Rent freeze?

Fol20

AlmightyCushion wrote: »

There is a difference between profitable and cash flow positive. A person letting out a property could have to top up the rent to pay the mortgage and yet still be profitable because a large chunk of the mortgage payments are going towards paying off the house. That equity you are building up every month by paying the mortgage is profit. You just choose not to see it as such.

Tbh, if you look at any other business, they all need to be cashflow positive. Yes, principle pay down is part of the profit but this cannot be used until the property is sold which could be 2-30 years down the line.

Try asking a small business owner to have negative cashflow for 20 years but the potential headaches and risks that go along with this with a chance that he may come out ahead when he is close to retirement.

meeeeh

Fol20 wrote: »

Tbh, if you look at any other business, they all need to be cashflow positive. Yes, principle pay down is part of the profit but this cannot be used until the property is sold which could be 2-30 years down the line.

Try asking a small business owner to have negative cashflow for 20 years but the potential headaches and risks that go along with this with a chance that he may come out ahead when he is close to retirement.

Well you can buy rental property outright and then you will have no issues with cashflow. If you overstretch yourself buying investment property you are not entitled to higher rents and lower taxes just to maintain your lifestyle. Market or this case government will dictate your rental income not how much you need to cover mortgage repayments.

AlmightyCushion

Fol20 wrote: »

Tbh, if you look at any other business, they all need to be cashflow positive. Yes, principle pay down is part of the profit but this cannot be used until the property is sold which could be 2-30 years down the line.

Try asking a small business owner to have negative cashflow for 20 years but the potential headaches and risks that go along with this with a chance that he may come out ahead when he is close to retirement.

Most businesses aren't based on being mortgaged to the hilt. Most businesses don't have large amounts of their income going towards capital payments on the mortgage. Property is a long term investment. If people see that and understand that then it can be a great investment. Because of the huge debt required (relatively speaking compared to the value of the asset) and the large capital payments it should be almost expected to be cash flow negative.

Let's take a simple example.

Say, you have a property worth €500k with a 25 year mortgage on it for €450k. The rent exactly covers the mortgage, tax and all other expenses. You don't have to put any extra money into this investment but you also don't get anything extra out of it either. This continues for the entire length of the mortgage. After 25 years, your 50k investment would now result in you having complete ownership of an asset that was worth 500k before any capital appreciation. With 25 years worth of capital appreciation, the property could be worth a lot more. How can you not see that this is an excellent investment? To expect to be getting cashflow every month from this investment as well is just ridiculous.

Fol20

meeeeh wrote: »

Well you can buy rental property outright and then you will have no issues with cashflow. If you overstretch yourself buying investment property you are not entitled to higher rents and lower taxes just to maintain your lifestyle. Market or this case government will dictate your rental income not how much you need to cover mortgage repayments.

Most companies borrow money so no point even doing that as an example. Im not advocating for lower taxes. I want a free market to operate where the price will naturally settle.

So what do you suggest to fix the issue. Government interference is not going to fix the issue as anything they have done for the past decade has made it worse.

The one and only issue here is supply vs demand. Supply is decreasing and demand is increasing. How do you solve this? You may not like ll but they are people that offer supply. If you alienate these people supply will decrease like what we are seeing now.

Fol20

AlmightyCushion wrote: »

Most businesses aren't based on being mortgaged to the hilt. Most businesses don't have large amounts of their income going towards capital payments on the mortgage. Property is a long term investment. If people see that and understand that then it can be a great investment. Because of the huge debt required (relatively speaking compared to the value of the asset) and the large capital payments it should be almost expected to be cash flow negative.

Let's take a simple example.

Say, you have a property worth €500k with a 25 year mortgage on it for €450k. The rent exactly covers the mortgage, tax and all other expenses. You don't have to put any extra money into this investment but you also don't get anything extra out of it either. This continues for the entire length of the mortgage. After 25 years, your 50k investment would now result in you having complete ownership of an asset that was worth 500k before any capital appreciation. With 25 years worth of capital appreciation, the property could be worth a lot more. How can you not see that this is an excellent investment? To expect to be getting cashflow every month from this investment as well is just ridiculous.

Just as an FYI, you cannot do your example as ll need a max ltv of 70pc unless refi. So it would be 500k house with a 350k mortgage.

Your calculation also doesnt take into account risk, maintenance and your own work and steady rent.

-You could have a tenant that doesnt pay rent for a year.
-A tenant that damages the property to the tune of 50k - yes i have seen then.
-Over the span of 25 years, everything in the property will need to be replaced so you would be talking thousands in work also.
-Mortgage payments remain the same however rent goes up and DOWN. more recently rent is much higher but if you look back to 2012, rent was half of what it is now.
-As mentioned already, if property was such a lucrative and excellent investment, more would be investing in it, yet we are seeing a decline in available rentals - why is that?
-Yes i do expect positive cashflow for the risk i take on it. i could loose everything if i dont make payments so i want to be compensated for this. Capital appreciation and cashflow to at least break even incl tax.

burkey2k0

AlmightyCushion wrote: »

Say, you have a property worth €500k with a 25 year mortgage on it for €450k. The rent exactly covers the mortgage, tax and all other expenses. You don't have to put any extra money into this investment but you also don't get anything extra out of it either. This continues for the entire length of the mortgage. After 25 years, your 50k investment would now result in you having complete ownership of an asset that was worth 500k before any capital appreciation. With 25 years worth of capital appreciation, the property could be worth a lot more. How can you not see that this is an excellent investment? To expect to be getting cashflow every month from this investment as well is just ridiculous.

Agree with your point, but Just to nitpick. It's a good deal, but not that amazing a deal when you take into the cost of the mortgage over the years, even when you take into account capital appreciation.

At a capital appreciation of let's say 2% (which is the average over the past number of decades) and a mortgage interest rate of 3% over those 25 years, the asset will appreciate to approx. €824,000, but the total mortgage cost would be approx. €640,000. Plus your initial €50,000 which is a total €690,000 cost of the asset.

So a gain of €134,000 over 25 years in your example, not €500,000. so just under €5,500 a year.

A return of approx. 11% annually on your investment.

(I've left myself open now for people to nitpick at me, please be gentle! )

Graham

burkey2k0 wrote: »

(I've left myself open now for people to nitpick at me, please be gentle! )

Have BTL mortgage rated halved recently burkey2k0?

burkey2k0

Graham wrote: »

Have BTL mortgage rated halved recently burkey2k0?

Haha, oh so if everything was above board?! interesting! Okay lets account for Fol20 aswell with the Buy to let ratio, meaning €350,000 being borrowed at 4.5% (I had a quick check on Bonkers.ie ), and an investment of €150,000

Scenario does changes!

Mortgage cost €554k, plus initial €150k is €704k as opposed to €690k in the simplified version.

So a gain of €120,000 over 25 years in this example. so €4,800 a year.

A return of approx. 3.2% annually on your investment...A financial adviser would probably not advise you to take this option...

Also! Mortgage on this would be approx €1800...The rent to charge to get you even on this I will leave to someone with more time. €2500 to €3000 maybe? Even this market that's a stretch.

ted1

ted1 wrote: »

I’ve just drafted a rent review notices. I was happy to let themBe for the past while, but if freezes are in the way. I’ll be putting them up to the max permitted.

Well done government.

The last time they tried to improves things my rent went up by 8% overnight.

Any times they try to fix things they just make it worse.

Graham

burkey2k0 wrote: »

So a gain of €120,000 over 25 years in this example. so €4,800 a year.

A return of approx. 3.2% annually on your investment...A financial adviser would probably not advise you to take this option...

Is that figure before CGT?

burkey2k0

Graham wrote: »

Is that figure before CGT?

Probably brings it down to a 2% return. What idiot would be a landlord?!

Graham

burkey2k0 wrote: »

Probably brings it down to a 2% return. What idiot would be a landlord?!

Inflation adjusted?

:pac:

burkey2k0

Graham wrote: »

Inflation adjusted?

:pac:

Haha, Mercy!

Edit:....But that would actually improve the situation...time value of money and all. Paying off an asset over 25 years, your mortgagee payments stay the same, but the value of the money you're paying it with goes down.

This really requires some sort of graph!...I am not doing a graph.

Graham

Ahhh go on, I haven't even started on the risk side, void periods, etc. etc. etc.

ted1

[Deleted User] wrote: »

Well done government.

The last time they tried to improves things my rent went up by 8% overnight.

Any times they try to fix things they just make it worse.

Actually it was the opposition

beauf

marieholmfan wrote: »

Tough Luck at the end of the process you own the asset. The state should ensure that no landlord with an outstanding mortgage can break even.

Then there's no incentive to to rent.
Without cash-flow, there is nothing to pay for the on going expenses and maintenance of a property or run the business.

You can just buy property, and never rent it. Let it appreciate.
I know a good few people who did exactly that. Let family and friends use it intermittently but basically sat empty for a decade or two. Then sold it once they retire.

Which is a problem if you outsource the provision of rental property in its entirety and remove all incentive to rent.

The people this is a problem for, is the people looking to rent.

mgn

Deleted User wrote: »

Well done government.

The last time they tried to improves things my rent went up by 8% overnight.

Any times they try to fix things they just make it worse.

That's the problem, i'm not in a RPZ so i normally don't increase the rent if i have good tenants, the problem now is if this rent freeze goes through, i'm going to have to up the rent because i don't know what else these idiots in government are going to do next.

The landlord in this country is being made the scapegoat for the housing crisis, hammer the landlord every time, it takes the blame of that incompetent fool Murphy.

beauf

ted1 wrote: »

Actually it was the opposition

Both have contributed to get to this point. The seeds of this crisis were sown a long time ago.

AlmightyCushion

burkey2k0 wrote: »

Agree with your point, but Just to nitpick. It's a good deal, but not that amazing a deal when you take into the cost of the mortgage over the years, even when you take into account capital appreciation.

At a capital appreciation of let's say 2% (which is the average over the past number of decades) and a mortgage interest rate of 3% over those 25 years, the asset will appreciate to approx. €824,000, but the total mortgage cost would be approx. €640,000. Plus your initial €50,000 which is a total €690,000 cost of the asset.

So a gain of €134,000 over 25 years in your example, not €500,000. so just under €5,500 a year.

A return of approx. 11% annually on your investment.

(I've left myself open now for people to nitpick at me, please be gentle! )

You're forgetting the equity the landlord gained in the property over the years.

You invested €150k at the beginning (my example had €50k but it doesn't really matter) and after 25 years you have a property worth €824k. You have made a gain of €674k. That is an insane return.

If you are cashflow positive every month/year (as Fol20 argues a landlord should) your investment would be making an even better return. Even if you factor in this investment is cashflow negative to the tune of 10k a year. That means this has cost them 250k over the life of the mortgage.

They are still up 424k. That is still a great investment.

AlmightyCushion

Also, to people saying if it was so lucrative then why isn't everyone doing it.

1. Not everyone can due to the fact it required you to be able to leverage up.
2. A lucrative long term investment, that is cashflow negative is difficult for people to support. Just because it is really, really worth it in the long run, doesn't mean people can or want to pay for it until the mortgage is paid off.

You can argue that being cashflow negative makes being a landlord less desireable and I complete agree with that. You can't argue that if the rent isn't covering the mortgage, taxes and maintenance that it is not a profitable investment as you are paying off a large amount against the capital every year (obviously interest only don't count there).

burkey2k0

AlmightyCushion wrote:

You're forgetting the equity the landlord gained in the property over the years.

Yes! Sorry, that was a big miss. You are correct.

And improves the return in Fol20s buy to let scenario (150k invested, 350k mortgage) to I think about a very approximate 10% Return per year at the end of 25yrs.

beauf

AlmightyCushion wrote: »

You're forgetting the equity the landlord gained in the property over the years.

You invested €150k at the beginning (my example had €50k but it doesn't really matter) and after 25 years you have a property worth €824k. You have made a gain of €674k. That is an insane return.

....

Show me a house that needs 0 spent on it over 25yrs.
Show me a house that's rented for 25yrs and needs no repair, no wear and tear.
Show me a house that after 25yrs that hasn't dated.

After all the above. This house bought in 1995 that has had no maintenance, and constantly rented, never repaired, refurbished, no taxes and charges. Bought for 150 after tax that gives you back in pocket 800k after cgt.

Insane indeed.

AlmightyCushion

beauf wrote: »

Show me a house that needs 0 spent on it over 25yrs.
Show me a house that's rented for 25yrs and needs no repair, no wear and tear.
Show me a house that after 25yrs that hasn't dated.

After all the above. This house bought in 1995 that has had no maintenance, and constantly rented, never repaired, refurbished, no taxes and charges. Bought for 150 after tax that gives you back in pocket 800k after cgt.

Insane indeed.

You conveniently cut out the rest of my post where I say that even if this rental costs the landlord 10k a year, it would still be a profit of 424k.

Grumpypants

AlmightyCushion wrote: »

You're forgetting the equity the landlord gained in the property over the years.

You invested €150k at the beginning (my example had €50k but it doesn't really matter) and after 25 years you have a property worth €824k. You have made a gain of €674k. That is an insane return.

If you are cashflow positive every month/year (as Fol20 argues a landlord should) your investment would be making an even better return. Even if you factor in this investment is cashflow negative to the tune of 10k a year. That means this has cost them 250k over the life of the mortgage.

They are still up 424k. That is still a great investment.

Your figures are all over the gaff.

To buy a 500k house over 25 years you need.
150k cash.
350k mortgage.
150k to cover the interest.
So a 650k investment just to fund the purchase.

A 500k house will require about 5k a year in upkeep, insurance, property tax. Etc so that's 125k.

That's a 775k investment.

To pay that off in 25 years you would need to get 31k or 2.5k a month of after tax rental income. To get 2.5k you need to charge about 6k rent.

Even at the high end (which a 500k house isn't) 6k is a crazy amount.

meijin

Grumpypants wrote: »

Your figures are all over the gaff.

so all the LLs are doing it out of charity...?

AlmightyCushion

Grumpypants wrote: »

Your figures are all over the gaff.

To buy a 500k house over 25 years you need.
150k cash.
350k mortgage.
150k to cover the interest.
So a 650k investment just to fund the purchase.

A 500k house will require about 5k a year in upkeep, insurance, property tax. Etc so that's 125k.

That's a 775k investment.

To pay that off in 25 years you would need to get 31k or 2.5k a month of after tax rental income. To get 2.5k you need to charge about 6k rent.

Even at the high end (which a 500k house isn't) 6k is a crazy amount.

And your figures are deliberately misleading. Either that or you badly need an accountant if you are a landlord as you are owed a shít load of tax back from revenue.

You don't pay tax on a lot of expenses including interest, yet you are saying they comes out of your after tax income.

You're also forgetting that the house hasn't disappeared after the 25 year mortgage is up. You own the house. You need to factor that into your calculations.

It's something a lot of landlords do here (a lot don't as well, thankfully) they deliberately use misleading figures to make the situation look worse than it is.

beauf

meijin wrote: »

so all the LLs are doing it out of charity...?

Lets assume LLs are making vast profits.

Why do the vast majority only own one house?
Why is there a housing shortage.
Why doesn't everyone become a LL if easy money.

AlmightyCushion

beauf wrote: »

Lets assume LLs are making vast profits.

Why do the vast majority only own one house?
Why is there a housing shortage.
Why doesn't everyone become a LL if easy money.

It isn't easy money. However, in general, it can be a decent long term investment. For the record, I'm not saying that landlords are makings easy money hand over first. I'm just dispelling the myth that if the rent isn't covering the mortgage and expenses, that a landlord is losing money. That isn't the case.

beauf

AlmightyCushion wrote: »

You conveniently cut out the rest of my post where I say that even if this rental costs the landlord 10k a year, it would still be a profit of 424k.

Because your figures are nuts even with before you get into costs. You are saying that 150 after tax purchase of a house in 25 years puts 1.2million into your pocket before yearly costs.

You've completely ignored that the market crashed. So it isn't 25yrs of capital appreciation. You bought in 1995, it peaked in 2007 then crashed something like 35-40%. So 12yrs of growth, then crashed, and took 12yrs to get back to almost that point. Thats less than half the growth you are claiming.

And its only people who bought back in 95 or before that who have made that 12yrs of captial appreciation. Someone who bought 12yrs ago bought at much higher price, and it hasn't reached the same peak again. So no one else can repeat it.

AlmightyCushion

beauf wrote: »

Because your figures are nuts even with before you get into costs. You are saying that 150 after tax purchase of a house in 25 years puts 1.2million into your pocket before yearly costs.

You've completely ignored that the market crashed. So it isn't 25yrs of capital appreciation. You bought in 1995, it peaked in 2007 then crashed something like 35-40%. So 12yrs of growth, then crashed, and took 12yrs to get back to almost that point. Thats less than half the growth you are claiming.

And its only people who bought back in 95 or before that who have made that 12yrs of captial appreciation. Someone who bought 12yrs ago bought at much higher price, and it hasn't reached the same peak again. So no one else can repeat it.

I think our wires are getting crossed a little here. This all started with my initial response to one of Fol20's posts.

No I am absolutely not saying that. For a start, forget about capital appreciation. I didn't even factor that in originally, some one else added that in. You're actually highlighting the very point I was trying to make. My point was to highlight how lucrative an investment it would be if the rent was covering the mortgage and ask expenses. If that was the case a landlord would be making a fortune on their investment as you rightly point out.

Fol20 was saying he shouldn't have to put any other money into his property as no other business expects to do the same. So he expects the rent to cover at least the mortgage (capital and interest) and all expenses associated with it e.g taxes, maintenance, up keep, fees, decorating, etc. That to me is madness and if it were happening would be an insanely good return on investment.