Long term view of property investment: a viable form of long term savings.

M

maybelline

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In general, is it a good or bad idea if two early thirtysomethings (with good jobs and their own house already) have to subsidise an investment property, if it doesn't cause them financial hardship to do so and their view is that in 30 years time when considering retirement they will have a valuable asset to contribute to their pension?


I guess I was wondering if it is a viable form of long term savings, regardless of market conditions, in people's opinions?
 
Re: Long term view of property investment

Hi
We have done this for the same reason that you have outlined. We are in our late 30's and we purchased an apartment (2 years ago) with a view to having it as part of our pension provision (no get rich quick, multiple purchase interest only options, too risk averse). Our estimates are that we will have to subsidise the mortgage for 8 of the 20 years and that after that it should be paying for itself. By the time we reach 58 it will be paid off and our options will be to sell and fund early retirement, continue to rent for the extra income, revamp for personal use.

For us this was a long term investment and we sought to mitigate our risks and hassel. Our basic principal was BUY LET FORGET

So some of the advice I would give is:
First and foremost this is an investment property so buy it as such and deal with is as such so zero emotional attachment.
Buy a property that will appeal to the local market, long term, professional, clients.
Consider a fixed rate mortgage, but consider factors such as penalties for early payoff etc.
Factor in property management/letting fees.
Buy in a market with a strong renting culture (we bought in France).
Leave yourself enough financial scope for other investment opportunites in the future (eggs and baskets comes to mind).
Use (very) conservative estimate for rental income growth and captial appreciation.
Run the numbers in excel and see if you are happy with the projections.

Is is a good idea? Honestly, I don't know. We have done the sums and as part of our overall longterm financial planning we think it is, but one can only really know the final score when the game is over.
CW
 
Re: Long term view of property investment

say for example the cost was €300, value of property now €300,000.

If prices didn't move for 30 years you would be left with an asset worth €300,000 (alos assume that the place washes its face).

If you invested €3,600 a year for 30 years at 4% you would end up with just over €200,000.

(you could invest twice that in a pension fund at the same cost)

Now consider all the variables. price rises/falls, CGT, interest rates, savings rates, pension fund performances.

My feeling is that if property prices settle and then start to rise at small increments but steadily, perhaps at the level of inflation, then property, due to the fact that for a small initial investment you get a large asset, is a good investment.
 
Re: Long term view of property investment

Why property? With all the uncertainty out there, have you considered stocks, savings accounts etc. With the timeframe you are lookng at, compounding is your friend....
 
Re: Long term view of property investment

Markjbloggs said:
Why property? With all the uncertainty out there, have you considered stocks, savings accounts etc. With the timeframe you are lookng at, compounding is your friend....
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That's ok, I guess I was trying to keep the question as generic as possible, more suitable for "The Great Financial Debates" than other sections, which probably didn't help my cause!

As for the question "why property?" note the number of people involved! I've yet to be convinced of the arguments (probably from reading too many threads on this site :D) so I was just looking for other opinions on the strategy in general. But the plan is something similar to that described by CrazyWater (thanks for the reassurance that we're not the only ones!) but even more unemotional in approach that eventual personal use is not a priority at all.
 
Generally, equities give a better long term return than property. There is also far less work involved.

The big attraction of property is that you can borrow cheaply to buy it and you get tax relief on the interest you pay. So if you are prepared to borrow, and if you are prepared for the hassle of being a landlord, then investing in property is probably better than investing in shares.

Even over the long term, there is no such thing as a risk free investment. Borrowing to invest in property or shares increases your risk. You must be sure that you can handle a sustained loss in value of either.

As you are thinking very long term, you should also be looking at maximizing your contribution to your pension schemes.

Brendan
 
I should stress for us this is just one part of our overall long term financial policy. We are both members of good pension schemes, have investments in equites and even some in art (god help us but there's a gamble!!). And I agree with Brendans points.
 
I think property is the best investment you can make over the long term.

THe main advantage is very high LTVs,and income to pay off any onterest.(assuming the location is good)

Yes - you can also get high leverage with stocks - but in reality due to margin calls you can't really as you need to keep large reserves for that eventuality.
WHile stocks may produce higher % returns in the long run,its downfall compared to property is its volatility.
As a result,the % return on your own investment is higher in practice wih property in my book.

If you can afford any temporary shortfalls then I say you have made the right decision - personaly I think property is the way to go and that's where i have put most of my money - and will continue to do so at every available opportunity.
 
Re: Long term view of property investment

Stifster said:
If you invested €3,600 a year for 30 years at 4% you would end up with just over €200,000.
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That's teh wporst thing you could do with your money.
What's that in real terms?
Probably very little if any gain at all.
 
Sorry stifster - my post above didn't fully get the original point you were making.

I now see the point you were making
i.e. instead of putting €300 a month into an asset that stands still, put it into a deposit account account.

Fair enough point by you in theory - totally irrelevant in practice thoiugh.
THere's nbo way the asset will not go up significantly in nominal terms over the course of the 30 years.
ANd assuming reasonably high leverage,it is nominal terms that matter most in that instance.
 
qwertyuiop said:
Sorry stifster - my post above didn't fully get the original point you were making.

I now see the point you were making
i.e. instead of putting €300 a month into an asset that stands still, put it into a deposit account account.

Fair enough point by you in theory - totally irrelevant in practice thoiugh.
THere's nbo way the asset will not go up significantly in nominal terms over the course of the 30 years.
ANd assuming reasonably high leverage,it is nominal terms that matter most in that instance.
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hence my conclusion!

Now consider all the variables. price rises/falls, CGT, interest rates, savings rates, pension fund performances.

My feeling is that if property prices settle and then start to rise at small increments but steadily, perhaps at the level of inflation, then property, due to the fact that for a small initial investment you get a large asset, is a good investment.
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By far the best way to save long-term is through a pension invested in a balanced portfolio of equities, bonds, cash, private equity, PROPERTY and hedge funds.

The main advantages of this type of pension over property are

1. This portfolio has a significantly higher expected return than property.
2. Contributions get the equivalent of an immediate almost 100% return due to the tax status of a pension(assuming you pay tax at the higher rate)
3. Much less hassle than being a landlord.(Collecting rent, finding tenants, fixing the place up, dealing with tenants in general)
4. Your pension is professionally managed your property is most definitely not.
5. Much much less risk than on a single property.
 
Hi All
I have a apartment that i rent out.the mortgage is interest only and the rent just about covers this.I do have to the cost subsidise of management fees to a tune of about 200 euro per month.I do feel (hope) that this will pay off in the future so crazywater i think property is a good long term inverstment. If i made a profit i would put it in to my AVC .
Cheers
!RAY
 
!RAY said:
Hi All
I have a apartment that i rent out.the mortgage is interest only and the rent just about covers this.I do have to the cost subsidise of management fees to a tune of about 200 euro per month.I do feel (hope) that this will pay off in the future so crazywater i think property is a good long term inverstment. If i made a profit i would put it in to my AVC .
Cheers
!RAY
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Hi Ray, I don't really understand.

You are hoping the increase in property value is where you'll make your money?
 
Hi FLAX
I bought the apartment two years ago.It has increased by about 90-100 thousand. I pay my mortgage interest only (1100 euro per month)and the rent is 1,100 .The management fee is 200 per month which i pay myself.Anyway i feel that i will only have to pay this for 1 to 2 years and in 5 years time the apartment will be worth a lot more.I am in the lucky postion of been able to subsidise the apartment at the mo.
Cheers
Ray
 
Hi CCOVICH
I feel that interest rates will decrease, the price of the property will increase.As will my own wages to help offset this. The rent i charge is about 100euro under the going rent ,so the rent can be increased (Did not use a estate agent so took this off the rent ).Its a gamble but i can afford to subsididise at the mo so i am in a lucky position.Also all loses i show against the property i can offset against capatial gains tax.
Ray
 
!RAY said:
Hi FLAX
I bought the apartment two years ago.It has increased by about 90-100 thousand. I pay my mortgage interest only (1100 euro per month)and the rent is 1,100 .The management fee is 200 per month which i pay myself.Anyway i feel that i will only have to pay this for 1 to 2 years and in 5 years time the apartment will be worth a lot more.I am in the lucky postion of been able to subsidise the apartment at the mo.
Cheers
Ray
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In my opinion this is a poor investment.

You are basically renting the property from the bank and sub letting it to your tenant as you are paying nothing off the outstanding balance.
You also have other costs such as wear and vacant periods.
Can I just ask what makes you think the property has gone up €90k-100k? And what makes you think it will go up in value in the future?
 
!RAY said:
Hi CCOVICH
I feel that interest rates will decrease, the price of the property will increase.As will my own wages to help offset this. The rent i charge is about 100euro under the going rent ,so the rent can be increased (Did not use a estate agent so took this off the rent ).
Click to expand...

None of that explains why will only pay management fees for another 1-2 years?

!RAY said:
Its a gamble but i can afford to subsididise at the mo so i am in a lucky position.
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Indeed! On both counts.

!RAY said:
Also all loses i show against the property i can offset against capatial gains tax.
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Can you explain this? If you make losses on the rental of the property, these cannot be set against any capital gains liability.

Or do you mean that if you sell the property for less than you paid, you will be able to set the loss against gains on other assets?
 
Hi Thomas22
I bought the property for 280,000 and they are sell for 385,000 t0 395,000 now.For the last 7 to 5 years we have heard that the price of property will stop increassing .It has stoped now but for how long ? If we only new. Ireland has a population boom at the moment and i think it will continue.Also i know i will be shot for this but property in prime locations in dublin are not over priced .Look at london,Paris,Sidney.I was lucky to buy at a good time.If the property increases by 2.5% per year this in nearly 19,000 of a increase.Its a gamble that i am happy to live with .I think it is a good investment
Cheers
!Ray
 
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