Landlord profits from rental properties

marathonic

Claw Hammer wrote: »

If you have 5+ properties and the market falls you will be destroyed. Properties must be acquired towards the bottom of the cycle with reasonable rental returns.
It is the timing rather than the rental return which is critical.

Therein lies the problem.

If you want to buy at the bottom, which would be very difficult to time, you'd need to buy the properties all at the same time - a 25% deposit each would mean you'd need 1.25 times the value of the average purchase (+ purchasing costs) available in cash.

If you rely on the old capital gains model, you might be able to make your first purchase at the bottom but would then need a rising market to gain enough equity in your current investment to remortgage for a deposit for subsequent purchases.

I don't think the capital gains approach is going to be very successful unless you're severely lucky with your timing and house prices continue to rise, or flatline, after your final purchase.

It would be much better if the properties could provide a profit from day 1 and house prices remained stagnant. That way, you're purchasing at a lower price and, with the profit from each subsequent purchase, saving for the deposit for the next is going to be much easier.

In my area, I haven't yet come across a property where the numbers make sense.

riclad

THE present tax system makes no sense, for landlords, ie you could have 1000 per month, loan on a house, rent is 700, AND be taxed on the so called profit of 300, as you only get tax credits of, 75 per cent of interest on the loan.

TENANTS dont think of mortgage, tax credits etc, or maybe think landlord bought house for 50k, when in fact he paid 150k in the boom.

THERES probably 1000's of landlords making a few per cent profit, after tax, and they have the hassle of finding tenants, maintenance, filling out forms tax returns, with No way of leaving the business as loan is in negative equity.

I know 2 landlords bought 10 years, ago, have not made 1 cent profit on rental income.

Victor

The question has to be asked, is the property actually worth what was being sought for it. Remember, we are dealing with a situation that didn't go ahead.

marathonic

I wouldn't even consider landlords who bought during the boom. The fact is, they bought using the capital appreciation model. Had they done their due diligence, they'd have realised that the numbers made no sense.

What I'm finding hard to believe is that the numbers still don't make sense for this €80,000 property - a property that cost €210,000 as a new build at the peak of the boom.

Since then, rents on such a property in my area have dropped 25% but the property price has dropped over 60%.

Icepick

You ignored the 80k asset part, OP.

The rent to price ratio is much better than in other countries. Look at property prices and rents in France or Australia, for example.
But, of course, you have to know what you are doing.

murphaph

Thomas D wrote: »

I quite enjoyed living in a few places that I know pretty much bankrupted the owners. I was paying €1300 a month for an apartment that the landlord spent €570K on in Donnybrook for a while!

The owners of all these places you stayed in filed for bankruptcy?

Bigcheeze

Icepick wrote: »

You ignored the 80k asset part, OP.

he didn't. He calculated costs based on an interest-only mortgage.

MouseTail

Villa05 wrote: »

Seperately serious shi%t storm on the way for rental supply. Taxes far too high on rental income and state want to privatise social housing. Who is going to fill the void when rewards are taxed so heavily?

Social housing has been privatised for years, both in terms of voluntary housing bodies, Section 38 and Rent Allowance. Nothing new.

dinnyirwin

I think the OPs numbers are off the wall.

First off the yield is **** for what is out there today. It must be the wrong house, wrong area, wrong price, wrong rent or a combination of all to have figures that bad. Just realized its Donegal. That explains it. I personally wouldnt be touching anything outside Dublin for investment at the moment.

Why is he even considering interest only? The best thing about investing in property for me is that you outlay a small amount eg €20,000 and in 25 years, if you can manage to just break even each year (you should be able to do much more than break even over the next 25 years) you 100% own your property. Interest only is not the way to go.
You can get a normal 25 year BTL mortgage at a better rate than the one in the OP. Talk to your broker. The headline rate is not all thats available.

If he is giving 25% up front then he needs a mortgage of €60,000.
At 4,5% over 25 years thats about 360 per month or €4320 per year. And its not interest only.
Of that about €2700 is interest of which about €2000 is allowable.
Even at 5,5% you're not talking a huge difference.

Thats just a back of the envelope job for me, with very rough numbers, but for me the OPs numbers dont add up at all. And even if they did there has to be something off about that kind of yield these days. Should be doing better.



There is a thread here which i found very interesting

http://www.boards.ie/vbulletin/showthread.php?p=79604340

His crunching is not a million miles from my own experience and he explains it far better than I ever could so just gonna post the link.

marathonic

dinnyirwin wrote: »

Why is he even considering interest only? The best thing about investing in property for me is that you outlay a small amount eg €20,000 and in 25 years, if you can manage to just break even each year (you should be able to do much more than break even over the next 25 years) you 100% own your property. Interest only is not the way to go.

If each property is profitable, why would you want to use the profits to pay down the capital of your mortgage whilst profitable investments are still available - you're better using the profit to fund the deposits for additional properties.

Regarding breaking even, it does appear to be possible in the likes of the Dublin properties linked to on this thread but not in Donegal - yet.

I'm keeping an eye on the Donegal market because I know the good and bad areas and know the good and bad tradesmen in the area. For me, it'd be much easier managed if I decide not to go down the 'property management' route.

dinnyirwin wrote: »

Thats just a back of the envelope job for me, with very rough numbers, but for me the OPs numbers dont add up at all. And even if they did there has to be something off about that kind of yield these days. Should be doing better.

The gross yield based on full occupancy would be 7.5%. The only thing wrong with my figures is that the property price is based on asking price. In looking at the discounts between asking prices and the prices houses appear on the Property Price Register for, I'd imagine that the property could be secured for €73,000.

This purchase price would give a gross yield of 8.2% which, whilst it doesn't match what's available in some parts of Dublin, is respectable enough. Even the poster you linked to refers to ceasing to purchase properties when the yield goes below 6%.

My personal plan would be to purchase, manage myself and file my own tax return. This would make it a reasonably profitable investment. However, I wanted to gear the numbers towards a hands-off approach to make it more comparable to the alternatives such as investing in the stockmarket.

To me, the numbers aren't good enough yet but it may be worthwhile, at this point, starting to put in a few cheeky offers on places at 15% below asking price.

marathonic

Here are the numbers based on purchasing at 15% below asking price with a mortgage rate of 4.8% and an occupancy of 11.5 months per year. There are three towns close to me and the one I'd be buying in is the one with the highest rental demand. A local landlord has told me that most of his tenants stay multiple years and, when they do move, it's rare for the property to lie empty longer than a week.

Donegal hasn't had the surge in rental prices experienced in Dublin but I do expect them to start to creep up over the next 1-2 years. This is the primary reason I'd consider an investment using the numbers below.

It'd require a €21,100 investment for the deposit and purchasing costs and would provide a 3.1% return after tax on that investment.

Again, the numbers are a little close for comfort and it's primarily due to tax. With 51% of profits going to the government, it'd take a €170 rise in monthly rents to add €1,000 to the annual profit :eek:

Purchase Price 68000
Legal Expenses 900
Surveying prior to initial purchase 200
Furnishing 3000
Total Purchasing Costs 72100

Rent 500
Months 11.5
5750

Interest on 75% Mortgage @ 4.8% 2448
Letting Agents fee 0
LPT 90
PRTB 90
Insurance Premiums 350
Maintenance 800
Accountant 0
Total Expenses 3778

Expenses to be offset against tax 3166

Gross Profit 1972
Taxable Amount 2584

Tax @ 40% 1033.6
USC @ 7% 180.88
PRSI @ 4% 103.36


Profit after Tax 654.16

riclad

YOU could pay an accountant , to do your tax returns,
and claim tax credits for the expense.
MANY landlords outside dublin ,find it take 2 weeks ,plus to find a good tenant,
PUT 68k into a long term bank account ,i,d think you,d get more than 600 euros.
IS 1 PER cent stamp duty included in the 68k, purchase price.

dinnyirwin

marathonic wrote: »

If each property is profitable, why would you want to use the profits to pay down the capital of your mortgage whilst profitable investments are still available - you're better using the profit to fund the deposits for additional properties.

Regarding breaking even, it does appear to be possible in the likes of the Dublin properties linked to on this thread but not in Donegal - yet.

I'm keeping an eye on the Donegal market because I know the good and bad areas and know the good and bad tradesmen in the area. For me, it'd be much easier managed if I decide not to go down the 'property management' route.




The gross yield based on full occupancy would be 7.5%. The only thing wrong with my figures is that the property price is based on asking price. In looking at the discounts between asking prices and the prices houses appear on the Property Price Register for, I'd imagine that the property could be secured for €73,000.

This purchase price would give a gross yield of 8.2% which, whilst it doesn't match what's available in some parts of Dublin, is respectable enough. Even the poster you linked to refers to ceasing to purchase properties when the yield goes below 6%.

My personal plan would be to purchase, manage myself and file my own tax return. This would make it a reasonably profitable investment. However, I wanted to gear the numbers towards a hands-off approach to make it more comparable to the alternatives such as investing in the stockmarket.

To me, the numbers aren't good enough yet but it may be worthwhile, at this point, starting to put in a few cheeky offers on places at 15% below asking price.

Yeah i have to say that that property would be a non runner for me.
I feel Dublin is the only place where its worthwhile and reasonably shock proof, or should I say shock resilient, for the foreseeable future.
I think Donegal is a very dangerous bet, especially at those numbers.

Whatever you decide definitely stay clear of interest only. Thats just a trap.
Unless you have other investment classes on the go at the same time earning more than the interest you are saving.
Property would be down the list of investments for me. It is to provide diversification to my investments. Though I did start off in property.

marathonic

Icepick wrote: »

that's grossly inaccurate

On the contrary, it's the only way you should calculate your profits. Using a repayment-style mortgage repayment as an expense entry for the calculations would be 'grossly inaccurate' because the capital repayments form part of your profit.

Icepick

As already mentioned, avoid Donegal and other relatively poor (rural) areas. The huge subsidies such areas receive are far from secure in the future.

marathonic

Icepick wrote: »

As already mentioned, avoid Donegal and other relatively poor (rural) areas. The huge subsidies such areas receive are far from secure in the future.

The numbers don't lie. If I feel that my local market has sufficient demand and the numbers stack up, then there's absolutely no reason to avoid the area.

I do agree that the vast majority of Donegal properties don't represent good investments - I'm talking about some of the smaller villages and even Letterkenny where there is a huge oversupply. Just because this is true doesn't mean that the entire county should be wrote off in considering where to invest.

Just like you write off Donegal, I would write off the likes of Sligo. The reason for this isn't that I feel that there's nowhere in Sligo that represents good value - it's that I don't know the local area so wouldn't be making as informed a decision as I would be by buying locally.

There is a shortage of rental properties in the area I'd be investing in and they rarely stay on the market long. Therefore, as soon as the numbers stack up, I'd be investing.

Regarding 'huge subsidies', I'm not aware of much that's happening in this area lately. Do you have any references to such subsidies?

MouseTail

marathonic, you seem to know the location and sphere very well, the first rule of investment. Whilst I myself would steer clear of Donegal, that's purely because i don't know that market. Im sure its like anywhere, there are pockets of opportunity. Good luck with the investment when/if you dive in.

TheDoc

If I just PURE spitball figures.

I applied for a 200k mortgage out of interest, and the monthly repayment was €820.

It stands to reason that you could easily in the current market fetch between €1000-1200 for 2 bed property. That's what I'm encountering in North Dublin anyway.

That is the base, ballpark figure. Making a few hundred quid a month profit ontop of having the mortage paid for and covered. Should that property value rise, which it probably will, then it can be sold off for a heavy profit. And the property, was essentially covering it's own costs from the tenants rent.

There is differences between property investors, and landlords imo. My landlord bought a new house for his family when the current apartment became unsuitable. He was in a position where he bought the new house, and was able to rent out the apartment. WAs up front with me saying that he doesn't mind when I get the rent to him, as long as its before X date, when he needs to pay the mortgage. That's fine by me.

He made a shrewd move, at a good time, and was able to capitalise. I don't have any ill feeling or problem with it. I know he probably makes profit of me, but hes providing a service and he's entitled to it.

I at the same time know guys through sport and other social circles, who own multiple properties. We are talking 5+ apartments or townhouses that they rent. They are getting in 5k a month in rent, all of which is a pretty nice bonus on top of their normal salaries. I swiftly tell them to suck a fat one, when they make a moan about tax, money problems, or the price of something.

I totally get there are landlords out there not making money hand over first, but don't come to me crying looking for sympathy. Your operating in a highly unregulated( I dispute claims there is regulation and strict governance) market, where demand typically always outstrips supply. You're never "running out of business". Your an investor, looking for a return on their investment.

Sorry but find it hard to find sympathy or any sort of compassion for the financial woes of landlord. I've 100% no issues, qualms or problems with how they earn their income, or what they do, but I'm not buying for a second its a struggle, and as it's an investment, it's the risk involved.

I think OP the issue tenants have overall ( if you can even be safe in making a sweeping statement) is the poor regulation, the wild west nature of the renting market, and the poor professionalism that sometimes presents itself in what is at its base, a service providing market.

Lantus

based on my involvement in our management company I would note that only 20% of all the rented units in our estate are PRTB listed based on the PRTB's own official database. That's a lot of people that have not registered.

A lot of rentals fall below par with landlords making savings and cutting corners and taking a slice off the deposit pie for all sorts of nefarious things.

There is a small cohort of BTL owners in our estate who all reflect a pattern of behaviour in that they own multiple properties, have never paid a service fee from day one, often have judgement mortgages against them, are experts at avoiding all contact (none have any social media presence and they hide their tracks with skill.) All hold one or more positions as directors of companies which all seem to operate for several years before ceasing and a new one opening up. (these are not companies that have web addresses or even telephone numbers) Even on CRO forms they distort the address they live at to make it so general it could be attributed to one of 30 streets making detection impossible. Invariably they have not declared any of these properties to revenue or the income they derive from them.

No doubt the banks will eventually write off most their loans!

dinnyirwin

Lantus wrote: »

based on my involvement in our management company I would note that only 20% of all the rented units in our estate are PRTB listed based on the PRTB's own official database. That's a lot of people that have not registered.

A lot of rentals fall below par with landlords making savings and cutting corners and taking a slice off the deposit pie for all sorts of nefarious things.

There is a small cohort of BTL owners in our estate who all reflect a pattern of behaviour in that they own multiple properties, have never paid a service fee from day one, often have judgement mortgages against them, are experts at avoiding all contact (none have any social media presence and they hide their tracks with skill.) All hold one or more positions as directors of companies which all seem to operate for several years before ceasing and a new one opening up. (these are not companies that have web addresses or even telephone numbers) Even on CRO forms they distort the address they live at to make it so general it could be attributed to one of 30 streets making detection impossible. Invariably they have not declared any of these properties to revenue or the income they derive from them.

No doubt the banks will eventually write off most their loans!

I have all my tenants registered with the PRTB. HArdly any registrations actually show up.

Its a bit stupid for a landlord not to pay their service fees. Theyll soon find out when it comes to selling.

How can you tell what someones dealings are with renevue? Have you an inside man in the revenue? I know I certainly dont let anyone but myself, wife and accountant know mine.

And how do you know their dealings with their banks?

marathonic

TheDoc wrote: »

I applied for a 200k mortgage out of interest, and the monthly repayment was €820.

It stands to reason that you could easily in the current market fetch between €1000-1200 for 2 bed property. That's what I'm encountering in North Dublin anyway.

That is the base, ballpark figure. Making a few hundred quid a month profit ontop of having the mortage paid for and covered.

Far, far from it. A 25 year mortgage of €80,000 costs around €450 per month over 30 years. Using your logic, the property in the original post, that fetches €500 per month rent would be making the landlord €50 per month AND paying off the property.

This is not the case and, in fact, the figures are that different that the landlord is making a loss, even on an interest only mortgage without the property being paid off. There are a lot more expenses involved in owning and renting property than the mortgage repayment.

A lot of landlords are actually making a loss AND still paying tax due to the 75% rule related to interest. The majority of tenants don't understand this - nor should they be expected to.

marathonic

dinnyirwin wrote: »

I have all my tenants registered with the PRTB. HArdly any registrations actually show up.

In my opinion, the biggest mistake anyone can make is to rely on a website run by a government agency for accurate information

And that statement sounds like a joke - but it's true.

dinnyirwin

marathonic wrote: »

In my opinion, the biggest mistake anyone can make is to rely on a website run by a government agency for accurate information

And that statement sounds like a joke - but it's true.

There is one bigger mistake. Trusting anything threshold say.

Lantus

dinnyirwin wrote: »

I have all my tenants registered with the PRTB. HArdly any registrations actually show up.

Its a bit stupid for a landlord not to pay their service fees. Theyll soon find out when it comes to selling.

How can you tell what someones dealings are with renevue? Have you an inside man in the revenue? I know I certainly dont let anyone but myself, wife and accountant know mine.

And how do you know their dealings with their banks?

Of all the requests and dealings we have made with the PRTB regarding landlords they have confirmed they are not registered. I am not surprised to hear that the register is not 100% accurate however hence why we always check with the PRTB if we need to make a third party request for information.

All revenue dealings are confidential. I was only speculating that those owners who have a pattern on non payment and evasion and keep an incredibly low profile and almost certainly do have an accountant probably are not knocking on revenues door to let them know they own 3 properties and make good rent money. That is an assertion of course. But we don't discriminate so we always contact revenue to advise them anyway, just in case.

Land registry searches can reveal the presence of judgement mortgages against a property and the current mortgage provider if there is one. Always handy if you need to let them know that the property is rented out and if they know where the owner lives, or that there is no block insurance on this policy and the lenders interest will not be noted.

beauf

Lantus wrote: »

Of all the requests and dealings we have made with the PRTB regarding landlords they have confirmed they are not registered. I am not surprised to hear that the register is not 100% accurate however hence why we always check with the PRTB if we need to make a third party request for information.

All revenue dealings are confidential. I was only speculating that those owners who have a pattern on non payment and evasion and keep an incredibly low profile and almost certainly do have an accountant probably are not knocking on revenues door to let them know they own 3 properties and make good rent money. That is an assertion of course. But we don't discriminate so we always contact revenue to advise them anyway, just in case.

Land registry searches can reveal the presence of judgement mortgages against a property and the current mortgage provider if there is one. Always handy if you need to let them know that the property is rented out and if they know where the owner lives, or that there is no block insurance on this policy and the lenders interest will not be noted.

Out of Curiosity...why does a management company need to contact the PRTB and the revenue?

Lantus wrote: »

based on my involvement in our management company .....(none have any social media presence and they hide their tracks with skill.) ....

Also why the expectation of a social media presence?

UCDVet

The key to be a profitable landlord is to

1.) Be rich
or
2.) Buy property 20 years ago

Or some combination of the two. If you are rich, you buy a bunch of property, pay cash, and know that the revenue generated will greatly outpace your costs. LPT will remain insignificant compared to the rent you get as long as you have no mortgage. The first few years won't be profitable but you are rich, so who cares. And you can rest easy knowing that your properties will generate revenue perpetually.

Or, if you bought property 20 years ago, the mortgage is done or nearly done and inflation has made the rents you can get seem huge compared to the mortgage you need to pay.

beauf

If you have a 20yr old property, you're at the point of redoing the heating, windows, insulation, floors, with a half hearted eye on the ber rating. How many years of profit will all that eat up!

Lantus

beauf wrote: »

Out of Curiosity...why does a management company need to contact the PRTB and the revenue?



Also why the expectation of a social media presence?

where a member fails in their statutory obligation to provide the OMC with their name, address and names of tenants then prior to expensive investigators or solicitors we make third party requests to the PRTB, revenue and their mortgage provider asking if they know where they live as the property is rented out. If we don't get any joy then we need to engage a solicitor, but the first three are cheaper.

beauf

sorry I've no experience of a management company. I don't follow.

Why is there a statutory obligation for the MC to have the names and addresses of tenants? The LL I could understand. But the tenants? Why would a govt body hand out that data to a third party, like a MC. Or a mortgage provider? That would seem a breach of data protection.

Claw Hammer

beauf wrote: »

sorry I've no experience of a management company. I don't follow.

Why is there a statutory obligation for the MC to have the names and addresses of tenants? The LL I could understand. But the tenants? Why would a govt body hand out that data to a third party, like a MC. Or a mortgage provider? That would seem a breach of data protection.

The tenants addresses will be know as they will be resident at the unit in question. The MC is entitled to know their names. The M\ c is obliged to ensure that the standards for rented dwellings are maintained and in the event of a fire they need to know the names so everyone resident in the block can be accounted for afterwards. The MC will also need the names if proceeding for nuisance.