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Long Term Leasing to Council

  • 13-11-2018 12:33pm
    #1
    Registered Users Posts: 14 ✭✭✭ twoshortlegs


    Has anyone here gone down the route of renting out their property to the council?



    My current situation is this; living in South Dublin (Dun Laoghaire Rathdown Co.Co) in a 1 bed apartment, at the moment there's potentially 50k negative equity. Current repayments are €843 per month and the management fee was €1500 this year, although I suspect that may increase next year.


    We're currently trying to save enough of a deposit to move, although it's slow going with the mortgage and associated costs. We're going to need a very substantial deposit because of the negative equity. My wife's sisters have all moved out, and her parents are now on their own in a 5 bed house. They've offered to let us move in and stay there rent-free while we save up for a deposit. If we could make this work it would be great, because we could probably save about 100k in 3 years. The problem is our apartment.


    We DO NOT want to be private landlords, but the bank won't let us sell the apartment and repay the rest of the negative equity as a loan. We're looking into the council as an option, because it would take away the day-to-day management of the apartment/tenancy. We wouldn't actually be the landlord, the council would.


    Has anyone else done this, and what has your experience of it been?


    We're totally clueless about the whole process, particularly the tax aspect.



    It says on the county council website that they pay 80% market rate, who decides what market rate is? If they say market rate is €1400, but we can prove it's higher by taking the rents from similar properties in the area, will they amend their figure?


    Is all rental income taxed at 40%?


    Can we offset the management fees against our taxes?


    Are we likely to lose our tracker if we go down this route?


    Does the council have to hand the property back to you in good order at the end of this? It says on their website 'general wear and tear' is allowed, but say the tenants decided to do something nuts like paint all the walls black, would we be expected to fix that at the end?


    I'd be grateful if anyone could share their experiences of this.
    Tagged:


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Comments

  • Registered Users Posts: 42 iwilldare


    I'd check this out further If I was you. I looked into this and from what I know its similar to HAP - if the tenant stops paying their percentage of the rent the council stop all payment too....


  • Registered Users Posts: 872 ✭✭✭ DubCount


    iwilldare wrote: »
    I'd check this out further If I was you. I looked into this and from what I know its similar to HAP - if the tenant stops paying their percentage of the rent the council stop all payment too....

    I dont think that is correct. Its a lease between 10-20 years and the CC pay the lease.

    The downside is its a fixed commitment for at least 10 years - no breaks, no way out, and rent is about 80% of market value.

    I never tried it, but it does look interesting.


  • Registered Users Posts: 4,578 ✭✭✭ Xterminator


    iwilldare wrote: »
    if the tenant stops paying their percentage of the rent the council stop all payment too....

    absolutely wrong. rent is guaranteed, return condition is guaranteed. The reason it may suit OP is because they can literally take back possession on 10 years, with mortgage paid down, and reassess any negative equity.

    copy and paste from DCC website.

    Benefits Of Long Term Leasing:
    Guaranteed Rental Income
    No management of tenants
    No rent or arrears collections
    No maintenance of the residential property after the first six months of the lease
    No requirement to register with the Residential Tenancy Board
    No advertising or administration fees


  • Registered Users Posts: 1,132 ✭✭✭ The Student


    DubCount wrote: »
    I dont think that is correct. Its a lease between 10-20 years and the CC pay the lease.

    The downside is its a fixed commitment for at least 10 years - no breaks, no way out, and rent is about 80% of market value.

    I never tried it, but it does look interesting.

    You are correct, you don't have to supply any white goods etc. You may however be liable for the Management fee although I am not sure. It is a very attractive proposition if you don't want to be a landlord.

    The two parties to the lease are you and the council. They decide who they put in the property and they are liable for the payment of the rent.


  • Registered Users Posts: 10,687 ✭✭✭✭ Samuel T. Cogley


    85% of market rate if there is a management fee and you have to supply the apartment fully furnished - at least for Dublin City you do. If after 6 months something goes wrong you're no longer liable - longer for structural works but I forget how long.

    Income tax will be more like 50%+ if you're going to be able to save 100K in 3 years. It's exactly the same as your wages except you can claim back for a myriad of expenses. I doubt it will cover itself if that's the main thrust of what you're looking at.

    Rent is reviewed every 2 years on the 10 year fixed agreement and every 4 years on the 20 year - no need to register with the RTB.

    I'm assuming that it's the same as the Dublin City scheme I defer to posters who say different.


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  • Registered Users Posts: 1,518 ✭✭✭ machalla


    You have to wonder if you went with a 10 year lease what the legislative environment might in 10 years time?

    The rules may change in the meantime to say that if someone is living in a house over x number of years they can stay there for good.

    In that case you won't be able to sell the property or if you do it will be at a massive discount. Likely to the council. All speculation of course, no-one knows the future.


  • Registered Users Posts: 1,132 ✭✭✭ The Student


    85% of market rate if there is a management fee and you have to supply the apartment fully furnished - at least for Dublin City you do. If after 6 months something goes wrong you're no longer liable - longer for structural works but I forget how long.

    Income tax will be more like 50%+ if you're going to be able to save 100K in 3 years. It's exactly the same as your wages except you can claim back for a myriad of expenses. I doubt it will cover itself if that's the main thrust of what you're looking at.

    Rent is reviewed every 2 years on the 10 year fixed agreement and every 4 years on the 20 year - no need to register with the RTB.

    I'm assuming that it's the same as the Dublin City scheme I defer to posters who say different.

    Has changed since I looked at it. I did not realize it has now to be furnished. Although if you have to furnish it then you can claim capital allowances over the 8 yr period and mortgage interest relief so your tax should be reduced.

    I would have thought you could review the rent each two years as per the RTA and the Rent Pressure Zone as opposed to every four years although I am only thinking out loud on this aspect.


  • Administrators, Business & Finance Moderators, Society & Culture Moderators Posts: 16,778 Admin ✭✭✭✭✭ Toots


    I'd be interested in this too, I'm in a similar situation, also in Dun Laoghaire Rsthdown.

    My concerns are that it would cover itself (my mortgage is 856 a month, so fairly close to the OP), or that the shortfall would be fairly small. My husband's income is 60k gross. I'm at home with kids.

    Someone said to me that income from renting to the council is tax free? I'm sure that would be too good to be true.

    Also I'd be worried about what they'd deem fair wear and tear - I read online that they may agree to pay for damage over and above wear and tear up to the value of one months rent, but say the tenants destroyed the place and did thousands of Euro worth of damage, what recourse would you have?


  • Registered Users Posts: 10,687 ✭✭✭✭ Samuel T. Cogley


    Toots wrote: »
    I'd be interested in this too, I'm in a similar situation, also in Dun Laoghaire Rsthdown.

    My concerns are that it would cover itself (my mortgage is 856 a month, so fairly close to the OP), or that the shortfall would be fairly small. My husband's income is 60k gross. I'm at home with kids.

    Someone said to me that income from renting to the council is tax free? I'm sure that would be too good to be true.

    Also I'd be worried about what they'd deem fair wear and tear - I read online that they may agree to pay for damage over and above wear and tear up to the value of one months rent, but say the tenants destroyed the place and did thousands of Euro worth of damage, what recourse would you have?


    You'll be in the top bracket for tax and it's not tax free. If they wreck the place it's up to the council to fix it, however after ten years everything in the apartment is effectively spent and worthless so plan to a refurbishment prior to selling.


  • Administrators, Business & Finance Moderators, Society & Culture Moderators Posts: 16,778 Admin ✭✭✭✭✭ Toots


    You'll be in the top bracket for tax and it's not tax free. If they wreck the place it's up to the council to fix it, however after ten years everything in the apartment is effectively spent and worthless so plan to a refurbishment prior to selling.

    A refurbishment we could deal with, ie replacing carpets/laminate, painting etc. However if they did something extreme like destroyed the kitchen units or pulled down drywall etc that's what I would be concerned about.


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  • Administrators, Business & Finance Moderators, Society & Culture Moderators Posts: 16,778 Admin ✭✭✭✭✭ Toots


    Another quick question, don't mean to hijack the OPs thread but this may be helpful to them.

    With regard to tax, say the council pays us 1250 per month in rent, and the bank takes the tracker away and puts us on an investment mortgage rate (currently around 5%) That would put our repayments at about 1500 per month. So given that we'd have a shortfall, would we still be liable for tax on the rental income?


  • Registered Users Posts: 872 ✭✭✭ DubCount


    Toots wrote: »
    Another quick question, don't mean to hijack the OPs thread but this may be helpful to them.

    With regard to tax, say the council pays us 1250 per month in rent, and the bank takes the tracker away and puts us on an investment mortgage rate (currently around 5%) That would put our repayments at about 1500 per month. So given that we'd have a shortfall, would we still be liable for tax on the rental income?

    Income from a lease to the CC is taxed just like other rental income. Its not exempt.

    The amount of tax payable depends on the mortgage interest, and not the mortgage repayment. Your repayments may be 1500 p.m., but the interest might be say 900 per month. In that case, you would have a taxable profit of 1250 income less interest of 900 giving a profit of 350p.m.

    Its a bit more complicated than that depending on the tax year, if you have other allowable costs etc., but its just to show the general principal that you may have a net cash outflow each month, and still have a tax bill, as the capital repayments on your mortgage are not tax allowable.


  • Administrators, Business & Finance Moderators, Society & Culture Moderators Posts: 16,778 Admin ✭✭✭✭✭ Toots


    Forgot to add to that post that the interest on the monthly payments is 1333, so of the 1500, 1333 is interest.


  • Registered Users Posts: 6 ✭✭✭ hoocher


    Has anyone here gone down the route of renting out their property to the council?



    My current situation is this; living in South Dublin (Dun Laoghaire Rathdown Co.Co) in a 1 bed apartment, at the moment there's potentially 50k negative equity. Current repayments are €843 per month and the management fee was €1500 this year, although I suspect that may increase next year.


    We're currently trying to save enough of a deposit to move, although it's slow going with the mortgage and associated costs. We're going to need a very substantial deposit because of the negative equity. My wife's sisters have all moved out, and her parents are now on their own in a 5 bed house. They've offered to let us move in and stay there rent-free while we save up for a deposit. If we could make this work it would be great, because we could probably save about 100k in 3 years. The problem is our apartment.


    We DO NOT want to be private landlords, but the bank won't let us sell the apartment and repay the rest of the negative equity as a loan. We're looking into the council as an option, because it would take away the day-to-day management of the apartment/tenancy. We wouldn't actually be the landlord, the council would.


    Has anyone else done this, and what has your experience of it been?


    We're totally clueless about the whole process, particularly the tax aspect.



    It says on the county council website that they pay 80% market rate, who decides what market rate is? If they say market rate is €1400, but we can prove it's higher by taking the rents from similar properties in the area, will they amend their figure?


    Is all rental income taxed at 40%?


    Can we offset the management fees against our taxes?


    Are we likely to lose our tracker if we go down this route?


    Does the council have to hand the property back to you in good order at the end of this? It says on their website 'general wear and tear' is allowed, but say the tenants decided to do something nuts like paint all the walls black, would we be expected to fix that at the end?


    I'd be grateful if anyone could share their experiences of this.


    Hi did you proceed? We are looking at this too so curious.....


  • Registered Users Posts: 1,559 ✭✭✭ blaze1


    Hi, not sure if anyone is still looking over this thread, but we're in a similar situation and also arrears on our mortgage, would this be something the CC would still take on?

    Also in regards to tax on the rental, our mortgage repayments would be around 1900 per month, I suspect this would be roughly the going rate for rental in our area, would we be taxed on this if we weren't actually making a profit on the mortgage payments?


  • Registered Users Posts: 8,868 ✭✭✭ Caranica


    blaze1 wrote: »
    Hi, not sure if anyone is still looking over this thread, but we're in a similar situation and also arrears on our mortgage, would this be something the CC would still take on?

    Also in regards to tax on the rental, our mortgage repayments would be around 1900 per month, I suspect this would be roughly the going rate for rental in our area, would we be taxed on this if we weren't actually making a profit on the mortgage payments?

    You are taxed on income not on profit. There are certain deductibles that will help reduce tax liability but you'd still have a significant tax liability on rent that high.


  • Registered Users Posts: 14 ✭✭✭ twoshortlegs


    hoocher wrote: »
    Hi did you proceed? We are looking at this too so curious.....

    We haven't, so far anyway. Because we'd lose our tracker, it's looking like a less attractive option. We're most likely going to try and save as big a deposit as possible and then our bank will let us take our tracker with us +1% so we'll probably have to move further out, but at least we'll have more space. When we looked at the numbers, it would actually be better for us to move down to the in-laws and just leave the apartment vacant. We're going to see if any family members would like to house sit for us while we're not there.
    blaze1 wrote: »
    Hi, not sure if anyone is still looking over this thread, but we're in a similar situation and also arrears on our mortgage, would this be something the CC would still take on?

    Also in regards to tax on the rental, our mortgage repayments would be around 1900 per month, I suspect this would be roughly the going rate for rental in our area, would we be taxed on this if we weren't actually making a profit on the mortgage payments?

    I'm not sure about the arrears, but when I asked DLRCOCO they said that they will want a letter of consent from your lender to say that they will allow you to rent to the council long term. You'd have to speak to your lender about it because if you're in arrears, they may not allow it.

    Yes, you'll be taxed even if you're not making a profit. As far as we could see, you can write off the interest portion of your mortgage repayment against your tax, but the rest is taxed. So say your mortgage repayment is 1900 per month, and that's made of up 1300 interest and 600 capital, and you rent your place for 1900, you'll be liable for the tax on the 600, or say if you were renting it out for 1800 you'd have to pay tax on the 500.


  • Registered Users Posts: 10,687 ✭✭✭✭ Samuel T. Cogley


    Ah sheet, if Dublin City CoCo need a similar letter then that's out for me then too. Thanks for the update.


  • Registered Users Posts: 494 ✭✭ tvjunki


    You may be limited with the income if it is a one bed in Dublin. If it is an apartment they may not take it if there are stairs etc.

    Also the market rent is not council rent level. The council look at the property and if the council HAP level is say €900 for a couple(you have a one bed) and the market rent in the area is €1600(IFC) they will only pay maybe €900 or less if long term rental....so 80% of €900.00

    If it is a person with a baby €1250.00. If you are at the higher tax rate you pay 41% Also usc on the gross income not after costs. You then have property tax increase in insurance as rented out and other costs associated with rental. All adds up.


  • Registered Users Posts: 10,687 ✭✭✭✭ Samuel T. Cogley


    Dublin City Co. Use the daft rate.


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  • Registered Users Posts: 14 ✭✭✭ twoshortlegs


    From my research DLR CoCo give 80% of market rate. What I was looking into wasn't HAP, it was basically I would be leasing my apartment to the council for 20 years, and they would pay the rent directly to me. I would have nothing to do with the day to day stuff. They would be responsible for thr tenant, and I get paid whether or not it is occupied. There was a shorter term option, but in that case I would have been the land lord, and I have no desire to go down that road.


  • Registered Users Posts: 340 ✭✭ thomasjad


    Anyone in a similar situation considering renting to the council please PM me :D


  • Registered Users Posts: 1,577 ✭✭✭ LizardKing


    I did this with my apartment which was also down from celtic tiger 360k -> today selling for about 210k-230k (maybe a little more now)

    We went for the 10 year lease with DCC and it took a long time to get over the line. (Needed certs and solicitor etc)

    Once we did finally get sorted though its been smooth sailing.

    No need to register on RTB and 2 yearly rent reviews.

    They use daft rates and reviews are negotiable ( Negotiation is key to initial rent payment too)

    payment is monthly and prompt

    I used the services of taxassist.ie to help with all my taxes for this.

    They are really helpful with what can and cannot be offset

    I did not lose my Tracker (EBS)

    I did lose my mortgage relief as it is no longer principal property (had to contact the revenue myself to do this)

    Some may leave it but I wanted to do everything legit

    I still get some emails etc from apartment mgmt co. and still have to pay mgt fee annually but overall I think it is worth it


  • Registered Users Posts: 12,289 ✭✭✭✭ Mad_maxx


    absolutely wrong. rent is guaranteed, return condition is guaranteed. The reason it may suit OP is because they can literally take back possession on 10 years, with mortgage paid down, and reassess any negative equity.

    copy and paste from DCC website.

    Benefits Of Long Term Leasing:
    Guaranteed Rental Income
    No management of tenants
    No rent or arrears collections
    No maintenance of the residential property after the first six months of the lease
    No requirement to register with the Residential Tenancy Board
    No advertising or administration fees


    One major downside is the local authority use the long term lease scheme as a dumping ground for repeat toxic tenants

    Prepare to have your neighbours hate you as the council will not evict no matter if the tenants use the property as a grow house


  • Registered Users Posts: 1,273 ✭✭✭ august12


    LizardKing wrote:
    I did lose my mortgage relief as it is no longer principal property (had to contact the revenue myself to do this)

    Is mortgage interest deductible as an allowable expense against rental income, I understood one had to be registererd with RTB to claim this, can anyone verify.


  • Registered Users Posts: 12,289 ✭✭✭✭ Mad_maxx


    august12 wrote: »
    Is mortgage interest deductible as an allowable expense against rental income, I understood one had to be registererd with RTB to claim this, can anyone verify.

    Yes it's deductible


  • Moderators, Society & Culture Moderators Posts: 32,254 Mod ✭✭✭✭ The_Conductor


    august12 wrote: »
    Is mortgage interest deductible as an allowable expense against rental income, I understood one had to be registererd with RTB to claim this, can anyone verify.

    When letting to a local authority the interest component of mortgages are wholly allowable costs before calculation of taxable income. Note- so is the management charge.


  • Registered Users Posts: 31 Bazz1234


    Very interesting concept? Anyone here done it and recommend it? Or not? Also, is it taxed?


  • Moderators, Society & Culture Moderators Posts: 32,254 Mod ✭✭✭✭ The_Conductor


    Bazz1234 wrote: »
    Very interesting concept? Anyone here done it and recommend it? Or not? Also, is it taxed?

    Discount of at least 10% (possibly significantly higher) to open market rental rates.
    In exchange for this- the council looks after the tenancy- you have no dealings with the tenant.
    However, typically there is no break clause- and if the tenant is unable or unwilling to move at the end of the duration- the council prove exceedingly unhelpful despite the fact that they are overstaying their tenancy with their tenant.

    And yes- its taxed, of course it is.

    It was particularly attractive for someone who bought a property with as near as possible to a 100% mortgage- as the larger portion of the costs- the interest on the mortgage, was wholly deductible- whereas now its wholly deductible for all landlords.

    All-in-all there are landlords out there- who are very happy with the scheme- particularly as it insulates them from dealing with the day-to-day issues that arise with the tenant. There are however, far more landlords who for various reasons have sworn off ever dealing with local authorities/councils ever again- as its a very one sided relationship where the landlord is never told anything.

    In practice councils have often used these units as dumping grounds for 'problem tenants' that they have difficulty housing elsewhere- which also sours any relationship a landlord may have with neighbours- not to mention the properties are often returned in exceedingly poor states of repair.

    So- all-in-all its a bit of a mixed bag really. It had its place in the mix at one stage in the rental crisis- that stage has probably moved on (and been subsumed into the whole HAP saga).

    If you're not looking for top dollar- are glad to tie up your property for 10 years (or however long a contract you negotiate with the council), are pleased with not dealing with tenants, don't care about neighbours or the state of the property when its returned to you- then maybe it is something that you could consider.

    At this point in time- there are not a cohort of landlords queuing up to join the scheme- and those who are currently in the scheme don't tend to renew when the contracts come up.

    A far more interesting source of vacant property in reasonable state of repair- are the tens of thousands of vacant homes of people who have elected to partake in the 'Fair Deal' scheme. Its criminal that it pays to keep them vacant........


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  • Registered Users Posts: 991 ✭✭✭ TuringBot47


    Bazz1234 wrote: »
    Very interesting concept? Anyone here done it and recommend it? Or not? Also, is it taxed?

    Of course it's taxed.

    Currently on a long term lease with a council... didn't want a second job of a landlord on top of my normal job. ( Wife had house too before we met )

    Points to note
    - We're getting probably less than 80% of what we could if we rented privately
    - We had to spend a lot to bring the house to spec... insulation, electrical reports, architectural reports (even though house was as per plan), insulating attic doors, smoke and heat alarms, child proof window locks etc...
    - It took feckin 6-9 months for them to get their act together
    - You need the explicit approval of your mortgage provider... that "might" give them an opportunity to drop your from a tracker rate or increase your rate.

    A solicitor reviewed the contract and said there were so many holes in the contract and interpretation that it was probably worthless as a contract.
    Eg. they said after 10-20 years you must give the existing tenants "first refusal" of the sale price... How would that work? You could make up an initial price that was ridiculous. And the council only have to give you back a shell of a house (in theory) any sofas or white appliances you have now would be depreciated to zero in 10-20 years.

    But, for accidental landlords... it's an option outside of the private rental route where payment is guaranteed.


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