Conflating short term month to month nett cash flow with profit is one of the reasons the small / non professional landlord can feel they have it tough.
Expecting month to month rental income to more than cover the repayments on a property is not a realistic business plan. The landlord is acquiring increasing equity in an ä appreciating asset (over the long term to allow for market fluctuations). To expect not to have to contribute on an ongoing basis to their increasing equity in that asset during the lifetime of the mortgage is unrealistic.
Property letting needs to be viewed as a long term investment. The early years need a nett cash input (including the initial deposit and an ongoing top up of the mortgage payment).
At some point, inflation / rising rents and increasing equity in the property, will result in a neutral and then positive cash flow. The property can then generate a nett monthly income.
Once the mortgage has been largely repaid or if someone has inherited a property free of any financial encumbrances then the rent received can provide a reasonable nett monthly income. Expecting rental income to do this from day one is not a sustainable or a realistic business plan.
The budget has upped mortgage interest relief for landlords from 80% to 100%. Expecting nett rental cash flow to cover or more than cover the monthly repayments is essentially expecting the taxpayer and tenant to fund the landlord's acquisition of a valuable asset for less than 20% of its value. Yet some people cannot see the hypocrisy in complaining about social housing tenants being allowed to partially offset rent paid against the purchase price of their home.
Like any business, property is a risk, risk and reward often go hand in hand and and the risk / reward benefit needs to be carefully considered. The small / non-professional landlord can be financially ruined by a bad tenant as they don't have the resources to spread their risk in the same way large property companies do.
Some small time property investors may have gone in with their eyes closed, were poorly advised or mis-sold on property investment as a near risk free sure thing. Some of those have been hit hard and you can't but empathise with their situation. Others, aware of the long term nature of their investment, I think are cynically using the plight of some of the small time landlords to try influence policy and further increase the returns on their long term investment, on which they pay very little tax.
Please note that the calculations here are wrong.
Capital repayments on a mortgage are not a cost/expense.
They are a form of saving.
The interest payment is a cost.
You do not pay income tax on the gross rental income.
Many people confuse cashflow with profits/losses.
Many landlords are making large rental profits, but are cashflow negative after making capital repayments.
Some landlords seem to assume that the gross rent should cover the interest and capital repayments.
Rent should cover the cost of occupation, not the cost of ownership.
I think that would be the ideal.......BUT for that to happen you need to fundamentally change the sector in Ireland and encourage big players into the market who will own/rent thousands of properties (as is the case in Germany) and anytime a firm displays an interesting in doing that they're immediately labelled as vulture funds.
We should be welcoming that kind of investment. Those companies are in it for the long haul and don't use spurious reasons to end tenancies. They can also well afford to carry the hassle of the odd bad tenant.
Let's assume that of the 700 mortgage payment, 500 is allowable interest. That's fairly high, but we will be generous.
This landlord is then making 1500 rental profits per month before other expenses.
Let's allow 100-200 pm for other expenses.
So they earn 1350 net rental profits.
On this figure they will pay tax at their marginal rate.
This is a discussion of Ireland not Germany. Even says so in the subject.
But yes even in Germany when you can end a lease because you need to use the property yourself or "kick someone out of their home when they've been paying their rent on time and haven't done anything wrong" if you prefer.
Not necessarily. My dear father tried that with one of his tenants, whose only fault was not backing down in a fight my brother had started.
My father tried to get the man out of the apartment claiming he needed it for his other son, who had finished university and now needed a place to stay in his home town.
The court ruled that it had been foreseeable that my brother would finish university and might need a place to stay, therefore other arrangements could have been made. The tenant got to stay.
There is this saying out there that the reason social policies can't get you elected in the US is that everybody there feels they really are a millionaire, just with temporary cashflow problems.
I think the reason it's impossible to introduce sensible rental laws in Ireland is that everyone here thinks of themselves as landlords who just haven't got round to buying the properties yet.
Yer Da sells Avon Registered User
Why would offering security of tenure to well-behaving tenants not be feasible in Ireland, when it is in Germany?
Fabio Registered User
I often wonder how this happens. I know it does, so not questioning that, but people need to be a little better at assessing who they are letting property too...
wowy Registered User
I thought victim-blaming wasn't allowed on boards?
I didn't say it wasn't feasible or possible just that I don't foresee it. Not that even Germany does what was being asked for.
40 years of having a fairly flat population probably does make some things easier but if people really wanted to clone the German housing market I'm sure they could.
If people could tell the future they'd just buy one lotto ticket.
Unfortunately you can't always judge a book by the cover. I've heard of seemingly respectable professionals leaving with thousands of euro in arrears and damage to property they were renting.
A landlord can try to shorten the odds of being left high and dry but the only things certain in life are death and taxes.
marieholmfan Registered User
Why on earth would you believe that?
I think there are 170 thousand landlords in Ireland. It's a fairly sizeable voting block once you add in spouses. Maybe 10% of the electorate. Even before getting into people thinking of themselves as landlords of the future.
Because German institutional landlords are more than happy with a long run return of about 5% and consequently they are not interested in, nor do they drive, market volatility.
In contrast, if, like in Ireland, you're a landlord with one or very few properties there is a significant incentive/temptation to either sell (taking the property out of the rental pool) or turf a tenant to get someone else in on a higher rent.
Furthermore, you're right - a good well behaved tenant should have pretty much an unfettered tenancy, but on the flip side it needs to be easier and quicker to get rid of bad tenants and recover unpaid rent and the cost of repairs from them.
When it went bad for us it cost us about €20k in fees and repair bills......plus the rent foregone.......then we had a series of solicitors' letters from the former tenant because of our refusal to give them a reference (in which they claimed the damage was not their fault......it was their sub-tenants!!).
andekwarhola Registered User
The alternative is wasting taxpayers money on exorbitant rents on the private sector or hotels.
The need for subsidised housing is never going to go away so it might as well be as cost-effective as possible.
The irony with the typical Irish government /local authority love for outsourcing infrastructure and other state needs to the private sector is that it always actually often ends up costing the taxpayer more in the long run.