Renting a property - business

edanto

Chrisdotdot, as vandriver says, you've made a lazy and fatal mistake in your 'profit' calculations.

Rental income is taxed, not rental 'profit'. There are deductibles (I think you are allowed take off 75% of the INTEREST portion of the mortgage, management fee, repairs off the total rental income to produce the final 'taxable rental income').... but all of that information about tax on rental income is easily available, and you'd be well advised to research it properly and recalculate the tax that would be due.

I think that your estimates of 1.4k monthly rent for a 1 bed in D2 is far too much - look at the PRTB reports which shows the average in that area (they show actual prices instead of asking).

Your maintenance/repair costs are too low, based on the upkeep that my landlord had to do on our city centre apartment. I lived there for about 5 years, and in that time, they spent about €3,500 (carpet changed to laminate floors, completely painted, freezer/washing machine were replaced, curtains and couches).

All that being said - you might still have an investment opportunity, but your numbers need a lot of work and you need to park your assumptions.

Chrisdotdot

Guys, thanks a lot for all your input. It's really valuable for me. I will make my numbers more realistic after few calls to estate agents and some fake offers on daft to get some real knowledge about demand and prices.
I will definitely upgrade the spreadsheet with:
- increased maintenance price/furnishing/renovations
- possible other once-off expenses (land and mortgage register entry, estate agent margin etc.)
- removed NPPR as someone suggested it's no longer valid (replaced by LPT?)
- 75% tax relief, not sure about how it works; strange thing here is that BOI online mortgage calculator shows different figures than my spreadsheet; it means they are taking into account some other numbers - I thought it might be that 75% tax relief was taken into account there; APR 5.7 in my spreadsheet gives more/less same monthly payment as APR 5.8 on BOI calculator... I will make sure about that bit
- the business here is only about positive cashflow; I invest in different markets and even if after my safe calculations it happens that cashflow drops to negative then I would do my best to repay mortgage as much as needed to bring cashflow to positive level. That would obviously dramatically decrease ROI from ~5% to e.g. 0.5%, but that's all about investing - taking risk, isn't it? Worst case I would sell and take a loss. I cannot let myself paying bad investment every month. I don't care what happens to property price in future - just cashflow. If the price goes up then I would sell it, if it doesn't then I keep cashflow. This kind of investment in Dublin City Center would rather be stable and safe.

The big picture right now is more less I need to look for something that meets:
property price = 100x monthly rent
If 1-bed apt in Dublin 2 doesn't meet that then maybe something else? I'm limited with my creditworthiness to EUR 200k. Obviously I cannot buy anything meeting 100x criteria on market price, so it breaks down to how difficult it is to find motivated seller that would agree to let's say market-25% price.

If you have any ideas about some clever tax tricks or property investment tricks then let me know. I know some people buy properties in very bad condition and then fix it or increase numbers of bedrooms, etc. I'm determined to invest in property as I don't have any yet. The question is whether I do that in Dublin/other part of Ireland/other country. I'm monitoring few property markets right now.

The_Conductor

You're not going to persuade any seller in the Dublin city area to accept a discount of 25% on asking price. The way the market is at the moment- a premium of 25% isn't unheard of- thats the state of play in the Dublin market (which I have to emphasize is completely decoupled from the rest of the country).

100 Times monthly rent max price?

Start looking outside of Dublin- because this is wholly unachievable- its so far out there- its not going to happen.

markpb

Our Year wrote: »

I know the op wants to run this at a profit, but just to play devils advocate (and learn something), say it makes a loss, 50e per month, or 100e per month. He is still having the asset paid for over the term? (obviously the value of said asset can rise or fall). Qualifies as profit?

He could make a loss but still have to pay quite a bit of tax. Add in the additional workload, it would hardly be worth it.

Chrisdotdot wrote: »

- 75% tax relief, not sure about how it works; strange thing here is that BOI online mortgage calculator shows different figures than my spreadsheet; it means they are taking into account some other numbers - I thought it might be that 75% tax relief was taken into account there; APR 5.7 in my spreadsheet gives more/less same monthly payment as APR 5.8 on BOI calculator... I will make sure about that bit

You're mixing up TRS (which only applies to mortgages on your home) with interest deduction on your tax bill (which only applies to rental properties). Since you're presumably applying for a PPR mortgage with BoI, their website is quoting the monthly repayment net of TRS. This doesn't apply to you.

djimi

Chrisdotdot wrote: »

The big picture right now is more less I need to look for something that meets:
property price = 100x monthly rent
If 1-bed apt in Dublin 2 doesn't meet that then maybe something else? I'm limited with my creditworthiness to EUR 200k. Obviously I cannot buy anything meeting 100x criteria on market price, so it breaks down to how difficult it is to find motivated seller that would agree to let's say market-25% price.

Again have you actually found any properties that meet this criteria?

You might be able to find some properties in places like Leitrim that you can buy for €35000 and rent for €350 a month, but these are very poor rental markets and the chances are you could be faced with larger than normal vacant periods.

In a healthier rental market its not likely that you are going to buy a rental property for 100x the monthly rent. I wouldnt say it would be even remotely close to that.

Chrisdotdot

Hi there.
I had a look at some places. It looks pretty difficult to meet the criteria and succeed in that business with my assumptions. However I found out recently rent-a-room scheme. There are apts to be found outside Dublin to buy for EUR100k with the potential to rent a room for EUR430/month. I could buy one like that, live there myself and rent a room. Then EUR430/month covers my mortgage (which is lowest APR as first time buyer), I don't have to do PRTB and I don't pay income tax on that (since <EUR10k is not taxable). How does that sound? As a first time buyer I have to live there only for 5 years - after that I can just sell apt. More less it gives me free apt to live.
Am I missing something? Because that looks quite cool.
Cheers

markpb

Its a fine plan as long as you accept that you're mixing business with pleasure. You have to share your home with someone, get along reasonably well with them, fix all the little things quickly that you'd otherwise let lie, accept that they'll come in late or leave early, might not tidy up after themselves, etc. There's nothing wrong with it, just don't think of it as get rich quick scheme.

Edit: forgot to mention that now you're deciding where to live based on how to make money. Will you be happy living there, can you get to work easily?

The_Conductor

How reasonable is it to expect 430 a month for the rent-a-room scheme, outside of the Dublin area? I don't know where you're talking about- but it seems a good deal optimistic- if 2 bed apartments are 100k- there obviously isn't massive demand in the area.

Also- the 10k a year- is all receipts from your rent-a-room housemate. Aka- its his or her share of all the bills etc- these are not in addition to the 430 a month. Once you go a penny over the 10k- for whatever reason- the whole lot is taxable- not just that portion in excess of the 10k.

Further- there are costs of ownership- wholly aside from the mortgage, that you, as owner, will be expected to meet (such as property tax, management charges (seeing as its an apartment), insurance (you'll need an enhanced policy as the property is not solely owner-occupied) etc etc etc)

Your idea sounds wonderful- but you really need to drill down into the nitty gritty and see whether it adds up, or not. You seem to be taking an unduly rosy look at things here.........

odds_on

Chrisdotdot wrote: »

Well obviously I'm not going to enter losing business. I did a spreadsheet with all knowledge I have, take a look:
https://docs.google.com/spreadsheet/ccc?key=0Ako2azpDjFRKdDhESF94LTc1bTZFQk1BZEJER2lyOEE&usp=sharing

I skipped estate agend for now - so I would take care about property myself.

Any clever thoughts in general?

Jumped into this thread having read as far as post #16 and have missed the later replies.

I notice that you have missed out Landlord's insurance.

As you will be in the renting business, you will be assumed to have a thorough knowledge of all the law pertaining to renting. Any slip-up could cost you thousands in damages awarded to your tenants.

For some reason, people seem to think that the renting business is a simple job. You advertize your prooperty, you get the tenant in place, sit back and bingo, in a years time you have a profit and income.

Just like any business there will be problems, often unforeseen in the renting business which will dig deep into your profits.

Have you read the Residential Tenancies Act 2004 and the Housing Standards for Private rented Accommodation 2008 (as amended 2009) which governs much of the renting business.

Do you know how to deal with anti.-social tenants?
Do you know the difference between the different types of leases - periodic, Fixed term and Part 4? And the implications of each type.
What will you do if a tenant over-holds and is not paying rent? It will probably take months to resolve (if you are exceptionally lucky as the PRTB are extremely slow and rarely is a claim resolved in less than 4 months.
What will you do if a tenant fails to pay the rent?
You do know that once a tenant has been in a property for 6 months he then has the right to stay for a total of 4 years without signing any new lease.

You will find that a tenant's idea (and the PRTB's) of "normal wear and tear" is completely different to an ordinary house owners. You may well expect to have to do some redecorating between each tenancy - nearly on a yearly basis.

As regards your spreadsheet, IMHO, you need to do a proper Anticipated Profit and Loss Account with cumulative totals on a monthly basis. And allow more than 800 p.a. for your furnishing, repairs and renovations (including PRTB and BER).

marathonic

You would think that Irish property investing would be a sure fire way to make money given the recent drops in house prices. This is not the case. It's not in Dublin, nor is it in other counties.

I think some more realistic figures can be seen in my working below. Some might even consider these optimistic.

They show that it's possible for an investment to 'just about' hold it's own on an interest only mortgage. Of course, it'd be impossible to obtain such a mortgage so you'd need to subsidise the investment with your own income.

My figures are also based on the fact that you cannot offset your entire mortgage payment against rental income for tax purposes and you can't even offset the entire interest portion - only 75% of it.

The basic outcome of my investigation in Dublin, and other counties, is that investing now only makes sense if you want to take a punt on rising prices.

If you want to be a professional landlord, you'd need to wait until the rent rises, or property falls, to a level where the profits cover the capital repayment portion of the mortgage. That way, the investment looks after itself and you can move onto the next.

If you need to subsidise each property you buy using your own income, you'll soon find yourself in a position where you have no income left.

https://drive.google.com/file/d/0B29azmuweF9_dExoVE1iUTJZQ3c/edit?usp=sharing