Building a Property Portfolio

Women Mean Business Magazine speaks to Noreen Hynes, a Chartered Accountant and the Managing Director of Aquarius Properties.

How is buying property abroad different to five years ago?
Most people are now looking to build property portfolios, building wealth. That’s a whole new ballgame to buying a holiday home, because you want to earn capital appreciation on your asset over the years, and you want rental income so that you can finance your mortgage.

What is the favoured type of property that you would recommend?
We go for quality, high end projects which are resort-based, because most of our clients don’t have time to be involved in the maintenance of city properties. They don’t want to know if the pipes burst. When you have a city property you have the headache of finding a rental and management company that you can trust. And that can be very difficult in cities. The high end properties which are run by hotel groups are the best properties to go for because they have guaranteed occupancy levels. Your property is managed. You don’t have the headache and you are getting good rental yield on it. And of course if you want to use it yourself for three or four weeks of the year you can do that as well!

Can you give an example of a common client request?
A client may be 45 now, and by the age of 55 they may want enough property to give them a bit more security so they can retire comfortably. So the client says, ‘I want to build a good property portfolio so that I have an excess of rental income over the annual outgoings at my retirement.’ If you have purchased property over a ten year period, the properties you bought in the first few years should have excess rental income built up over the period. It’s all a matter of planning, timing, and buying the right property for you.

How does having a property portfolio compare to building up a pension?
A pension fund manager could possibly turn around and tell you ‘we can’t pay you what you originally thought because the pension fund didn’t do too well! It went down 40% last year.’ Just like that! Properties don’t fluctuate as much as shares. Property does plateau, and can level out for a few years. Shares can fluctuate more in shorter periods and in some cases can disappear leaving you with a worthless share cert. With property you have more security and you are in control. Your pension fund incurs annual management fees which are calculated on the value of your fund and this can eat into your fund especially when the values are declining.

And you can leverage property?
The most important thing about building a property portfolio is the leverage capability. It is a crucial concept to understand when you are going into property — the returns on leveraged property versus unleveraged property. If someone comes to me with €50,000 for a property, I will ask them, are you going to borrow to buy a more expensive property? If you borrow €50,000 and put it with the €50,000 you have you will earn bigger capital appreciation as well as rental income which can fund your property. At present, some of our overseas properties yield between 12% and 15% per annum. That’s 15% you are getting on your €100,000. But you are only paying 5% to the bank on your mortgage of €50,000. The 10% pa additional capital appreciation you earn on the €50,000 can go a long way to create wealth for you over a ten year period through compounding. It’s a fact that over the long term leveraged property is a better investment than stocks and shares but take advice before rushing in.

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