had followed investor guidelines we would never have bought it and would have missed a huge gain.


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## badabing (22 Apr 2006)

It is possible to accept an initial negative cashflow, as rental income will invariably rise over time. I'm not saying this is advisable, just another way of looking at it. I think if one is really serious about property investment, there are double digit yields available in eastern europe, but this will involve considerable time and effort...but as they say no pain no gain!

PS I might add these yields are very unlikely to be found by an off plan type purchase from an rds show...the investor will need to dedicate serious time and effort (effort being fostering relationships locally and investing in possible refurbishments plus multiple annual trips, possibly considerable time spent there)

Also I would be very wary of many eastern european locations as the demographic situation is grim e.g. Berlin....I would'nt pay 50k for an apartment there...


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## blobert (27 Apr 2006)

Thanks again folks for all the opinions/advice.

I got an interesting PM (which I agree with) that I thought I'd add to this discussion:



> hey blobert, I'm also quite the fan of the RD/PD series. However I've also kept quite up to date with his columns & website (I think you may not have). It's funny, before reading his books I was bear-ish on property and after reading them I'm *doubly* bear-ish.
> 
> He has written an article which caused alot of waves amongst real estate speculators (note I said speculators, not investors) called 'All booms bust' which you'll easily find via google.
> 
> ...



Any more advice would be much appreciated.


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## jellyshots (27 Apr 2006)

Thanks for sharing Blobert. I can't help feeling some of the stuff going on with property in this country is crazy I would have no interest in investing in a second property here for the simple reason the rent wouldn't cover the mortgage but hey thats me and everyone has different risk levels some people are happy to rely on Capital Appreciation and have done well out of it. An few interest rate hikes and I can't help feeling it won't be too long before it comes unstuck and a lot of people may get caught with their pants down.


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## cian8 (27 Apr 2006)

Just to reply to the initial question.

I have just put a booking deposit on a new two-bed apartment in Limerick cost 150,000 euro, if you take out a 35-40 year  100% mortgage then the repayments are less than 700 per month (at 4% interest), I am currently renting a similar sized property for 700 per month. So, theoretically there exists the possibility that it could be self-financing. Of course the margin is miniscule, but, even adding on the inevitable costs of upkeep, taxes etc, at the very least the investment would need very little extra cash input.

By not taking a 100% mortgage and/or choosing an interest-only option the monthly repayments could be reduced and the investment may actually contribute real positive cash flow.

So maybe it is possible to make a profit on buy to let. (and in Ireland !!!, although I am beginning to think that large parts of the Limerick property market are not following the national trend!)


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## Peadar (27 Apr 2006)

Hi Cian8,

Is that a city centre apartment you will be letting out? It sounds cheap. Limerick is saturated with rental properties, you have to be very careful with your location.

You will probably have to put a lot of spare cash into your investment, if you take into account vacancies, insurance, maintenance, tax etc. 

Even at current rates that is not self financing. When interest rates go up it will be even more of a drain each month.

Peadar


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## cian8 (30 Apr 2006)

Hi Peadar,

I'm actually not going to be renting the apartment out, I just thought it was of interest as regards the whole argument of whether it is possible to buy-to-let in Ireland where the investment is self-financing.

I am buying the apartment with my girlfriend (both FTBs) to live in, so we can add mortgage interest relief into the equation, and therefore even with an increase in interests rates we should not ending up paying much more per month than the equivalent rent!

The apartment is between the city centre and the university, its close to where we work so its an easy (ish) decision for us, i.e. pay 700 per month rent with nothing to show for it or pay slightly less per month and own something!

The price does sound cheap though doesn't it! My opinion is that most apartments advertised in Limerick are still tax incentivised, which seems to add on whatever percent to the cost. Apartments (2 bed) without section whatever tax breaks seem to sell for between 150,000 and 180,000 depending on location and whether or not they are furnished. Although I am by no means an expert, I feel 150,000 euro is a fair value (i.e. not a figure plucked from the sky like Dublin property prices) for a nice 2 bed especially if (like us) you want to live in it!


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## Peadar (2 May 2006)

Hi Cian,

That does sound like good value if your happy with the repayments and you like the location. There is still good value to be had in property in Limerick e.g. Castletroy is still relatively cheap because of an oversupply of student accomodation, which means that eventually students will move out of the estates and into the student accomodation. This should make those estates much nicer residential estates again in the future

Peadar


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## john_kelly (3 May 2006)

About 18 months ago, I decided that, based on yields, a 2 bed apartment in clontarf at 350k + stamp was too dear. Based on 90% occupancy and 3% interest rate, I would need 1,021 per month in rent to cover the interest - not to mention other incidentials. An appartment in the same development is now quoting 450k ! This would need over 1,500 in rent just to cover the interest. That would imply it must be FTB's - musn't it ?


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## icecool (11 May 2006)

blobert said:
			
		

> Hi there,
> 
> Do you guys think it is possible to buy a property in Ireland (at current prices) and rent it at a profit (I'm asuming the answer is no).
> 
> ...


 


PM me i will give you a contact who will show you.


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## colc1 (11 May 2006)

woods said:
			
		

> I think that it a mistake to make hard and fast rules and every opportunity should be judged on it's own merits. We once bought a property that generated no income and we bitched a little to each other about it but when we finally sold it we calculated that we had earned £3K per week (and yes that is old pounds and not euro) for every week that we had owned it.
> I know that times were different then but if we had followed investor guidelines we would never have bought it and would have missed a huge gain.


 
a lot of it is down to luck at the end of the day which is close to what you're saying though you sure wouldn't make that in the not too distant future imho,

C


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## colc1 (11 May 2006)

cian8 said:
			
		

> By not taking a 100% mortgage and/or choosing an interest-only option the monthly repayments could be reduced and the investment may actually contribute real positive cash flow.
> 
> So maybe it is possible to make a profit on buy to let. (and in Ireland !!!, although I am beginning to think that large parts of the Limerick property market are not following the national trend!)


 

Someone correct me if I'm wrong but the interest only mortgage only lasts so long so paying interest on a bigger capital sum in the long term?  No??


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## dodo (11 May 2006)

If you took an interest only Mortgage that might be covered by renters, say then 10 yrs down the line house which was bought for say 350K now say even 500K which would be a modest return I think would expect more  after 20% to help fund hostipals etc you are left with 120K not bad 


			
				blobert said:
			
		

> Hi there,
> 
> Do you guys think it is possible to buy a property in Ireland (at current prices) and rent it at a profit (I'm asuming the answer is no).
> 
> ...


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