Investing in property explained

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Many people see property as a reliable investment with the potential for steady returns. But there’s a lot to consider. In this guide, we’ll explore the various types of property investments, why property might be a good fit for your investment goals, and the risks involved. We’ll also look at some alternatives to property investing.

The information provided here is for informational and educational purposes only and does not constitute financial advice. Please consult with a licensed financial adviser or professional before making any financial decisions. Your financial situation is unique, and the information provided may not be suitable for your specific circumstances. We are not liable for any financial decisions or actions you take based on this information.

There are several different ways to invest in property in Ireland (and abroad). They each suit different goals and budgets. Whether you’re looking for hands-on involvement or a more passive option, here are the main routes you might consider.

Also known as ‘buy-to-let’, this is where an investor buys a property with the sole intention of renting it out and earning steady monthly income from tenants. You’ll typically have to save a deposit of 30-40%, and interest rates are often higher than residential mortgages. If you are able to save a deposit of 50% of the property’s value, you’ll have better chances of securing a better mortgage rate. Mortgage lenders will ensure that the rental income is enough to cover repayments for the given mortgage term.

Becoming a landlord can offer long-term earning potential, although the work involved in managing the investment property, or the costs of hiring someone to do so, can be a downside.

Property development is where an investor buys a property, improves it through renovation or refurbishment, and then either sells it for a profit or rents it out for ongoing income. This is also called ‘property flipping’.

If you prefer short-term projects, property development might be suitable. The goal is to keep renovation costs as low as possible while significantly boosting the property’s value before selling.

There are other types of projects that come under real estate development, such as buying land and building a new home or converting properties for a new purpose, e.g. a commercial into a residential property.

If buying a property isn’t for you, REITs (Real Estate Investment Trusts) offer an alternative way to invest in property. Introduced in Ireland in 2013, REITs are property investment companies listed on the stock exchange. They pool money from investors to buy and manage income-generating properties, with profits shared as dividends.

REITs are tax-efficient since they’re exempt from corporation tax on rental income and profits from property sales, making them an attractive option for investors seeking exposure to property without the hassle of direct ownership.

Investing in property overseas can be a more affordable option than buying locally. People are drawn to foreign properties for potentially better rental income or the lifestyle benefits, such as owning a holiday home in a ‘sun’ or ‘ski’ destination.

One benefit of investing abroad is the chance to rent out the property during peak seasons and enjoy it during quieter months. However, as with the ‘buy-to-let’ option in Ireland, you’d have to make sure that rental income covers your mortgage (if applicable) and any taxes throughout the year.

There are several factors to consider with investing in property abroad, such as making sure you understand foreign laws and are able to manage the property remotely. Also, you may be subject to property or ownership taxes in the country where the property is located, and rental income could be taxed both abroad and in Ireland.

Investing in newly built homes can be a profitable strategy, particularly if you plan to sell quickly. These properties often appeal to first-time buyers, and the return on investment is largely influenced by the local housing market.

Buying a new build ‘off-plan’ is another option if the area is in demand. This is where you commit to investing in a property before it’s completed, based on show houses, plans and brochures. There is always a risk that the project doesn’t go as planned, the developer goes bankrupt, or the finished property doesn’t meet your expectations. So this is something to keep in mind.

The 25-40 age range is a time when many people are building their careers, starting families, and buying their first homes. Once they’re in a stable position financially, some people start thinking about property investment.

That said, age isn’t generally the deciding factor when it comes to investing in property. Practical factors, such as having a steady income, a good credit score, and enough saved for a mortgage deposit, are usually more important. As long as you have these things and a good understanding of what you’re getting into, there’s no reason why you can’t invest in property at any age.

Alongside the schemes mentioned above, Ireland offers attractive tax benefits for real estate investors, such as deductions for mortgage interest. These advantages can make investing in property more financially appealing.

Property investments in Ireland can generate returns through both capital appreciation and rental income. Rental income is a particularly strong incentive for investing in property in Ireland, as it brings in a steady monthly cash flow. Prime areas like Dublin often provide lucrative opportunities, while renovating lower-cost properties in less in-demand areas can also generate significant profits.

Ireland’s property market has proven to be fairly resilient and recovered from previous downturns. This makes it an appealing option for long-term investors. Residential property prices increased by 7.3% between May 2023 and May 2024*, but this is no guarantee that they will continue their upward trend.

You’ll often hear that diversification is one thing you can do to reduce risk with investing. Some property investors put all their eggs in one basket by owning just one or two properties in Ireland, which can leave them exposed. To mitigate some of this risk, investors might consider REITs, as property funds are a way to spread risk across multiple properties. Even REITs come with risk, however, as rising interest rates can affect their performance.

Another big risk is the volatility in property markets. Downturns like those seen in Ireland between 2004 and 2008 highlight how a sudden fall in value can impact your investment. While market shifts can’t be controlled, proper financial planning can help protect your finances from these types of market changes.

Then there are the risks that come with rental property investing. You might end up with bad tenants or damage to the property. Maybe the property has hidden structural issues that require costly repairs. Property investments can also be illiquid, meaning they aren’t easy to sell quickly if you need cash fast.

If you’re uncomfortable with these risks, there are other ways to invest and grow your wealth. Fixed term deposit accounts offer competitive returns without exposing your money to market fluctuations. You benefit from the certainty of knowing exactly how much you’ll earn on your savings once the term is up.

Buying a house in Ireland will cost more than just the purchase price. You’ll need to budget for:

• Mortgage fees
• Solicitor and lending agency fees
• Stamp duty, land registry fees
• Independent survey costs
• Valuation costs
• Mortgage protection and home insurance
• Maintenance costs
• Property management fees (if renting)
• Local property tax

You might also think about your plans for how you’ll use the property investment. Are you looking to use property to fund your retirement, pass it on as a legacy, or sell it when the market peaks? Property is usually seen as a long-term investment, and selling isn’t always quick or easy. If you need to access your funds in a hurry, property investing might not be the best option.

If you’re set on a rental property investment, you might think about the time you can commit. Owning and managing property can take up a lot of time. Landlords often have to deal with tenant issues, property upkeep, and administrative tasks. Hiring a management company can help, but this will add to your costs.

Irish property investors are also subject to fairly high taxation. Rental profits will be taxed at your marginal rate, while capital gains tax from property sales is 33%. Property funds may be more tax-efficient. These taxes can significantly eat into your overall returns, so it’s something to consider.

Other investment options, such as stocks and shares or bonds, might better suit your needs. You can read our complete guide to investing to read up on your options.

If you have a lump sum of money to invest, a high-yield savings account could offer a similar or better return without the complexities of property ownership. With Raisin Bank, savings of up to €100,000 per person, per institution, are protected under the EU-wide Deposit Guarantee Scheme. If you have more to invest, you can easily open multiple accounts with just a single registration.

If you’re uncomfortable with the level of risk that comes with investing in property, you could put your money into savings accounts which offer competitive rates of interest, such as fixed term deposit accounts. As the interest rate is set when you open the account, you know exactly how much interest you’ll earn by the end of the term.

*https://www.cso.ie/en/releasesandpublications/ep/p-rppi/residentialpropertypriceindexmarch2024/