How I would invest 100k in property Option 2
In my first piece I looked at how I would use €100k to buy and renovate a property for a long term council lease as an investment opportunity. Here I look at a similar arrangement, a repair and lease operated by the council and finally a quite different opportunity, bridging loan.
Repair and Lease Scheme
The councils and Approved Housing Bodies (AHB’s) offer great security especially in an unpredictable market and I believe are a fantastic stable resource for any buy to let landlord. There are many other schemes on offer, one of which is the repair and lease scheme.
These are much the same as a long term lease, however the councils will fund up to €50k (per unit) on an interest free repayment basis towards the renovation costs of a property that has been vacant for more than 1 year.
If you were to leverage this scheme in theory you could potentially increase the initial 100k investment to 150k including renovation, therefore gaining long term on the potential additional capital appreciation.
An alternative would be to use the €100k as a deposit for a multi unit property or pre 63 property that has been vacant for over 1 year.
Assuming you are in a position to draw down a BTL (buy to let) mortgage you could potentially purchase a property around the 310k figure.
If for instance the property had 4 units you could avail of up to €50k per unit for renovations from the repair and lease scheme. Combining leveraging the mortgage and interest free loan could potentially yield results similar to below.
You would be purchasing a €310k property with a deposit of €99,700 before fees are taken away, plus a mortgage of €217 (70% of purchase))and using the repair and lease loan of €120k to upgrade this development.
The total development cost would be €430k but you could create a property with a gross development value of €540k.
Example 2 pre 63, 4 units with €30k* renovation for each
Purchase price 310,000
Repair and lease 120,000 Deposit** 93,000
Mortgage 217,000 Mortgage fees and legals 3,600
Stamp Duty 3,100
*In this case I would not be availing of the full amount but instead €30k per unit.
**fee after mortgage fees, legals and stamp duty.
Total Invested 99,700 Interest free loan 120,000 Total Development cost 430,000
GDV** 540,000
(Gross development value)
Typical net cash flow per calendar month from example 2 (pre tax)
Rent 3400
Management 340
Maintenance 340
Mortgage 1180
Insurances 120
Deductions for Repair and lease 500
NET 920
Capital Employed in this example 99,700
Return on Capital Employed 11.07%
**A calculation of what a development property should be worth on the open market. A development property's gross Gross Development Value (GDV) is its expected value, all circumstances being 'normal', when it is sold to a willing purchaser on the open market.
Bridging finance
As you can imagine these are by no means a hands-off investment and are more suited to a long term portfolio building strategy. If I was looking for a shorter hands-off hassle free property investment with fixed returns over a pre agreed period of time then bridging finance could be a very appealing alternative.
Commercial bridging loans are an interim funding arrangement intended to provide short term funding until an exit strategy, like a refinancing or a sale, can be executed.
Typical rates range from 0.75% - 1% per month averaging from 9-18month terms and would generally be rolled up to be paid on project completion.
The appetite for risk and security on offer would be the deciding factor on rate of return with bridging finance.
But with a range of between 9-12%+ per annum its a relatively short term property investment opportunity. Bridging lending also lends itself to be a reasonably safe property investment strategy, providing the borrower has a clear defined exit strategy, due diligence has been thorough and precise, there are clear and decisive back up plans and the borrower has a proven track record.
In these eventualities it can present a great option in unpredictable markets. Your investment isn’t tied up for excessive periods of time and your return is fixed as per the agreement and therefore isn’t dependent on market performance provided you have adequate security for the lending.
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This article does not represent investment advice and is designed to act as an example of what strategies and opportunities exist within the Irish property sector. Own due diligence and independent taxation, legal and financial advice is recommended.