What Nonresidents Should Know About Buying Your First Home in Ireland
Note: We didn’t end up buying this property, but we learned a lot in a short time. I wanted to keep a record of lessons learned, as buying a house in Ireland is still something I’d like to do in the future.
My in-laws have a family home they’re looking to sell, in Cork, Ireland. It’s a 3 bed, 1 bath in Douglas, Co Cork, minutes away from University of Cork College. It’s a rental home that brings in €1,200 per month. They wanted to sell for €250,000.
My wife and I considered buying it to continue using as a rental property. Our goal is to build up streams of passive income, and having a property with consistent tenants (thanks to its proximity to the UCC) and family to help watch over it was enticing (obviously we wouldn’t manage it from the states, so we’d pay someone a monthly management fee.) Then 5-10 years from now, who knows — if one of my wife’s cousins needed a place while attending UCC, they’d have a home.
To be honest, the idea we could invest in something that helped the family in the long run was more of an incentive than passive income.
However, we didn’t have a lot of time to consider our options. The auctioneer wanted to go out in 2 days, so I needed a crash course on buying property in Ireland from the United States, as a nonresident.
The math of buying property in Ireland from the United States
Before I start, it has to be said: Don’t take anything I say as investment advice. This is my experience researching buying a rental home in Ireland.
My first question: How do I know what’s a good return on investment for a rental property? The rental home at the moment threw off €1,200 a month: was that good? Bad? Sideways?
There’s a number of metrics to calculate return on investment. The simplest is Yield, which is gross income: how much income are you bringing in? Then there’s Net operating income, Capitalization rate, etc.
But the metric I found most helpful was Cash flow.
According to Ben, the formula for Cash flow is:
Cash flow = Net operating income – Debt service
When we simplify that down further:
Cash flow = Gross income – Operating costs – Debt service
With the following definitions:
- Gross income = the yield, or the rental income
- Operating costs = costs associated with the home
- Debt service = costs of your debt, or the monthly mortgage payment
Expressed in plain English: after expenses and monthly mortgage payment, how much income do you have coming in?
Then the question becomes: Is that number worth it to you? Because “passive income” is never truly passive. There’s work involved. Depending on how much you’re clearing in cash flow, a broken fridge or burst pipe could wipe out a year’s profit.
I like the Cash flow formula because it’s instantly understandable and simplifies a big decision into few moving parts. There are 3 moving parts, each with varying degrees of leverage:
Part 1: Increase gross income. Charge more for rent and cash flow increases. However, there’s a cap on how much you can increase rent, which depends on market conditions.
Part 2: Decrease operating costs. Reduce expenses. Really, there isn’t much flexibility here, unless I want to be a slumlord and never improve the property (which I had no interest in doing).
Part 3. Decrease debt service. Reduce the monthly mortgage payment and actual cash out of pocket. Per Ben, this is potentially the greatest point of leverage. If I can creatively finance the loan, I can increase what’s called my cash-on-cash return by putting less money down, and increase cash flow by decreasing the mortgage payment.
Which begged the question: Was there a creative way to finance this property? Could I put up less money up front (let’s say 10%) and close the deal?
Buying a home in Ireland as a nonresident
Regardless of nationality, residency, or visa status, anyone can buy property in Ireland. Actually completing the sale, however, is another matter.
Here are the 3 major challenges facing nonresidents who want to buy in Ireland, according to the Irish Times:
- Higher income requirements. In order to qualify for a mortgage, a single applicant needs to earn at least €100,000. For a double-applicant, it’s €150,000. If as a couple you don’t meet the requirement, you have to apply as a single (which restricts how much of a loan you can get).
Income must be in Euros. Many banks won’t loan you money if your income isn’t in Euros. This is because of an EU rule regulating lending in foreign currencies. There are a few banks that will do it (according to my research: EBS, Ulster Bank, AIB will consider it).
Your loan is classified as “foreign investment.” Whether you’re keeping the property vacant or renting it out, nonresidents are treated as investors. That means you have to put up 30-50% upfront, and your interest rate is nearly double. For example, interest rate for Ulster Bank is 4.95% compared to 2.9%.
These were the major challenges and it’s in addition to all the other closing costs:
- Survey fee
- Stamp Duty
- Solicitor’s fee
- Registration fees
- Real estate agent’s fees (technically taken from the seller but baked into the cost)
- House insurance (needed to obtain the mortgage)
Why we decided not to buy property in Ireland
Ultimately what stopped us from moving forward and creating a source of passive income was the down payment. Even the minimum 30% meant putting up €75,000. We didn’t want to lock up that much cash in one asset — especially at that yield. It didn’t seem worth the risk.
Of course, the math is only one way of looking at the situation. It’s a good place to start the conversation, but it’s only the start. When we thought through the rest of the situation, the deal didn’t play out well for us, either.
First, we’re considering buying our first home in New York. We don’t want to overextend financially, but also emotionally and with our time. We’re talking about our first property purchase. We want the time and freedom to do our due diligence, and focus on one thing.
Second, purchasing our first rental property in Ireland admittedly overcomplicates a situation where I’d prefer simplicity. Many more hoops to jump through, and even in the best case scenario, there was no way to personally watch over the investment, learn, and roll those learnings into the next investment.
Finally, as I understand it, part of the benefit of real estate investments is the ability to sell and then roll the money into another property, avoiding the capital gains tax. If we bought and sold in Ireland, I’m not sure of the process of rolling that capital back into the states.
The goal is to constantly ladder up to bigger and better projects, whether we’re building on our investments or education. Each success should build into the next deal, compounding each time.
This deal didn’t play out, but I’m glad we came across it. Buying property is something we’re actively thinking about, so this was a jump start on building mental models to make good decisions in the future.
And buying property in Ireland specifically is still something I’m interested in. Now I have a head start on understanding the intricacies required to make that deal happen.