Is being a landlord only profitable if you charge rent well above the mortgage cost?

SirGerryAdams

I was thinking about how people make money on investment properties.

Do they base a lot of it on the capital appreciation?

Because let's say you take in 1k rent and the mortgage is 900.

And then let's say interest repayment is 2-300 so taxable income is (1k-300=700). So you pay tax on this, let's say 40% which is 280.

So take home pay is 1k-280 which is 720 and the mortgage cost is 900.

I'm thinking these figures for costs/tax are conservative too.

Are investment properties only viable on houses with mortgages taken out a long time ago (i.e rent prices have boomed since) or do people actually pay a cost (like the above) to have an investment property.

Spook_ie

SirGerryAdams wrote: »

I was thinking about how people make money on investment properties.

Do they base a lot of it on the capital appreciation?

Because let's say you take in 1k rent and the mortgage is 900.

And then let's say interest repayment is 2-300 so taxable income is (1k-300=700). So you pay tax on this, let's say 40% which is 280.

So take home pay is 1k-280 which is 720 and the mortgage cost is 900.

I'm thinking these figures for costs/tax are conservative too.

Are investment properties only viable on houses with mortgages taken out a long time ago (i.e rent prices have boomed since) or do people actually pay a cost (like the above) to have an investment property.

Well to be honest and this is just my opinion, people who have to charge in excess of what a mortgage would cost the renter are mostly to blame for the crisis.

If you are borrowing money to invest then sooner or later people get burnt, think 2007/8 property bubble, and (again just my opinion) people who had borrowed to invest in renting out properties and couldn't afford the repayments should have had the properties repossessed.

amcalester

SirGerryAdams wrote: »

I was thinking about how people make money on investment properties.

Do they base a lot of it on the capital appreciation?

Because let's say you take in 1k rent and the mortgage is 900.

And then let's say interest repayment is 2-300 so taxable income is (1k-300=700). So you pay tax on this, let's say 40% which is 280.

So take home pay is 1k-280 which is 720 and the mortgage cost is 900.

I'm thinking these figures for costs/tax are conservative too.

Are investment properties only viable on houses with mortgages taken out a long time ago (i.e rent prices have boomed since) or do people actually pay a cost (like the above) to have an investment property.

Capital appreciation is a large part of it, the landlord can have negative cash flow in the short term but long term the property is paid for and/or appreciates in value.

.......

Spook_ie wrote: »

Well to be honest and this is just my opinion, people who have to charge in excess of what a mortgage would cost the renter are mostly to blame for the crisis.

The housing crisis has been caused by repeated governments refusal to build large scale social housing and by constantly meddling in the market to the detriment of landlords - hence why so many are getting out of the market.

You dont base rent on what the mortgage is, that would be nonsensical. You base it on what the market will bear. Of course RPZ legislation now prevents this to change with the market so as a result more properties are disappearing from the rental market.

punisher5112

It's big money for investors such as the huge corporate companies and vulture funds as they pay little to no tax.

For the person with one property it doesn't tend to be worth it but bump this number up and they make good returns...

Another thing I found was that people renting out a property were way to attached to it and not running it as a business as which it is.

Something breaks or wears out to no fault of the renter would be hard getting sorted or they be saying oh these couches are so lovely etc and it would be like sitting on broken up bricks.....

I wanted to buy, have worked full time since 17 and well before worked also.

I couldn't get a mortgage as I couldn't save due to the cost of rent and we had no other choice but to do so...

Have since got passed that but it took going home and it was in no way easy.

Gumbo

Spook_ie wrote: »

Well to be honest and this is just my opinion, people who have to charge in excess of what a mortgage would cost the renter are mostly to blame for the crisis.

If you are borrowing money to invest then sooner or later people get burnt, think 2007/8 property bubble, and (again just my opinion) people who had borrowed to invest in renting out properties and couldn't afford the repayments should have had the properties repossessed.

Are you a taxi driver from memory?
Do you charge more per fare than it costs you to carry out that fare?

Of course LL's charge more because the tax is due on the full amount, not just the bit after you minus the mortgage.

SozBbz

Well no one pays 40% tax. If you're a top rate earner then your marginal rate is circa 51% with USC, PRSI etc.

Yes you need rent to be well above mortgage to cope with the taxes and other costs if your plan depends on earning a monthly income/breaking even on a rental property. As other posters have mentioned, some LL's are in it to ultimately own the asset and capital appreciation.

a landlord that needs to cover the monthly mortgage is a very different landlord than an investor who is tallying their decisions over the timespan of several years/decades

so the answer is it depends on why you are a landlord to begin with

Gumbo

Deleted User wrote: »

a landlord that needs to cover the monthly mortgage is a very different landlord than an investor who is tallying their decisions over the timespan of several years/decades

so the answer is it depends on why you are a landlord to begin with

+1

I as a LL, have not increased the rent since the commencement of the tenancy. At that time I could have got an extra 250-450 extra per month but I settled for a family arrangement (HAP) and I knew the history of the tenant.

I could get a lot more renting room by room but that's another story.
I'm in it for the long term and if it breaks even every year then i'm happy, tax bill is the biggest problem obviously, 6k for 2018.

JohnnyChimpo

kceire wrote: »

Are you a taxi driver from memory?
Do you charge more per fare than it costs you to carry out that fare?

Of course LL's charge more because the tax is due on the full amount, not just the bit after you minus the mortgage.

If only there were some way to distinguish between a taxi driver providing a service (labour) with inherent value, and a landlord sitting on his arse and reaping the rewards of capital ownership. Actually hold on, I think some lad wrote a big book about this once...

Gumbo

JohnnyChimpo wrote: »

If only there were some way to distinguish between a taxi driver providing a service (labour) with inherent value, and a landlord sitting on his arse and reaping the rewards of capital ownership. Actually hold on, I think some lad wrote a big book about this once...

The Landlord is providing a service to the tenant. A Safe house which has inherent value to the tenant.
If the LL doesn't provide this, then the state has to. And we all know how well the State are providing houses nowadays.

Sounds like you have a chip on your shoulder about something....

voluntary

Rental is profitable if your income is in excess of your costs. The costs would be maintenance, taxes, fees, insurance, legal/accounting support and mortgage interest in case you use bank to finance your investment. You should not however take the capital repayment part into consideration, this is not cost, this is investment. If your mortgage monthly repayment is 600 capital and 400 interest, then only 400 is your cost.

On top of the above, you may make a capital gain or loss if your property gains or loses value over time.

Cyclepath

SirGerryAdams wrote: »

I was thinking about how people make money on investment properties.

Do they base a lot of it on the capital appreciation?

Because let's say you take in 1k rent and the mortgage is 900.

And then let's say interest repayment is 2-300 so taxable income is (1k-300=700). So you pay tax on this, let's say 40% which is 280.

So take home pay is 1k-280 which is 720 and the mortgage cost is 900.

I'm thinking these figures for costs/tax are conservative too.

Are investment properties only viable on houses with mortgages taken out a long time ago (i.e rent prices have boomed since) or do people actually pay a cost (like the above) to have an investment property.

For a landlord with any significant mortgage on the property, the figures don't add up on a month to month basis. Your only return will be in capital appreciation.

However many landlords were stung by the huge depreciation in values during the recession. Many of them are doing the figures and seeing that there's been no actual profit.

Take an example of my uncle who bought a 3 bed house in northside Dublin circa 2007. Cost 500K, mortgaged for 450K. That same house is worth 430K today btw. The house is rented for 1700 pcm. This doesn't cover the mortgage repayment of 1900pcm. So he tops it up with 200 pcm from his salary. The interest is negligible so not much tax relief there. So he pays about 800 pcm in tax on his rental earnings along with his 200 pcm. So it's cost him 12k a year for 12 years, i.e. 144K.

He sees it as a pension because in another 13 years it'll be paid off and he'll then have a retirement income. If he sold it right now, he'd make just about enough get his money back after paying off the outstanding mortgage balance.

I've asked him to do his figures but he's probably stuck with the sunk-cost fallacy. It'll cost him another 156K to pay it off. A total of 300K plus the original 50K deposit will have been paid for the house.

You might say putting 350K down for something that might be worth 430K and upwards in the future isn't a bad deal but who can tell where property prices will go? Will there be another recession as you retire or sell? You also have 25 years of hassle dealing with tenants and property related issues, replacing appliances, maintenance etc.

Also, that 350K would probably have done a lot better in a pension fund subsidised to twice its value by the govt in tax credits, meaning he'd have had more money in his pocket month to month.

IMHO, it's only worth being a landlord if you inherit a house mortgage free. Then anything you make is actual profit...

JohnnyChimpo

kceire wrote: »

The Landlord is providing a service to the tenant. A Safe house which has inherent value to the tenant.
If the LL doesn't provide this, then the state has to. And we all know how well the State are providing houses nowadays.

Sounds like you have a chip on your shoulder about something....

I don't exactly expect someone modding a property forum to have views that diverge much from accepted wisdom. But lol at equating property with labour, that's just fundamentally not what private property is or how the property market works.

And yes, the state should provide accommodation to its citizenry. The reason this is so poorly handled is - surprise - because of the rentier class (well represented within the Dáil). The state is more than capable of building homes at an enormous scale, as evidenced by the huge number of homes in Dublin that are now generating wealth for private sellers but which were built by the state.

Perhaps I do have a chip on my shoulder, inasmuch as I don't enjoy the prospect of high homelessness rates juxtaposed with the immoral profiteering of landlords? In which case I formally withdraw my nomination to be a mod of this esteemed forum.

Gumbo

JohnnyChimpo wrote: »

I don't exactly expect someone modding a property forum to have views that diverge much from accepted wisdom. But lol at equating property with labour, that's just fundamentally not what private property is or how the property market works.

And yes, the state should provide accommodation to its citizenry. The reason this is so poorly handled is - surprise - because of the rentier class (well represented within the Dáil). The state is more than capable of building homes at an enormous scale, as evidenced by the huge number of homes in Dublin that are now generating wealth for private sellers but which were built by the state.

Perhaps I do have a chip on my shoulder, inasmuch as I don't enjoy the prospect of high homelessness rates juxtaposed with the immoral profiteering of landlords? In which case I formally withdraw my nomination to be a mod of this esteemed forum.

I don't exactly expect somebody with a gripe towards landlords to see both sides. I don't need schooling in the property market
I'm comfortable with my current set up and don't wish to expand or downsize.

I have seen real homelessness and I have seen people claim homelessness just to get on a list. I've seen people leaving rented accommodation, move straight into their parents house and then go straight into the LA to claim homelessness. Should I tar all tenants as cheats based on this one case?

What about the good landlords which there are many, what about the good tenants, which there are many.

feargale

Does nobody in this country ever want to invest their spare cash in anything but rental property or a pub?

Fol20

kceire wrote: »

Are you a taxi driver from memory?
Do you charge more per fare than it costs you to carry out that fare?

Of course LL's charge more because the tax is due on the full amount, not just the bit after you minus the mortgage.

Great way to put it. People always hate it when ll do raise rent or do other cost cutting measures for “pure profit” - sure why else would they tie up their own money and private time other than to make more money..

Fol20

kceire wrote: »

+1

I as a LL, have not increased the rent since the commencement of the tenancy. At that time I could have got an extra 250-450 extra per month but I settled for a family arrangement (HAP) and I knew the history of the tenant.

I could get a lot more renting room by room but that's another story.
I'm in it for the long term and if it breaks even every year then i'm happy, tax bill is the biggest problem obviously, 6k for 2018.

This maybe your prerogative however depending on the situation, it may not be good business practice. If you have a decent tenant with history there, dont get me wrong, i generally avoid increasing rent until it is too far below market rate. Turnover always costs money as well so its better to have long term tenants.

If you followed your model on lets say 10 properties, you might be loosing out on an extra 54k a year(450x10x12). When its your property, you have the right to dictate your own terms for better or worse however you shouldnt have these terms dictated to you especially if its a loss making business for cashflow.

Fol20

JohnnyChimpo wrote: »

If only there were some way to distinguish between a taxi driver providing a service (labour) with inherent value, and a landlord sitting on his arse and reaping the rewards of capital ownership. Actually hold on, I think some lad wrote a big book about this once...

You clearly dont know the amount of work that goes into managing property. Did the ll not have to work hard up front to build up enough money for the deposit or was he also sotting around doing nothing then also.

Its classified as passive from a taxation point of view and maybe some months you might be quiet after you have done all of the initial hard work but then others could have mentally stressed,physically stressed depending on whatever work comes up.

JJJackal

kceire wrote: »

+1

I as a LL, have not increased the rent since the commencement of the tenancy. At that time I could have got an extra 250-450 extra per month but I settled for a family arrangement (HAP) and I knew the history of the tenant.

I could get a lot more renting room by room but that's another story.
I'm in it for the long term and if it breaks even every year then i'm happy, tax bill is the biggest problem obviously, 6k for 2018.

By not charging market rent are you not costing yourself 5400 a year and decreasing the long term value of the property if in a RPZ?

I appreciate the value of a reliable tent that said. Room by room would be alot of work

The Student

JohnnyChimpo wrote: »

I don't exactly expect someone modding a property forum to have views that diverge much from accepted wisdom. But lol at equating property with labour, that's just fundamentally not what private property is or how the property market works.

And yes, the state should provide accommodation to its citizenry. The reason this is so poorly handled is - surprise - because of the rentier class (well represented within the Dáil). The state is more than capable of building homes at an enormous scale, as evidenced by the huge number of homes in Dublin that are now generating wealth for private sellers but which were built by the state.

Perhaps I do have a chip on my shoulder, inasmuch as I don't enjoy the prospect of high homelessness rates juxtaposed with the immoral profiteering of landlords? In which case I formally withdraw my nomination to be a mod of this esteemed forum.

Can I perhaps offer some points may have not considered. These are for example purposes to help explain my point. I am using 50% for income tax purposes.

For a tenant to pay €2000 in rent per month they have to earn €4000 so the tenant has paid €2000 of their income to the tax man.

This tenant pays the landlord the €2000 and the landlord pays €1000 in tax so now the State has received €3000 in tax take.

Now lets look at the landlord, he has purchased a house and paid the purchase price of the house and the Stamp Duty. The landlord has had to take a mortgage to cover the purchase costs of the property inclusive of the Stamp Duty cost and must pay interest on all of his borrowings.

So know lets look at this in the day to day world. The State has received a significant amount of tax revenue on this transaction, the State has actually done nothing in this example but receives all of the reward.

The landlord has the risk of non paying tenants and associated problems with The RTB and the various homeless charities advising tenants to overhold. The landlord also has various left wing politicians and parties vilifying the landlord as some evil faceless fat cat.

To add to the landlord issue is inability to raise rent because of the Rent Pressure Zones. So a landlord who had good tenants who have subsequently left to buy their own property must now offer the same low rent to the new tenants no matter what they are like or how difficult they are.

Then the landlord can only obtain possession of the property for one of three reasons.

The State on the other hand get the majority of the revenue from the above with little or no responsibility.

I think people should consider exactly who is the biggest benefactor in the rental sector.

Fol20

JohnnyChimpo wrote: »

I don't exactly expect someone modding a property forum to have views that diverge much from accepted wisdom. But lol at equating property with labour, that's just fundamentally not what private property is or how the property market works.

And yes, the state should provide accommodation to its citizenry. The reason this is so poorly handled is - surprise - because of the rentier class (well represented within the Dáil). The state is more than capable of building homes at an enormous scale, as evidenced by the huge number of homes in Dublin that are now generating wealth for private sellers but which were built by the state.

Perhaps I do have a chip on my shoulder, inasmuch as I don't enjoy the prospect of high homelessness rates juxtaposed with the immoral profiteering of landlords? In which case I formally withdraw my nomination to be a mod of this esteemed forum.

The property isnt the labour. The act of ensuring the property means safety standards and abides by local laws, the ability to receive calls at any time of the day and to provide a service in the form of organizing work to be done to said property - Would you not call this labour? A receptionist sits on a chair all day but i suppose this isnt labour either.

Their more than capable of building homes with what money? its not like were already straddled in debt from the last recession where we have payments of 1/7 of our entire GDP per annum, oh wait.

The ll class are clearly dominating the political realm and thats why they liked shooting themself in the foot for the past 5 years by doing so much great anti ll legislation.

Do you profit off the fruits of your labour in your own job, would you call this immoral as well?

Fol20

feargale wrote: »

Does nobody in this country ever want to invest their spare cash in anything but rental property or a pub?

Agreed, i only wish taxation of other investment would be less and be much less complex in nature. Point in case ETF and deemed disposal.

ted1

SirGerryAdams wrote: »

I was thinking about how people make money on investment properties.

Do they base a lot of it on the capital appreciation?

Because let's say you take in 1k rent and the mortgage is 900.

And then let's say interest repayment is 2-300 so taxable income is (1k-300=700). So you pay tax on this, let's say 40% which is 280.

So take home pay is 1k-280 which is 720 and the mortgage cost is 900.

I'm thinking these figures for costs/tax are conservative too.

Are investment properties only viable on houses with mortgages taken out a long time ago (i.e rent prices have boomed since) or do people actually pay a cost (like the above) to have an investment property.

I make slightly more than break even. But I’m half way through the mortgages. So in 8 years I’ll have assets that cost me nothing. Literally other people paid the mortgages.

I could cash in or retire early and continue to recieive the rent with Little our going’s.

Pkiernan

JohnnyChimpo wrote: »

I don't exactly expect someone modding a property forum to have views that diverge much from accepted wisdom. But lol at equating property with labour, that's just fundamentally not what private property is or how the property market works..

Here come the Marxists! Remember landlords got their houses for free. They didn't have to work for the money to buy them or anything...

If lefties worked as much as they complained they'd be a lot better off.

Gumbo

Fol20 wrote: »

This maybe your prerogative however depending on the situation, it may not be good business practice. If you have a decent tenant with history there, dont get me wrong, i generally avoid increasing rent until it is too far below market rate. Turnover always costs money as well so its better to have long term tenants.

If you followed your model on lets say 10 properties, you might be loosing out on an extra 54k a year(450x10x12). When its your property, you have the right to dictate your own terms for better or worse however you shouldnt have these terms dictated to you especially if its a loss making business for cashflow.

JJJackal wrote: »

By not charging market rent are you not costing yourself 5400 a year and decreasing the long term value of the property if in a RPZ?

I appreciate the value of a reliable tent that said. Room by room would be alot of work

Yes, of course. I am doing myself out of further money but most of it would go in tax anyway. I'm getting good money for the property, don't get me wrong, but I could get more if I was that way inclined.

Saudades

The Student wrote: »

Now lets look at the landlord, he has purchased a house and paid the purchase price of the house and the Stamp Duty. The landlord has had to take a mortgage to cover the purchase costs of the property inclusive of the Stamp Duty cost and must pay interest on all of his borrowings.

So know lets look at this in the day to day world. The State has received a significant amount of tax revenue on this transaction, the State has actually done nothing in this example but receives all of the reward.

In the day to day world, the landlord must be very wealthy to afford a second property. If someone is in a position fortunate enough to purchase a second property or more, when a lot of folks are struggling to purchase one property for their family, then they are comfortably in a position to pay 40% tax.

The state don't receive all of the reward. Revenue will receive 20% or 40% of income, the same rate as everyone else pays on any income. And the money is pumped back into society, contributing to housing, education, transport, justice etc.

The Student wrote: »

To add to the landlord issue is inability to raise rent because of the Rent Pressure Zones.

That's incorrect; landlords in rent pressure zones can raise rent by a huge 4% every year.

The Student wrote: »

So a landlord who had good tenants who have subsequently left to buy their own property must now offer the same low rent to the new tenants

There are no low rents. Rents are the highest they have ever been. They have almost doubled in 10 years.

Even PRTB say "For an area to be designated a Rent Pressure Zone, rents in the area must be at a high level and they must be rising quickly."

The Student wrote: »

The State on the other hand get the majority of the revenue from the above with little or no responsibility.

The state have the responsibility to use the landlords rental income tax to fund towards more housing.

The Student wrote: »

I think people should consider exactly who is the biggest benefactor in the rental sector.

Yes Revenue are big benefactors here and thus should be doing more to assist renters. The introduction of the RPZ rent cap is a good start otherwise landlords would be raising the rent by 10% a year. Although 4% a year is still too high.

There was a rent relief tax credit a few years back, and it was decreased year on year until eventually abolished at the worst possible time for renters as rents were sky-rocketing around 10% a year.

JJJackal

Why is 4% too high? Apparently wages increased on average by 4.1% in 2018

What would a fair increase be

punisher5112

I can't wait till the rental boom crashes and workers realize we can't keep paying for those that won't and spending€400k up to near €1 million on a bungalow for travellers!!!

What is really going on we aren't told and only have to look at certain areas where housing is out of control and most if not all are coming in to get housing....

Saudades

JJJackal wrote: »

Why is 4% too high? Apparently wages increased on average by 4.1% in 2018

What would a fair increase be

That's good, but what about the 10 years before that when average wages increased by 0%-1% in 10 years and rents were going up by 10% every year.

The current 4% a year rent increase is still too high to compensate for those previous 10 years. And will wages continue to grow at 4.1% every year going forward?

Saudades

punisher5112 wrote: »

I can't wait till the rental boom crashes and workers realize we can't keep paying for those that won't and spending€400k up to near €1 million on a bungalow for travellers!!!

What is really going on we aren't told and only have to look at certain areas where housing is out of control and most if not all are coming in to get housing....

Well I don't know if it ever will crash. People need a roof over their head.

The RPZ legislation is only in place until 31 December 2021. Then what will happen after that? Landlords will revert back to 10% annual increases?