Is Real Estate investment a viable strategy for increasing wealth in the country I live in?

[zander1983]

Im looking to get into Real Estate investment but am living in country with what appears to be unfavourable conditions. So I'm looking for advice on whether Real Estate is a good idea in my circumstances to increase wealth, and if so, what strategy should I employ. I'll outline my details: Im a software engineer. I earn €95,000 per year working at a startup where I am a shareholder. I have my own consultancy company and I pay myself €60,000 per year. This is to reduce income tax, which is high here in Ireland, eg on a salary of €100,000, you would pay about €40,000 per year in income tax. Im putting some of what's left in the company into a Software as a Service product Im building with the help of some developers in India. I have personal savings of €160,000k (I inherited just under half of that). I dont own a home - I rent in a city, paying €1,100 per month for a room in a 2 bed apartment. Im looking to start buying properties but Im unsure of the best strategy. In my city, the average house price is €500,000. In the country as a whole, its about €300,000. Mortgage repayment rates are the highest in Europe and start at 2.25%. Banks will only lend if you have a minimum of 30% of the price of the house. I could just about afford a house of €500,000, but repayments would be €2,000 per month - and this could go to €3,000 as interest rates are going to rise. We also have Capital Gains Tax here - 33% of any gain in the sale of a house must be paid in tax. If I buy, I dont need to live there, I have a girlfriend and will live with her soon. Another important point is that in my city, rents are really high. Average per month for a 2 bed is €1800.

So given the situation where I live is less favourable to flipping properties than the US, is this even a viable strategy for increasing wealth? And if it was, whats the best strategy? Buy one for €500,000 and live there, or try to buy 2 cheaper 1-bedroom apartments and rent them out? Mortgage repayments on a 1 bedroom would be approximately €1k, and rent for a one bed averages at €1500 (but this is taxable income), so Im leaning towards this option. But the gap between mortgage repayments and rent is also wider. I dont know if this is the correct strategy or not - my (traditional) finance advisor would say this is a terrible move - since the price per square foot is higher for smaller places.


Would love thoughts from people here. Thanks.

 

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[Zealander]

Would be very interested if somebody who has knowledge in this area could comment since I am also from Europe (not Ireland) and also wondering if the math makes sense to rent/flip real estate.

 

[Guest-5ty5s4]

as long as it is not illegal for some odd reason, your best bet is to try house hacking. Buy a home to live in and rent out the other rooms. OR, better yet, buy a duplex, triplex, or fourplex to live in and rent out the other units.

There are multiple GOLD! threads on this forum that include people who did this (on top of their high income producing businesses).

By the way, your country probably has a marginal tax rate, so paying yourself more might be a better idea than you think.

 

[zander1983]

as long as it is not illegal for some odd reason, your best bet is to try house hacking. Buy a home to live in and rent out the other rooms. OR, better yet, buy a duplex, triplex, or fourplex to live in and rent out the other units.

There are multiple GOLD! threads on this forum that include people who did this (on top of their high income producing businesses).

By the way, your country probably has a marginal tax rate, so paying yourself more might be a better idea than you think.

House hacking (never heard that term) is encouraged here. You can take up to 12k per year tax free for rooms rented out in your own house. The problem is sharing the house.

The reason Im paying myself less is to leave money in the company account to pay developers in India. In Ireland, we hot the top rate of tax (40%+) at 35k. The marginal rate goes to 50% at around 65k. I think we're an outlier here. They penalise good salaries to a ridiculous degree.

 

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[zander1983]

Would be very interested if somebody who has knowledge in this area could comment since I am also from Europe (not Ireland) and also wondering if the math makes sense to rent/flip real estate.

A lot of the info out there is based on the US, with only 19% deposits required and now capital gains tax. Not sure the strategy can work in the more socialist countries in Europe.

 

[Guest-5ty5s4]

House hacking (never heard that term) is encouraged here. You can take up to 12k per year tax free for rooms rented out in your own house. The problem is sharing the house.

The reason Im paying myself less is to leave money in the company account to pay developers in India. In Ireland, we hot the top rate of tax (40%+) at 35k. The marginal rate goes to 50% at around 65k. I think we're an outlier here. They penalise good salaries to a ridiculous degree.

Yes, income tax sucks and it is theft of your work and labor, BUT marginal rates only apply to the little bit over you made.

So if the marginal rate goes to 50% at 65k, and you earn 70k, you are only paying 50% tax on 5k (70k - 65k), not the full 70k.

Capital gains taxes are usually like this as well. The governments often exclude smaller numbers and then more heavily tax higher numbers.

Really sucks, because the higher numbers are the ones that will get you out of the rat race, and the tax system is designed to put you down and keep you stuck in it.

 

[Mathuin]

Hello Zander from across the border

Do you think it’s worth deploying that much capital for the estimated monthly return?

Given your domain experience as a pretty senior employee at a startup and running a consulting company, with that domain knowledge you could potentially start a CENTS business with a far more exponential return.

@Fox had a thread on Irish property last year

Thread 'Do you feel investment property is not worth it in your area?'
Do you feel investment property is not worth it in your area?

 

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[zander1983]

Capital gains taxe

Hello Zander from across the border

Do you think it’s worth deploying that much capital for the estimated monthly return?

Given your domain experience as a pretty senior employee at a startup and running a consulting company, with that domain knowledge you could potentially start a CENTS business with a far more exponential return.

@Fox had a thread on Irish property last year

Thread 'Do you feel investment property is not worth it in your area?'
Do you feel investment property is not worth it in your area?

That thread by Fox confirmed all I suspected about real estate in Ireland. Im already putting a lot of my money into a software as a service business - 3k per month on developers - but there is no guarantee. I have had a few meetings with a company in the US but nothing signed yet. So it seems to me, I should buy in Ireland, but a place to live in because the 1100 euro I pay on rent is dead money. Its very frustrating here in Ireland, they try to keep you in the rat race, and there are few avenues out. I wanted to go with RE as theres less risk, starting a business is really difficult. I have built a good team however and there is a decent chance of success. Will check out the CENTS thread, thanks,

 

[zander1983]

Yes, income tax sucks and it is theft of your work and labor, BUT marginal rates only apply to the little bit over you made.

So if the marginal rate goes to 50% at 65k, and you earn 70k, you are only paying 50% tax on 5k (70k - 65k), not the full 70k.

Capital gains taxes are usually like this as well. The governments often exclude smaller numbers and then more heavily tax higher numbers.

Really sucks, because the higher numbers are the ones that will get you out of the rat race, and the tax system is designed to put you down and keep you stuck in it.

Ya, here in Ireland theres little option but to start a business, which Im trying to do. But its a lot riskier than RE investment in countries favourable to it. Ill keep plugging away with what Im doing, and buy a place to live in rather than as an investment.