Landlords - Increasing Rents to keep up with interest rates

antoinolachtnai

Yes, is true, but on the other hand they have to pay very high stamp duty to get involved in the first place, and they have to pay CGT on exit (which homeowners don't pay). This would certainly discourage institutional investors.

robd

antoinolachtnai wrote:

Yes, is true, but on the other hand they have to pay very high stamp duty to get involved in the first place, and they have to pay CGT on exit (which homeowners don't pay). This would certainly discourage institutional investors.

Yeh the stamp duty is certainly a barrier to entry. Relief could be introduced for this though. If the complex was rolled up into a fund then their would be no tax on rental income and 23% profit would be due for cashing in the fund. Properties sold within the fund aren't liable for CGT. 23% and indeed 20% CGT on disposal is very generous compared to other counties. All the gains can be rolled on without tax until disposal.

Afuera

antoinolachtnai wrote:

Yes, is true, but on the other hand they have to pay very high stamp duty to get involved in the first place, and they have to pay CGT on exit (which homeowners don't pay). This would certainly discourage institutional investors.

I think you're spot on with that observation. I suspect that we've so many small time "accidental" investors since they were able to circumnavigate some or most of these barriers. I'm wondering how many investors got into the game while trying to trade up after 5 years or so and were advised by their friendly bank manager to hold on to their previous property for their pension (and take out a second mortgage to cover the new property)?

D'Peoples Voice

antoinolachtnai wrote:

Then you are headed into rental-only complexes. I don't know if this is a great idea. If you did this, you'd have to provide for it in the planning permission that only a certain proportion of blocks in an area could be owned by this type of structured funds. Otherwise you are just breeding social stratification.

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Nermal

robd wrote:

It works by allowing individuals to write off the income from other properties against the finance cost of the section 23 property. Basically you can only write rental income off against the relief (not PAYE or self employed income).

I thought rent from the S23 property you were financing could be written off too?

robd

Nermal wrote:

I thought rent from the S23 property you were financing could be written off too?

Yes but that doesn't give you anything as you can write the rent from any property off against the finance costs of said property. S23 properties tend to be priced higher than normal properties so the rental income would be far less than the interest component of the finance (this is also true of most property bought in recent years). Thus the benefit is only seen when you can use the finance costs of the S23 property to write off rents from other properties.

dodgyme

Afuera wrote:

small time "accidental" investors ... I'm wondering how many investors got into the game while trying to trade up after 5 years or so and were advised by their friendly bank manager to hold on to their previous property for their pension (and take out a second mortgage to cover the new property)?

They are still advising this,. I know of 2 cases in the last year alone. However I would be worried about this when the only way prices are going is down?

antoinolachtnai

It's still not a bad thing to do. It really depends on how much spare cashflow you have, and what area your old house is in. If you are moving out from the centre towards the outer suburbs, it probably makes sense. If you are doing the opposite, it makes less sense. If you are moving from centre to centre or suburb to suburb, it just depends on the circumstances.

I really think you are overblowing the dangers of this end of the rental market. There are problems, but they aren't really big ones.

If corporates come in, then you'll see rents really shoot up every time there's a squeeze.

Mind you, I think it would make sense for the banks and the PRTB to work together to provide training for first time landlords.