Not worth the hassle?

RayCun

Building equity in a property is profit. Of course it is. You pay for 10% of a house and 20 years later you have 100% of a house. That's profit.

cruizer101

Ray Palmer wrote: »

Paying off the mortgage is not and never will be profit. Building equity in the house is not profit.

I don't understand this, you own something that you previously didn't, I don't see how that can be thought of as anything other than profit.
Profit tied up in a non-liquid yes but profit non the less.

I agree with your earlier point They have lost money and are losing money while people think landlords are making a fortune.


Landlords aren't making a fortune, in many cases the margins are very tight and they are potentially making a loss.

But my point is more that I don't have a huge amount of sympathy for this couple a it wasn't a case of them being a young couple who bought an apartment in the boom to get on the property ladder, they ended up moving because of work but couldn't sell so ended up as negative equity landlords and are making a loss on the property, they have my sympathy.

This couple borrowed massive amounts of money to invest/gamble on the property market, no one forced them to do this, it was their own bad decision that they made. It was people like this drove the property bubble.

It is crap that they now have an overholding tenant and I do think there should be more done to legislate for that situation. But my sympathy for their losses is limited as it was their decision to invest as they did.

Ray Palmer

cruizer101 wrote: »

I don't understand this, you own something that you previously didn't, I don't see how that can be thought of as anything other than profit.
Profit tied up in a non-liquid yes but profit non the less.

I agree with your earlier point They have lost money and are losing money while people think landlords are making a fortune.


Landlords aren't making a fortune, in many cases the margins are very tight and they are potentially making a loss.

But my point is more that I don't have a huge amount of sympathy for this couple a it wasn't a case of them being a young couple who bought an apartment in the boom to get on the property ladder, they ended up moving because of work but couldn't sell so ended up as negative equity landlords and are making a loss on the property, they have my sympathy.

This couple borrowed massive amounts of money to invest/gamble on the property market, no one forced them to do this, it was their own bad decision that they made. It was people like this drove the property bubble.

It is crap that they now have an overholding tenant and I do think there should be more done to legislate for that situation. But my sympathy for their losses is limited as it was their decision to invest as they did.

No you don't understand it so why are you making a claim it is profit because you won't find any accountancy theory that agrees with that. Go try and you will see nobody considers it profit. How you think profit is based on capital gains is just plain absurd. How you think a business would calculate themselves as being in profit because the are closer to buying their premises while in negative cash flow is what you are saying. Imagine working a 40 hour week and getting no money but having to put money it to the business according to you that is profit. You aren't thinking it out.

These people could have done all there sums and looked for a modest 4% rent yield. The rents dropped the government added USC, PRSI, reduced tax relief on interest, LPT and PRTB charges. That was done to this couple who by all means weren't being greedy or reckless it was the government that were. It sounds like they sold up property they already had and refinanced the situation that should have provided a service to tenants and given them a good retirement. But along with the punishment for daring to provide rental property they were shafted by the government and not given any protection from tenants

handlemaster

RayCun wrote: »

Building equity in a property is profit. Of course it is. You pay for 10% of a house and 20 years later you have 100% of a house. That's profit.

Perhaps once all is paid off it may be worth more than the investor has paid for it. But this is capital appreciation not profit.

RayCun

handlemaster wrote: »

Perhaps once all is paid off it may be worth more than the investor has paid for it. But this is capital appreciation not profit.

No, if you buy a house for 100k, and ten years later it is worth 150k, that is capital appreciation.

If you put up 10% of the cost of a house and 20 years later own the house outright, that is profit.

RayCun

"How you think a business would calculate themselves as being in profit because the are closer to buying their premises "

Business year one :
Assets 100k building
Liabilities 100k mortgage
Income 500/month

Business year twenty:
Assets 100k building
Liabilities 0
Income 500/month

circular flexing

RayCun wrote: »

"How you think a business would calculate themselves as being in profit because the are closer to buying their premises "

Business year one :
Assets 100k building
Liabilities 100k mortgage
Income 500/month

Business year twenty:
Assets 100k building
Liabilities 0
Income 500/month

Assets are not profit. To say as such breaks fundamental accounting rules as any junior cert business studies student could tell you.

RayCun

circular flexing wrote: »

Assets are not profit. To say as such breaks fundamental accounting rules as any junior cert business studies student could tell you.

Yes, I know the principles of double entry accounting.
But colloquially, when you have some money and then you have more, 'profit' will do as a description.

circular flexing

RayCun wrote: »

Yes, I know the principles of double entry accounting.
But colloquially, when you have some money and then you have more, 'profit' will do as a description.

But you don't have more money.

RayCun

circular flexing wrote: »

But you don't have more money.

You buy a property for 10k cash and 90k mortgage.
Twenty years later you have paid off the mortgage with rental income. You sell the property for 100k.
You have 90k more money.
Call it what you like.

Browney7

circular flexing wrote: »

Assets are not profit. To say as such breaks fundamental accounting rules as any junior cert business studies student could tell you.

You must have missed the part on repayment of debt principal not being included in "profit" too??

circular flexing

RayCun wrote: »

You buy a property for 10k cash and 90k mortgage.
Twenty years later you have paid off the mortgage with rental income. You sell the property for 100k.
You have 90k more money.
Call it what you like.

I can't call it what I like, I will call it what it should be: an asset that has increased in value (which doesn't automatically mean more money, the asset still has to be converted to cash).


Also your simple calculation ignores any costs in holding onto the asset and any costs that need to be paid on disposal.

Franz Von Peppercorn

It’s been disasterous year after disasterous year for landlords ever since rents skyrocketed.

RayCun

"should have provided a service to tenants and given them a good retirement. But along with the punishment for daring to provide rental property"

Oh this is just so much bollocks.

I don't think landlords are devils incarnate, my parents were landlords for a while. But these people, and most landlords, are in it to make money. They could be very nice people, good landlords, not taking the piss with rents, not holding back deposits, etc etc etc but they are not doing it because they want to provide a service, or want to increase the supply of rental property.

They are in it to make money. It's an alternative to putting money in the bank, or a pension fund, or a hedge fund. It has good points and bad points as an investment. And that's what it is.

And like most investments you have the potential to lose money, particularly if you over extend as this couple did.

QuintusFabius

I just don't believe it ...

A landlord has spoken out about the challenges of renting saying it has mentally, physically and financially destroyed her.

She owns 4 properties in Dublin but is broke ?
nah ....

RayCun

circular flexing wrote: »

Also your simple calculation ignores any costs in holding onto the asset and any costs that need to be paid on disposal.

I also ignored any capital appreciation, and any possibility that the rent will exceed the mortgage.
We could quibble about exact figures, but the point remains that at the end of the mortgage term the landlord has an asset they didn't have at the start.

DubCount

RayCun wrote: »

We could quibble about exact figures, but the point remains that at the end of the mortgage term the landlord has an asset they didn't have at the start.

The point remains that the mortgage does not disappear by magic. It has to be paid off with real cash. Like any other business, a landlord hopes to make a profit and on that profit he/she will pay tax. The profit after tax adds some cash to the landlords pocket. If the landlord had an interest only loan, that's where things would end and he/she could spend/invest the extra cash.

However with a capital repayment mortgage, the landlord has to pay out cash to capital repayments. Its like an enforced saving scheme. Regardless of what profit/loss after tax a landlord makes, they have to put cash into their enforced savings scheme and make capital repayments on the mortgage. After 10/20/30 years, the mortgage is repaid, but most of the cash to repay the loan have come from sources other than rental profits after tax.

beauf

QuintusFabius wrote: »

I just don't believe it ...



She owns 4 properties in Dublin but is broke ?
nah ....

There are mortgages on them all.

Which means they don't own any of them.

beauf

cruizer101 wrote: »

....This couple borrowed massive amounts of money to invest/gamble on the property market, no one forced them to do this, it was their own bad decision that they made. It was people like this drove the property bubble. ....

The banks were allowed to borrow like this, and give credit/loans to people like this with no regulation. So did the Banks not drive it? If they had stuck to rules people like this wouldn't have been able to borrow to buy. Then there was no regulation and the Govt ignored all the warnings.

So while people have to take responsibility for their own actions. You can't just ignore all the external influences that facilitated this.

Wanderer78

beauf wrote:

The banks were allowed to borrow like this, and give credit/loans to people like this with no regulation. So did the Banks not drive it? If they had stuck to rules people like this wouldn't have been able to borrow to buy. Then there was no regulation and the Govt ignored all the warnings.

The fact that banks have been allowed to effectively print their own money in the form of loans via deregulation, which disturbingly hasn't changed at all, is a bit of a concern to say the least.

RayCun

"The point remains that the mortgage does not disappear by magic. It has to be paid off with real cash"

Real cash from rental income. At the moment, rents are high enough to pay the principal as well as the interest.

I know that this is not always the case, and landlords have expenses, and so on. But most of the time the rent is at least more than the interest and will cover some of the principal.

The reason why people invest in property in the first place is that they expect to make money from it. They expect (with good reason) to end the mortgage term with an asset worth more than they paid for it, that they can retain as a source of income or sell on at a profit.

RayCun

Wanderer78 wrote: »

The fact that banks have been allowed to effectively print their own money in the form of loans via deregulation, which disturbingly hasn't changed at all, is a bit of a concern to say the least.

Banks have always been allowed to lend more than they hold in assets. It's kind of the basis of the financial system.

Wanderer78

RayCun wrote:

The reason why people invest in property in the first place is that they expect to make money from it. They expect (with good reason) to end the mortgage term with an asset worth more than they paid for it, that they can retain as a source of income or sell on at a profit.

What happens if there's an unexpected property crash, and are these risks explained enough by the financial institutions that give the loans in the first place?

The J Stands for Jay

Ray Palmer wrote: »

Notice profit now includes ignoring paying the mortgage off. Paying off the mortgage is not and never will be profit. Building equity in the house is not profit. Yes you can make money but no accountant ever worked it out as you suggest.

One vacant month and you make a loss in a year. You certainly are ignoring expenses like insurance, maintenance, lot etc..

Work out all the figure properly and it is a loss. Ignored lawyer fees, decoration, furniture and appliances.

Buy a house and rent it out now you will lose money buy it at 2008 prices you certainly will be making a loss. Hugely different from investing in shares as the government increased taxes while rent dropped and you can lose 2 years of income and incur extra costs. No financial advisor could tell people the government will just add extra tax and charges then cap your rent. That added risk to property investment is now there increasing risk.

Increasing the equity is profit, and you are ignoring capital appreciation. We don't value equity investments just on the dividends...

Tax on shares was also increased during the recession.

Wanderer78

RayCun wrote:

Banks have always been allowed to lend more than they hold in assets. It's kind of the basis of the financial system.

But have we given them too much scope in the creation of money, should this process be more democratic, has this sector become systemically dangerous due to this money creation ability?

FrostyJack

RayCun wrote: »

I know that this is not always the case, and landlords have expenses, and so on. But most of the time the rent is at least more than the interest and will cover some of the principal.

The reason why people invest in property in the first place is that they expect to make money from it. They expect (with good reason) to end the mortgage term with an asset worth more than they paid for it, that they can retain as a source of income or sell on at a profit.

On my property in Dublin, I am losing circa 300 euros a month before tax and expenses. I haven't raised the rent since I began and have been prompt at resolving any issues. As I am in severe negative equity it will be several years before I can offload it at the current rate of price increases, there is a 70K difference going by a similar property going last month. The joys of buying at height of boom. Fortunately my tenants seem decent but my neighbours have not been so lucky. Horror stories that would make headline news if they were made public. The propaganda machine only goes one way in this country and I cannot wait to get out this situation. Every week I look for a small lotto win to get rid of the negative equity and that is all, not a fancy car, holiday or house upgrade.

The J Stands for Jay

Ray Palmer wrote: »

No you don't understand it so why are you making a claim it is profit because you won't find any accountancy theory that agrees with that. Go try and you will see nobody considers it profit. How you think profit is based on capital gains is just plain absurd. How you think a business would calculate themselves as being in profit because the are closer to buying their premises while in negative cash flow is what you are saying. Imagine working a 40 hour week and getting no money but having to put money it to the business according to you that is profit. You aren't thinking it out.

These people could have done all there sums and looked for a modest 4% rent yield. The rents dropped the government added USC, PRSI, reduced tax relief on interest, LPT and PRTB charges. That was done to this couple who by all means weren't being greedy or reckless it was the government that were. It sounds like they sold up property they already had and refinanced the situation that should have provided a service to tenants and given them a good retirement. But along with the punishment for daring to provide rental property they were shafted by the government and not given any protection from tenants

I'd imaging an accounting standard like IAS 18 would have something to say about this, and I don't believe it would say that a profit is no longer a profit if the cash generated is used as capital repayment against a debt.

RayCun

Wanderer78 wrote: »

What happens if there's an unexpected property crash, and are these risks explained enough by the financial institutions that give the loans in the first place?

The standard mortgage term is twenty years.
The biggest property crash in recent years was 2008/2009.
If you bought a property in 1988/1989 and sold during the crash, you would have made a substantial profit.

How much explanation should the banks give? They tell you pretty clearly that you can lose the property if you don't make the payments.

If you want help choosing between different investment options, you should be talking to an independent financial advisor.

RayCun

"On my property in Dublin, I am losing circa 300 euros a month before tax and expenses"

Not to be harsh, but just because something is a good long term investment doesn't mean it will be a good short term investment.

Wanderer78

RayCun wrote:

If you want help choosing between different investment options, you should be talking to an independent financial advisor.

My point being , the financial sector needs to be reigned in quickly, it has become systemically dangerous for all our economies, this has become clearly evident in resent decades, some of our largest financial institutions are deeply unstable, it probably won't take much for the euro banking crisis to rare it's head again, only time will tell