ROI% on our potential Real Estate Investment

From my previous post you may know that we are currently looking at acquiring a rental property. But Is Real estate investing worth it in Ireland? Below I will outline my research on what I have found out over the last couple of months.

Average House Price in Ireland

From https://www.housing.gov.ie/housing/statistics/house-prices-loans-and-profile-borrowers/house-price-statistics we can see that the average second hand house in the Republic of Ireland is €208k.

If you live in Dublin the average price from the same period is nearly 25% higher than the national average

If you live outside of Dublin that the average price of a house is 15% lower than the national average.

When I ran my calculation on the average house price outside Dublin, I worked out that the ROI was roughly 2.83% after tax. This was based on the average rent in my area. Hardly worth it to be honest as I am earning nearly 4% after Tax on my dividend investments.

But what about houses that are way below the average price. Here are the calculations on a house that we are currently looking at which costs €83,000

Down payment Required

Real Estate investors in Ireland are required to make a down payment of 30% for an investment property mortgage. For our example, 30% of €83,000 is €24,900. Which means that nearly €25,000 is required up front before any other fees are taking into consideration.

Mortgage Repayments

€83,000 – €24,900 means that we would need a mortgage of €58,100. Using this calculator we can calculate that our monthly repayments would be €453.42 over 15 years. Real estate investments are also subject to much higher rates and the best rate that I could find is currently 4.8%.

PURCHASE COSTS

There are couple of expenses to consider. Real estate investors are required to pay 1%  of the value of the house in stamp duty. A robbery of a Tax if you ask me but it has to be paid by Law.

You also need to hire two separate solicitors.  A bank solicitor is required, for all Buy-to-Let mortgages, for loan amounts greater than €75,000. The amount payable, for a standard Buy-to-Let mortgage, is €1,000 plus 23% VAT and outlay. This amount is payable by the Borrower(s) and must be paid directly to the banks solicitor prior to the release of the loan cheque. The amount payable by the Borrower(s) is in addition to the borrower(s) solicitor fees.

You are also required to get the house valued by an independent auctioneer as well as providing an engineer report. In Table format the total initial outgoing expenses for our investment property is :

Downpayment (30%)	€ 24,900
Stamp duty (1%)	€ 830
Legal fees	€ 3,600
Valuation	€ 150
Engineer	€250
Initial investment	€ 30,030

Average Rent

Average rent in my Area for this type of house is €900 per month which is €10800 per year assuming full occupancy. However it is estimated from the estate agent that this particular house will rent for €850 ,so we will use the lower figure in our calculations. €850 * 12 = €10,200

EXPENSES (Annual)

Mortgage	€ 5,441.05
PRTB	€ 90
Insurance	€ 350
Life/mortgage protection insurance	€ 192
Local property tax	€ 90
Total	€ 6103.65

CASH FLOW

Cashflow (10,200-6103.65)	€ 4,096
Increase in equity *	€ 2,711.38
Total	€ 6807.38

*This is the principal paid off the mortgage by the renter and even though you do not see this cash in hand until you sell you still need to pay tax on it for the year you received the rent.

TAX

Income	€ 10,200
100% mortgage interest	€ 2,729
Mortgage insurance	€ 350
Profit (Income minus allowable expenses)	€ 7,121
Tax at 52%	€ 3,702.92

I’m assuming a tax rate of 52% and you are on the higher Tax bracket. Taxes on real estate are the same as income tax (40%) and are subject to PRSI (4%) and USC (8%).

Final Return

€6807 minus €3702.92 = €3,104.08

€3,104.08 /€30,030 initial investment = 10.33%

€3104 every year for the duration of the 15 year mortgage would mean that we would earn €46,560. Assuming the house holds it value and we sell after the mortgage term we would make €83000. The total amount in cash we would receive after 15 years would be €129,560. So from our initial cash investment of €30,030 we would make 4 times our initial investment.

Now this is my first step into the world of Real Estate Investment and if anyone reading this has any experience in Real Estate Investment than feel free to let me know if my calculations seem correct or if I am leaving anything important out.

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