It’s often said that one of the sweetest moments for any homeowner is that longed-for day – usually when one is approaching retirement – when the onerous home loan is finally paid off and the long-term debtor is finally liberated from the burden of the dreaded monthly mortgage payment.
Opening a bottle of champagne to celebrate the timely commencement of a new, mortgage-free life, seems entirely in order.
For the property investor too it used to be that reaching the point where all mortgages were paid off and the investor could look forward to some useful retirement income was a day similarly intensely anticipated.
Yet in recent years, the mortgage-free investor seems an increasingly rare animal. The lure of interest-only loans, where the capital is not repaid at all, has become increasingly common over the past 20 years and investors often “gear up” their properties to borrow as much on them as possible.
Mortgage interest tax relief, making loan interest costs partly or wholly deductible against tax, means that maintaining rather than paying off debt can be financially advantageous. Added to that, investor loans on different properties are often amalgamated, increased and extended with the result that the sense of joy at paying off the debt on a single property often no longer applies.
And just as I was thinking that, for the property investor, the old-fashioned paid-off-the-mortgage huzzah moment of delight is a rarity, I discovered an intriguing equivalent.
The other day I was looking through some accounts when I realised that for the first time ever, I had reached an important milestone. The annual rent for one of my largest (10 bedroom) properties was, at €72,000, exactly equal to the price paid (in pounds) for the house a very distant 22 years ago. The annual “return on investment” had finally clawed its way all the way up to 100 per cent, at which point even I have to admit it has been a “pretty good investment”.
Rent roll
Don’t get me wrong. The journey has been a million miles from just sitting back and watching the rent roll in. The property was bought as a wreck – though even in 1996, €72,000 seemed a bargain – and a lot of money had to be spent doing it up. In the first year, the annual rent was less than a fifth of what it is now.
Also, back then, the risk of interest rates soaring to double digits seemed much greater than it does now. Over the following years, the basement rooms were converted to considerably increase space, and the surrounding area went through a process of “gentrification”.
I had my share of building disasters and nightmare renters, but I hung on in and eventually discovered that the property had greatly increased in value. Best of all, the initial cost – long since amalgamated into other loans – could theoretically be paid back in what was being received in just one year.
I have certainly benefitted from unexpectedly low interest rates and unforeseen property booms. But tempering my delight is the acknowledgement that – as well as all the graft of development and management – I have partly reached my investment milestone simply by, well, growing older.
I hadn’t done anything spectacular in the course of a year such as buying crypto currencies or tech stocks or finding a “unicorn” investment. I’d simply invested in a property and tenaciously attempted to keep improving it year upon year, trying to make it an enjoyable space for the many scores of people who have lived in it.
My celebration moment is a reward for a lifetime belief in a policy of “invest, develop and hold”, though it may equally simply reflect that I’m getting a bit long in the tooth.
Damian Flanagan is a property developer, writer and critic.
@DamianFlanagan
