Is the Celtic Tiger making a Lazarus style resurrection? Going by the amount of unsolicited emails I’m now getting from promoters of syndicated property funds, some people are beginning to get a bid giddy and want to lure people back into the property obsession that takes over people in this country. There are lots of reasons why I won’t be recommending any of these to my clients.
These property deals have a huge amount of borrowing. If a building costs €5m, the promoter may have to raise €1m plus associated costs and their charges and they borrow the rest.
While this means you get a much bigger upside of a leveraged property, you also get the downside. For a highly leveraged property, it doesn’t take much of a fall in the market for your investment to be worth nothing.
The table below shows the impact that gearing has when there is a fall in the market.
[table id=8 /]
Unlike shares that can be sold in a day, property is not very liquid. You can’t get out of the investment if you wanted to. The promoter decides when they sell the property. If there is no market, it can take years to sell a property it takes time to sell and at a considerable cost too.
Your best chance of selling is on the grey market, which is essentially you try to find someone privately to buy your share. It will be a distressed sale though and even if you do find a buyer, it is likely to be at a very low price.
There is a lot of demands on the rental income that is received from the property:
If you don’t have strong tenants, tied into long leases, the rental income may not be enough to meet the expenditure. All of these debts will accrue and will be deducted from the profit (if any) when the property is sold.
There is still a place for property in a diversified investment portfolio but it must only be a portion of the overall portfolio.
If you have any questions, please contact me directly at firstname.lastname@example.org