Throughout 2012 and the first few months of 2013 Dublin has seen a growth in Buy to Let (BTL) Investment properties being acquired partly due to a somewhat stabilising property market and the high yielding returns which many residential properties are achieving. The Investors are made up of two distinct groups, firstly there are the Property Investment Companies who are acquiring entire blocks and developments of residential and commercial properties, these companies are mainly coming from overseas. Secondly there are cash wealthy private individuals acquiring residential units throughout Dublin City. This growth is only natural given that many of these investors are receiving returns in excess of 8.5%, together with low interest rates and economic predictions which believe that Dublin’s rents could increase by a further 10% within the next 12 months. All of these factors make Dublin one of the most attractive cities in Europe for Buy to Let (BTL) investments.
If you are considering investing in a BTL it is critical that you do so with your eyes wide open. Below i have highlighted some of the main factors and tips which you should consider prior to investing in a BTL
1.Buy with a Medium to Long Term view:
Property, by its nature is not a liquid asset; it can take a substantial amount of time and high professional fees to buy and sell a property, all of which must be accounted for in the overall initial investment. Take a long term view when buying investment property, look for the return on investment and never solely invest on speculative property price gains. If you are looking to try to make quick profits you should consider investing in stocks, currencies, commodities etc where there are low costs and commissions involved in doing so as well as allowing you to buy on a Monday and sell on a Tuesday.
2.Research and Familarise yourself with the Property Environment and/or get Professional Advise:
Whatever it may be you are investing in whether it is stocks, bonds, options etc it is always advisable to do your homework or get professional advice. There are plenty of websites that will give you an indication of what rental income you could expect to receive in any given area as well as related expenses involved with BTL properties. A lot of important factors will influence the amount of rent that can be achieved as well as keeping the occupant vacancy to a minimum. Once off professional advice can save you thousands
over the lifespan of your initial investment.
3.Location, Location, Location:
By location I don’t mean the most up market expensive part of the city. Instead i mean a place where people would like to live. This can be for a variety of reasons, such as, proximity to the city centre, hospitals, main transport routes, close access to jobs etc. One of the main advantages of buying in a downturn is that often you can have your pick of properties at much more attractive prices in places where people want to live. Recent Daft.ie reports on rental yields has shown that urban areas are benefiting from growth in rents while rural areas are still in decline. Looking further into this it is evident that certain districts of these urban areas are growing at a faster rate than others. All of this should be examined prior to making your decision on where you would like to purchase your BTL property. Research the market!
4.The Property itself:
You need to take into account the type of property and its material elements. For example a ground floor apartment can often be harder to rent as some people look on them as raising security and privacy issues. Similarly, if a property is on the fourth or fifth floor and the apartment block is not serviced by a lift it can also be hard to rent as people don’t want to have to traps up and down four flights of stairs every time they come and go. Further, a south facing property is normally a lot brighter and feels warmer and as such has a tendency to rent faster. Ensuring you acquire the right property will greatly reduce the amount of time your property sits vacant on the market when it comes to letting and re-letting the property.
Another factor which you should consider is whether you want to purchase an apartment or house. Houses tend to have lower rental yields, higher maintenance expenses but no management fees which are associated with apartments and which can greatly reduce your return on investment. It is important to weight up the pros and cons of the various types of properties.
5.The Condition of the Property:
This may seem like common sense, but it is critical that you examine the property in detail and have it surveyed paying particular attention on dampness, type of heaters and whether they are in working order, whether there are any leaks in the bath or shower or under any sinks, the condition of the windows and seals, flooring etc. If these issues are not examined you could be left with a serious headache from the amount of calls you will receive from your tenants as well as a deflated rental yield as you have to continually fork out on maintenance issues. Further a property in disrepair will sit vacant on the market much longer than one in a more respectable condition.
6.Do the Maths:
This is possibly the single most important tip. You are investing in order to make attractive returns otherwise you probably would not be investing at all or we be investing in a different instrument that could net you higher returns. When calculating these figures there is a lot of numbers and information you need to collate and calculate, such as, the price of the property, the achievable rental price per month, the management fees where applicable, the Local Property Tax, your mortgage repayments, how your rental income will be taxed, average maintenance costs, Agency fees should you choose to have the property managed by one, other outlay such as Private Residential Tenancy Board fees. Despite the above number of expenses if you pick the right property there is high returns to be made on BTL properties from the rental returns alone without factoring in any capital appreciation in the value of the property which you may gain from in the medium to long term. It is critical to do your homework and to get as much advise on this before just jumping in to acquire a BTL property.When doing the math you should stress test yourself to see how you could manage if the rental market took a 15%-20% dive or if a major maintenance issue occurred such as having to make major repairs.
7.Be Aware of the Pitfalls:
When making any investment it is vital that you consider the pitfalls along with the gains. You need to ask yourself what happens if rents fall while mortgage repayments increase or can you afford to have the property sit empty for two months while souring a suitable tenant. Maintenance issues are another factor that need to be factored in for example have you the cash reserves available if the boiler breaks or if a leak develops in the roof. The best advice here is to take particular care in the property you are purchasing as well as talk to as many BTL Property owners or Rental Agents you know to get an idea as to what you can expect from this type of investment.
8.Get the Best Deal:
When it comes to getting the best deal I mean getting the best possible property at the most attractive purchase price with the most favourable interest rate and terms on your mortgage. This all sounds obvious but very few people actually achieve the above, for example many people when looking for a mortgage will go what was suggested to them by a building society or bank without taking all the relevant information into account and making an informed decision. Or more commonly the majority of people when looking to purchase a property will enter negotiations with the vendors auctioneer who will invariably be experienced in negotiating. This automatically puts the purchaser on the back foot. If you are the type of person who is not great at negotiating or brokering the best deal you should hire the services of a professional negotiator to act on your behalf, this makes it a much more even playing field and could save you thousands at the outset
9.Decide on how Hands on you want to be:
Purchasing a BTL property is only the beginning. You will then need to decide whether you want to rent and manage the property yourself or whether you want to employ the services of a Letting & Property Management Agent who will rent and manage the property on your behalf. In deciding this you will have to weigh up the costs involved with hiring an agent versus the work involved in holding viewings, drawing up leases, registering the tenancy with the PRTB, transferring utility accounts, looking after maintenance matters and chasing up rent. When taking the above decision you have to factor in many things such as, how close you live to your BTL property, how much free time you have to deal with the property, what stresses you already have on you from your employment or main source of income, the type of person you are etc. One word of advice though, if you are looking at renting and managing your property yourself make sure you do your homework on the going weekly or monthly rental income. If you undervalue your property by €100 per month or overvalue it by €100 per month (causing a longer vacancy period than should have been the case) this can equate to loss of €1,200 per year which would have discharged the agent’s fees and have meant you would have minimal stress to deal with. Always do your homework.
10.Don’t let your Investment control your life:
Investing in property has always been desirable as it was historically considered to be safe investment further it is a good investment to protect against inflation. This is particularly true with BTL properties as rents will normally increase in line with inflation. However a BTL property will always require some level of work which will vary significantly depending on whether you decide to manage the property yourself or hire the services of a Letting & Property Management Agent. If you find that the property is taking up a significant amount of your time and creating a lot of stress on your life your investment could end up becoming an additional job as oppose to the investment you intended it to be. This should never be the case. If you find yourself in this position you should consider having an agent take over the management of the property or alternatively sell up and invest the proceeds in a mutual fund, bonds or stocks which require no maintenance. When it comes to investing there are many various options available to you each of them with different levels of risk, different rates of returns and varying levels of stress. Your personal circumstances should always be taking into account as to what is the best instrument(s) to invest in.
When property investing (whatever it is you are investing in) you are making a conscious decision to make provision for your future. This is something most people consider at some stage throughout their life however, it is not advisable to invest in your future while putting serious stress and pressure on your present life.If you are thinking about acquiring a Buy-to-Let property in the greater Dublin area and are looking for further advise prior to taking the big step, please feel free to contact Godfrey Grant Property Consultants on 01 498 4986 where one of our agents will assist you with any questions you may have.Back