Has the ship sailed for rental yields of 10%+?

Property prices in the little country of Ireland are rising again. Phew. After a ‘correction’ (that seemed to more closely resemble an obliteration) most areas of the country are again beginning to experience modest rises in property prices. At its worst property prices were down by over 60% in some parts of the country so it will take a long time of ‘modest rises’ before many property prices recover to a level resembling the mortgage that may now attached to the property.

Now during the recession a small band of Irish people who still had bulging wallets jumped on board the property investor wagon. The reason? Returns like were never seen before in a developed nation. Many properties sold during the recession were during ‘fire sale auctions’ held by Allsop Space (now called Allsop Ireland). It was not unusual to see investment properties sell at such auctions with rental yields of 20%+ per annum and sitting dependable tenants. Why or how did such a thing happen? Well it was simple a case of supply and demand. There was an over supply of property and a serious lack of demand; demand here meaning people/investors with the cash needed to buy such a property (bearing in minds banks were not loaning out).

Now you may be sitting there drooling at the thoughts and perhaps you have such a bulging wallet. The bad news is the ship may have sailed. An examination of the upcoming fire sale auction from Allsop Ireland reveals that rental yields on investment properties are returning to the more normal 10-12% seen in development countries. Interestingly in the UK yields of 6-8% are more common.

All is not lost though. There are still opportunities for those willing to ‘take a punt’ on properties with part occupancy. The part that is occupied is generally the only part reflected in the pricing (thereby showing a yield of 10-12%) but should you be able to find tenants for the vacant part of the property (often an adjoining shop/offices or apartments) the yield may increase to 20% or more. The Irish market is currently desperately short of residential rental properties so finding tenants for these should be relatively easy. On the other hand finding tenants for office, or commercial premises may be much more difficult.

One final word of warning. DO THE RESEARCH before you buy at auction. When the hammer goes down the property is yours ‘warts and all’. It will be expected you have already done due diligence of the property. Why is it so important? Well let’s conclude with some scary reading. The following is an excerpt from a Contract of Sale for a property coming up soon for auction:

NPPR and Household Charge receipts, LPT Charge.

The vendor will not be furnishing a receipt in respect of either charge as the property is a commercial property. The vendor will not be furnishing any declaration in respect of this exemption. The vendor is not in possession of a letter from the Local Authority confirming the exemption….The Purchaser is on notice of the position and accepts same and shall make no objection or enquiry in this regard”.

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