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Are buy to let mortgages a bad idea?

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  • 28-06-2019 5:35pm
    #1
    steddyeddy
    Registered Users Posts: 27,564 ✭✭✭✭


    Most of the struggling landlords I know are accidental landlords or buy to let. Those that own the properties outright with no mortgage make a healthy profit. Are buy to let part a bad investment?


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    #2
    Lumen
    Registered Users Posts: 31,073 ✭✭✭✭Lumen


    Yes


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    #3
    Mad_maxx
    Registered Users Posts: 13,503 ✭✭✭✭Mad_maxx


    steddyeddy wrote: »
    Most of the struggling landlords I know are accidental landlords or buy to let. Those that own the properties outright with no mortgage make a healthy profit. Are buy to let part a bad investment?

    Depends, if you bought at the right time, almost any purchase is good as you stand a better chance of meeting you're finance repayments


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    #4
    [Deleted User]
    Posts: 24,714 ✭ [Deleted User]


    Finance is a key part of any business so no, they are a necessity but of course only should be given to those who can pay them. The rates shouldn’t be so high either as it just makes them more difficult to pay.


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    #5
    Allinall
    Registered Users Posts: 6,697 ✭✭✭Allinall


    steddyeddy wrote: »
    Most of the struggling landlords I know are accidental landlords or buy to let. Those that own the properties outright with no mortgage make a healthy profit. Are buy to let part a bad investment?

    Having a mortgage or not doesn’t make any difference to the profit, other than interest, which can be claimed against tax.


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    #6
    DubCount
    Registered Users Posts: 1,089 ✭✭✭DubCount


    There are several issues with Buy2Let mortgages. The first problem is the rate. Typically, the rate is about 5%, which is expensive. If your gross yield is say 8%, you are working to make money for the bank. The Landlord takes all the risk of the investment, and the return after paying interest on the mortgage makes it a poor investment proposition.

    The second problem with Buy2Let mortgages in Ireland, is the interest only mortgages are unusual, and limited in term. For Buy2own mortgages, interest only does not work, because the income that pays the mortgage is eventually impacted by retirement. For Buy2Let however, there is an ongoing related income stream which makes it viable. The requirement to make capital repayments on the mortgage normally means the investment is cash flow negative.

    Finally, the LTV requirements are high. This may make some sense for bank in reducing their risk, but that is not reflected in the rates. This does restrict Buy2Let mortgages to those with significant capital to start off with.

    I don't believe investing in a Buy2Let property with a mortgage in the Irish market is a viable investment proposition. There are just easier ways to turn a coin.


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    #7
    steddyeddy
    Registered Users Posts: 27,564 ✭✭✭✭steddyeddy


    Allinall wrote: »
    Having a mortgage or not doesn’t make any difference to the profit, other than interest, which can be claimed against tax.

    So the amount you pay out doesn't have an effect on profit?


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    #8
    Graham
    Moderators, Society & Culture Moderators Posts: 17,642 Mod ✭✭✭✭Graham


    not necessarily


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    #9
    Allinall
    Registered Users Posts: 6,697 ✭✭✭Allinall


    steddyeddy wrote: »
    So the amount you pay out doesn't have an effect on profit?

    Only the interest portion.


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    #10
    Mrs OBumble
    Registered Users Posts: 25,941 ✭✭✭✭Mrs OBumble


    Allinall wrote: »
    Only the interest portion.

    You don't seem to understand how mortgages work.

    Thd interest can be claimed against tax, for sure. But it is also cash that you don't have any more after you've paid it.


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    #11
    Graham
    Moderators, Society & Culture Moderators Posts: 17,642 Mod ✭✭✭✭Graham


    cash/cashflow is not the same as profit.

    It is quite possible for a profitable rental property to have a negative cashflow.


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    #12
    Old diesel
    Registered Users Posts: 5,809 ✭✭✭Old diesel


    Are buy to let mortgages a good idea?????.

    I think there are a number of things to consider......

    1) Financial resilience of the would be investor - is there a margin (financially) to work with if rents drop or there is a problem/crisis.

    2) the prospects of the individual property - price to buy and rent currently, future potential of price to sell and the future rental.

    3) the business plan to maximise the chances of the investment.

    4) Govt policy for rental in longer term.

    It is very important that the price to buy is NOT excessive because the amount you need to cover the mortgage both from rent and your own pocket is locked into the price you pay today for the property.


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    #13
    Old diesel
    Registered Users Posts: 5,809 ✭✭✭Old diesel


    Looking at some landlord posts on here it would appear that even with the market as strong as it is to sell a house...

    Some are finding that the house they bought years back is worth LESS then it was when they bought it.

    So a house bought for 300 k is now selling for 240 k.

    This contributes to the landlords difficulty in making a return.

    Buy to let mortgages therefore only work with solid Govt policy that supports the landlord model.

    With financial resillience and a solid business plan that makes allowance for downturns

    Edit corrected 300 k to 240 k


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    #14
    Allinall
    Registered Users Posts: 6,697 ✭✭✭Allinall


    Mrs OBumble wrote: »
    You don't seem to understand how mortgages work.

    Thd interest can be claimed against tax, for sure. But it is also cash that you don't have any more after you've paid it.

    I understand fully how mortgages work.

    In calculating profit (or loss), only the interest portion of the mortgage repayments are taken into account.

    Capital portion is just that. Capital.


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    #15
    Mad_maxx
    Registered Users Posts: 13,503 ✭✭✭✭Mad_maxx


    DubCount wrote: »
    There are several issues with Buy2Let mortgages. The first problem is the rate. Typically, the rate is about 5%, which is expensive. If your gross yield is say 8%, you are working to make money for the bank. The Landlord takes all the risk of the investment, and the return after paying interest on the mortgage makes it a poor investment proposition.

    The second problem with Buy2Let mortgages in Ireland, is the interest only mortgages are unusual, and limited in term. For Buy2own mortgages, interest only does not work, because the income that pays the mortgage is eventually impacted by retirement. For Buy2Let however, there is an ongoing related income stream which makes it viable. The requirement to make capital repayments on the mortgage normally means the investment is cash flow negative.

    Finally, the LTV requirements are high. This may make some sense for bank in reducing their risk, but that is not reflected in the rates. This does restrict Buy2Let mortgages to those with significant capital to start off with.

    I don't believe investing in a Buy2Let property with a mortgage in the Irish market is a viable investment proposition. There are just easier ways to turn a coin.

    Care to name a better place for capital, European markets have performed horribly this past five years relative to Irish property and even they had done well, fund investors are treated very severely


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    #16
    steddyeddy
    Registered Users Posts: 27,564 ✭✭✭✭steddyeddy


    Allinall wrote: »
    I understand fully how mortgages work.

    In calculating profit (or loss), only the interest portion of the mortgage repayments are taken into account.

    Capital portion is just that. Capital.

    You're talking about the semantics of financial terms. The reality is mortgage is an expense associated with buy to let mortgages. The clue's in the name. I think often landlords overlook the initial investment when complaining about the profitability of letting. For example not counting the mortgage as a letting expense in buy to let's is an indication they might not have known what they were doing.


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