considering buying apartment with a HAP tenant

daithi55

hi everyone..
me and my wife are considering purchasing our first investment property.. its a small 2 bedroom apartment in a small town and going for 50000,,
it currently has a tenant in it who is receiving hap.. and achieving rent of 6000 per year

im just wondering what hap is and what would we be getting ourselves in for,,
the estate agent said they selling of the apartment would only be possible if the tenant was left in it,,
ive been reading about it but there is a lot to take in,,
we will be viewing it next week..
from what i gather from reading.. i will be liable for any repairs that it needs,, so this could be a right kick in the ass after buying it..
how does a deposit work and who chases who for money if rent isnt been paid etc

Mitzy

You will be liable for all repairs & maintenance to the property so always bear that in mind.
Also as it's an apartment you need to factor in the management fees. Other costs are Local Property Tax, Insurance, RTB etc.
With regard to the deposit you will need to discuss this with the selling agent or solicitor. Does the current owner hold it? If so will it be transferred to you in full? If there is no deposit can you get one from the tenant (unlikely as it's HAP).

Overall you need very very careful becoming a landlord in Ireland these days. The regulations are changing all the time so make sure you educate yourself to be fully aware of all regulations and how they may impact you. You also need to consider any potential changes coming down the line.

Also factor in the possibility that the tenant stops paying rent or thrashes the place. Can you cover 18 months mortgage if this happens as the RTB does not move quickly and almost always finds in the tenants favour.
Deduct from the rent tax at 52% (less qualifying expenses).

There are a huge amount of landlords selling up so you need to find out why that is the case. Why is the existing landlord selling?

Go over your figures again & again & get full advice on all aspects of property ownership before you go into this. The top line figure of €6,000 per annum is quickly eaten away due to expenses, tax etc

Del2005

If you need a mortgage you won't get one with a sitting tenant.

Otherwise Mitzy has it covered. The only sure thing is that the new laws aren't going to favour small landlords.

punisher5112

To be honest if you don't understand anything about been a LL then it's a terrible idea.

You won't get owed rent back if they stop, forms, forms and more forms, as above tax, bills, property tax, management fees, maintenance and when one is on hap there are very stringent rules on how the property is maintained.

If the tenant stops paying as above you could be a year or even 2 trying to get them out without a cent.

This will also cost you more on top of lost rent.

LL is really now only for those that have many properties as just a person with one and no knowledge of the system is just going to be a mess.

daithi55

Del2005 wrote: »

If you need a mortgage you won't get one with a sitting tenant.

Otherwise Mitzy has it covered. The only sure thing is that the new laws aren't going to favour small landlords.

thanks everyone for your input
i was looking to get a buy to let mortgage or similar..
would this still be an issue with a sitting tenant

ill admit im very green to this but we all have to start somewhere.. there is another apartment also for sale in the block...
and at the price it seems to be a good deal,,
the estate agent said it was in receivership.. the apartment that is not the whole block
wont commit to anything if it doesnt suit..
probably easier to purchase without a tenant in it

anyway no harm in viewing it and see what may lie ahead..

where would i stand with purchasing and upping the rent etc..

is there anyone who specialises in this kind of stuff and can give to people

Mitzy

Where is the property located? If it is in a Rent Pressure Zone you are limited to 4% annual rent increases so check that out also.
If you want to take the property back for whatever reason you must give the appropriate notice. The maximum is 224 days if the tenant is there over 8 years. If you fail to give the notice with every single I dotted & T crossed you start that process all over again.

If you decide to proceed then I would certainly go for a vacant property over the sitting tenant. Then you can set the rent at the open market value (but check if it was rented in the past year). I stand to be corrected on this point though.

I am not aware of any specialists in this area but I can only imagine there is a requirement for them.

Absolutely no harm in viewing and doing your homework but I would not recommend anyone to get into this area at this moment. If you are looking to invest I would sit down with an independent advisor to look at all options available to you such as investing in funds or increasing your pension contributions etc. Rental property is very high risk.

punisher5112

daithi55 wrote: »

thanks everyone for your input
i was looking to get a buy to let mortgage or similar..
would this still be an issue with a sitting tenant

ill admit im very green to this but we all have to start somewhere.. there is another apartment also for sale in the block...
and at the price it seems to be a good deal,,
the estate agent said it was in receivership.. the apartment that is not the whole block
wont commit to anything if it doesnt suit..
probably easier to purchase without a tenant in it

anyway no harm in viewing it and see what may lie ahead..

where would i stand with purchasing and upping the rent etc..

is there anyone who specialises in this kind of stuff and can give to people

I don't see you getting a mortgage with a sitting tenant and those buy to let are a tough one.

If the apartments are that cheap then rent isn't going to be amazing either and you may well not even break even at the end of it.

Mad_maxx

Mitzy wrote: »

Where is the property located? If it is in a Rent Pressure Zone you are limited to 4% annual rent increases so check that out also.
If you want to take the property back for whatever reason you must give the appropriate notice. The maximum is 224 days if the tenant is there over 8 years. If you fail to give the notice with every single I dotted & T crossed you start that process all over again.

If you decide to proceed then I would certainly go for a vacant property over the sitting tenant. Then you can set the rent at the open market value (but check if it was rented in the past year). I stand to be corrected on this point though.

I am not aware of any specialists in this area but I can only imagine there is a requirement for them.

Absolutely no harm in viewing and doing your homework but I would not recommend anyone to get into this area at this moment. If you are looking to invest I would sit down with an independent advisor to look at all options available to you such as investing in funds or increasing your pension contributions etc. Rental property is very high risk.

The property costs 50 k, I doubt its in a rent pressure zone

Atlantic Dawn

Do you know anything about the tennant? If they were someone in their early 20's I'd not dream of it, if they were someone settled down in their later years it would be a lot more appealing.

JJJackal

If the property is for sale for 50,000 and the return is 12%, and you can afford to buy it, the risk here is smaller than a lot of other investment property purchases

Mad_maxx

In my opinion, 100 k is lower risk than 50k, there are hardly any good properties in decent locations for 100k, never mind 50k, unless it's a dead end town or a very bad area in a reasonable sized town, the property should not be 50k, this is 2019

I'd buy 50k worth of royal Dutch Shell shares, stock is back quite a bit this week, dividend yield is 5% plus, they have not cut the dividend since WW2

There really are no cheap properties left anywhere with a decent long term future.

10pennymixup

Not saying it could possibly be the same property OP, but this reminds me of a very recent conversation when a friend was asking for local knowledge on what appeared to a good little investment they were interested in. It's still for sale.

Very similar to your scenario, a two bed apartment in a modern attractive block, very scenic unique location over looking a waterway, in the heart of a busy small town with a healthy rental market.

Very similar asking price. HAP tenant €500 pcm/ 6k pa also

EA talked up the low price to my friend as being due a sitting HAP tenant, ruling out mortgaged purchasers.

Real reasons:

• an adjacent waterway seeps into the lower floor.
• due to regular equipment failure (normally vandalism) on that waterway the whole surrounding area can flood up two 2 feet if not caught in time. I can remember this happening 3 times in recent years.
• The adjacent estate has seen shotgun drivebys, slash hook fights and the like
• Fires are often lit against the buildings graffiti-ed wall on the public walkway to the rear. sometimes the fires have been in the semi underground carpark below the apartments.
• Regular appearances of Dutch gold and similar cans to the rear that in fairness the council clean up, but not always obvious to a prospective buyer
  
• 250 meters away mostly out of sight of the apartment block is an old asbestos producing factory, now making other cement products parked beside which are around 3/4 very shiny caravans at any one time.

TLDR Sometimes the reason a property is cheap is obscured. Dig deeper than the obvious.

Mgit

I am a landlord with a hap tenant and in my opinion hap is a bit lower risk of rent non payment than a normal private tenant. My tenant has allot less to pay from their own pocket so less likely to default on payment in my opinion. Rent in my area is expensive and private tenants who can afford the rent can get mortgages allot cheaper and don't stay long.

However have to agree that its a big gamble renting and I have never used an agent and selected tenants based on my gut feeling about them from interviewing them. Buying with a tenant in situ already won't give you the chance to select the tenant but if you look and the property and they keep it well it's a good sign.

The rental return would be 12% so it sounds like a good deal, interest rates are crap at the moment if you are keeping the 50k in the bank.

the_syco

daithi55 wrote: »

me and my wife are considering purchasing our first investment property.. its a small 2 bedroom apartment in a small town and going for 50000,,
it currently has a tenant in it who is receiving hap.. and achieving rent of 6000 per year

Consider that it's cheap as the current owners haven't been able to evict the current tenant, over non-payment of rent.

Also, ask for proof that the current tenant has been paying their rent for the past few years, as I'd wonder about that.

Oh, and look into how many times this house was flipped over the past 15 years.

daithi55

punisher5112 wrote: »

I don't see you getting a mortgage with a sitting tenant and those buy to let are a tough one.

If the apartments are that cheap then rent isn't going to be amazing either and you may well not even break even at the end of it.

currently been rented for 6000 per year

daithi55

Atlantic Dawn wrote: »

Do you know anything about the tennant? If they were someone in their early 20's I'd not dream of it, if they were someone settled down in their later years it would be a lot more appealing.

i will be viewing it tuedy and will try find out so me details then

punisher5112

daithi55 wrote: »

currently been rented for 6000 per year

And???

Arklow10

My advice is don't purchase.
HAP involves three payments - Council to you, Tenant to you and tenant to Council. Inspection by Council, who also want a written Rent Book to be in place. Legal requirement. Archaic - bank statements should be fine, but under HAP!!


Lots of hassle involved and the legal requirements are increasing very rapidly.



Don't know tenant...!! Could be lucky, but...

If only €50k , capital appreciation looks very limited.

If not all cash purchase, interest rate c 5%

Mad Max suggestion re Dutch Shell share purchase is great alternative.
If you really want to get residential property exposure buy shares in Irish REIT (quoted in ISEQ)