Have people gone mad buying investment property?

I'm regularly rendered speechless reading some of the posts that appear on a regular basis in the "Property Investment". I don't want to single anyone out, but there's people buying property in random countries who obviously have no clue whatsoever about what they're getting into. The amount of times I've heard the word "cheap" used when really they mean "cheaper than Ireland" is amazing - whoever pointed out that property in Falluja is also "cheap" in that regard hit the nail on the head. I shouldn't just single out those buying property abroad, there's enough posts in there about people buying property in random parts of Ireland as well - "I've bought 16 apartments in Ballynanowhere, any advice on how I can rent them out and collect my winnings? I've already bought a new BMW".

I'm not going to claim I am a financial genius, but frankly I think I am on very solid ground here by saying that this is madness.

I've no doubt that when the blocks of SSIA money start maturing this buying spree will ramp up even further. When does this end? Who is going to end up making money out of this? More importantly, how do I get in on the act!?

Title clarified - Brendan

I have to agree. I'm a great believer in only investing in what you know, otherwise it's like putting 20 grand on a horse on the basis of a tip when you know nothing about horses!
If you want to invest in something then the least you should do is find out about it first so your hypothetical person should be asking " If I buy 16 apartments in Ballynanowhere, any advice on how I could rent them out and collect my winnings? I'd like to buy a new BMW".

Well, did you see the "guru of penultimate gurus" Eddie Hobbs on Show me the Money last night espousing to his client the virtues of "gearing" in her quest for an investment property.

I actually got a hot flush myself when I heard his logic and I vowed to jump out of bed this morning and buy myself an investment property using plenty of "gearing". Having saved over €40k sitting in a BOI smart save account I was resigned to keeping on saving till I had minimum €70 k cash available to invest in a property along with the balance in borrowings.

Last night I thought to hell with my conservative ways I am going into top "gear" as Eddie advised.
Then on the way to work this I thought to myself "has Eddie ever heard of REVERSE gear". I chewed on it some more and decided I would continue on building my cash pile so I could get into an investment property with a minimum of 50% of the cost of it. That will take at least another 2 years but what the hell. You cant go like the clappers in "first gear"

This is proper investing. Las Vegas; go to buy 2 houses, end up with 19, pure genius!


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Jeez I feel old. I'm old enough to know that estate agents try to sell property for commission, not to pass on a great investment tip to a client. I'm old enough to know that anyone borrowing $4 million without getting independent advice is just plain nuts. I'm old enough to know that anyone being pressure-sold into borrowing $4 million towards 19 properties in the one development is also just plain nuts.

I'm old enough to know that there is no certain and easy way of making a fast buck. Never has and never will.

Where's the pipe and slippers?

What surprised me about Eddie's French property was that there was a guaranteed 9 yr lease & a return of about 4% or there abouts...no consideration was give to what happens in 9-10 yrs when this lease as well as everyone elses lease term is up . There may be a glut of these properties up for sale from the same apartment block or villa complex - a buyers market which could result in less that expected sell price.


ninsaga

What?

>>"Having saved over €40k sitting in a BOI smart save account I was resigned to keeping on saving till I had minimum €70 k cash available to invest in a property along with the balance in borrowings.

>>Last night I thought to hell with my conservative ways I am going into top "gear" as Eddie advised.
Then on the way to work this I thought to myself "has Eddie ever heard of REVERSE gear". I chewed on it some more and decided I would continue on building my cash pile so I could get into an investment property with a minimum of 50% of the cost of it"

Where exactly is the logic in this??

Oh dear ... these sort of threads have a habit of getting a bit heated! Here's my 2 cents ...

>> 'I'm regularly rendered speechless reading some of the posts that appear on a regular basis in the "Property Investment". I don't want to single anyone out, but there's people buying property in random countries who obviously have no clue whatsoever about what they're getting into'.

People tend to use forums such as AAM in order to supplement their research. Therefore, if someone is seriously enquiring about a prospective investment and are obviously performing some degree of research then I think it may be harsh to suggest that they are buying at 'random'. I think the concern is whether or not they perform sufficient due diligence. Secondly, everyone's investment career started at or close to the same point - zero. Most of us would be embarrassed by the naivety of some of our first investment ideas. Thirdly, if they were fully versed in an investment then they would hardly need to post an enquiry on AAM!

If a person is asking questions then it is a good start and is a great deal better that those who buy shares on the basis of a 'tip' from their next door neighbour who overheard a conversation in Bewleys or those that happen on a property exhibition in a hotel while out for a Sunday drive and buy a property in some exotic location whose name they can't even pronounce.

>> 'The amount of times I've heard the word "cheap" used when really they mean "cheaper than Ireland" is amazing - whoever pointed out that property in Falluja is also "cheap" in that regard hit the nail on the head.'

Are we sure we know what they mean when they use the word 'cheap'? I personally have no problem with someone using the word with respect to any investment ... provided it is used in the correct context. For example, if a given property is cheaper than comparable properties in the same or similar markets then it is a valid ingredient (together with other metrics such as CAPs, DSRs, NOI, etc.) in gauging the quality of the investment.

>> 'I've no doubt that when the blocks of SSIA money start maturing this buying spree will ramp up even further'.

I have no doubt but that you're correct but that isn't necessarily a bad thing. What is the alternative ... wait for our pensions and realise at the age of sixty five that the 'system' has left us down and that we can no longer afford a decent lifestyle? I think not. Like many I believe that we can't depend on anyone but ourselves to ensure that we have a nest egg for retirement. What worries me is the inability of many to objectively plan for the future and to measure prospective investments against that plan. Some have good investments for the wrong plan and vice versa. But most have no plan at all.

>> 'I have to agree. I'm a great believer in only investing in what you know, otherwise it's like putting 20 grand on a horse on the basis of a tip when you know nothing about horses!'

I think if we adopted this approach to life we would be reluctant to learn anything new. There are some very poor investments outside of Ireland but on the other hand there are also some excellent investments. If you're not willing to look and learn then firstly you will never find them and secondly you won't be able to tell a good deal from a bad one. Sound property investments in Ireland are hard to come by. Returns are extremely low and even laughable when compared to those found elsewhere.

Regards,
Paidi

There was a "Place in the Sun" special on Channel 4 t.v. a few weeks ago which gave a "Top 10" list of foreign property investments.

On the surface it looked as if you couldn't go wrong if you bought land or appartments in South Africa, North America, the Balkans Australia New Zealand or Portugal.

The main criterion used for inclusion on the list was annual percentage increase in 'value'.

however there are all sorts of other factors which need to be taken into account. A neighbour fell in love with a 4-storey townhouseul recently and bought it at a "knock-down" price - and one which seemed enviably "cheap" to folks wanting to get going on the property ladder here. Problem is he now spends every moment of his spare time liaising with an agent he employed in Istanbul and researching how they are going to let/manage their house here when they retire to Istanbul in 3 years time as property prices are dropping here and voids on rental properties increasing and the proceeds for their retirement is invested in the house here (he's a self-employed plumber).

Unfortunately there is a current fashion for amateur property-speculation which I think is quite risky (but of course taking the necessary risk is the basis for the high yield!) Professional landlords/folk involved in the property-market have offices, administrative staff and knowledge. They also usually have the cushion of diversified investments. If/when amateurs get into property-ownership abroad they need to recognise at the outset that they have to learn a whole new "trade" extremely rapidly otherwise they will lose their investment and/or be preyed upon by stronger competition.

Hi Marie

Interesting post and I would agree with a lot of what you say ...

>> 'The main criterion used for inclusion on the list was annual percentage increase in 'value''.

If a person buys an asset for the purpose of gaining on the back of price increases then to my mind the person is a speculator. On the other hand if she/he buys for the purpose of gaining an income from the asset then the person is an investor. The risk profiles of both are very different and I know which is likely to sleep sounder at night! Unfortunately, the media in this country focuses almost exclusively on speculative investments, whereas I feel this doesn't suit most people's financial position and mentality.

>> 'Unfortunately there is a current fashion for amateur property-speculation which I think is quite risky (but of course taking the necessary risk is the basis for the high yield!)'

I don't necessarily agree that you need to take higher risks for higher gains. For example, it is possible to find investments in different countries with very similar risk profiles. However, it is unlikely that they will have similar gains. The gains really depend on the local market rather than the risk as perceived by the investor. The key is the willingness to go up a learning curve but I believe the learning curve is available to most people (provided there is a willingness to invest time). We're very fortunate to be in an age of relatively free access to information.

Regards,
Paidi

Paidi wrote:-

For example, it is possible to find investments in different countries with very similar risk profiles. However, it is unlikely that they will have similar gains. The gains really depend on the local market rather than the risk as perceived by the investor. The key is the willingness to go up a learning curve but I believe the learning curve is available to most people (provided there is a willingness to invest time). We're very fortunate to be in an age of relatively free access to information.

Your post differentiates the two aspects of risk in a helpful way which takes foreign property-investment out of the often reductionist and simplistic presentations of most of the popular media offerings which operate on "good/bad/effortless" dischomies.

It is gratifying to believe these new opportunities might result in a more thoughtful, more educated population with an investment of time - an entity which is to my mind more valuable than any other.

Re: What?

Jose,

The logic is that "investments may fall as well as rise" (ie "reverse gear").
Eddie figured that the lady had invested in say a €100k property with €10k cash and the balance in borrowings ("gearing") AND the property increased in value by 10% in the first year SHE would own ALL of the increased value and the lender would own NONE of it. The lady's balance sheet would have improved whilst sharing none of the gains with the lender.
Eddie STRONGLY pushed the principle of using "gearing" to push up ones gains in this scenario.
Now he SHOULD have reminded the lady thet the value of property could also FALL, with her shouldering all of the decline in value and the lender taking no hit. That is what I call "reverse gear".

SMTM

I heard her speak on Kilkenny radio last week. There was a lot more detail than on the telly. She said hours of filming was condensed into 23 minutes so I guess a lot more happened between the two. We weren't told what the cost of the french property was or the loan to value.

RE: What?

Hi Rujib

>> 'Now he SHOULD have reminded the lady thet the value of property could also FALL, with her shouldering all of the decline in value and the lender taking no hit'

Unfortunately all the mortgages from conventional lenders in this country are (as far as I'm aware) fully recourse. This means that in the case of dropping prices and foreclosure the lender rarely takes the hit as they have first claim to the subject property and if it's value is insufficient to pay the loan in full then they can chase other assets of the mortgage holder. However, a larger downpayment can lead to a greater comfort factor for both the lender and buyer i.e. a larger fall in price can occur before the property falls into 'negative equity'. This decreases the likelihood of the value of the property dropping below the outstanding loan amount.

Regards,
Paidi

Re: RE: What?

I spoke with a friends work colleague at the pub recently about an apartment purchase she and her partner were about to 'invest' in.

Apart from the usual naive outlook I've come to expect when talking to people about this (i.e. the mortgage is x, the rent will be y, y-x equals 50 euro a month extra I'll have in my pocket and a free apartment in 30 years) I was completely astonished to learn that she was under the assumption that if prices did fall so would the amount of her mortage, I swear she thought I was lying to her that this was not the case "why should I have to pay more than the value of the house? , that doesn't make sense".....

I thought I'd heard it all......

What?

There is a terrifying lack of understanding of the issues, D'sA! I knew a woman who though long separated from her husband (who had 'bought her out' 10 years previously!) out of the blue had a demand from a bank for £20,000.

Ex-Hubby had defaulted (after years of high monthly repayments........it was a very splendid house!) and vamoosed the country.

Even though her name had been formally removed from the deeds when they split up and she had nothing further to do with him OR the house, the bank had repossesed, but not met their (new!) required price, and held her accountable for the shortfall.

She received this shock at a time when she had an 18-month-old baby by another partner (who had just abandoned her and baby without financial support! - and a subsequent 6 months psychiatric hospitalisation).

People are being far far too "gungho" about what is an absolutely huge debt, a commitment which remains whatever else changes in your life, and which has all kinds of unexpected legal, social and personal ramifications.