There is no property investment delivering 10% rental yield that isn't without huge investment risk.
37 year old , just received inheritance where to next?
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Sorry but your advice is completely contradictory.
You are objecting to investing in REITs because they represent a concentrated bet on a single market sector (listed real estate represents around around 3% of the public equity market) and yet you are happy to recommend an ultra-concentrated, ultra-illiquid, high-risk investment in a single commercial property. And you want the OP to leverage that investment with expensive debt! Nuts.
galway_blow_in
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define huge risk please
galway_blow_in
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i didnt say anything about what kind of interest rate he might secure , so what if property is illiquid , thats just text book orthodoxy , there is no inherent reason why a commercial investment property is " high risk " , the wrong type in the wrong location might well be but its broad brush to dismiss every commercial property as high risk , the OP has a lot of cash on hand , i said in an earlier post that even he didnt put any debt on a property , he should be able to deliver an income of 25 k pretty handily
i own a commercial property ( now debt free and thanks for your advice on it again BTW ) and the yield is 10% , it cost 121 k all in including fees and charges , you probably view that asset as high risk too , i owe nothing on it now and it pays me a grand per month , i cant think of anything lower in risk relative to what its producing for me but then im a pragmatist rather than an idealogue when it comes to these things
i think people can be far too orthodox and slavish to traditional text book investing principals tbh , there is more than one way to skin a cat , sticking the money in a savings account earning 15% over ten years comes across as incredibly lacking in ambition to the point of almost scorning a chance to create some proper wealth , if preservation is the best the OP can come up with , its a real shame i think , frankly i think that is NUTS !
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An investment in a single commercial property - any commercial property - is by definition a high-risk investment strategy. I appreciate that you don't understand how dividends work but I would have thought you would have understood why a concentrated investment is inherently risky. Perhaps not.
We are not talking about your financial position on ths thread but I seem to recall that you owned your PPR free and clear - the OP doesn't. Context matters.
My view is pretty straightforward - never take more investment risk than you have to and diversify wherever possible. And income is just one element of return.
We are not talking about your financial position on ths thread but I seem to recall that you owned your PPR free and clear - the OP doesn't. Context matters.
My view is pretty straightforward - never take more investment risk than you have to and diversify wherever possible. And income is just one element of return.
galway_blow_in
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well its clear as crystal that you are deeply averse to risk and espouse an ultra conservative approach to investing , i believe your view that investing in a single commercial property is by definition " high risk " , to be just orthodox theory
i dont agree with that overtly textbook view as it prevents people from taking advantage of specific situations , using your criteria , someone would have chosen not to spend 350 k on two houses in dublin 8 ( say inchicore ) in 2012 as in your book that would be too concentrated , only a slave to orthodoxy would view not having done so as having been good business
Grand so. Would you have given similar advice in, say, 2005?
It's always easy to be wise after the event but please don't confuse outcome with strategy. The future is always uncertain, hence my advice is always to diversify widely across asset classes.
That's not particularly conservative advice. It simply acknowledges the fact that I don't know what asset is going to outperform in the future.
It's always easy to be wise after the event but please don't confuse outcome with strategy. The future is always uncertain, hence my advice is always to diversify widely across asset classes.
That's not particularly conservative advice. It simply acknowledges the fact that I don't know what asset is going to outperform in the future.
Having read your previous posts over the past few months, I'm not going down that rabbit hole with you.
Gordon Gekko
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If you think that owning a €120k commercial property that pays 10% doesn't constitute a high risk investment, there's very little point in going down any rabbit hole.
galway_blow_in
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in the strict text book definition of " high risk " , owning equities are high risk so owning an entirely concentrated asset like a commercial property is also by definition " high risk "
i think the OP needs common sense advice however rather than traditional textbook theory on the subject , a two story house is by definition riskier than a bungalow if you have a child under three , does it mean families will avoid houses with upstairs like the plague , no ! , yet an expert in insurance would say it is high risk going by the book to live in a two story house with young kids
OP , you need to ask yourself whether you are content to chose the absolute safest option on the table like the an post savings scheme which delivers 1% per annum of a return on your capital or invest in what in a book about investing , will label either a house ( even you pay in cash ) or a stock as high risk , you could buy something as hum drum as a three bed house in much of dublin 9 today still for the kind of cash you have on hand and easily bring in a rent of 20 k per annum gross , granted you might get a bad tenant but if you have no borrowings on the property , how anyone could consider putting same money in the post office for ten years is beyond me
Thank you all ,great diversity in opinions but that certainly helps.
I was pencilling down a few things this morning, my wife really likes property so the REIT's seem a good compromise.
We both like the look of this , which is based on a combination of opinions here so thanks again.
75k euro - Green REIT (exposure to commercial property) 3.13% yield
75k euro - IRES REIT (exposure to domestic property) 3.66% yield
75k euro - City of london Investment Trust (high yield diversified portfolio of stocks) 4% yield
75k euro - Foreign & Colonial Investment Trust plc (highly diversified low yield ) 1.67% yield
50K euro - State Savings 5 or 10 year.
I was pencilling down a few things this morning, my wife really likes property so the REIT's seem a good compromise.
We both like the look of this , which is based on a combination of opinions here so thanks again.
75k euro - Green REIT (exposure to commercial property) 3.13% yield
75k euro - IRES REIT (exposure to domestic property) 3.66% yield
75k euro - City of london Investment Trust (high yield diversified portfolio of stocks) 4% yield
75k euro - Foreign & Colonial Investment Trust plc (highly diversified low yield ) 1.67% yield
50K euro - State Savings 5 or 10 year.
While we'd love to earn a decent return , and 20 k a year gross sounds fantastic , I worry about having all our eggs in one basket. If the property had any major problems I would hate to then have to borrow to carry out repairs. I could go from a comfortable position to one of been in debt. I do welcome your opinion and my wife is keen on buying an apartment in the 200k range. It's easy to see what rent this would bring in but hard to measure the yield against a REIT accurately as its seems like there is an element in luck involved; good apartment , good tenants etc. If I am getting calls to fix or replace everything it really eats into profit. IRES at 3.66% is hassle free but there seems to be questions over management and if the stock price accurately tracks the house price values.
Early Riser
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Some opinions expressed in this thread remind me of a friend/acquaintance who admonished my foolishness once for having money in a measly deposit account when instead I could "own the bank" (he meant a few shares but such were the bombastic ways the big risk takers spoke back then). Boy am I sorry now!(Not
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galway_blow_in
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better than putting it all in the post office anyway
Can I ask what some people might seem as a stuipd question, Why are you not using some of the money to clear your mortgage ??
I would have thought this would be the smart thing to do, am I missing something that is obvious
To me the idea of investing all the money for gain while you have a large debt is not smart thinking.
Even if it was not the most financially advantageous thing to do, I would clear the outstanding €180K of my low tracker mortgage, then worry about how to invest the remaining €170K of this windfall.
There’s a lot of comfort in being debt free, each to their own though.
There’s a lot of comfort in being debt free, each to their own though.
galway_blow_in
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because the interest rate is very low and there is no problem servicing the debt , by paying it off now , you waste capital which could be used to aquire assets which can increase in value in the future ,debt is not inherently bad and something to be terrified of , if it was , no one would ever buy a house by way of a mortgage , im not sure a planning for the absolute worst possible scenario is anyway to increase ones wealth , the OP is on a very modest wage , no offense but its unlikely he will have other opportunities to create wealth , im not saying he put everything in a stock with a PE of 50 but the post office option smacks of conservatism to the point of being crippled with dread
were the OP to buy a second house with cash only , worst case scenario and he has mortgage trouble with his home , he has an asset to sell , not much risk in that and none of this blather about lack of liquidity , you will always sell a house in dublin and you could be three lifetimes waiting for the crash we had from 2008 to 2012 again
Hi Confsued
At a high level that looks like a perfectly reasonable, diversified investment portfolio.
I would personally pay off the mortgage on your PPR before investing outside a pension vehicle but that is a relatively fine judgment. Ultimately it boils down to your need, willingness and ability to take investment risk.
However, a few additional points to consider before you pull the trigger:-
- You already have substantial exposure to Irish property (by owning your PPR) so your proposed portfolio requires a strong conviction on the future prospects for this particular (sub) asset class.
- The three Irish REITs all have significant acquisition and development pipelines so they are not purely income plays. Also, they all carry material borrowings so investing in REITs while carrying a mortgage represents a double layer of leverage.
- City of London is a fine choice for an income focused IT. However, it is primarily invested in UK companies so that represents a substantial "tilt" away from the global equity market. Also, a number of its largest holdings are high-yielding but have modest growth prospects (think tobacco stocks) so there may be an element of forgoing future growth in order to buy "jam" today.
- To echo a point already made by Red Onion, I don't see the logic of borrowing at a floating rate of 1% while buying a fixed-income instrument (State Savings Certs) that pay a lower rate (however marginal), unless you need to retain liquidity.
- Bear in mind that we are currently living through a period of exceptionally low interest rates. How would you feel if rates suddenly spiked and your monthly mortgage payments increased substantially while your stock investments simultaneously plummeted in value?
Guys I would like all these posts if I could but there is no like button for me maybe cause I am a new user ??
Anyway thanks a million, Sarenco thanks for that detailed reply.
In regards paying off the mortgage I neglected to mention that our mortgage still qualifies for MIR @ 30% as we bought in 2004. Would this influence the decision to pay off a tracker at 1%?
But back to the drawing board and I feel like I/we are getting closer.
Option A (as previously stated)
75k euro - Green REIT (exposure to commercial property) 3.13% yield
75k euro - IRES REIT (exposure to domestic property) 3.66% yield
75k euro - City of london Investment Trust (high yield diversified portfolio of stocks) 4% yield
75k euro - Foreign & Colonial Investment Trust plc (highly diversified low yield ) 1.67% yield
50K euro - State Savings 5 or 10 year.
Option B
180k - Clear mortgage
40k euro - Green REIT (exposure to commercial property) 3.13% yield
40k euro - IRES REIT (exposure to domestic property) 3.66% yield
45k euro - Foreign & Colonial Investment Trust plc (highly diversified low yield ) 1.67% yield
45k euro - Murray International Investment Trust (global equity and income ) 3.86% yield
Option B does look more appealing now , I can earn a decent dividend yield that should only be taxed at 20%.
Anyway thanks a million, Sarenco thanks for that detailed reply.
In regards paying off the mortgage I neglected to mention that our mortgage still qualifies for MIR @ 30% as we bought in 2004. Would this influence the decision to pay off a tracker at 1%?
But back to the drawing board and I feel like I/we are getting closer.
Option A (as previously stated)
75k euro - Green REIT (exposure to commercial property) 3.13% yield
75k euro - IRES REIT (exposure to domestic property) 3.66% yield
75k euro - City of london Investment Trust (high yield diversified portfolio of stocks) 4% yield
75k euro - Foreign & Colonial Investment Trust plc (highly diversified low yield ) 1.67% yield
50K euro - State Savings 5 or 10 year.
Option B
180k - Clear mortgage
40k euro - Green REIT (exposure to commercial property) 3.13% yield
40k euro - IRES REIT (exposure to domestic property) 3.66% yield
45k euro - Foreign & Colonial Investment Trust plc (highly diversified low yield ) 1.67% yield
45k euro - Murray International Investment Trust (global equity and income ) 3.86% yield
Option B does look more appealing now , I can earn a decent dividend yield that should only be taxed at 20%.