Safe as Houses: Why Prospective Landlords Should Forget about Dublin Apartments

In our last blog post, we discussed investment tips – asking whether prospective landlords were better off investing in houses or apartments in general in the marketplace today. This week, we’ll drill down further into that subject, examining potential yields of a similarly priced apartment and house in the same area of Dublin, and comparing the two to see which will be more profitable for an investor.

Take, for instance, two properties for sale in Dublin city. Both are in the same postal code district of Dublin 1, both have one bedroom and one bathroom, both are asking in the region of €225,000-€230,000, and for the purposes of this article we can assume that both will command the same rent. The only difference is that one is an apartment; the other a house.

First, let’s examine the apartment. With a market rent of €1,400 per month, assuming there was no tenancy in place before or the property was owner-occupied, the annual rent will work out at €16,800. (If there was a tenant in situ at the time of sale, the rent can only be increased by a maximum 4%, but let’s come back to that later in the piece.) With an asking price of €230,000, we will assume the apartment sold at €250,000 and, including costs, this equates to a gross yield of 6.72% and a net yield of 3.72%.

Yearly fees (averaged over five years) will include:
Average maintenance at 6% of the annual gross rent (to cover sinking fund for redecoration expenses): €1,000
Property management and letting fees in the region of 7.5% gross rent: €1,260
Owners’ management company fee: approximately €1,600
Tax @ 20% of gross rent less reliefs: €3,360
Vacant period (on average, one month every five years) = €280

The average total fees per annum will be €7,500, leaving an annual profit of €9,300.

Now, let’s take a look at the house. Just like the apartment, with a market rent of €1,400 per month, assuming there was no tenancy in place before or the property was owner-occupied, the annual rent will work out at €16,800. With an asking price of €225,000, we will assume the house sold at €240,000 and, including costs, this equates to a gross yield of 7% and a net yield of 4.54%. Let’s take a look at the costs of the house.

Yearly fees (averaged over five years) will include:
Average maintenance at 6% of the annual gross rent (to cover sinking fund for redecoration expenses): €1,000
Property management and letting fees in the region of 7.5% gross rent: €1,260
Tax @ 20% of gross rent less reliefs: €3,360
Vacant period (on average, one month every five years) = €280

The average total fees per annum will be €5,900, leaving an annual profit of €10,900.

This means that the owners’ management company fees with the apartment, while they look relatively inconsequential given the overall cost of the property, will lead to a difference in net yield of 22%, despite all other factors (location, size, rent) being the same. The hard truth is that houses are far more profitable in today’s market with apartment management fees being as prohibitive as they are.

Incidentally, if there was a tenant living in both properties at the time of sale, according to recent legislation the rent in both the house and the apartment could only be increased by 4%.

This would lead to a net yield of 2.49% for the apartment, and 2.74% for the house – representing a far better comparison for the apartment-owner, but still a huge drop in yields for both owners at rent-controlled rates compared with true market rates.

This is the latest in a bi-monthly blog series by Dublinlettings.com, focusing on the rental, housing and property markets in Dublin and Ireland. To read previous blog posts, see dublinlettings.com/blog

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