Why I'm taking my rental off the market

Fol20

Trasna1 wrote: »

From your post above it's perfectly clear you don't understand how the business model works. You're far from some in this as there are plenty of landlords here who don't understand it either and it seemingly pains them to have to make top up payments to cover the mortgage/running cost/tax etc.

If someone isn't having a cash surplus on a month to month basis, it doesn't mean that it's not a profitable endeavor if it means that their mortgage on a property that they will own outright is closer to being paid off. If someone has to top up a monthly mortgage payment by €100 over rent after tax and running expenses, over 30 years they will have invested €36k additionally into the property over their 30% deposit. For a house of €300k, and a 30% deposit with a €100 monthly top up payment the landlord will have invested a total of €126k of his capital not derived from the property in the property - effectively doubling his money in today's terms.

It is a point often overlooked that the landlord has effectively someone else paying a large proportion of the mortgage - of a property that he will fully own when the term is over.

Yes, it's not without risk, but no investment is.

One key difference is that the goal posts of this are being changed constantly.
its much more hands on with a lot more leg work compared to other investments which you cant bill for.
Your asset isnt diversified so when when it goes bad, it can really go bad.

Old diesel

The problem i see is this.....

1) faster removal of problem tenants - no problem.

2) lower tax - no problem.

3) workable insurance set up to protect landlord who has damage done by bad tenant - no problem.

4) making a return on investment - no problem.

The challenge however is what should the per month cost structure be in the landlord sector.

Bottom line is that no matter what issues there are - the prices been expected for rent are often financially unsustainable for tenants.

So there needs to be at Government level some sort of signal regarding the rental sector we should aim for in terms of financial sustainability for everyone involved - tenants AND landlords.

If we can identify a workable system of establishing costings whereby a landlord gets what they need BUT the government bridges the gap between tenants sustainable rent (30 percent of income) and what a landlord needs to get a monthly then we could get somewhere.

The government could also look at reducing mortgage repayments for landlords - combined with tax cuts.

I just fear there is a gap between what's financially sustainable for tenants to pay and what a landlord requires to make a profit every month

BrokenArrows

The single biggest issue with the rental system is the long drawn out process of non paying tenants.

There should be a way for the tenants to be removed from a property immediately if the fail to pay more than 1 months rent.

Some **** can happen to anyone where they miss 1 months rent, but if they are unable to rectify that within the next month then there is almost no chance they are going to repay 2 or more months rent.

Landlords should not be responsible for what is basically forced social housing.

The alternative is that if someone stops paying the rent then the council should pay the missed rent because they would have to pay to house the people if they were on the street anyway.

Trasna1

Trasna1 wrote: »

From your post above it's perfectly clear you don't understand how the business model works. You're far from some in this as there are plenty of landlords here who don't understand it either and it seemingly pains them to have to make top up payments to cover the mortgage/running cost/tax etc.

If someone isn't having a cash surplus on a month to month basis, it doesn't mean that it's not a profitable endeavor if it means that their mortgage on a property that they will own outright is closer to being paid off. If someone has to top up a monthly mortgage payment by €100 over rent after tax and running expenses, over 30 years they will have invested €36k additionally into the property over their 30% deposit. For a house of €300k, and a 30% deposit with a €100 monthly top up payment the landlord will have invested a total of €126k of his capital not derived from the property in the property - effectively doubling his money in today's terms.

It is a point often overlooked that the landlord has effectively someone else paying a large proportion of the mortgage - of a property that he will fully own when the term is over.

Yes, it's not without risk, but no investment is.

While I even disagree that it’s acceptable to have have to top up by even 100 euro per month from an investment perspective this is the only thing you are looking at i.e. the investment aspect of buying and letting out a property but you are ignoring that’s many LL see it as a business a business that they want to make additional income from on top of their job which is completely the opposite to having but to top up with money from your salary.

If the letting business is not profitable then many people will not want to operate a letting business. This nonsense that has popped up lately of a small number of people thinking it’s acceptable for a person to have to add money to cover a mortgage in a rented property is madness. It is certainly not how the business model is supposed to work either.

Browney7

Marlowe Yummy Louse wrote: »

While I even disagree that it’s acceptable to have have to top up by even 100 euro per month from an investment perspective this is the only thing you are looking at i.e. the investment aspect of buying and letting out a property but you are ignoring that’s many LL see it as a business a business that they want to make additional income from on top of their job which is completely the opposite to having but to top up with money from your salary.

If the letting business is not profitable then many people will not want to operate a letting business. This nonsense that has popped up lately of a small number of people thinking it’s acceptable for a person to have to add money to cover a mortgage in a rented property is madness. It is certainly not how the business model is supposed to work either.

So the capital value of the property at the end of the mortgage term is the cherry on top?

Taking your example to the extreme, should rent cover a five or ten year mortgage?

BrokenArrows

Marlowe Yummy Louse wrote: »

While I even disagree that it’s acceptable to have have to top up by even 100 euro per month from an investment perspective this is the only thing you are looking at i.e. the investment aspect of buying and letting out a property but you are ignoring that’s many LL see it as a business a business that they want to make additional income from on top of their job which is completely the opposite to having but to top up with money from your salary.

If the letting business is not profitable then many people will not want to operate a letting business. This nonsense that has popped up lately of a small number of people thinking it’s acceptable for a person to have to add money to cover a mortgage in a rented property is madness. It is certainly not how the business model is supposed to work either.

Why do you think a landlord should be able to buy a property with borrowed money and then make an instant profit every month from day 1? So you want to profit every month on a mortgaged property AND also profit on the capital gains on the property itself. Sounds like you want your cake and eat it too.

If two people own an identical house outright and rent it out for the same monthly rent but person A paid for the house in cash and person B got a mortgage.

So Personal A takes home 100% of the rent and Person B has to top up by €100

Same investment but a different outcome.

Thats the problem with the Irish rental market. Everyone thinks they should be able to cover their mortgage with the rent. That shouldnt be the case and is the reason you have people paying 60+% of their salaries on rent.

Fol20

Old diesel wrote: »

The problem i see is this.....

1) faster removal of problem tenants - no problem.

2) lower tax - no problem.

3) workable insurance set up to protect landlord who has damage done by bad tenant - no problem.

4) making a return on investment - no problem.

The challenge however is what should the per month cost structure be in the landlord sector.

Bottom line is that no matter what issues there are - the prices been expected for rent are often financially unsustainable for tenants.

So there needs to be at Government level some sort of signal regarding the rental sector we should aim for in terms of financial sustainability for everyone involved - tenants AND landlords.

If we can identify a workable system of establishing costings whereby a landlord gets what they need BUT the government bridges the gap between tenants sustainable rent (30 percent of income) and what a landlord needs to get a monthly then we could get somewhere.

The government could also look at reducing mortgage repayments for landlords - combined with tax cuts.

I just fear there is a gap between what's financially sustainable for tenants to pay and what a landlord requires to make a profit every month

I honestly thing the government should fund anything towards ll and this is from a ll point of view.All this will do is make rental prices go up as ll will want to achieve the maximum amount possible. Even HAP pricing can cause housing prices to increase to a degree. What should happen is leave the market naturally sort itself out coupled with quicker eviction processes. This is what should happen in a free market however im not sure what our government are trying to do at the moment.

Fol20

BrokenArrows wrote: »

Why do you think a landlord should be able to buy a property with borrowed money and then make an instant profit every month from day 1? So you want to profit every month on a mortgaged property AND also profit on the capital gains on the property itself. Sounds like you want your cake and eat it too.

If two people own an identical house outright and rent it out for the same monthly rent but person A paid for the house in cash and person B got a mortgage.

So Personal A takes home 100% of the rent and Person B has to top up by €100

Same investment but a different outcome.

Thats the problem with the Irish rental market. Everyone thinks they should be able to cover their mortgage with the rent. That shouldnt be the case and is the reason you have people paying 60+% of their salaries on rent.

No thats not correct at all. Its all about economics and supply & demand. Ll charge what they are able to achieve and in our current market, demand is high, supply is low. 5 years ago, it was the opposite so you need to take the good with the bad. The only difference now is that when ll should be able to take the in preparation for the next slump, the government are making it as difficult as possible through extra taxation, less tax reliefs, and not being able to achieve market rate through an arbitrary 4pc rpz.

Its not a profit every month. 5 years ago rental prices were a lot lower and in the future at some point or another the positions will be reversed again but i highly doubt the government will be out trying to protect ll so much compared to what they are doing now for tenants.

As i say to people, if this business is so lucrative, why are people leaving instead of joining the market..

Old diesel

BrokenArrows wrote: »

Why do you think a landlord should be able to buy a property with borrowed money and then make an instant profit every month from day 1? So you want to profit every month on a mortgaged property AND also profit on the capital gains on the property itself. Sounds like you want your cake and eat it too.

If two people own an identical house outright and rent it out for the same monthly rent but person A paid for the house in cash and person B got a mortgage.

So Personal A takes home 100% of the rent and Person B has to top up by €100

Same investment but a different outcome.

Thats the problem with the Irish rental market. Everyone thinks they should be able to cover their mortgage with the rent. That shouldnt be the case and is the reason you have people paying 60+% of their salaries on rent.

Feels like we need a different housing model in many ways.

1) more co op housing.

2) housing associations.

3) much higher income limits for social housing - as a rough starting point for discussion - a Garda or Nurse should be able to access social housing or housing support.

Where does the money come from for that.....

Good question - we need to consider the idea that paying 100* euros extra tax to save 400* euros a month cost is ultimately a good idea.

But in any case where does the money come from for 50/60 percent of income on rent. No one asks that question.

There is an urgent need to look at what a landlords costs should be each month. What return they need.

And whats the viability of Govt bridging the gap between a sustainable tenants rent AND what a private Landlords required income to make a return on investment that the Landlord needs to make the investment sound

*illustrative figures

Old diesel

Fol20 wrote: »

I honestly thing the government should fund anything towards ll and this is from a ll point of view.All this will do is make rental prices go up as ll will want to achieve the maximum amount possible. Even HAP pricing can cause housing prices to increase to a degree. What should happen is leave the market naturally sort itself out coupled with quicker eviction processes. This is what should happen in a free market however im not sure what our government are trying to do at the moment.

The problem is tenants have to spend money beyond sustainable levels in order to feed the market in order for the market to naturally correct itself.

This means upward pay pressure for employers - affecting our competitiveness.

There isn't a magic money tree

martinr5232

BrokenArrows wrote:

Why do you think a landlord should be able to buy a property with borrowed money and then make an instant profit every month from day 1? So you want to profit every month on a mortgaged property AND also profit on the capital gains on the property itself. Sounds like you want your cake and eat it too.

Do you think its ok for the revenue to take about half of the income per month not the profit the income and then another big chunk when the property is sold ??

Browney7

martinr5232 wrote: »

Do you think its ok for the revenue to take about half of the income per month not the profit the income and then another big chunk when the property is sold ??

What's your definition of profit?

I'm in favour of revenue taxing the proceeds of individual property investment in the same manner as individual investment in equities and bonds.

Senature

martinr5232 wrote: »

Do you think its ok for the revenue to take about half of the income per month not the profit the income and then another big chunk when the property is sold ??

While I agree landlords are being unfairly treated in many ways, any self employed person in Ireland pays tax at the same rate as a landlord. If their business has a loan, they are not allowed to deduct the loan repayments from their income when calculating tax. The only difference is they can claim 100% of interest paid as an expense, which landlords can't.
Fair enough there should be much greater protections in place for landlords if tenants are not paying rent or damage a property. Also, the rpz rent limits are poorly thought out as they don't take into account if someone was or wants to charge below the odds for any reason. Equally, there should be much better protections in place to ensure available properties for housing, retail etc are in use such as a max limit of 2-3 years on vacancy and/or fines CPO option etc.

martinr5232

Browney7 wrote:

What's your definition of profit?

Profit is what is left over after all expensis and taxes.
So rent a house for 1000 euro revenue take 500+ then pay a mortgage and any other expensis.

dubrov

martinr5232 wrote:

Do you think its ok for the revenue to take about half of the income per month not the profit the income and then another big chunk when the property is sold ??

Why do you keep saying the tax is on income? Tax is on profit (I.e income less expenses). Paying down capital is not an expense.

Old diesel

dubrov wrote: »

Why do you keep saying the tax is on income? Tax is on profit (I.e income less expenses). Paying down capital is not an expense.

If you are a small landlord then income is taxed NOT profit.

A small landlord getting 1600 euros a month in rent could pay 800 euro to revenue.

Costs/mortgage must come from the remaining 800 PLUS Landlords own pocket (if costs/mortgage more then 800)

dubrov

Old diesel wrote:

Costs/mortgage must come from the remaining 800 PLUS Landlords own pocket (if costs/mortgage more then 800)

You are obviously ignoring the part of the mortgage that is paid down.

If revenue were to only apply tax on cash flow, landlords would lump all their spare cash flow into the mortgage to avoid tax. They could then remortgage to get the cash back out the following year.

Put up a full example and I'll explain the difference between profit, cash flow and income.

sunnysoutheast

Old diesel wrote: »

If you are a small landlord then income is taxed NOT profit.

A small landlord getting 1600 euros a month in rent could pay 800 euro to revenue.

Costs/mortgage must come from the remaining 800 PLUS Landlords own pocket (if costs/mortgage more then 800)

That's not how it works. The income chargeable to tax is the sum of profits and losses from rental activity.

It's the cash flow implications of a non-paying tenant which is the huge threat to the small landlord.

martinr5232

dubrov wrote:

Why do you keep saying the tax is on income? Tax is on profit (I.e income less expenses). Paying down capital is not an expense.

Tax is on income from the rent per month is a mortgage not an expense ?

Browney7

martinr5232 wrote: »

Tax is on income from the rent per month is a mortgage not an expense ?

Who's rental property is more profitable:
A LL who owns his property outright and rents a unit out for 1500 or a LL who has a 70% mortgage who rents his unit for 1500 a month?

dubrov

Quick example

Mortgage = 1800 per month (of which 400 in interest and 1400 pays down the loan)
Rent = 2000
Other expenses = 100

For simplicity, the income tax rate is 50%

Revenue[Rent] = 2000
Allowable expenses = 100 + 400*0.85 = 440 [Only 85% of interest is allowable as an expense]
Profit before tax = 2000 - 440 = 1560
Tax (on profit) = 1560 * 50% = 780

Cashflow = 2000 - 1800 - 780 = -580

So in this case, the landlord would have to add 580 to the mortgage.
However, they are also paying down the mortgage by 1400.
So the real profit after tax in this example is 820 even though they are adding to the mortgage each month.

The_Conductor

There is a perverse incentive to maintain debt in any business- as the bulk (or even all) of the cost of the debt- is a tax deductible cost.
This is a noose around the necks of taxpayers in every country- who are subsidising the risk associated with other people's gambling- which includes anyone who loads debt onto a business of any type whatsoever.

Even the Economist and other rightwing publications- argue convincingly- that debt should not be a tax deductible cost- however, it is the international norm- and until there is a concerted effort to reform tax internationally- we're stuck with the system we have.

4ensic15

The_Conductor wrote: »

There is a perverse incentive to maintain debt in any business- as the bulk (or even all) of the cost of the debt- is a tax deductible cost.
This is a noose around the necks of taxpayers in every country- who are subsidising the risk associated with other people's gambling- which includes anyone who loads debt onto a business of any type whatsoever.

Even the Economist and other rightwing publications- argue convincingly- that debt should not be a tax deductible cost- however, it is the international norm- and until there is a concerted effort to reform tax internationally- we're stuck with the system we have.

Debt is not a tax deductible cost. The interest on the debt is. Interest is an overhead the same as heat and light.

The_Conductor

4ensic15 wrote: »

Debt is not a tax deductible cost. The interest on the debt is. Interest is an overhead the same as heat and light.

Yes- 'the cost of debt'.........
Consensus is that the cost of debt- should be removed, universally, as an allowable cost in the calculation of taxes.
It has to be coordinated internationally though- as if it isn't- anyone who doesn't implement it- gets an unfair advantage over everyone else.
Meanwhile the ordinary taxpayers carry the can for this unfair subsidy.

CruelCoin

dubrov wrote: »

They could then remortgage to get the cash back out the following year.

Banks don't offer equity releases anymore.

CruelCoin

dubrov wrote: »

Quick example

Mortgage = 1800 per month (of which 400 in interest and 1400 pays down the loan)
Rent = 2000
Other expenses = 100

For simplicity, the income tax rate is 50%

Revenue[Rent] = 2000
Allowable expenses = 100 + 400*0.85 = 440 [Only 85% of interest is allowable as an expense]
Profit before tax = 2000 - 440 = 1560
Tax (on profit) = 1560 * 50% = 780

Cashflow = 2000 - 1800 - 780 = -580

So in this case, the landlord would have to add 580 to the mortgage.
However, they are also paying down the mortgage by 1400.
So the real profit after tax in this example is 820 even though they are adding to the mortgage each month.

People do not reach the 3.5:1 capital:interest rate you suggest until very late in the mortgage.


For the vast majority of the term, your maths are wrong.

(Which incidentaly is the reason why you should plow every penny you have into the mortgage in its early years to boost you past the interest trap.)

4ensic15

The_Conductor wrote: »

Yes- 'the cost of debt'.........
Consensus is that the cost of debt- should be removed, universally, as an allowable cost in the calculation of taxes.
It has to be coordinated internationally though- as if it isn't- anyone who doesn't implement it- gets an unfair advantage over everyone else.
Meanwhile the ordinary taxpayers carry the can for this unfair subsidy.

A consensus means that everyone agrees. I don't agree with it and I am not alone. Not allowing interest write off would mean less investment. When interest write off was removed from residential lettings 20 years ago rents almost doubled in about 6 months. It wasn't long being restored.

dubrov

CruelCoin wrote: »

People do not reach the 3.5:1 capital:interest rate you suggest until very late in the mortgage.


For the vast majority of the term, your maths are wrong.

(Which incidentaly is the reason why you should plow every penny you have into the mortgage in its early years to boost you past the interest trap.)

Tha maths is not wrong. It was just an example to illustrate how you could be contributing to the mortgage and still making money. It could be at any stage of the mortgage. Early in the mortgage, you have less capital invested so more interest to pay off but the same formulas work.

A return of 820 per month may not be even that great a return depending on how much capital you have tied up in it.

I'd also disagree with your interest trap comment. It all depends what else you could do with the money. No point in paying off a loan at 4% (of which you'd effectively pay about 60%) if you then go get a car loan at 8%. Even if you don't need to borrow, you might earn more investing in another asset.

CruelCoin

dubrov wrote: »

I'd also disagree with your interest trap comment. It all depends what else you could do with the money. No point in paying off a loan at 4% (of which you'd effectively pay about 60%) if you then go get a car loan at 8%. Even if you don't need to borrow, you might earn more investing in another asset.

Absolutely, there may be better alternatives, and you may have other higher interest loans.

Alternative investments carry risk though, whereas paying off your mortgage does not. It would depend on your age, your risk appetite etc, but aye, I can see where you're coming from.

The_Conductor

The_Conductor wrote: »

Yes- 'the cost of debt'.........
Consensus is that the cost of debt- should be removed, universally, as an allowable cost in the calculation of taxes.
It has to be coordinated internationally though- as if it isn't- anyone who doesn't implement it- gets an unfair advantage over everyone else.
Meanwhile the ordinary taxpayers carry the can for this unfair subsidy.

Consensus? I’d imagine be very very few people people would agree with that. It would make operating a business, investing in a business far far less attractive and increased costs on basically every business in the country. It would be a crazy move.