Trying to get my head around numbers in Ireland and Spain

[Haidee Hammond]

Hi all (and thanks beforehand!)

I am just new here and I am trying to run some numbers to start making sense of it on the areas I know, Dublin, Ireland, where I live, and Malaga, Spain, where I am from, and I find that applying rule 50% expenses rule or the 2% return are absolutely impossible, not sure if I am looking at it wrong, if the market is just so different or what. I mean, even if the market is different I can imagine people here still invest in real estate, but maybe they follow different criteria, if the numbers I have been finding as examples for the states are true (I know if would also differ hugely from one state and city to another) why people rent at all. 

I will try to make some sense, taking the area where I live, Dublin 2, I know the price for an apartment of good quality, 50 sq meters, new-ish and one bedroom, would be 1300-1600 euros, and the price 250k-300k, give or take, that would imply that if I wanted to buy an apartment to rent it and be cash-flow positive (or equal, in the end at least you are getting an apartment) and asked for a mortgage to 30 years (don't think you can ask for longer) the cheapest I would be getting would be 1075 euros per month (and that is variable interest, always tricky), assuming 275k price (see http://www.mortgages.ie/go/first_time_buyers/mortg...) and that is putting 40k down (because you will be asked for a similar amount), if I get 1500 for the rent, and I assume half of it will be expenses (seriously that much?), 750 should pay the rent (no way obviously). also not taking into account the 5k I think you might need on fees and expenses when buying. Trying to follow the 2% rule rent would be 5500, and rent here is expensive but not mental. (check also https://www.daft.ie/report for more info around the country) the rest of the areas are the same kind of thing, give or take, nothing falls not even remotely on those rules of thumb, what is worse, any decent house get a war price so the asked for price goes up, never down. I know the idea is always getting a "good deal", but housing being in demand here, you might be able to get a decent deal, but nothing much better than that, from what I have seen, am I wrong?

I also checked Malaga, and unless anyone can convince me otherwise, I absolutely ruled it out, prices are lower, but not that much, rents, on the other hand rents (which is my idea, as I can´t afford to invest by just keeping properties for long without renting)  are quite low, and I know you don't always find a tenant as there is a huge surplus of houses (for the same price of house, even though that would mean a bigger one, you might be able to get 600-700 euros rent, I would say), I can be wrong, but I am not off by much definitely.

About taxes and so, well, I have no clue, I foresee that being an entire new adventure, but first things first... Anyone can help me making sense of this?

[Colin G Murphy]

Hi @Haidee Hammond

Firstly, as an Irishman living in Spain (Madrid), I can completely emphasise with your predicament above. If I could get a solid return on investment in Spain or Ireland I would have invested in both places years ago. Plenty of people are doing it, but they are either happy to take low returns and/or have inside knowledge that I don´t. 

As it turns out, I´m able to get far higher returns and at much lower purchase prices in Tampa Florida, so I have been having fun building a portfolio there plus buying, renovating and selling turnkey properties to investors.

Secondly, I wouldn´t place too much importance on all these vague rules of thumb (50% rule, 2% rule) because they are mostly meaningless. Wherever you choose to invest, you need to do some proper research and get a very solid handle on the typical fixed and variable costs for landlords in that area. For example, closing costs, property taxes, property management fees and insurance costs all vary wildly between Spain, Ireland and the US. Trying to estimate these costs by deducting a fixed percentage of the gross rents or the gross purchase price will get you nowhere. You need the real numbers and you need to put them into a spreadsheet.

You seem to have a good idea of market rents and mortgage repayments for apartments in Dublin. Next step is to find out taxes, insurance, community fees, maintenance fees and average vacancy rates. Speak to some local agents, read the daft.ie reports and try to track down a couple of experienced landlords. It´s a worthwhile exercise, but you´ll probably come to the conclusion that buying apartments in Dublin 2 is not a good way to generate a strong monthly cashflow. 

Same goes for Malaga - property prices are very high compared to market rents - that´s just for long term rents. Don´t even get me started on how fickle the vacation rental market can be down there. A lot of landlords are sitting on cash flow negative homes in your area.

I want to end on a positive note. It´s great that you are keen to build a rental portfolio. It is the best way I know to build wealth and generate passive income. If you put your mind to it you can be a successful landlord ANYWHERE YOU WANT. Keep working and don´t give up. Everybody hits a wall from time to time - the successful investors are the persistent sons of b*tches who keep moving forward no matter what.