Decided to raise the rent

BoozyBabe · 07-04-2006 10:31am #1

Ok, so I've made my decision.

I have to raise the rent, which isn't the purpose of this thread, so please:- no comments about the rights & wrongs of doing so. We've already had that thread, & I'm very greatful for all the comments.

I got a letter from the mortgage company the other day, my mortgage is now €55 more than originally & with more interest rate rises on the way, I have to up the rent.

Anyway....
Question is:-
I know I have to give 28 days notice, I know it has to be written notice.
Does anyone have a sample letter, or give me a rough layout of what should be on it.

Should I go for a chat with the tenant first & after a verbal agreement post the written notice, or bring the letter with me when I go to see him?

Do I need him to sign the written notice to say he agrees with it, or is it just the signature on the contract that says he agrees.

Re: the renewal of the contract:-
The original contract had a list of contents of the property & their condition & the tenant signed this to agree on the condition.
Before I renew the contract, am I supposed to check all contents to check that there's no more damage than normal wear & tear, or do you only do this when the tenant moves out?

I mean, should the new contract be as if the tenant was moving out, & then moving back in again:-
Check the contents, reimburse the deposit (depending on contents), do up a new list of contents & their current condition & get the tenant to sign this again, which goes with the new contract, so next time end of cotract comes around or he moves out, this is what I check against?

When the rent goes up at the start of a new contract, do the deposit also go up by the same amount or is it normal to leave this at the original amount?

Sorry for all the questions. Hopefully you can make a little sense out of them, & I can further clarify on what I mean if you need me to on any specific points.

Thanks,
Boozy

HashSlinging · 07-04-2006 10:42am

I think you should sell up, your going to be writing these letters every three months by the sounds of things.

BoozyBabe · 07-04-2006 10:50am

Not the reply I was looking for!

If you can't answer any of the specific questions, then don't bother replying.

MorningStar · 07-04-2006 12:12pm

Ignore the landlord haters.

Go to the landlord ass website and threshold they have sample AFAIR. Links should be in the stickys

It is good to le tth etennant know the reason for any increase and to try and be as reasonable as possible. People hating things being forced on them. I always suggest a month or two in advance that it is likely the rent will increase so it is no shock and if they decide to move they have plenty of notice. 28 days is the legal minmum not tha maximum.

It is always good to say you would like to do a full inspection of everything and get them to list all things they want done or would like.

In short be nice and fair give them at least the feeling they are getting something for their money but I would suggest you give them something for their money over the next year.

All things should be written down to avoid any claim or misunderstandings. Do not write down the rent increase is based on improvements but don't promise something and not do it.

May I ask do yo need the rent to go up to deal with recent interest hikes?

P.S. Rent must be in keeping with area rents by law

BoozyBabe · 07-04-2006 12:55pm

MorningStar wrote:

May I ask do yo need the rent to go up to deal with recent interest hikes?

P.S. Rent must be in keeping with area rents by law

Thanks MorninigStar.

Yes, the rent is because of increased interest rates.

I know about keeping with area rents.
A year ago an identical property to mine, a few doors down, was being rented for €60/month more than mine. (I didn't want to rob my tenant & felt what I was asking for was enough)

For all I know, the difference in rents for the two properties could be even more now.

But like I said, my expenses for the property have now went up €55, & look like continuing to go up, so the rent I'm asking for currently, no longer will be enough.

MorningStar · 07-04-2006 1:13pm

BoozyBabe wrote:

Thanks MorninigStar.

Yes, the rent is because of increased interest rates.

I know about keeping with area rents.
A year ago an identical property to mine, a few doors down, was being rented for €60/month more than mine. (I didn't want to rob my tenant & felt what I was asking for was enough)

For all I know, the difference in rents for the two properties could be even more now.

But like I said, my expenses for the property have now went up €55, & look like continuing to go up, so the rent I'm asking for currently, no longer will be enough.

WHat is your rent yield like? The amount of money you make as a percentage of your running cost. mortage+costs/ rental income.

You are meant to base it on a 10 month rental period rather than 12 moths to gauge danger.

You should be aiming for 10% as a purely bussiness thing. If you aren't getting 10% on a 12 month basis equity increase is not really worth the risk.

Now if you are holding it for future reason such as a child or to downsize in the future rent yield shouldn't be your driver.

If you need to put up the rent to deal with rates that doesn't sound healthy.

I mean no offense just many newer landlords really don't consider the facts in enough detail. Prices may keep incresing this year but low rent yields would mean selling up while prices are high is the sensible thing to do. Your choice but really gauge the risks and look at with businesss eyes to reduce your risks.

azezil · 07-04-2006 1:29pm

BoozyBabe wrote:

Should I go for a chat with the tenant first & after a verbal agreement post the written notice, or bring the letter with me when I go to see him?

I speaking purely from a tenant point of view here, if it were me I'd like my landlord to at least call me about it first, to give me time to think about it, just arriving with a letter and asking me to sign would seem a bit intimidating.

Re: the renewal of the contract:-
The original contract had a list of contents of the property & their condition & the tenant signed this to agree on the condition.
Before I renew the contract, am I supposed to check all contents to check that there's no more damage than normal wear & tear, or do you only do this when the tenant moves out?

I think it'd show a sign of good faith on your part and make the tenant feel more welcome if you didn't check until he moved out.

When the rent goes up at the start of a new contract, do the deposit also go up by the same amount or is it normal to leave this at the original amount?

Again I'm not sure of the legalities, but personnally I'd just leave the deposit as it is.

MorningStar · 07-04-2006 1:55pm

azezil wrote:

I think it'd show a sign of good faith on your part and make the tenant feel more welcome if you didn't check until he moved out.

I have to strongly disagree with this the tenant is better off being made aware of any damage that may cause problems later. An inspection of your entire property should be manadatory for you and them. You may not be aware of problems they have and they not be aware of the cost of damge they are doing.

Tenants with plants on a window sills cost me £5K once I spotted the issue. They weren't willing to pay becasue they didn't notice! Luckily th ejudge saw differently. Wasn't worth the hassle for anybody involved

Plastic Scouser · 07-04-2006 7:05pm

BoozyBabe wrote:

Should I go for a chat with the tenant first & after a verbal agreement post the written notice, or bring the letter with me when I go to see him?

I think the polite thing to do would be to call him and explain why you are having to put up the rent and let him think about whether he wants to stay there at the increased price.

Then maybe you could call around to the house with your letter at an arranged time, if he agrees to carry on renting from you.

BoozyBabe wrote:

Do I need him to sign the written notice to say he agrees with it, or is it just the signature on the contract that says he agrees.

I don't know whether or not you have to get the tennant to sign, but either way I'd definitely recommend putting a space at the end of the letter where he can to say he has agreed. (Obviously, have two copies, one for each of you to keep.)

BoozyBabe wrote:

The original contract had a list of contents of the property & their condition & the tenant signed this to agree on the condition.
Before I renew the contract, am I supposed to check all contents to check that there's no more damage than normal wear & tear, or do you only do this when the tenant moves out?

I mean, should the new contract be as if the tenant was moving out, & then moving back in again:-
Check the contents, reimburse the deposit (depending on contents), do up a new list of contents & their current condition & get the tenant to sign this again, which goes with the new contract, so next time end of cotract comes around or he moves out, this is what I check against?

When the rent goes up at the start of a new contract, do the deposit also go up by the same amount or is it normal to leave this at the original amount?

I very much doubt it's necessary to do everything as if he has moved out and moved back in again.

Leave the deposit as it is - it will say on the original agreement what the deposit was presumably, and I can't see why you'd need extra money for the deposit anyway.

(Besides, you don't even know yet whether your tenant will be able to afford the extra €60 or whatever, never mind whether he'd be able to afford an extra €120 next month if you wanted the increase PLUS more money for the deposit. It might not sound like a big amount but for some people who have their budget carefully balanced each month it could be a problem.)

I don't think you should go around the house taking another inventory and checking everything out - that is really for you to do when he leaves altogether.

If you are going to the house with the letter anyway then there's no harm having a little look around while you're there, in case there are any big problems that need checking out.

But please bear in mind that even though it's your house, it's this guys home and it can make you feel really uncomfortable having someone nosing around, even if it is the landlord!

subway · 07-04-2006 7:18pm

also speaking as a tenant.

there shouldnt be any need to redo the contract,
ive never signed a new contract at the end of the first.
the agreement just continues on etc.

if your increasing the rent, get it in writing and agreement in wiriting.

about the inventroy / inspection,
if theyre staying on there shouldnt be a problem.
just give them a few days notice and ask if they prefer to be present or not,
personally i prefer not to be in the house if the landlord wants to check the place, but thats just me.
if anythings missing or damaged agree whos responsibilty it is,
if tenat caused it they should pay,
if general wear and tear its you responsibility i think.

dont hassle em for the deposit.
its a small amount so you shouldnt worry too much about it

hope ive helped

Lex Luthor · 07-04-2006 7:36pm

I'm in the same situation as you boozybabe. I am contemplating raising the rent by €50/month in the next few months. I've checked the local rents on similar properties and my increase would put me in the middle of the upper and lower bracket. I am currently €30/month below the lowest rent I've seen in the area.

I don't plan to raise my initial deposit to the same amount as the new rent.

I am going to meet my tenant at the weekend and mention it to them and just let them know that I am considering putting the rent up if it is justified by local market prices. I'll tell her I have checked prices on daft.ie and will follow this up with checking local papers to get an average. I will also let her know if I do decide to go with the increase, that I'll inform her in writing and give her one months notice before it takes effect from the time she returns the letter to me or the next months rent date, which ever comes last. So if she has just paid the rent, she could have up to 7 weeks before the increase.

useruser · 07-04-2006 8:02pm

Incredible stuff - wouldn't you be better off just sticking your money in the bank? If I were your tenant I'd just move out if you pulled this kind of nonsense on me - presumably leaving you with a refurbishment bill for the new tenant and perhaps a month or more of lost revenue while you try to find same.

If this is the fantasy land that buy-to-let "investors" inhabit it is no wonder that property prices are so high. I suspect you are in for a rude awakening.

The_Conductor · 07-04-2006 10:59pm

MorningStar raised a few interesting points.
If your yield on the property is below a certain level (he suggests 10%), unless you have reasons other than pure business reasons to hold onto the property, it might be time to reappraise your situation.

Interest rates have gone up and you are going to pass the increase onto your tenant. If rates go up (possibly a further 3 times this year and further increases in '07) are you planning on passing these on to your tenants as well? While its impossible to predict what is going to happen, it may be presumed that rates will go up another 1.5% (ECB interviews this suggest that they consider 4% as a *normalisation* of rates). What would this do to your outgoings? Would you expect to pass these increased costs onto your tenants. If asset appreciation no longer occured- how would you handle the revised situation? These are all valid questions that you should be asking yourself.

Vis-a-vis notifying your tenants- I'd echo the sentiments above. 28 days notice is the legal minimum- most tenants would consider it reasonable to expect to be given more warning than this. You would only be creating serious tension between you and they if you get back to them in 2 months time when interest rates next go up again...... What we do with one property my family own is hold an annual meeting with the tenants and set the rent (which then comes into effect 3 months down the road). In the past 5 years only one tenant has moved elsewhere (when they bought their own property). Obviously a lot of landlords are not able to afford the luxury of arrangements like these- but it is unreasonable behaviour to expect to go back to your tenants everytime the interest rates go up......

Re: inspection of property- what we do is an entire inventory of the property prior to letting (which is then included as an addendum on the lease) and we also photograph each room in detail (for ourselves). When someone is leaving we go through the house in detail with them (and seperately afterwards looking for things that may not be obvious).

I mean no offense just many newer landlords really don't consider the facts in enough detail. Prices may keep incresing this year but low rent yields would mean selling up while prices are high is the sensible thing to do. Your choice but really gauge the risks and look at with businesss eyes to reduce your risks.

It may be that this is good advice. Costs look very likely to rocket in the near future. Is it feasible or reasonable to expect to recover these in the short term? Are you looking at this from the perspective of a long term investment on sound business principles? Selling up now might lock in your capital appreciation?

You have a lot of things to think about......

Lex Luthor · 08-04-2006 9:14am

useruser wrote:

Incredible stuff - wouldn't you be better off just sticking your money in the bank? If I were your tenant I'd just move out if you pulled this kind of nonsense on me - presumably leaving you with a refurbishment bill for the new tenant and perhaps a month or more of lost revenue while you try to find same.

If this is the fantasy land that buy-to-let "investors" inhabit it is no wonder that property prices are so high. I suspect you are in for a rude awakening.

who is this directed at?

its not a fantasy land we're living in, its a reality. Open your eyes. If interest rates go up, it has a knock on effect all round. Less investors willing to get in to the buy-to-let market, less available houses to rent, more current tenants not being able to afford to buy their own homes, hence more demand, higher cost to the investor, etc, etc. Rents are bound to go up.

Its not just the few investors here posting that are putting up their rents. Its countrywide. Do your research.

smccarrick wrote:

Interest rates have gone up and you are going to pass the increase onto your tenant. If rates go up (possibly a further 3 times this year and further increases in '07) are you planning on passing these on to your tenants as well? While its impossible to predict what is going to happen, it may be presumed that rates will go up another 1.5% (ECB interviews this suggest that they consider 4% as a *normalisation* of rates). What would this do to your outgoings? Would you expect to pass these increased costs onto your tenants.

Rents are only allowed to be reviewed once a year, so the answer to your question is no.
And yes, if and when I put my rent up this year, I will review it again next year. You ask my tenant is she happy with her current situation and she will tell you she is.

To expect 10% yield is ridiculous unless you have bought your property many years ago. 5-6% is a good yield as far as I'm concerned. Currently I'm getting 4.1% and I have to subsidise my property to the tune of €150/month just to pay the mortgage/insurance etc. Not that I'm complaining.

useruser · 08-04-2006 10:48am

Lex Luthor wrote:

who is this directed at?

its not a fantasy land we're living in, its a reality. Open your eyes. If interest rates go up, it has a knock on effect all round. Less investors willing to get in to the buy-to-let market, less available houses to rent, more current tenants not being able to afford to buy their own homes, hence more demand, higher cost to the investor, etc, etc. Rents are bound to go up.

Its not just the few investors here posting that are putting up their rents. Its countrywide. Do your research.

It's directed at buy-to-let "investors" who clearly haven't a clue - it's bananas to expose yourself to so much risk for such a meagre return. Not to mention all the hassle involved with being a landlord.

If I were renting from a landlord that upped the rent every time there was a %.25 increase in rates I'd leave. This landlord is over-exposed and likely to sell up at the first sign of trouble, not a good bet for the tenant.

To expect 10% yield is ridiculous unless you have bought your property many years ago. 5-6% is a good yield as far as I'm concerned. Currently I'm getting 4.1% and I have to subsidise my property to the tune of €150/month just to pay the mortgage/insurance etc. Not that I'm complaining.

Absolutely stunning, you're subsidising your tenants to the tune of €150 per month and you think this is good investment? Crackers.

Apparently something like %35 of BTL landlords are not covering their mortgage repayments. There may be trouble ahead...

Sir Oxman · 08-04-2006 11:15am

Hi Boozybabe,

Speaking as a tenant it would be the right and decent thing to do to approach your tenant and explain why you are increasing the rent by the said amount also giving plenty of time for you and him/her.

As my previous thread on here explained, I didn't get that allowance just told offhand he wanted an 18% increase in 28 days - not a nice way of doing business.

Deposit - I have never been approached for an increase in this, leave it as it is.
Inventory - Yes inspect and itemise again and note any defects etc.

Now my relationship with my landlord has deteriorated to the level where I would not even consider for one second staying where I am (even though I like it here) even if he settled on a 10-12% increase. (Said same apts in complex advertised by DAFT for a grand are now renting for 925-950 - two to my knowledge in the past two weeks so 1000 is not being realised in those cases.) I offered to negotiate...

PS Last Monday evening I was lying down watching tv when I heard keys in my front door, got up to take a look through the spyhole and there he was with another man trying to get in (no phone call to say he'd be around) He must have thought I was at work as I used to work nights - luckily I always bolt the door from inside while in.
I didn't answer as if I had I would not have been responsible for my actions (! grr)...this now makes me wonder has he been in when I've been out before.
Two days previous to this I had phoned him confirming that I would not be staying, explaining I would not be taking advantage of my statutory 6 weeks notice and inviting him to arrange times for future tenant viewings. I also invited him over to inspect the place and ensured him I would have it spotless when I left and confirming the vacate date.
Then he does that...

Anyhow boozybabe, you are obviously not of this mould so do what you're doing, the right way, and you should have no problems.

Best of luck.

MorningStar · 08-04-2006 12:51pm

Lex Luthor wrote:

To expect 10% yield is ridiculous unless you have bought your property many years ago. 5-6% is a good yield as far as I'm concerned. Currently I'm getting 4.1% and I have to subsidise my property to the tune of €150/month just to pay the mortgage/insurance etc. Not that I'm complaining.

If you bought your property 3 years ago you can get 10% returns. If you are getting less return on your property than if you had it in a bank you are running big risks. If you are paying money out your rent yield is negative not 4.1%. If you are pointing to your equity to show profit then you must consider CGT. I would also suspect you are working it out on a 12 month letting too or have I got you wrong? I have heard people say to me they are doing like I am and they have made 40k and never considered money spent, selling costs or risk. You would be better off reducing your home mortgage or investing in a pension.
Vague figures
Buy at €300k now worth €400k after 2 years €100k equity.
Costs €3600 (supsidised rent of €150 a month) Fitting out costs say 7000 (very low) purchasing costs 3000 (solicitor at 1%) selling cost 1500 (cheap solicitor) 8000 (estate agent at 2%) CGT 15000 (15% of increase) now there are other costs (insurance, replacing furniture, stamp duty etc...) and some of these figure are low total €38100

Profit on sale is 100000-38100=61900

A nice return indeed but you need to sell and house prices can drop. Landords are not a favoured group so expect some charges or costs to increase at some point.
You could look at it as profit based on a small outlay but it is a gamble that should be acknowledged. Some people are not paying tax on rental income so that increes their liability. You could meet a disgruntaled tennat as the first thingt anybody says here is report them to the tax man or meet somebody like me who reports people evoiding tax. (fully aware some accuse me of this but I am not and I am certainly not running the risk of a tenant ever holding it against me)

Up to you but don't lie to yourself about rent yield this is business and you don't get to say you are making a profit when you are not you have capital appreciation. I might be wrong on CGT issue as I looked at the revenue website and am now a bit confused. I'll gladlly stand corrected on that and start moving tings around if I am but my accounted said before you pay on for any gain on sale of an asset. It is your money so I suggest you check into it. I think you are mixing up gross rental yield up with actual or net rental yield. To express your return without considering costs is troubling logic AFAIC.
http://www.ukauctionlist.com/ip_btl_calc.shtml

http://www.independentvaluers.com.au/content.asp?pid=1746
Vaguly helpful links

The_Conductor · 08-04-2006 1:04pm

useruser wrote:

Apparently something like %35 of BTL landlords are not covering their mortgage repayments. There may be trouble ahead...

I'd be very interested in reading the article where you got this from. If 35% are not meeting their mortgage repayments at this point in time, I guess the writing is on the wall. If you could post the source of this please do so.

useruser wrote:

Absolutely stunning, you're subsidising your tenants to the tune of €150 per month and you think this is good investment? Crackers.

Not necessarily..... I am considering remortgaging and letting my principle residence, and buying elsewhere. I am releasing the equity in my current home by remortgaging and putting it towards the new home. Rent in complex I am in at present means interest repayments will not be covered with any further interest rate rises (a 3 bed townhouse gets about 1,300 per month here- but is valued at about 420-430,000). I have no problem paying the difference and am quite happy to do so (I can finance it up to about 7%, but it would hurt at those levels). At the end of the day I am not trying to make money out of the equation- the fact that I will minimise repayments on my principle residence while maximising them in a tax deductable transaction is an anomoly that I am quite happy exists and plan to make use of. My future tenants benefit too. I don't care if the property market crashes, I am not selling and can afford to sit it out for 20-30 years if that is what it takes. I'm only in my early 30's its a retirement investment for me.

There are other things in the equation other than pure finances.
Anyone who is relying on their tenants paying increases could well be in for a shock though......

Ps- My neighbour wanted to increase the rent on their apartment (a 2 bed underneath my townhouse) by 100 per month to 1000 per month. The current incumbent (a Latvian couple) agreed, on the basis that they be allowed to sublease the bedroom they were not using to another couple. My neighbour decided to leave good enough alone and rescinded his attempt to raise the rent. It was pointed out to him that were he to refuse the couple permission to sublease the apartment that it would legal reason for the couple to break the term of their lease and move elsewhere.

If 35% of BTL owners are not making their mortgage repayments at present- and are finding it difficult to make ends meet, I would be extremely surprised if a large number of BTL property does not hit the market (and sooner rather than later, before interest rates scare off too many potential purchasers in the current prevailing market conditions).

Lex Luthor · 08-04-2006 3:00pm

useruser wrote:

If I were renting from a landlord that upped the rent every time there was a %.25 increase in rates I'd leave. This landlord is over-exposed and likely to sell up at the first sign of trouble, not a good bet for the tenant.
Absolutely stunning, you're subsidising your tenants to the tune of €150 per month and you think this is good investment? Crackers.

Seeing as rent increases are only permitted once a year and the interest rates are going up every 3 months, its hardly likely.

If you can convince me that €150/month into a pension over the next 20yrs will yield you a lump sum payment at the end of over €300k, then yes I think my €150/month is a good investment.

MorningStar wrote:

If you bought your property 3 years ago you can get 10% returns. If you are getting less return on your property than if you had it in a bank you are running big risks. If you are paying money out your rent yield is negative not 4.1%. If you are pointing to your equity to show profit then you must consider CGT. I would also suspect you are working it out on a 12 month letting too or have I got you wrong? I have heard people say to me they are doing like I am and they have made 40k and never considered money spent, selling costs or risk. You would be better off reducing your home mortgage or investing in a pension.
Vague figures
Buy at €300k now worth €400k after 2 years €100k equity.
Costs €3600 (supsidised rent of €150 a month) Fitting out costs say 7000 (very low) purchasing costs 3000 (solicitor at 1%) selling cost 1500 (cheap solicitor) 8000 (estate agent at 2%) CGT 15000 (15% of increase) now there are other costs (insurance, replacing furniture, stamp duty etc...) and some of these figure are low total €38100

Profit on sale is 100000-38100=61900

A nice return indeed but you need to sell and house prices can drop. Landords are not a favoured group so expect some charges or costs to increase at some point.
You could look at it as profit based on a small outlay but it is a gamble that should be acknowledged. Some people are not paying tax on rental income so that increes their liability. You could meet a disgruntaled tennat as the first thingt anybody says here is report them to the tax man or meet somebody like me who reports people evoiding tax. (fully aware some accuse me of this but I am not and I am certainly not running the risk of a tenant ever holding it against me)

Up to you but don't lie to yourself about rent yield this is business and you don't get to say you are making a profit when you are not you have capital appreciation. I might be wrong on CGT issue as I looked at the revenue website and am now a bit confused. I'll gladlly stand corrected on that and start moving tings around if I am but my accounted said before you pay on for any gain on sale of an asset. It is your money so I suggest you check into it. I think you are mixing up gross rental yield up with actual or net rental yield. To express your return without considering costs is troubling logic AFAIC.

Agree there are risks, but I limited myself to a property less than €170k so that if there was one or 2 months I was without a tenant, then I could afford the mortgage payments without the rental coming in.

I am well aware of CGT, my wife is an accountant and has done the maths. Even if the house never increased in value by a cent while I own it, i still stand to walk away with the purchase price at the cost of say €40k to me. No pension will give you that.
But house prices are not going to stay stagnant, so any increase is good news for me. Also, I know CGT is only calculated on the profit after you deduct the expenses you incurred for acquiring the property, costs incurred for selling the property and working out the indexation factor on the original purchase price.

MorningStar · 08-04-2006 4:28pm

Lex Luthor wrote:

Seeing as rent increases are only permitted once a year and the interest rates are going up every 3 months, its hardly likely.

If you can convince me that €150/month into a pension over the next 20yrs will yield you a lump sum payment at the end of over €300k, then yes I think my €150/month is a good investment.

Your property is costing you money you will be very very lucky to get 300k out of a property in 20 years after you pay your taxes. I also find it very hard to believe you have accounteed for all costs by pying €150 a month. Does that include depriciation of the interior and maintainence,tax etc...? I think you should look at what pension fund returns are after 20 years.

Lex Luthor wrote:

Agree there are risks, but I limited myself to a property less than €170k so that if there was one or 2 months I was without a tenant, then I could afford the mortgage payments without the rental coming in.

If it is costing you that much money at that low level I would be extremely worried. As I asked earlier is that taxed and are you working it out on a 10 month let or continious let?
You should always try to build up a years worth of rent in reserve. Paying off your mortgage quickly can yeild bigger savings than the profit you may make on a property

Lex Luthor wrote:

I am well aware of CGT, my wife is an accountant and has done the maths. Even if the house never increased in value by a cent while I own it, i still stand to walk away with the purchase price at the cost of say €40k to me. No pension will give you that.
But house prices are not going to stay stagnant, so any increase is good news for me. Also, I know CGT is only calculated on the profit after you deduct the expenses you incurred for acquiring the property, costs incurred for selling the property and working out the indexation factor on the original purchase price.

If you think your rental yield is 4.1% when it is costing you €150 a month then I think you need to get another opinion. It doesn't matter if your wife is an accountant. You only get to walk away with anything if you sell while it is worth at least what you paid for it and if it is at a cost to you then you aren't walking away with the purchase price. You walk away with purcahase price-€40k. You keep saying some weird things about how profit is worked out. Pension returns can be very good.
House prices could easily stagnate or fall in fact many people have been predicting this for a while. Over a 20 year period it is more likely that it will snap in line with incomes meaning you might not get a noticable return over 20 years. Now if you were planing on keeping the property and using the rent as your pension I could see the logic that but that is now what you are saying. Things that can happen that are massive risks such as property crash, periods of vacancy, destructive tenants. I am not really sure you are aware of the risks if you think the market won't stagnate. If your property is only worth €170 it is unlikely it is in a high density part of ireland thus may not be easy to rent. You also have to understand you are in a market where professional landlords are, they know this bussiness very well and will drop rents quickly an efficiently. Any rent drop will not put them at a loss and they can and will under price you with speed. This is normally what happens to novice landlords in a tuff market forcing them to sell acclerating crashes.

I am not predicting a crash but if there are too many people with your view in the market first sign of real danger and a crash would happen.

I mean no offense but what you are saying is quite scarey and I have argued with people that there are not man people with you view in the market. I now coming round to the idea that there are many more than I thought and a crash is more likely.

Lex Luthor · 08-04-2006 6:32pm

Before I bought the property I was putting €8000/annum into a pension, which was costing me out of pocket with the tax allowance €4640/annum (€386/month). From memory, I think that €8000 investment was gaining me an extra €1100/annum. So after 20 yrs costing me about €100k I would probably have a pension with the growth in funds mentioned of about maybe €200k.
When I reach 60, I'll get a tax free lump sum of €50k and the rest to draw from while I'm slowly heading for the grave.

Right now, I have to fork out €1800/annum over 20yrs (€36k) and then probably after selling having maybe and this is being conservative, probably €300k. All of which I can spend at my own leisure or do whatever I want.

So right now I'm better off in the pocket every month and I have a better chance of being financially better off in 20yrs time.

OK, renting is not a piece of cake and I don't expect to have the ideal tenant every time, but you get nothing for nothing in this life.

Also, like to point out that my buy-2-let repayments are capital reduction & interest. If I was to opt for an interest only mortgage, I'd probably profit €200/month. So I could say that the €150/month that I'm forking out is going towards reducing the capital loan..

At the end of the day, its what your outgoings are versus incomings. I could live in my buy-2-let and pay a typical €780/month mortgage, which would be small in these days and rent out my family home for €1600/month for a mortgage of only half the buy-2-let. But thats not gonna happen...........

and we're going off-topic also

MorningStar · 08-04-2006 8:09pm

Lex Luthor wrote:

Before I bought the property I was putting €8000/annum into a pension, which was costing me out of pocket with the tax allowance €4640/annum (€386/month). From memory, I think that €8000 investment was gaining me an extra €1100/annum. So after 20 yrs costing me about €100k I would probably have a pension with the growth in funds mentioned of about maybe €200k.
When I reach 60, I'll get a tax free lump sum of €50k and the rest to draw from while I'm slowly heading for the grave.

You can get more than €50k and as you get older your tax relief increases. If you reduce your mortgage on your home you will pay less money to the bank and get greater tax relief to put into your pension. Right now you are suggesting paying the bank more money in order to risk making a profit in the property market. Instead of divesrify you you are increasing your risk and the amount of money you are putting into the bank

Lex Luthor wrote:

Right now, I have to fork out €1800/annum over 20yrs (€36k) and then probably after selling having maybe and this is being conservative, probably €300k. All of which I can spend at my own leisure or do whatever I want.

Consersvatively you will end up with the a property worth what you bought it for kept in line with inflation. €300k profit is extremely optomistic It will also be worth a lot less in 20 years

Lex Luthor wrote:

So right now I'm better off in the pocket every month and I have a better chance of being financially better off in 20yrs time.

You have a higher risk not better chance of making money and as I said you are paying the bank a lot of money

Lex Luthor wrote:

OK, renting is not a piece of cake and I don't expect to have the ideal tenant every time, but you get nothing for nothing in this life.

That is not what you are working your figures out on which is what a business plan is about calculating the risks and affordability

Lex Luthor wrote:

Also, like to point out that my buy-2-let repayments are capital reduction & interest. If I was to opt for an interest only mortgage, I'd probably profit €200/month. So I could say that the €150/month that I'm forking out is going towards reducing the capital loan..

You are paying the bank more money as I said

Lex Luthor wrote:

At the end of the day, its what your outgoings are versus incomings. I could live in my buy-2-let and pay a typical €780/month mortgage, which would be small in these days and rent out my family home for €1600/month for a mortgage of only half the buy-2-let. But thats not gonna happen...........

and we're going off-topic also

I think you should look up what happens in a property crash. The room to manuver via your family home will greatly dependent on the other investors in a similar loss making venture. Rents drop dramatically and the people left standing are not those who are lossing money while the prices are going up.
You can beleive it is not going to happen but you prepare yourself for what could happen and there are many warnings that it will happen.

I have asked about your tax payment and consideration on running cost with your €150 loss. Am I to take it you aren't paying your tax or considering all your cost with that €150. One months missed rent is an extra €65 loss a month and 2 months is €130. An intrest hike on your loss making will bite hard. You don't have to tell me and I could care less about your personal details it just happens to be a good illistration of an overly optomistic view of what is likely to happen over the next 5 years.

What you decide to do is fine for you and you can feel happy with it that is fine. It is not good business sense is all I am pointing out

This is on topic as it is about th NEED to increse rent to match increasing cost.

dochasach · 09-04-2006 12:38am

Here is how it played out the first time, as a tenant, I encountered a landlord coming to terms with the real cost of owning property:

Landlord: I'm very sorry I have to raise the rent, my costs keep going up.
Me: O.K.
{1 year later}
Landlord: I'm very sorry I have to raise the rent, my costs keep going up.
Me: O.K.
{1 year later}
Landlord: I'm very sorry I have to sell, my costs keep going up.
Me: O.K., (grumbles and finds a place with cheaper rent.)

Back when the current "property boom" had a real supply/demand base, rents were actually rising in step with property prices. Here's what happened when that changed:

Landlord:You're lucky to have this 2br for only 1100.
Me: O.K.
{1 year later}
Landlord:Mo money!!
Me: O.K. (whataver)
{2 years later}
Landlord:Mo Money!!
Me:No, less money, rents are dropping.
Landlord:Mo Money!!
Me:Seeya! Sayonara, so long, farwhel, aufwiedersehn, adieu, (and I find a better 3 Br for only 1100, a much less greedy landlord.)
Landlord:Mo Money, Mo Money.... (He lets the 2Br sit empty for 8 months, while seeking insane tenant, or perhaps someone just off the boat, finally rents it for 900.)

Do they teach about the law of diminishing returns and the right side of the demand vs price parabola in Irish business schools? Judging by the (lack of) price tags in grocery stores and insanity in the property market, they certainly don't teach it well. If BoozyBabe is lucky and has stupid/naieve tenants or owns property in a very exclusive neighborhood, she might get away with passing ECB interests rate hikes on to her tenants. But I suspect most landlords will soon learn a valuable lesson from the school of hard knocks.

Lex Luthor · 09-04-2006 8:55am

Morningstar, my value of €300k is not profit, it would be my return from selling the property after 20yrs. Thats if it makes a selling price of about €350k in 20yrs time, which I don't think is unrealistic.

To me that will be a better return from a pension. I am comparing the two, that's all.

I've been checking rents over the last 2 weeks in the area and the similar property in the same estate has dropped its rent asking price by €50/month to just €50/month more than what I am currently getting. There is another identical property looking for €25/month more than mine, so it looks like rents haven't really increased that much, so for the time being I am going to leave it for asking for an increase. I'll review the rents again in 6 months time.

MorningStar · 10-04-2006 8:46am

Lex Luthor wrote:

Morningstar, my value of €300k is not profit, it would be my return from selling the property after 20yrs. Thats if it makes a selling price of about €350k in 20yrs time, which I don't think is unrealistic.

To me that will be a better return from a pension. I am comparing the two, that's all.

I've been checking rents over the last 2 weeks in the area and the similar property in the same estate has dropped its rent asking price by €50/month to just €50/month more than what I am currently getting. There is another identical property looking for €25/month more than mine, so it looks like rents haven't really increased that much, so for the time being I am going to leave it for asking for an increase. I'll review the rents again in 6 months time.

Ok you think you will defintily at least double your property value in 20 years by not adding value! Can you tell me what average yearly increase in value that is? Does that beat an average pension or the bank? Will this outstrip inflation? What you are saying is unrealtic. It is understandably people look back 20 years here and call that proof but look at the previous 20 years and see what happened. Look at the last 20 years in the UK. You know all the derilich buildings that used to be here came from somwhere.

When you say you have been checking rent do you mean ads by landlords? The rent you can get is what you can get not what people are asking for. That is as misleading as guide prices in the housing market except opposite.

I asked about your €150 loss and is including all costs so are you? You can leave out the tax and specific if you want but is it an accurate figure?

While I think dochasach has a chip on his shoulder about landlords I think he is indcative of what people feel and will do. Many people hear landlord and assume a greedy person out to take their money.

lomb · 10-04-2006 9:34am

i think buying a GOOD property is a far better buy than a pension.
the problem is there is alot of crap out there. apartments in non central dublin arent a good buy and u could see demand collapse in years to come relative to an oversupply. luckily in town there is no more space to build.

MorningStar · 10-04-2006 10:10am

lomb wrote:

i think buying a GOOD property is a far better buy than a pension.
the problem is there is alot of crap out there. apartments in non central dublin arent a good buy and u could see demand collapse in years to come relative to an oversupply. luckily in town there is no more space to build.

A good property will certainly reduce your risk but to assume you will get capital appreciation and rent will not drop is not good business. If you want to make money on anything the key is generally to add value. property looses value too.

There is lot of room in the city for building more property and converstion of what is there. The next generation are very unlikely to want commute or even own a car. This is the normal trend in cities as they mature in Europe.

Afuera · 10-04-2006 10:35am

MorningStar wrote:

There is lot of room in the city for building more property and converstion of what is there. The next generation are very unlikely to want commute or even own a car. This is the normal trend in cities as they mature in Europe.

Definately agree with you on the first point. Ireland has no idea what is possible with high density housing and there is certainly no shortage of space. I think a lot of people are fooling themselves if they think they are in the possession of a limited resource that will guarantee a good return in the future.

As regards what the next generation want (or will get) though it's difficult to call. We have been following American trends rather than European ones when it comes to the development of our cities. The creation of a suburban hinterland would surely lead people to become more dependant on cars (needing them from a very young age) and also encourage what they call the donut effect as city centres empty out (people see them as being undesirable to live in).

The current appetite in Ireland for semi-d houses with gardens does not suggest that we are going to follow European trends and go for high rise, city centre living. As urban sprawl increases the viability of a decent public transport system is reduced as well as many community based services which are hard to justify when there's such a low population density.

gline · 10-04-2006 10:52am

Speaking from a tenants point of view, i got a note slipped under my door saying rent was being increased, not good

I think just let the tenants know with as much notice as you can give them and in person is the best way to do it.

Also i have never been in a place where they recheck the contents after a rent increase... I have only ever signed 1 contract per place I have rented, even after the year was up the landlords never came near me to sign another 1, just contiuned paying rent... i dont know if this is standard procedure or not?????

Also dont forget to ask them is there anything they need done/fixed??? its a nice gesture and is the landlords job i suppose

BoozyBabe · 10-04-2006 10:53am

God, there are a lot of replies here since I logged on last.

Thanks everyone.

MorningStar · 10-04-2006 11:04am

Afuera wrote:

As regards what the next generation want (or will get) though it's difficult to call. We have been following American trends rather than European ones when it comes to the development of our cities. The creation of a suburban hinterland would surely lead people to become more dependant on cars (needing them from a very young age) and also encourage what they call the donut effect as city centres empty out (people see them as being undesirable to live in).

The difference is the US don't tax the fuel or have emmision restrictions like we do. It won't be a matter of choice so much and the population of the city is increaseing unlike all other EU cities. We are no where near the donnut effect and actually opposite to it. People simply won't be able to afford a car and many older US cities are not car dependent e.g. New York and Boston.

It is speculation but I can't see there being a choice and would say we will go closer to London with many estates being converted into seperate dwellings.

Decided to raise the rent

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