# Best use of 60k gift



## Ballymag (4 Sep 2017)

Age: 44
Spouse’s/Partner's age: 45

Annual gross income from employment or profession: *34000*
   Annual gross income of spouse: *60000*

Monthly take-home pay 

Type of employment: e.g. Civil Servant, self-employed : Both Civil Servants

In general are you:
(a) spending more than you earn, or
(b) saving?          Saving

Rough estimate of value of home           *360k*
Amount outstanding on your mortgage:  *160k*
*What interest rate are you paying?   Tracker @ 0.75%. *

   Other borrowings – car loans/personal loans etc  *None*

Do you pay off your full credit card balance each month? *YES*
If not, what is the balance on your credit card? 

Savings and investments:  Credit Union: 4k  Bank Account 5k

   Do you have a pension scheme? Yes - we both have civil service pension though I am working part time so not making full contributions to mine.

   Do you own any investment or other property? No

Ages of children: 10, 7

Life insurance: Basic mortgage protection


*What specific question do you have or what issues are of concern to you? *
Firstly, based on what I've read here I've made some basic changes - we were overpaying our mortgage by almost 200 euros per month.  I've reverted back to the basic and set up a direct debit to save the 200 instead.  I've also just repaid a credit union loan and intend to try to stay debt free and increase savings over the next 6 months.
Secondly, due to downsizing my parents have 60k which they would like to give me.  I have always been interested in investing in a buy to let property but am more than apprehensive having read many of the threads on this subject here on the site.  My questions are:
- would property investment make sense based on the figures/position above?
- is it viable - would I get a lender to give me sufficient funds to buy (in Dublin outer suburbs)?

I hate the thought of this money sitting in an account with interest rates so bad so am keen to do more with it than that.


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## Brendan Burgess (4 Sep 2017)

Who is your lender?  If it's one of the dead lenders, they might offer you a premium for repaying your mortgage early. Unlikely, but might be worth asking. 

I don't know why people are still looking at residential property with all the anti-landlord controls brought in.  

I think that a portfolio of shares or an ETF would be your best bet. It's flexible. You can cash it when you want. It's minimum hassle. 

The downside is that the stockmarkets are very high at the moment and there might well be a correction. But as it's not borrowed money and as you have good incomes, you are long-term investors so you can ride out any stockmarket storm. 

Brendan


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## Ballymag (5 Sep 2017)

Mortgage is with BOI so no deals there.  I understood from reading posts that many existing landlords were selling as they had been under charging rent to keep good tenants and were now not able to raise rents in line with new higher market rates. However if buying a property now you could factor this in when choosing a property? As you can see though I'm a novice!! Is it now not possible to make money on a property investment with the new measures in place do you think or is it that profit margins are smaller? I'm not put off by the hassle of having to manage tenants but would certainly listen if posters here think it's not going to make money.
On the issue of other investments I am open to all ideas. However I am clueless - read some posts on ETFs but gave up as was none the wiser. Would consulting an expert be advisable or is that overkill for my needs? I'd like to understand the options eg this etf has medium risk but potentially X% return. Could you point me to some posts that might explain it. (Etf for dummies might be a good start......).

One thing I do know is that I am not completely risk averse and would rather take some chance than watch money wither away in a deposit account.


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## cremeegg (6 Sep 2017)

Brendan Burgess said:


> I don't know why people are still looking at residential property with all the anti-landlord controls brought in.



Because the returns can be good.



Ballymag said:


> Is it now not possible to make money on a property investment with the new measures in place do you think or is it that profit margins are smaller?



While there are many pitfalls, it is certainly possible to get a decent return on an investment property. With €60k you could borrow a further €140k and buy a place for €200k. That should cost you €900 per month in repayments. You would need to get sufficient rent to cover tax and expenses.

A rent of €1,600 per month with expenses of €200, less tax of €390 (based on interest deductible of €625), and repayments of €900 leaves you just over €100 per month free cashflow. In 25 years you would own the property mortgage free. This seems a realistic possibility to me, although I am not familiar with the Dublin suburbs. Not a bad deal.


If you are willing to put in the effort and have the capacity to cope with short term costs it is the best way I know to build wealth.


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## noproblem (6 Sep 2017)

Very often tenants don't pay up, very often damage is done to property, very often a place can be left vacant, insurance has to be paid, management fees sometimes, it costs money to keep property up to a good standard, etc, etc. Nowday's it's the popular thing to blame landlords for overcharging, etc, etc, but we very, very, seldom hear the problems created by tenants and believe me you'll have to buy that investment property to learn about  all of these teeney, weeney, little hic ups. As a one off investment with expectation of a good return my advice is just don't go there. Good luck, you'll need it if you feel i'm wrong.


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## cremeegg (6 Sep 2017)

noproblem said:


> Very often tenants don't pay up,



In my fairly extensive experience tenants not paying is rare, though late payment by a few days is common enough. The best way to avoid tenants not paying or paying late is getting tenants who can afford the rent. The best way to identify tenants who can afford the rent is to ask for a substantial deposit and at least one months rent all in advance.




noproblem said:


> very often damage is done to property,



Minor damage is certainly common, damage with any significant cost is rare. Again a substantial deposit helps.



noproblem said:


> very often a place can be left vacant,



Not in todays market or any reasonably likely medium term.




noproblem said:


> insurance has to be paid,



Certainly and you should get some quotes long before you decide to become a landlord.



noproblem said:


> management fees sometimes,



People often underestimate the significance of these. In my opinion the management fee should be discounted at a rate of 2% and added to the price of the property when doing your sums. For example comparing a property at €200k with no management fee to a property at €200k with a €1,000 per annum management fee. The €1,000 discounted at 2% is €50,000 so really the property is costing you the equivalent of €250k.



noproblem said:


> it costs money to keep property up to a good standard



In fairness if the property starts off good, keeping it that way is not too difficult. You can develop a skill in looking out for high maintenance things and eliminating them.


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## noproblem (6 Sep 2017)

Good for you  and I hope it lasts. However,  as a one off investment, with borrowing, I personally would not advise the poster to invest. If he was adding to an existing portfolio and had plenty of experience that opinion might be different. I'm sure you're well aware of the rather large number of so called landlords who are desperately trying to get out of the market. On top of that, the people renting out houses outside of Dublin would be in an even worse situation.  Then again, "Doctors differ and patients die".


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## galway_blow_in (6 Sep 2017)

cremeegg said:


> In my fairly extensive experience tenants not paying is rare, though late payment by a few days is common enough. The best way to avoid tenants not paying or paying late is getting tenants who can afford the rent. The best way to identify tenants who can afford the rent is to ask for a substantial deposit and at least one months rent all in advance.
> 
> 
> 
> ...




sorry cremeegg , for the slow on the uptake , can you explain again what you mean by 50 k extra on a property with management fees or a discount of 2% , its the formula  im having trouble with


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## galway_blow_in (6 Sep 2017)

noproblem said:


> Good for you  and I hope it lasts. However,  as a one off investment, with borrowing, I personally would not advise the poster to invest. If he was adding to an existing portfolio and had plenty of experience that opinion might be different. I'm sure you're well aware of the rather large number of so called landlords who are desperately trying to get out of the market. On top of that, the people renting out houses outside of Dublin would be in an even worse situation.  Then again, "Doctors differ and patients die".



i wonder is it only those who bought at the top of the market who are desperate to get out , its a sellers market right now , bar negative equity , why would anyone be desperate when its so easy sell anything right now ? , are landlords with positive equity also in a rush to get out ?


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## Ballymag (6 Sep 2017)

Thanks for the replies. It's these issues that I'm keen to tease out to better understand. In terms of risk assessing this I would ask if these are valid points:
Cons of property investment in the current market - 
Rent controls make it harder to get better returns (mitigate by buying carefully either by getting one that can be rented at current market value or one that is cheaper because the low existing rent has devalued the property and while u can't charge much more you are getting the property cheaper?)
Non payment of rent or vacancy issues- does the current climate not make these less likely?

Interestingly from what I've read here it would seem a lot of landlords want out because they were undercharging rent to keep good tenants which suggests that bad tenants who wreck the property are, as cremeggs experience suggests not that common and not contributing to the mass exodus of landlords from the sector. 

The figures suggested by cremeegg are roughly what I'd been considering and 200k would get me a 2 bed apt near here. I guess with a 60k deposit I figured it would have to drop considerably in value to reach negative equity. I acknowledge the point of course that as a first time investor my inexperience makes it a higher risk.


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## cremeegg (7 Sep 2017)

noproblem said:


> Good for you  and I hope it lasts. However,  as a one off investment, with borrowing, I personally would not advise the poster to invest.



I agree about the one off investment. It is a feature of letting that a few big costs can land all at once. I mentioned expenses above of €200 per month. Of course the reality is that most months there will be no unexpected expenses, then something more significant will come along, and no doubt another one immediately after. However the OP here is in a reasonably strong position, she has the resources to cope with needing a new washing machine and a new cooker or whatever.


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## cremeegg (7 Sep 2017)

galway_blow_in said:


> sorry cremeegg , for the slow on the uptake , can you explain again what you mean by 50 k extra on a property with management fees or a discount of 2% , its the formula  im having trouble with



When you buy a property with a management charge that means that you have taken on an obligation to pay that charge forever into the future. Many of these charges are secured against the property, which means that if you don't pay it gets registered like a mortgage. 

A prospective buyer needs to factor this in when looking at the price. What amount of money put on deposit with the bank would produce enough interest to pay the management charge. This is discounting the future cash flow of management fees. Actually €50k would not be enough. And that is without considering the likelihood of increases in management fees.

For a buy to let investment, management fees are tax deductible, for an owner occupier they are not.


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## cremeegg (7 Sep 2017)

Ballymag said:


> Cons of property investment in the current market -
> Rent controls make it harder to get better returns (mitigate by buying carefully either by getting one that can be rented at current market value or one that is cheaper because the low existing rent has devalued the property and while u can't charge much more you are getting the property cheaper?)



I doubt you get the property much cheaper, it makes no difference to an owner occupier. I think you should avoid anything with rent control issues.



Ballymag said:


> Non payment of rent or vacancy issues- does the current climate not make these less likely?



I would think so.



Ballymag said:


> Interestingly from what I've read here it would seem a lot of landlords want out because they were undercharging rent to keep good tenants which suggests that bad tenants who wreck the property are, as cremeggs experience suggests not that common and not contributing to the mass exodus of landlords from the sector.





Ballymag said:


> The figures suggested by cremeegg are roughly what I'd been considering and 200k would get me a 2 bed apt near here. I guess with a 60k deposit I figured it would have to drop considerably in value to reach negative equity. I acknowledge the point of course that as a first time investor my inexperience makes it a higher risk.



Being a first time investor is not that significant. Its not rocket science. The resale value in x years time wont be affected by your inexperience. Any experience in dealing with people will help in choosing a good tenant, and all the experience in the world won't guarantee no problems.

Not overpaying is very important. Looking at the going rate for similar apartments is not the place to start. Look at the prospective rent for the type of property you are interested in, deduct the total mortgage repayments, tax and other expenses, then see what you can afford to pay. If that's less than the going rate then don't buy, keep looking. If its more, then you can consider making an offer. This is a conservative approach as the total mortgage repayments obviously include the capital repayments.


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## Sarenco (7 Sep 2017)

My advice to anybody that is considering getting into the residential letting business is to be very cautious with your financial projections.  

In my experience, prospective landlords invariably underestimate the costs and taxes involved in the residential letting business.  It is important to be realistic and to include a suitable provision for voids/over-holding periods.

The format on this thread may be helpful in running your own projections -

https://www.askaboutmoney.com/threads/keep-apartment-as-rental-or-move-tracker.203907/

FWIW, I take the view that the RPZ regime has artificially increased rents on new rentals - because sitting tenants have a huge incentive to stay put and this restricts turnover/supply.  I don't expect this to continue indefinitely.

Personally, I can't see any value in a leveraged rental business at today's yields and BTL rates.  Properly accounted for, the numbers just don't work.


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## cremeegg (7 Sep 2017)

Sarenco said:


> Personally, I can't see any value in a leveraged rental business at today's yields and BTL rates.  Properly accounted for, the numbers just don't work.



Would you put some numbers on that so we can form our own opinions.


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## Sarenco (7 Sep 2017)

cremeegg said:


> Would you put some numbers on that so we can form our own opinions.



Cremeegg 

Readers can input their projected gross rental income and interest costs in the format provided and form their own view as to whether the projected returns are commensurate with the risks involved.  

It's intended to be a fairly comprehensive format for running financial projections, with detailed notes on the assumptions used, etc.  However, if you think I've left anything out or if you disagree with any line item, then please let me know.


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## cremeegg (7 Sep 2017)

Apologies I did not read that link you provided. I see you have done a lot of work there.


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## cremeegg (7 Sep 2017)

Revisiting that work in the light of a stand alone buy to let investment. I have come up with this.

Cost of Apartment - €200,000

Deposit €60,000
Mortgage €140,000
Interest Rate 4.75% see Pepper

Projected Rent – €1,600 per month



The following are examples of what the projections might look like :-

*Apartment as Rental*

Gross rental income.............................................................................19,200
Provision for voids/over-holding..............................................................nil

Expenses:
Allowable Interest (80% of €140k @ 5.5%)................................................5,320
Mortgage Protection Premiums....................................................................100
Annual Service Charge (OMC).......................................................................nil
Estate Agent Letting/Management Fee...........................................................nil
Repairs/Replacements & Maintenance.......................................................1,000
Advertising Costs........................................................................................45
RTB Registration Fee...................................................................................90
Cleaning.................................................................................................... -
Legal......................................................................................................... -
Landlord Insurance Premiums.....................................................................300
House Insurance Premiums.......................................................................... -
Refuse Charges/Local Authority.................................................................... -
Gardening.................................................................................................. -
Sundry (phone, postage, key cutting) .......................................................... -
Accounting...............................................................................................200

Total Deductible Expenses.......................................................................7,055

Taxable Rental Income............................................................................12,145

Tax (Income Tax, USC & PRSI) @ 50%.....................................................6,073
LPT.........................................................................................................267
Total tax...............................................................................................6,340


Income............19,200
Total Interest.....6,650
Other expenses..1,735
Tax costs...........6,340

Profit after Tax...€4,475                  Which is a 7.4 % return on your investment



More Important than profit is cashflow

Cashflow  Income.............19,200
Mortgage repayments..........9,600
Other Expenses..................1,735
Tax...................................6,340

Net Cashflow.......................1,525


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## Sarenco (7 Sep 2017)

A few thoughts:-

Is it realistic that a €200k property would secure a monthly rent of €1,600?  Perhaps - but it seems a bit ambitious to me, even in today's supply starved rental market.
Is it realistic to have zero provision for voids and over-holding periods? I don't think so but others may disagree.
Is €1,000 per annum a sufficient provision for repairs and maintenance for a stand-alone property?  Seems a bit light to me.
Is it realistic to have zero provision for cleaning, gardening, refuse collection, sundry, etc.?
Are the projected insurance premiums reasonable?
Even small tweaks to a few of those line items would very quickly get you to a cash-flow negative position, with a very modest net profit.  

Whether that return is worth the hassle, time and risk involved with the investment is obviously a matter of judgment.


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## boomshine (7 Sep 2017)

On the other side of the coin: Why is the interest rate so high and why would you need to pay 200 a year for accounting?


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## Sarenco (7 Sep 2017)

Well, BTL mortgage rates are high because lenders got badly burned by high default levels in the recent past and hence the pricing.

You obviously don't have to pay an accountant to prepare your tax return if you are happy to take on the job yourself.  But bear in mind that your own time costs are not deductible for tax purposes.


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## galway_blow_in (7 Sep 2017)

Sarenco said:


> My advice to anybody that is considering getting into the residential letting business is to be very cautious with your financial projections.
> 
> In my experience, prospective landlords invariably underestimate the costs and taxes involved in the residential letting business.  It is important to be realistic and to include a suitable provision for voids/over-holding periods.
> 
> ...



i would not invest in a BTL unless i had more than half the cost and i would not be that keen with that kind of loan to book value tbh


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## Ballymag (11 Sep 2017)

God I love this site.  Thanks people for that great breakdown of figures etc.  You are right though - a rent of 1300-1400 would be more realistic and as it would likely be an apartment there would be an annual fee of 1000 (guesstimate).  All that eats in to any likely profit.  One other question - isn't there a way to offset some tax by maximising AVCs?  As I mentioned I work part time so will be short on service for pension purposes.  Could anyone give me an idea of how much could be offset etc.  I know it probably won't make a huge difference but just want to consider all the figures before I abandon investment in property.  Thanks.


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## cremeegg (11 Sep 2017)

Ballymag said:


> God I love this site.  Thanks people for that great breakdown of figures etc.  You are right though - a rent of 1300-1400 would be more realistic and as it would likely be an apartment there would be an annual fee of 1000 (guesstimate).  All that eats in to any likely profit.  One other question - isn't there a way to offset some tax by maximising AVCs?  As I mentioned I work part time so will be short on service for pension purposes.  Could anyone give me an idea of how much could be offset etc.  I know it probably won't make a huge difference but just want to consider all the figures before I abandon investment in property.  Thanks.




You should probably start a new thread on the pensions forum for the AVC issue.


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