Finding a pre-63's double digit yielding property

Finding a pre-63's double digit yielding property

There are lots of residential properties on the market that are returning in the double digits. Whether the property market is moribund or not this kind of yield gives a compelling case for considering them as an income source.

There is one particularly hated, and therefore often overlooked sector of the market which I think is ripe for the pickings in the current market. The headline of the blog may have given it away if you did the maths, we are talking about pre-63’s.

Pre-63 means the property has been continuously let out since 1963 which was prior to the building regulations being issued. This was a time when tenement style housing was common in our cities and sadly, many of the buildings with this designation are not much improved today, but they have several things going for them.

1. If a property has been let out for over 45 years continuously then you know in advance there is a rental demand in the area, otherwise it wouldn’t hold this designation. That conquers one of the key fears of property investment – namely, whether or not somebody will want to live where your property is located.
2. Pre-63’s on the market at present are (not all but a high percentage of them) liquidator sales and motivated seller sales. This gives considerable negotiating power to the buyer. The downside is you’ll probably have to be a cash purchaser. I have been doing viewings of pre-63’s for several months now and the other people I bump into at viewings seem to be fairly clued in investors.
3. Pre-63 properties have a bad name, that makes them unloved, and in the way you can buy a stock on a contrarian basis you can do the same in property. The actual buildings are often sound and have stood the test of time, the materials used in the supporting structure are often of a quality you can’t easily buy any more – that also makes them expensive to maintain which is a downside.
4. Many pre-63 landlords are getting out of their investment because of the upcoming changes in the building regulations for rented property. That makes the time between now and 2013 a key buyers period for these properties – and of course, summer often helps because the reduced activity in the market makes any offer that little bit more attractive.

11 North Circular Road

11 North Circular Road

Let’s take a look at two examples, one is on the north-side of Dublin at the gates of the Phoenix park, a popular spot and a run down property that needs more than some tender love to put right. The location is good, the building has been allowed to degenerate and the main issue I saw while there (representing an interested client) was the difficulty in bringing the place up to code and amalgamating bedsits.

The only thing that makes sense is to get away from the bedsit proposal and turn them into 1 and 2 bed units (there are also minimum footage aspects that must be met from 2013). These buildings don’t require planning for internal changes so putting in steel and knocking rooms into each other is allowable and construction work is cheap at the moment.

47 Leinster Road

47 Leinster Road

So in this instance it’s a good location, a mediocre building but a bad proposition because of the layout. Which is why this one, on the south side in Rathmines is different. This building has a few issues, in particular that some of the units to the rear would need to be joined up between floors otherwise only one unit has access to the rear of the area. There is also the typical leakage between floors where the bathrooms are situated (normally shower trays are the culprit), some real work would need to go into this building, it’s a receiver sale as well meaning you won’t get to talk to the owner to find out some of the nuances like how the common heating is set up etc.

Having said that, if you were able to bid this property at about 25% below it’s list price – and in pre-63 properties I have personally seen this happen on more than one occasion, you could do some nice remodelling and be in the double digits of a yield.

Multi units are nice in that one vacancy doesn’t have the same impact as with single houses, the area also has a high demand and rents fast so vacancy risk where it occurs is reduced. The 12 foot ceilings and building in general is broken into units in a much more sensible fashion than the one on NCR. A big issue would be to re-slab (for fire safety even though a cert is not required) and re-wire then strip out bathrooms and re-install them minus the leaks.

A proposition like this could (if you were to close at €450k and spend 60k getting it done up) easily put you in the 12% yield range, giving a repayment period of 8 years, and if you held for 7 years you are then CGT free as well on any gain, which if you were to obtain any rent increase and price based on a 10% yield would see considerable uplift.

This type of investment is not for the feint of heart, if you haven’t built or developed already and are not familiar with renting out properties, the laws surrounding it and building code then either seriously up-skill or stay the hell away, but for those with the appetite and money to do it, pre-63’s are a golden opportunity.

You can take a look by going to ‘advanced search’ on the homepage then just enter the words ‘pre 63’ in the blank details box at the bottom of the search area.

Happy hunting!

@karldeeter

 

 

 

Irish Mortgage Brokers

There are 15 comments for this article
  1. Nicola Meadows at 5:11 pm

    Just starting a report on one now and researching…

    It seems the Fire Safety Regulations applicable would be the Fire Services Act plus the 1994 Guide for Fire Safety in Flats which shows compliance with the Fire Services Act.

    It seems that the housing standards regulation is now (since 2013 law) “Housing (Standards for Rented Houses)(Amendment) Regulations 2009” plus the 2008 original of that.

    But any new alterations should comply with new building regulations, where not exempt.

  2. Karl Deeter Author at 10:47 am

    Hi Mark,

    What planning regulations are a concern if you are not altering the footprint of the building? (no additions etc.)
    karl

  3. Mark Brindley at 3:20 pm

    Karl, I am assuming your reference to pre-63 is only to building regulations as opposed to planning regulations which your readers/followers would/should be necessarily aware. Interesting article in any event. Mark

  4. gabhla at 8:19 pm

    60k to to up a pre-63?
    ~I would say, more like 160k, or 200k.
    many of these properties are in bits, and require large amounts of work.
    also, very large numbers will come on the market soon, pushing down the price further.

  5. Deirdre at 12:38 am

    Hi Karl,

    When you say 10% yield, do you mean, for example if i spent 500,000 buying and doing up a property,i would get 50,000 p.a. in rent before expenses and taxes

    Also, does the new legislation governing bedsits give a minimun size for a bedsit?

    Where do i find a copy of the legislation?

    Thanks,
    Deirdre

  6. Ciaran at 11:32 pm

    Hi Karl,
    No mention of the 1st and 2nd Home taxes which need to be factored in for each unit. Quite a hefty bill which I believe cannot be written off as allowable expenses. And no doubt set to rise!
    Good article, thanks.

  7. Roger at 5:34 pm

    Karl, a very interesting article on pre63’s. I have one across the road from 11 NCR which I am prepared to sell if any of youe clients are interested?
    In fact, I had a Fire Consultant look at it today and he indicated I would need a Fire Cert to meet the fire requirements for flats. When you mentioned the Building Regs changing in 2013 do you mean the Housing Standards for Rented Accommodation when each flat or studio has to be self contained, etc? Also, I am not aware of new footage requirements – what document is this in?
    Many Thanks

  8. Tony Murray at 5:31 pm

    pre 63s rental properties done well up to recent years due to a general lack of availability of alternative accomodation for the ‘target market’. Demand outstripped supply! Simply…

    However, with increases in the number of apartment now available to rent in Dublin’s central locations there is more competition for landlords and greater requirements regarding re-investment.
    The quality of apartments, those recently built, are better. More natural light, better managed hopefully, and less chance of dampness etc…

    In sum, my opinion is that the quality and extent of accommodation in Dublin’s central locations is improving steadily and there is a greater variety of accomodation for the traditional target market… Regulation will force better standards and regular inspections of properties which will hopefully soon to happen show increasing improvements for tennants; this will drain yeilds by way of re-investment in standards. Old building are exactly that! The cost money to keep them going.

    My general feeling is that pre 63s have a place in the market and it is (as Phil Hogan suggested previously) to house families. This will reduce rent yeilds as multi unit function will be less viable in pre 63s.
    This change of use will require a marking down of the selling price of these buildings; as future use will require a transformation back to family type function with a significant yeild component attached.
    Is this pre 63 not just more hype to get fresh investors in and get the old out while they have some skin left? I’m not convinced these are a good investment!
    Comments, Criticisms and Corrections welcome.

  9. D at 4:09 pm

    Tried a search with pre 63 as you suggested but nothing came up for Dublin 6?

  10. D at 4:08 pm

    Tried search engine on myhome by putting in pre 63 as you suggested for Rathgar but nothing came up!

  11. Frank at 4:04 pm

    Hi Karl,

    How can I find out more about bringing such properties “up-to-code” to meet new requirements in 2013?

  12. Conor at 2:30 pm

    This article’s focus on yield is quite typical of other posts Ive seen on myHome yet the real measure of investmnet return on income producing property should be IRR. (Internal Rate of Return) which captures the ‘time value’ of the funds invested. The yields referenced in this article apear to be typical annual yields(?) which of course will vary over the holding period. I’d encourage potential investors to ‘number crunch’ on the basis of IRR.

  13. Brendan Burgess at 2:06 pm

    “A proposition like this could (if you were to close at €450k and spend 60k getting it done up) ”

    Hi Karl

    An intersting article and I had wondered about the yields on these properties. I know very little about property rebuilding but I would have thought that €60k wouldn’t get you anywhere. A friend of mine is selling his 2500 sq ft Pre 63 for around €500k as he reckons it would cost €1m to comply with the regulations. I suspect that the €1m is an exaggeration, but I would think that it would cost far more than €60k.

    47 Leinster Road is a protected structure which would push up the expense and timeframe significantly.

    See the full listing here http://www.dublincity.ie/Planning/HeritageConservation/Conservation/ProtectedStructures/Documents/Record of Protected Structures, 2011-2017.pdf

    Brendan

  14. Karl Deeter Author at 1:34 pm

    Hi David,

    The buildings I have been working on are 12% after the work is done, currently many are 10 units and could be made into an equal yielding 5 unit which is up to code and producing a similar income with better upside. The idea is also that you obtain discount on the way into the deal which is also happening and thus gives higher chances of getting the 10% or more return.

  15. david at 1:15 pm

    The 12% yield seems disingenuous.

    You’d have to spend the entire yield, and potentially more, in year 1 to reconfigure the properties for subsequently lower yield as the square footage per occupant will go up.

    This is probably the reason the owners wish to cash in early, and not reinvest to secure a lower yield in the future.

    The cost of the investment to bring the properties “up-to-code” should be reflected by a 25% discount in the price.

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