How would I invest 100k in Property Option 1
We get this question on a regular basis but it would generally come in a different guise.
''We have x amount to invest, what would you recommend or we would like to JV, our budget is X amount, what property investment strategy would offer the best returns? We have X amount in the bank, we would like to see a better return, how can we achieve this?''
And so on. My answer to these questions would always depend on who was asking the question and more importantly what their investment goals were.
Two Property Investment Strategies
Currently I believe there would be 2 BBR (buy refurbish refinance) property investment strategies I would focus on if I were to invest 100k in the current climate. Below I look at how I would execute on the first strategy through a council lease. In my second article I will look at how I would use BRR with a repair and lease scheme and finally with a Bridging/Development lending arrangement.
BRR Buy Refurbish Refinance (Finance)
I would purchase a single let low value property (fixer upper) in a relatively highly populated town, (10,000 +) ideally looking for a property that was in need of work to bring up to rental standard or else have potential to convert or extend.
I would generally look for 2-3 bed houses, not overly big but centrally located and in an area of high demand, and would contact the local council housing department to clarify housing needs.
The aim would be to purchase in and around the €60-80K figure with the intention to invest an additional €20-40k to bring it up to a high rental standard. Targeting a gross development value (GDV) of around the €125-135k figure.
From the outset I would intend to lock the property into a long term council lease 15-20 years, where they would take on the maintenance and management resulting in the property being relatively hands off after the renovation and the property has been handed over (set and forget).
The council offers 80% of market value for long term leases of which they take on the maintenance and management, however you can negotiate more if you are willing to take on maintenance and management responsibility yourself.
The property will have to be to the minimum rental standards and have a BER D rating or above but I believe this is a target that all in the sector should be achieving regardless.
Example 1
Purchase price 70,000
Light Renovation 27,000
Stamp Duty 700
Legals 2,200
Total Investment 99,900
Revaluation figure 125,000
*70% of 125000 87,500
Mortgage fees 2,400
Mortgage legals 1,200
Total funds then available to move onto the next project €83900
*You could take out a buy to let mortgage of 70% based on the upgraded value of the house after your initial investment and reinvest this in your next project.
Typical net cash flow from property 1 (per month, pre tax)
Rent 950
Management 95
Maintenance 95
Mortgage 460
Insurances 30
NET 270
Capital Employed in Property 1 after mortgage drawdown €16,100
i.e after mortgage has been drawn down against increased value of property it will just be €16,100 of your original investment left in the property, as you take remaining amount forward into your next investment.
Return on Capital Employed* will be 20.12%, and there is a €25000 equity increase i.e with the renovations you can add value larger to the investment in renovations.
(*This return on capital employed is calculated by Annual net rent / capital employed after mortgage drawdown x 100.)
My intention would then be to recycle the remaining €83,900 into the next property and repeat the process, gradually building a property portfolio.
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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.