Expat investors move in on bedsit bargains
Bed sitter landlords are making a comeback despite the recent government measures making it more difficult for investors to get a reasonable after tax return from these investments.
Prices for those former period houses which have been transformed into bed sits have fallen by as much as 70pc from their highs in late 2006 and these lower prices are attracting a surprising number of cash buyers -- mainly Irish expats living in the UK and elsewhere who are seeking to take advantage of the low values, high yields and an ever weakening euro currency.
Yield are attractive in comparison with the nearest other property type -- purpose built apartments. Currently gross yields of 12 to 14pc are not uncommon for this sector whereas an investor would still find it difficult to exceed 8pc for purpose built apartments. At the market peak typical yields ranged from 7 to 9pc for these properties also known as Pre '63 investments. In terms of tenant demand, we can see no real difference in desirability between the two types over the same time period. While tenants now demand higher standards of accommodation, we feel the Pre '63 sector would fare quite well in terms of vacancy rates especially when they are well located.
These investments tend to track the values achieved for similar sized family homes in the same locations and in some locations, can exceed the value of similar sized family homes -- given the additional investment value.
They are a feature of the Rathmines, Dublin 6 market and one example is 33 Lr Rathmines Rd which is in seven units and needs complete refurbishment but with its asking price of €775,000, it offers a potential yield of 12pc. At 104A Lr Rathmines Rd, this property in five units,has gone sale agreed. Excluding the ground floor it offers a 16pc yield at its €190,000 asking price.
The sector is known as Pre '63 because in 1963 was the year when it was announced that such conversions had to comply with more restrictive planning conditions.
The current market has seen an increasing likelihood that buyers come from Kilburn rather than Rathmines itself. To a certain extent the boom never ceased in London and now, buoyed by the Olympics construction activity and other factors, growth has been steady and continuous.
The 'feel good factor never left London', as one investor put it to me recently and the view now is that, in the aftermath of the Olympics, Dublin may offer more medium term opportunities than elsewhere.
Budget 2012 added an interesting twist by allowing an incentive relief from CGT for all Irish property bought between Budget night and the end of 2013.
According to Michael Cannon of Ryan Cannon Kirk Accountants, this is an ideal opportunity for expat Irish nationals to invest in Irish property at knock down values, with a view to disposing of them free of capital gains tax seven years later -- when the incentive expires.
Contrast this scenario with the plight of the indigenous Irish investor who bought at high levels during the boom and who is now effectively banished from the market. Low values and high yields are available to every buyer, but it's of little benefit if you already have mammoth bank payments to tackle on a monthly basis.
Irish landlords have been dealt a series of damaging blows since 2007 and are quite correct when they gripe about their business not being treated on an equal footing as other businesses by the taxman.
Loan interest is deductible from earnings in practically all businesses except in the case of Irish property investments, where only 75pc of the loan interest can be offset. This single measure alone has caused more than a proportionate share of difficulty for red brick investors to the point that many are just struggling to hold on to their investments.
Now add to the mix a raft of registration fees, levies and charges that attach to each individual unit and you will soon begin to understand their absence from the current market.
As Bob Dylan used to sing '. . . the times they are a- changin'.
Coleman Connor is a director of O'Connor Shannon investment agents