You can’t sell half a room

People in Ireland really love property. It Despite all the horror stories of people being stuck in negative equity on properties bought in Celtic Tiger for years and many of them never getting back to their original price, many still prefer to buy a property on a little island on the outer edge of Europe. This is instead of investing in the biggest companies in the world that are selling products to people around the world all of the time. We much prefer this option for our clients. There are many reasons why we don’t recommend property.

High entry cost

It is expensive to buy a property. You need at least a 30% deposit for a buy to let property in Ireland. And then you have the set up fees. As well as stamp duty, you have to pay for conveyancy, engineers reports and advertise it for rent. You also have to furnish the place.

Ongoing work

Property buyers tend to take an overly optimistic view of life of a landlord. Rent it out and watch the rent roll in forever. But there is constant work. I have heard stories of landlords being called out because a light bulb needed to be replaced or to get rid of a moth that was in a room. Then there is the troublesome tenants who may wreck the place or go months without paying rent. Under current laws, it is not that easy to remove them and it can take years to get them out.

Even if you don’t have troublesome tenants, there will be periods when the property is empty and there is no rent coming in. In between tenants, you will need to spend time ensuring the property is up to standard. At some stage appliances, boilers need replacing, and issues arise, that need to be fixed. All costs to you.

You can of course outsource this to a management company, another additional cost to you.

Sucks out your cash

When you buy a property, you take a big lump of your liquid assets and put it into an illiquid asset, that you cannot use or access easily. You then receive back income through rent, which is taxable as income, liable to income tax, PRSI and USC.

We see this all the time when producing scenarios in lifelong cashflow analysis. You ability to enjoy life depends on cashflow. It may take many decades for the rental income you receive to provide a greater cashflow than investing it. Think about that, many decades. Is that a good decision. especially if that breakeven point is when you are in later life?

If you take on debt, it is more than likely (unless you have a low loan to value), that when you take both repayments and taxes on rent into consideration, that the property will cost you each year until you have the mortgage paid off. That’s a long time to be paying for an asset.

You can’t sell half a room

Over those many decades that you hold your investment property for, different expenditures will come up, some of which are either planned and some unexpected. If you have a property, you can’t sell half a room to get access to this cash. Your only option is to sell the whole property. Not very convenient if you just need 10% – 20% of the property value, having to sell the whole thing. Which will take months to do as you have to ready it for sale (more cost), advertise it (1.5% estate agent fees), go through conveyancy again (give yourself at least 3 months) before you get your hands on the money.

Meanwhile, the person who invested in the biggest and best companies in the world, can sell the exact amount of money that they need and will have the money in a week.

 

Steven Barrett

26 February 2024