What do you need to know before purchasing a buy to let?
Mark Solon is the founder of Symmetry Financial Management and he joined us recently to discuss property as an investment and mortgages for investment properties.
We cover below tips to ensure you buy the right type of investment property, whether you might be eligible for a mortgage for a buy to let, some gross rental yield examples and the two credit agencies recently established which allow you to check your credit rating.
1. What are the different classes of Property Investment?
Before purchasing a residential unit for investment there are other options to consider, these include
• Commercial – Retail / Industrial
• Rural – Farm Land or Forestry
• REITs (Real Estate Investment Trusts)
• Property Funds (e.g. Irish Life; Aviva; New Ireland; Standard Life etc
2. Pros and Cons of residential vs commercial property:
Pros:
• Residential properties are generally easier to let
• Usually less time vacant between tenants
• Borrowing rates tend to be lower
Cons:
• Leases tend to be shorter than commercial leases (but longer term Council options are available)
• Landlord usually covers all the additional costs e.g. Property tax; repairs; Mgmt fees.
3. Tips for when buying residential property for investment:
• Review / check-in with Auction sites and results of these sales (BID X is the largest of these) be tax compliant, if you are self assessed you must also have tax clearance.
• Speak with Agents in the area (on the premise you will use them as letting agent)
• Look at population for the area – future growth / infrastructure investment
• Properties near schools or public transport hubs are preferrable
• Calculate the gross rental yield – Cashflow is King!
• Use your head – not your heart!
Gross Rental Yield Examples:
4. Gross Rental Yield while important, doesn't teach you everything:
It doesn’t teach you anything about the property or the area
• Is the property overvalued?
• Is the property in good condition (i.e. will you have to put some cash into the property before you can rent it – thus bringing down the yield)
• It also doesn’t mean you are guaranteed future capital growth or rental growth
4. Are you eligible for a mortgage in the first place?
SOME of the questions that have to be answered:
What type of investor are you?
• Personal (i.e. in your own name)
• Company (e.g. via your company or a SPV – Special Purpose Vehicle)
• Pension (different types of pension products!)
Are you currently employed / self employed?
• Do you have a minimum taxable income of €18,000 (€40,000 in some scenarios)
• Salary multiple doesn’t apply (i.e. 3.5 times salary)
What is your credit history like? (Personal and Company investors only)
5. Credit history
A poor credit history can prevent you from getting a mortgage. To check your credit, there are two credit referencing agencies in Ireland, these are The Irish Credit Bureau (ICB) and the Central Credit Register (CCR).
6. Research: the daft report can give you invaluable insights on the rental rates and conditions in different areas.
You can view the latest report created by Ronan Lyons here. The report highlights are less than encouraging for Dublin as a property rental investment opportunity but who knows how things will shape up post-covid.
''This latest Daft.ie Rental Report - covering the market nationwide to January 2021 - presents the first concrete evidence of an idea that's been floating around since early in the Covid-19 pandemic. That is the theory that, of all rental markets in the country, Dublin would be most badly affected by the collapse in everyday activity.
The figures in this report examine rents in 54 rental markets in Ireland: the 22 postcodes of Dublin, plus North, South and West Dublin, the four other major cities, and then the 25 other counties. Outside Dublin, rents are rising in all 29 - albeit just about in the case of Donegal (+0.4% year-on-year) but extraordinarily strongly in Munster, with rents up 9.9% year-on-year in Kerry. Rents are rising in the four other cities outside Dublin too - from 3.9% in Limerick city to 5.6% in the case of Waterford city.''
If you would like to book a virtual appointment to discuss your mortgage or mortgages for investment properties with Symmetry you can do so by emailing Mark at mark@symmetryfinancial.ie.