Buying for investment with estate agent Clare Connolly
In a conversation with experienced estate agent and letting agent, Clare Connollly, Breffnie and Clare discuss how to choose the right property, how to choose the right tenant and how to set that tenancy up. You can listen to the full conversation below. Some highlights include:
Key points to consider when buying an apartment for investment:
Location - good quality transport links are fundamental
It’s important to know if the apartment has been rented out within the last two years. If so, this will impact on the rent you as a landlord can charge (most of Dublin is a Rent Pressure Zone - RPZ- this means that landlords are only allowed increase the rent by a maximum of 4% of the rent that has been charged within the recent two year period regardless of the current market rents).
Other considerations when finalising a purchase are: parking, purchasing contents and doing your due diligence on the apartment complex and its management company.
Vetting a tenant and the documentation that must be organised prior to beginning a tenancy.
When is the best time to carry out any property refurbishments.
Why you should contract a property management agent like Clare Connolly to help you manage the property once it is let.
You can listen to the podcast here or read on to get some great tips from two knowledgeable and experienced property experts.
Breffnie introduces Clare Connelly, a real estate and letting Agent, with years of experience working with clients all over the world in the buy to let market.
Clare starts off by counselling the potential investor to never lose sight of the objective of buying an investment property. The idea is to increase the capital value and have a rent set that will cover the mortgage and all your costs.
How significant is location?
Breffnie starts by asking how significant is location? What differentiates rental properties that are snapped up the moment they are posted on Daft.ie or MyHome.ie and those that languish without much interest? It’s clear that the further away from the centre of town the property is, the more space that can be purchased.
For investment property location is the no. 1 differentiator. The properties that rent overnight or at most within a week are those that are situated close to a direct transport link. Recent surveys show that properties close to the Luas and Dart transport links in Dublin command rents up to 26% higher than other properties. A quality bus corridor is definitely not as attractive as tram or rail links.
Consider the requirements of the tenant and their current life status. A two bedroom apartment should also preferably be two bathroom. Professional tenants in their mid-twenties to mid-thirties may not be on intimate enough terms to share a bathroom :)
A large kitchen is not essential as people of this age range don’t have the same needs for cooking as a growing family, for example.
Investors abhor a void
The main thing an investor always wants to avoid is a “void period” where the property is lying empty and therefore not maximising its yield. If you choose a property outside an optimal area with regards transport you can expect more void periods.
Parking is a key factor and more recent apartment complexes allocate a car parking space per bedroom (e.g. two space for a two bedroom). However, older complexes would often only allow one space. Sometimes a management company can negotiate a second space should it be required.
So a one bedroom apartment on a transport line or a two bedroom not on one? A good sized one bedroom near a transport link with good amenities will definitely be a better investment.
How much can you charge in rent?
If you buy an apartment in a designated Rent Pressure Zone you may be limited by the amount of rent you can seek. If the property is already being let at, for example, €1800 per month, you cannot increase that rent by any more than 4% and then only in particular circumstances even with a new tenant or new landlord. It is essential that you ask the selling agent if the property has been let in the last two years as this legislation does not allow a property’s rental value to be changed or to be set higher than similar properties in the area.
Contend with the contents
When you have found the property and start bidding should an investor consider buying the contents as well as the property itself?
Clare is very positively in favour of this and points out that if the contents are in good condition and reasonable quality. It will save the investor time and a cash outlay.
Clare shares a recent case study. An older gentleman buying for his daughter with a view to her taking possession of the propery in 10 years time and letting in the meantime. Having the contents included for him saved a huge chunk of cash and time.
Often the contents are an extra hassle for the vendor as well, having been purchased for the rental property. It suits them just as well to leave them in the property instead of having to organise movers and storage.
What other costs is an owner of an investment property liable for?
There are other costs involved in owning a property, especially an apartment or other managed property. As the owner it is you who is liable for the annual management fee, not your tenant. They are usually somewhere between €1700 - €2,400 per year and often apartment blocks with lifts will be on the higher end of the scale. Electric gates are another feature that will drive up service charges or management fees in apartment complexes.
Another issue to investigate is whether the management company is facing any complex structural issues. Breffnie shares a recent case where an apartment in Ballinteer was being secured for a client. They were happy with the location and price but when Breffnie delved a little further into the property she discovered that the management company were about to start dealing with a Pyrite issue.
As an investor owner you would also be responsible for your share of the costs for dealing with that issue, regardless of the length of your ownership. In this case, that had yet to be quantified so it was a potentially costly unknown and a serious risk to the investment. Clare agrees adding that other issues to look out for could be fire issues, damp, leaks. The latter is a particular issue in a lot of “boom builds”. The one advantage of being an investor in 2019 rather than 2007 is that time is on your side. The issues relating to apartment blocks built during the boom (2001 - 2008) have come to the fore and also it may be possible to judge a management company based on how it handled issues in the past.
Buildings built since 2014 have increased regulations including sign-off from an architect in order to pre-empt continued bad practice in the construction industry.
The management company or their solicitor is obliged to disclose any issues of which they are aware. Other issues might be accrued debt and how they are planning to take care of it. Make sure you or your solicitor do your due diligence before you begin a professional relationship with this management company.
Key areas to query prior to purchase
Current Rent situation
Service charge
Parking
Contents included or not
Any structural or other issues that the management company is facing.
One last thing that Breffnie wants to address in relation to choosing a solid investment property. Properties are often described as “with easy walking distance to the Luas” What does that mean in fact? To Clare this means no more than 10 minutes.
Best time to refurbish a property
Once the sale has gone through you may need to undertake some refurbishments: when is the best time to address this? Before or after you have secured a tenant?
If you undertake the work prior to the tenancy commencing you are not entitled to claim those expenses against tax. While this may seem unreasonable and disruptive, logically an apartment without tenants is not tax deductible because it is only a hypothetical income at that stage.
How do we assess prospective tenants?
The key thing is the reference check. Initially a shortlist is created based on the letting agent’s gut instinct. These would then be followed by
a reference check with a landlord,
an employer and
a proof of funds.
It is essential that the landlord check is verbal, that you speak to their previous landlord. Getting the right tenant is absolutely key because you know the property will be taken care of. If there is any doubt during your conversation with a potential tenant’s previous landlord then delve right in there and ask as many questions as possible.
How do you set the rent?
You must compare like with like. It’s a challenging rental market out there so you have to ensure a competitive offer. This is not policed but does have implications for future rental increments. The market will tell you immediately if you have struck the right balance: too many enquiries, you may have gone too low; too few and you’ve gone too high.
With regards proof of funds Clare prefers not to see a bank statement so a pay slip or contract of employment with salary included is sufficient.
Key elements of a lease
Without getting into too much legal detail (and generally an investment buyer will have a solicitor to assist them with this) what are the key elements to include in a lease?
The length of a lease in Ireland is generally a year. However, some of those relocating for corporate roles may require a two year lease. A family will often look for 5 years or longer. However, tenancy can be affected by landlord’s requirements also: one of Clare’s clients plans to return to Ireland so Clare manages 6 months contracts on that property.
After 6 months a tenant has increased rights including a right to stay an additional five and a half years.
A good lease is available from topfloor.ie and the Residential Tenancies Board website is a wealth of information and resources for the landlord and tenant.
More to it than letting the property
There was a time when landlords and agents thought that once a property was let their job was done but this is no longer the case. There is a certain amount of management that needs to be done on a rental property, much of which can not be done remotely. Depending on the quality of the property and expectations of the tenants, issues that can and do arise need to be addressed expeditiously. A management agency will ensure that these issues are taken care of in a professional and prompt manner.
Processes in place
A management agency like Clare’s also have processes in place to ensure the property is being maintained including a regular inspection schedule. With younger tenants, who may be renting for the first time, this might take place initially every three months. This would work off a room-by-room property checklist but would also include checking critical issues like fire protection (are the fire blanket, extinguisher, detectors and carbon monoxide detectors in good working order etc.)
A visual check is done on a room-by-room basis to ensure there is no damage or breakages, no issues with floor coverings, that there is no damp or mould on floors or windows. A note is made and photographs taken of any issues and included in a report to the landlord. From there any action needed will be taken at the landlord’s request. Photos are essential as some landlords are not based in the location and will be unable to make a visual inspection of their own.
Then on an annual basis things like the boiler must be serviced.
An inventory is essential
This underlines of course how essential it is to do an inventory of the apartment prior to leasing. This should also include photographs. Should any issues arise relating to the property or its contents this document is of crucial importance. There are horror stories out there where considerable damage has been done to a property or its contents and because there is no inventory or photographs it becomes difficult to prove liability.
So on day one of a tenancy Clare will sit down with the new tenant and go through the inventory and confirm that everything is present and note any issues like chipped crockery or scratches on furniture. It protects the tenants as well! There is no room for dispute once both parties then sign off on this updated document.
Another practical step to take prior to a tenant taking possession of the property is to change the locks on the property.
Lastly and skipping ahead to the end of the tenancy, Breffnie asks Clare about one aspect of the lease she has with tenants: they are requested to carry a deep clean of the property. When this is included on the lease, it indicates that the landlord has expectations for the care of the property and that it must be “returned” in the same state that Clare always ensures for properties she manages.
If you would like to get in touch with Clare Connolly she can be reached at www.clareconnolly.ie.
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