I´ve had a few clients ask me about the new Irish government bonds recently and what the pro´s and con´s are for these versus a real estate investment.

Whilst these bonds guarantee a standard rate of return, in reality, they are not offering anything new, with some of these incentives already achievable through various savings schemes already in place. The main points are –

1. Interest Rates are fixed at 1% per annum, and DIRT is payable on the interest earned.

2. Bonuses are the only part of the scheme which are not taxable and you must leave your money in for a minimum of 5 years to receive any bonus (10%), 7 years to receive a 22% bonus, and 10 years to receive a 40% bonus.

3. After 10 years, the net return after DIRT would be equal to 3.96% return per annum – which certainly isn´t enough to get me to part with my cash for 10 years.

Additionally, these figures do not allow for any inflationary indexing. In other words, as the value of products and services go up, the value of your investment remains fixed, and there remains the very real potential that any interest and bonuses earned will be dramatically wiped out due to rising inflation.

Further information available here

Compare this to the “bricks and mortar” test in Florida –

1. You will achieve an annual rate of return on your investment at a minimum of 7 to 8% net of all costs. Due to the allowances and deductions which exist, you should never reach the tax thresholds in the States where you are have an income tax liability on the net rental income achieved.

2. The rental leases are signed on an annual basis and you can expect them to increase year on year in line with inflation, thus protecting your net rental return from any significant inflationary increases. The bond scheme offers no such protection.

3. The capital appreciation potential in these severely discounted properties is very real in the medium term and would certainly have the potential to outstrip any potential bonus offered under the government scheme (bear in mind you only receive a 10% bonus after 5 years, expect your condo to increase in value by more than this during the same period).

4. If you hold the property in Florida for the full 10 year government bond investment period, at a minimum you can expect a 7 to 8% annual rate of return on your investment every single year (a much higher rate of return than the bond scheme), and you will also benefit from significant capital appreciation after 10 years.

5. Your rental return will be in dollars, a very safe and strong currency at the moment, and certainly a lot less volatile than the “eurozone”. If the euro weakens any further against the dollar your rental returns will increase significantly in euro terms, as will the value of your investment.

6. Our Florida based investments are available for are approx 70% less than previous verifiable sales prices, and cost around 50 to 60% less than it would take to build the condos today.

7. Florida is an area of the States with excellent infrastructure, year round sunshine and lots of economic diversification. It is much better positioned to recover from the “bust” cycle than Ireland is at the moment.

Kevin Cross, Torcana

Tags: Florida Property Investment, Irish Government Bonds, Torcana

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