Average salary, borrow to buy a commercial property?

Back in 2000-2008 lots of people thought they could pursue their relatively modest ambitions through the use of (what was then cheap) leverage. A very significant chunk of that cohort subsequently blew themselves up financially.

You seem to have done extraordinarily well so far on a relatively average income. Don't blow it now by taking on any more risk then you have to.

Protecting your accrued wealth is every bit as important as growing your wealth any further.

Take your points and the goals will come.
 
Sarenco said:
Back in 2000-2008 lots of people thought they could pursue their relatively modest ambitions through the use of (what was then cheap) leverage. A very significant chunk of that cohort subsequently blew themselves up financially.

You seem to have done extraordinarily well so far on a relatively average income. Don't blow it now by taking on any more risk then you have to.

Protecting your accrued wealth is every bit as important as growing your wealth any further.

Take your points and the goals will come.
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i wasnt bragging earlier , the farm i own i inherited from an uncle , the same uncle willed me the money to buy shares in glanbia and kerry so in truth i was given a major leg up

i bought property in budapest in 2005 which was a duff decision

let me ask you something , lets for a minute assume i paid off the mortgage on my commercial property which yields 10% per annum , lets say i knew of a commercial property which was also yielding 10% , say the tenant is a barber and the unit is 100 k , would you see that as a good investment compared to simply buying a fund which tracks global equities ?

am i right in saying you dont rate property as an investment full stop even its entirely purchased without any debt ?
 
galway_blow_in said:
am i right in saying you dont rate property as an investment full stop even its entirely purchased without any debt ?
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No, that's not my view.

I simply think that you should try to achieve a reasonable allocation across the major asset classes that reflects your need, willingness and ability to take investment risk.
 
galway_blow_in said:
i have come across a commercial property here the tenant has just entered a ten year lease , the rent is 34k per annum and the purchase price is about 370 k , i would need to borrow 150 k in order to make the purchase , 150 k borrowed over fifteen years will see repayments of 922 per month based on a 5.45% interest rate , rates are higher for this kind of purchase
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This raises an interesting issue which I had not thought about.

You have €220k cash. Assuming you had no other debt would it be a good idea to buy a property for €220k yielding 10%? I think that the answer here is probably yes.

Assume you have no cash, would it be a good idea to borrow €150k at 5.45% to buy a property for €150k yielding 10%. I would think that the answer here is no. Too much can go wrong with a single property and a single tenant. You are exposing yourself to too much risk. Of course if the tenant pays the rent and the property rises in value, you will get a fantastic return for your zero investment.

So, I think that the solution is to pay off the €50k mortgage you have and buy a property for €170k.

In practice, buy the property first and then pay off the mortgage. So, if you have to pay €200k for a property, you will have only €20k left over to pay down the mortgage.

A lot of people have €20k and try to borrow €180k to buy an investment property. That is crazy stuff unless their other income and assets allow them to handle the risks.

Brendan
 
i would not dream of borrowing 180 k if i only had 20 k , i doubt any bank would look at me if proposed doing so either :eek:
 
just an update , recently discovered a takeaway in dublin 9 which is going to auction with allsop tomorrow , 18 k per anum rent with ten years left on a fifteen year commercial lease , reserve is 150 k so i would have been prepared to go to 175 k , unfortunately my solicitor could not approve as one of the conditions of sale is there will only be a partial release of title upon sale , i actually took the liberty of contacting the vendor.s ( a bank ) solicitor direct and he more or less told me he doesnt expect the property to be sold at all tomorrow due to a completely unsatisfactory lack of information re_ title , vat or issues related to the tenancy , he thinks it will end up in a future auction at some point ( presumably when sufficient information is available )

i know some people believe allsop done a terrific job by shaking up the old guard when it comes to moving on property but some of the lots which go to auction , really should not , there is often an absolute dearth of information , buyer beware and all that but surely there needs to be a minimal level of responsibility to provide relevant paperwork etc , for the privelege of signing up to bid , you have to pay a non refundable fee , was the same with attending the live auctions in the RDS , i guess when they can charge fees like that , not being able to sell everything everytime is not so bad
 
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Sarenco said:
There is nothing magical about dividends/rent. If a share portfolio/house falls in value, well, it falls in value. Drawing value from the portfolio/house as rent or dividends (as opposed to redeeming capital) won't change this fact.
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How is collecting rent from a property investment, drawing value. So long as the property is maintained any excess rent is not drawing value.
 
I would have thought it was self-evident that receiving rent on a property is drawing/deriving/extracting value from that property.

I didn't suggest that receiving a rent payment results in a corresponding reduction in the capital value of the relevant property.
 
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There is a difference though between a company paying a dividend, which reduces the value of the company, and a tenant paying rent which does not reduce the value of the property.

If you reinvest a dividend your capital stays the same.

If you reinvest the rent, your capital increases.
 
Sarenco said:
What's your point?

Again, I didn't suggest that receiving a rent payment results in a corresponding reduction in the capital value of the relevant property.

I am well aware of the effect of a dividend payment on the relevant company's stock price - I actually started a thread on this very point last week:-

https://www.askaboutmoney.com/threads/the-free-dividends-fallacy.204136/
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Yes I read that thread carefully. And the point you make about dividend payments from a company is true. That dividends are not free they reduce the value of the company.

My point is that the same is not the case for rent. Rent payments do not reduce the value of the property.
 
Sarenco said:
Of course they don't. Again, for a third time, I never suggested otherwise.
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I have no interest in trying to prove some point against you. I am interested in developing my understanding.

The idea that there is a fundamental difference between a dividend which is a distribution of capital, and rent which is not, is just developing for me. Prompted in part by your contributions.

While this may be well understood by the world at large, (though I strongly suspect not) it is a new idea to me.
 
cremeegg said:
I have no interest in trying to prove some point against you. I am interested in developing my understanding.

The idea that there is a fundamental difference between a dividend which is a distribution of capital, and rent which is not, is just developing for me. Prompted in part by your contributions.

While this may be well understood by the world at large, (though I strongly suspect not) it is a new idea to me.
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took me a while to see what sarenco was talking about but i think he means is that in respect of a stock which pays out a dividend , capital appreciation is inherently delayed - stunted - held back by having a dividend cash payout beit quaterly or twice annually , i.e , upon paying out the cash , the capital value of the company is reduced

if this isnt what he means , i pledge never to comment on the matter again as im incapable of understanding it better than that
 
hi again

ok , just an update , i have transferred 20 k into my ulster bank current account with a view to paying off half my commercial property mortgage (ten year 50 k loan @ 5.45 % taken out fourteen months ago ) , i would then owe 25 k on the property which is delivering a grand per month of an income , i could pay it all off ( and well might do ) but im instead considering strongly the idea of reducing the term as i can comfortably meet the repayments of 540 per month , i.e , continue paying 540 per month for another four years to completion so my instinct is that completely paying off my mortgage on this property is excessively prudent , add to that , i have the other day paid off the remaining 6 k on a 30 k loan i took out on a jeep in 2013 , the interest on this unsecured loan was 6.74%

bear in mind i had 220 k to spend a few weeks ago and went close to bidding on another commercial property in dublin which went to auction last week , i am hoping to invest 120 k in mostly european focussed ( U.S domiciled ) etfs with a view to leaving this money invested for at least ten years , this sum is exactly what i invested in the property i sold a few months back when i purchased in late 2015 , i sold this property for 165 k in the spring and my NET take was 161 k after all expenses , i had no capital gains tax bill on this property due to losses going forward on an overseas property i owned from 2005 to 2009

however , an interesting commercial property i looked at several months ago now seems to be properly ready for sale , there were issues related to a family dispute when i looked at it a while back and the estate agent said it was effectively in limbo , its a private sale of a 600 sqr foot property in waterford city which is let to a barber on a four year nine month lease with one year gone , rent is 10 k per annum , no vat on the property and the current bid is 100 k , the business appears strong in that there were plenty of customers the day i viewed it , its not a glamorous investment but the yield would be almost 9% were it to get it under 107 k if you factor in stamp duty and legal costs , now i would only buy this entirely with cash and this would mean not investing as much in broad based equity etf,s


my question is this , rather than entirely paying down all my debt , would it be reasonable to leave 25 k for another four years and instead use the money towards this kind of purchase , my rationale for perhaps buying another commercial property is a potential replacement income stream were my partner and i to either loose our jobs , that the property in waterford is unlikely to see much in the way of capital appreciation would not really concern me as i would view it as an income play entirely
 
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As I read the posts regarding your Dilemma, its the same old Pay your debts and whats left put it into a pension. Its only my opinion, but its claptrap.

Having and paying into pension is worth-while but its not the Be-all and End-all for a comfortable retirement.

Were all different and we get our kicks differently. I dont propose to know about dividends and what not, and if I were to follow some of the post here, I for whats its worth would be worse off financially, and for that matter be paying some one to manage something I know nothing about.

Recently I had a chat with an accountant, and he said the same mantra, "probably someone on this forum" keep your debts low and so on, while the guy means well, he is risk adverse. Im not.
So, although you have followed above posters advice, at 39, I wouldn't have.

If anyone want a risk free investment, then they should buy prize bonds, see how well you can retire on that, "for it could be them"

Investing is risky, whether its in shares or Property, and you have to be prepared as best you can for whats around the corner, because contrary to some, nobody really knows.
People lost their shirt with the property collapse years ago, but they were not the only ones to loose out massively on investments.

There are, no certainties with any investment, but with property, you're sure to have to the horror stories of what happened in the property scene years ago rolled out. Yes people got hurt and greedier people got hurt more, it happens, not just in Ireland, and at some stage there will be another.
 
LS400 said:
As I read the posts regarding your Dilemma, its the same old Pay your debts and whats left put it into a pension. Its only my opinion, but its claptrap.

Having and paying into pension is worth-while but its not the Be-all and End-all for a comfortable retirement.

Were all different and we get our kicks differently. I dont propose to know about dividends and what not, and if I were to follow some of the post here, I for whats its worth would be worse off financially, and for that matter be paying some one to manage something I know nothing about.

Recently I had a chat with an accountant, and he said the same mantra, "probably someone on this forum" keep your debts low and so on, while the guy means well, he is risk adverse. Im not.
So, although you have followed above posters advice, at 39, I wouldn't have.

If anyone want a risk free investment, then they should buy prize bonds, see how well you can retire on that, "for it could be them"

Investing is risky, whether its in shares or Property, and you have to be prepared as best you can for whats around the corner, because contrary to some, nobody really knows.
People lost their shirt with the property collapse years ago, but they were not the only ones to loose out massively on investments.

There are, no certainties with any investment, but with property, you're sure to have to the horror stories of what happened in the property scene years ago rolled out. Yes people got hurt and greedier people got hurt more, it happens, not just in Ireland, and at some stage there will be another.
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interesting post

when you say you " wouldnt have " followed another person - posters advice

what advice are you referring to specifically ? , i havent paid off anything yet related to property , i just moved money into an account with a view to doing so

i paid off my jeep loan as the manager could tell me i would pay 400 quid interest between now and next july on six and a half grand
 
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@LS400

Nobody advised GBI to contribute to a pension on this thread.

I happen to think its bonkers to carry debt @5.45%, when inflation (CPI) is currently -0.4%.

Nothing to do with the expected, risk-adjusted return of different investments - it's just very expensive money.
 
Sarenco said:
@LS400

Nobody advised GBI to contribute to a pension on this thread.

I happen to think its bonkers to carry debt @5.45%, when inflation (CPI) is currently -0.4%.

Nothing to do with the expected, risk-adjusted return of different investments - it's just very expensive money.
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sarenco , even when the yield delivered on the investment far exceeds 5.45% ?

the interest rate is not that high for that kind of investment , you wont borrow for a retail unit at the same rate as a thirty year mortgage on a home
 
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