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

JJJackal

Saudades wrote: »

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?

Rents fell from 2007 to 2012 so thats factually incorrect

Re wages:

"Central Statistics Office (CSO) figures show average household disposable income rose by nearly 5 per cent to €48,476 last year (thinks this refers to 2017).

This was 17 per cent higher than at the low point of recession in 2012 when it was €41,399 and just 1.1 per cent lower than the boom-time high of €49,043 recorded in 2008"

So your wages comment is also not correct

Fol20

Saudades wrote: »

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?

Rents were not at an all time high for the past 10 years. 5 years ago, rents in my area were 60pc less and ll still had to pay their mortgages and several went bankrupt - this is life thougg.It ebs and flows.

There will be a point in the future where rent will be low also. I think it would be fair if rents were not allowed to decrease over 4pc. Would this be fair in your eyes? If this was the case and it created stability. Id be ok with it.

More than likely, people wouldnt be happy with this either as they only like the situation when it suits them.

Fol20

Saudades wrote: »

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?

The government may attempt to extend again more than likely. Assume the worst, hope for the best. Its bringing rent to market rate. If your working for a company and you think you can get an extra 10k elsewhere. Would you be happy if you need to stay where you are or would you move to the new better paying job. The same should happen in rentals but people only see it as money grabbing ll when everyone does the exact same thing in life.nothing wrong with it. People are hypocrites though.

Saudades

JJJackal wrote: »

Rents fell from 2007 to 2012 so thats factually incorrect

I just know first-hand that apartments in my building were 700 a month 10 years ago, to 1,400 a month today.
Admittedly I'm in Dublin city center so that could have skewed my opinion somewhat, the increases here were larger scale than elsewhere.

I wonder how many landlords gave rent reductions every year from 2007 to 2012?

But okay what about since 2012 to 2018? Well according to CSO, rents are up 47.5%, from 1,039.17 to 1,532.90 (that's selecting Dublin, all property types in the database).

JJJackal wrote: »

Re wages:

"Central Statistics Office (CSO) figures show average household disposable income rose by nearly 5 per cent to €48,476 last year (thinks this refers to 2017).

This was 17 per cent higher than at the low point of recession in 2012 when it was €41,399 and just 1.1 per cent lower than the boom-time high of €49,043 recorded in 2008"

So your wages comment is also not correct

Why are you checking disposable income figures when my comment was about wages?

Let's check the CSO figures for 'average regular earnings' from the same time period as above (all employment types, all economic sectors) - 2012-2018 - there was only 6.5% growth in 6 years, from 33,345 to 35,615.

So from 2012 to 2018, 6.5% growth in salary, 47.5% growth in rent - that was clearly not sustainable.

Saudades

Fol20 wrote: »

Rents were not at an all time high for the past 10 years.

I meant they are at an all time high today.

Fol20 wrote: »

5 years ago, rents in my area were 60pc less and ll still had to pay their mortgages and several went bankrupt - this is life thougg.It ebs and flows.

There will be a point in the future where rent will be low also. I think it would be fair if rents were not allowed to decrease over 4pc. Would this be fair in your eyes? If this was the case and it created stability. Id be ok with it.

More than likely, people wouldnt be happy with this either as they only like the situation when it suits them.

I can't see rent prices ever decreasing again, it's a different era now.

Yes stability is the key and I do see your point, but if rents in your area have risen by 60% in 5 years, then doesn't it seem like moving the goalposts somewhat to say that they can only decrease by 4% per year in the future?

I'd imagine the tenant's 60% increase has paid of a large chunk of the landlords mortgage.

There should have been an increase/decrease cap legislation put in years ago - something along the lines of rent increasing/decreasing in-line with average regular earnings. For example, average earnings in the state are up 5% - rent can increase 5% the next year. Not sure if that would quite work though.

Graham

Saudades wrote: »

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?

What's happened to property prices over the same period?

Fol20

Saudades wrote: »

I meant they are at an all time high today.



I can't see rent prices ever decreasing again, it's a different era now.

Yes stability is the key and I do see your point, but if rents in your area have risen by 60% in 5 years, then doesn't it seem like moving the goalposts somewhat to say that they can only decrease by 4% per year in the future?

I'd imagine the tenant's 60% increase has paid of a large chunk of the landlords mortgage.

There should have been an increase/decrease cap legislation put in years ago - something along the lines of rent increasing/decreasing in-line with average regular earnings. For example, average earnings in the state are up 5% - rent can increase 5% the next year. Not sure if that would quite work though.

Personally. Id be ok with rent caps if it went both ways as it creates stability for both the ll and tenant. There would be no shocks from both sides but in the current environment ll need to make the returns as much as they can in the good years while they can and this is being blocked right now.


Well you could say your always moving the goal posts. If you go back 10years, rents were about 20-30pc less in my area.

In the real world though. Decrease caps will never work as market will dictate the rate and people will just move elsewhere.

The rpz isnt working though. I set most of mine at market rate 2 years ago and even now when i look at the majority of places on daft the going rate of 90pc is well over the cap. tenants cant really do much though as selection due to declining supply provides them with no choice. Some areas i look at have literally no available properties and it was only a few years ago 10-20 were available at any period in time.

Blueshoe

What about those who can afford to buy an investment property without any loan from the bank.
That's the guy who wins

4ensic15

Blueshoe wrote: »

What about those who can afford to buy an investment property without any loan from the bank.
That's the guy who wins

He wins if the property rises in value,the rent comes in, and there are no major repairs or damage to the property during his ownership.
Return on property comes from capital gain and rental income. I saw a projection done over 20 years ago. At its simplest the capital gain was twice as significant as the rental income in terms of profit.

Dav13579

Saudades wrote: »

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?

About 10 years ago my rent dropped by 30% one year and then 10% each of the next two years.

Mad_maxx

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...

It must be exhausting to be so ideological

Mad_maxx

feargale wrote: »

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

Investing in the financial markets is not an inviting prospect in this country , people feel they have little option but to grow their wealth through property

ted1

Mad_maxx wrote: »

Investing in the financial markets is not an inviting prospect in this country , people feel they have little option but to grow their wealth through property

Many do ,have you ever heard of a private pension?

Mad_maxx

ted1 wrote: »

Many do ,have you ever heard of a private pension?

I'd hardly call a pension a means to build significant wealth?

It's wise to build one but hardly anything out of the ordinary

Frozen Veg

The biggest win on investment property is that you have somebody living in your house paying off the debt on your asset.

Even if no capital gain on the asset, it will cost you very little over the course of the mortgage and after 25 years your tenants will have paid for that asset which you will then fully own debt free.

Mad_maxx

Frozen Veg wrote: »

The biggest win on investment property is that you have somebody living in your house paying off the debt on your asset.

Even if no capital gain on the asset, it will cost you very little over the course of the mortgage and after 25 years your tenants will have paid for that asset which you will then fully own debt free.

You do begin to wonder if the risks are sufficiently compensated, bar the advantage of being able to use leverage, the capital gains achieved are unlikely to surpass the stock market

Leveraging is great until you either meet a downturn or a bad tenant or higher interest rates

Blueshoe

Mad_maxx wrote: »

You do begin to wonder if the risks are sufficiently compensated, bar the advantage of being able to use leverage, the capital gains achieved are unlikely to surpass the stock market

Leveraging is great until you either meet a downturn or a bad tenant or higher interest rates

Aren't gains in stock market investment taxed relatively heavily in Ireland? . Such markets are only for the wealthy. No the average Paddy and Mary

Topgear on Dave

Blueshoe wrote: »

Aren't gains in stock market investment taxed relatively heavily in Ireland? . Such markets are only for the wealthy. No the average Paddy and Mary

BTL is maybe a 300 grand leveraged and risky investment? so personally Id see investing in a variety of shares as maybe a better option for the small investor or for my pension.

Blueshoe

Topgear on Dave wrote: »

BTL is maybe a 300 grand leveraged and risky investment? so personally Id see investing in a variety of shares as maybe a better option for the small investor or for my pension.

How about those that can afford to buy an investment property loan free. Cash money. And then sit on it for 20 years.
I would have thought this was a solid investment

Mad_maxx

Blueshoe wrote: »

How about those that can afford to buy an investment property loan free. Cash money. And then sit on it for 20 years.
I would have thought this was a solid investment

They could just pour all that cash into the markets, capital appreciation over twenty years should match property

The BTL will deliver them a better income though

10pennymixup

Saudades wrote: »

.............I wonder how many landlords gave rent reductions every year from 2007 to 2012?................

That would be all of them.

Any that didn't would've soon lost their tenant and been forced to charge the new lower market rent anyway.

mickoneill31

Frozen Veg wrote: »

The biggest win on investment property is that you have somebody living in your house paying off the debt on your asset.

Even if no capital gain on the asset, it will cost you very little over the course of the mortgage and after 25 years your tenants will have paid for that asset which you will then fully own debt free.

Not sure about the maths there.

Borrowing €300,000 over 25 years means you start with a mortgage today of €1300 a month.
So you rent it out and about 40% - 50% goes to tax.

Then you have to put aside some money for upkeep / maintenance of the property and furniture plus insurance and LPT.

If you get a tenant that overholds that can be a year or two without income and the resulting mess that they leave behind that needs to be repaired / cleaned. I don't know what the odds are of that happening over the lifetime of the debt are.

I agree you have somebody paying off your asset but the 25 years is probably a bit optimistic. You might have the mortgage paid off in 25 years but that'll be by adding a fair bit to the monthly repayments on top of the rent.

It's still a good investment, if the risk of the overholding tenants was controlled in Ireland. It's not, so there are less risky places to invest your money.

Mad_maxx

It's really not surprising that property has become so popular with investors across the world this past few decades, bar the usa, returns from the stock market have markedly underperformed the gains made in property, it's now not possible to buy American registered ETF, s so this makes the equity market even less appealing

Old diesel

Frozen Veg wrote: »

The biggest win on investment property is that you have somebody living in your house paying off the debt on your asset.

Even if no capital gain on the asset, it will cost you very little over the course of the mortgage and after 25 years your tenants will have paid for that asset which you will then fully own debt free.

I've long suspected that this is what landlords would like to see happen.

Unfortunately that's not what is happening.

Because of the tax situation and other costs - the landlord finds themselves having to dip into their pockets to pay some costs like a part of the mortgage.

This is hurting their financial situation and is a key reason they are selling.

It means too that they have difficulty when a HAP inspection comes along looking for stuff.

The cost of say 20 k doesn't sound a lot in the context of a house worth 300 k.

But it's a lot of money if you don't have it or needed the 20 k for other stuff.

Cyclepath

Frozen Veg wrote: »

The biggest win on investment property is that you have somebody living in your house paying off the debt on your asset.

Even if no capital gain on the asset, it will cost you very little over the course of the mortgage and after 25 years your tenants will have paid for that asset which you will then fully own debt free.

Untrue, as I explained earlier in the thread. Real life example for you:

...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 already cost him 12k a year over 12 years, i.e. 144K...

He'll have subbed this property 350K over 25 years if you include the original 50K deposit. So you can subtract that from the eventual selling price. If he does make a capital gain, that too will be taxed.

Compare that to investing in a pension which gives you tax back rather than taking it away from you. It doesn't make sense to be a small private landlord unless you own the properties outright and derive your sole income from them and therefore benefit from the usual tax credits.

JJJackal

Cyclepath wrote: »

Untrue, as I explained earlier in the thread. Real life example for you:

...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 already cost him 12k a year over 12 years, i.e. 144K...

He'll have subbed this property 350K over 25 years if you include the original 50K deposit. So you can subtract that from the eventual selling price. If he does make a capital gain, that too will be taxed.

Compare that to investing in a pension which gives you tax back rather than taking it away from you. It doesn't make sense to be a small private landlord unless you own the properties outright and derive your sole income from them and therefore benefit from the usual tax credits.

Regarding your uncle, he is probably not charging market rent? At 1900 per month repayments his interest rate is close to 2% which is high enough for a tracker from 2007.

Re 350k sub as an investor he hopes the rent increases over the next 15 years and in 15 years time his mortgage will be clear and he will earn circ 2500 (assuming he is currently not charging marker and rents increase) per month

Arguably the rent has never covered the mortgage on this property even in 2007? If we had better banks he would not have been allowed or advised against borrowing this money imo

3DataModem

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.

If the amount you have to subsidise the cost (inc mortgage and tax) is less than the amount of the mortgage that is cleared each month, you are making yourself more wealthy each month. This won't always feel like a profit.

DrPhilG

When I moved house I was able to keep my old property and rent it out. The rent was at that time a fair bit less than the mortgage but it was the going rate. So I kept hold of the place at a loss of about €1k a year. 3 years later the tenant changed and I raised the rent a wee bit but still running at a loss.

Only 4 years after that with another tenant change did I raise the rent to about €70 above the mortgage per month.

PS the reason I raised a fair bit between tenants is that I don't like bumping the rent mid tenancy, even though I know I can. If I have a good tenant, I'd rather keep them even for a bit less.

Cyclepath

JJJackal wrote: »

Regarding your uncle, he is probably not charging market rent? At 1900 per month repayments his interest rate is close to 2% which is high enough for a tracker from 2007.

Re 350k sub as an investor he hopes the rent increases over the next 15 years and in 15 years time his mortgage will be clear and he will earn circ 2500 (assuming he is currently not charging marker and rents increase) per month

Arguably the rent has never covered the mortgage on this property even in 2007? If we had better banks he would not have been allowed or advised against borrowing this money imo

Yeah he could probably get more rent, but he's always favoured good tenants that stay on over rent increases. Now he's in a Rent controlled zone so he's kinda stuck.

Regardless the eventual rent he might be able to charge, he'll have had 25 years of misery! He's been subsidising the property at significant cost to his lifestyle, and he's suffered the huge downturn in values with the prospect of the same happening again in the future.

I suppose my point was, and still is: Is it worth an ulcer?!

I'd only advise getting into the property business if you can spin up a REIT and do it at scale.

Old diesel

Cyclepath wrote: »

JJJackal wrote: »

Regarding your uncle, he is probably not charging market rent? At 1900 per month repayments his interest rate is close to 2% which is high enough for a tracker from 2007.

Re 350k sub as an investor he hopes the rent increases over the next 15 years and in 15 years time his mortgage will be clear and he will earn circ 2500 (assuming he is currently not charging marker and rents increase) per month

Arguably the rent has never covered the mortgage on this property even in 2007? If we had better banks he would not have been allowed or advised against borrowing this money imo

Yeah he could probably get more rent, but he's always favoured good tenants that stay on over rent increases. Now he's in a Rent controlled zone so he's kinda stuck.

Regardless the eventual rent he might be able to charge, he'll have had 25 years of misery! He's been subsidising the property at significant cost to his lifestyle, and he's suffered the huge downturn in values with the prospect of the same happening again in the future.

I suppose my point was, and still is: Is it worth an ulcer?!

I'd only advise getting into the property business if you can spin up a REIT and do it at scale.

It would be many years of misery for a tenant to pay a profitable rent every month for a house with a 1900 a month mortgage.

Even at lower tax rates.

So the model is flawed