# The nearly impossible property dream

well the banks cashed in on their properties with lease back. the banks are telling their private banking clients to get oot of property. what does that tell you?

i do , and theres no way they are going to 200k

im not very good at maths … so bare with me on this …
here is why i think 200k for a house in d9 will never happen

you get 1500 a month ( very conservative estimate )
per year thats 18k
200 mortgage interest only at 5% … 100% mortgage
thats interest of 10k a year
giving you a profit of 8k a year which you put into those magic 9% a year investments i hear so much about

now lets factor in inflation. say 5%.
assume rent increases in line with inflation that means next year your profits are up 5% from the gaff. ie 8000 *105% = 8400

here a break down of ten years

8K at 9% for ten years (2.36) = 18938
8400 at 9% for 9 years = 18187
8820 at 9% for 8 years (1.98 ) = 17463
.
.
.
.

13.5k no interest = 13500

add all these up you get roughly 150k

would i like 150k after 10 years … yes please, where do i sign?

Well given we had effective rent deflation for a prolonged period in the supposedly under supplied Irish rental market I think this assumption is a little strong. Rent inflation tracks wage inflation not the basket of goods and services that is CPI. So assuming that wages rise over the next few years and the supply of tenants doesn’t fall and the supply of properties doesn’t rise; then rents may rise in tandem with wage inflation. But it wont happen. what will happen is that the supply of tenants will fall, the supply of rental properties will rise and we will enter a prolonged period of rental deflation once more.

An example Hong Kong after their bubble burst.

you think rents will fall , i think they will rise … lets split the difference and say they stay at the initial level. heres my revised figures

8K at 9% for ten years (2.36) = 19
8k at 9% for 9 years = 17.2
8k at 9% for 8 years (1.98 ) = 16
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.
.
.

8k at 9% for 2 years = 9.5
8k at 9% for 1 years = 8,720
8k no interest = 8k

add all these up you get roughly 120k

would i like 120k after 10 years … yes please, where do i sign?

ps i think i am being VERY generous with that rent

Serious question, on what basis do you reckon rents will continue to rise?

Your rent figures above are gross income. Net income is what you get in your hand, so deduct the costs of buildings insurance, maintenance, management and voids. The common method of estimating these costs; (to arrive at a net rental figure for residential property) is to take ten months rental income as an approximation of your net income.

10 months! you must be joking , i know houses in drumcondra which have been let out continously for over 15 years with minimal maintance. this is by no means un usual.

you dont need insurance , but i will give that to you anyway. say 30 euro a month that 360 a year by 10 is 3.5k … not much in the scheme of things.

anything else? we are a long way from even hitting below 100k profit after ten years of doing little or nothing.

Do you not have to factor in tax paid on the 8k profit (gross rent - interest)? I think it is safe to assume anyone buying a property in D9 for investment purposes would be in the high rate band so would the 8k profit be reduced by 41% each year?

Also I believe rents will reduce in nominal terms over the next ten years due to the huge overhang in property.

No insurance? Public Liability? Surely you jest…

I’ve spoken to longterm landlords who operate in the Drumcondra and Phibsborough area, 1992 marked a turning point for them, prior to that with mass emigration voids were for periods of months and even years. In 1991/1992 (15 years ago), the US and UK both experienced a recession and rather than stick around in those countries and starve, Irish people returned home and some became government artists for a time, until the first phase of the Celtic Tiger started to take off. The next short period of voids in the area occurred in the first few months of 2004, when the Poles arrived en masse (May 1, 2004). Drumcondra is also a central location in the capital city so it is not surprising there is very little if any voids for the past 15 years of the boom. We are now on the downward side of that growth curve. Given its central location in the capital city voids in the area are likely to be short and most investors in the area, are probably long term, where the return on investment since the 80’s & 90’s has paid for the property. Their main risk in 2007 is that they overplayed their hand and leveraged section 23 property elsewhere in the country or for more recent investors who may be suffering the winner’s curse and are undercapitalised in a shrinking market.

Yes ten months is the convention. But if you don’t spend any money on the property, have no insurance and no voids, as per your example. Then you are possibly operating in a different kind of market.

you’re assuming that banks will give investors a 100% interest only mortgage.

with 2001 pricing levels, you wont get too many renters willing to pay €18k per year in rent.

That’s it precisely. You’ve used that example before and I really can’t see banks allowing investors to go interest only in a declining market. If you’re paying interest only on a 100% LTV loan and house prices are declining by 10% p.a., then your LTV ratio rises to 110% in the 1st year, 121% in the 2nd year, 161% after 5 years, all the time increasing the bank’s exposure to risk. I doubt any bank will accept this as they become more risk averse in the next few years. After all, they don’t give out 120% loans now, do they?
More likely, investors may face the margin calls Gatelodge mentioned in the other thread. thepropertypin.com/viewtopic … start=2235

You’re right, your maths is atrocious. Though, this seems to be an excellent exposition of why so many people in this country believed (and still do) that at 3% yoeld residential propert yis a great investment.

And all became clear. A t metaphor for the Irish economy/property market right?

They do in spain - can you shout ‘timber’? (or the spanish equivalent)

In all due fairness to 2Gaffs, a “gaff” is common Irish slang for any form of domicile, rented or owned.

C’mon. A bit of light ribbing. I thought the Irish prided themselves on their “slagging”.

But I will clarify. No genuine offence was intended.

Yes.

When it’s good slagging!

Nobody has ever heard of “gaff” used in that distorted context on this island…

That’s what makes it funny…

I thought it was funny!

I was going to previously point out that a gaff can be a “mistake” as well, but you beat me too it