Buying with casual tenancy

Darc19

I'm looking at a property that is up for auction. It has a tenant on a rent less than half even the lowest market rent.
There's no official lease in place but he's been there about 7 years and there was some loose family connection which probably explains why there is no lease

I'm assuming that a default lease applies. Do I assume that the rent continues at current level +4% each year until he leaves?

And would a new lease be the best option - probably giving him six years of very low rent.

It's a pension purchase, so long term and looks like it's a good tenant. So it's more about my bidding limits than wanting to move the tenant on. I saw a previous property with a very low rent sell for over 20% below market and would suspect something similar.

Dav010

Darc19 wrote: »

I'm looking at a property that is up for auction. It has a tenant on a rent less than half even the lowest market rent.
There's no official lease in place but he's been there about 7 years and there was some loose family connection which probably explains why there is no lease

I'm assuming that a default lease applies. Do I assume that the rent continues at current level +4% each year until he leaves?

And would a new lease be the best option - probably giving him six years of very low rent.

It's a pension purchase, so long term and looks like it's a good tenant. So it's more about my bidding limits than wanting to move the tenant on. I saw a previous property with a very low rent sell for over 20% below market and would suspect something similar.

Leases are pretty meaningless once the tenancy goes over 6 mths and Part 4 rights kick in.

Yes, if the property is in RPZ, you are bound by the regulations relating to rent increases.

It’s a risk buying with a tenant in situ, but if he has been there 7 years, you can evict soon, at the end of second 4 year Part 4 four year cycle.

Darc19

Is it not a 6 year cycle since 2016?

And he could be there 8 years, (I know it's min 7) so rather than having a confrontation, I'd prefer to pay a lower price to take account of a Lower rent and both of us are happy.

Dav010

Darc19 wrote: »

Is it not a 6 year cycle since 2016?

And he could be there 8 years, (I know it's min 7) so rather than having a confrontation, I'd prefer to pay a lower price to take account of a Lower rent and both of us are happy.

If the tenancy commenced before Dec 2016, it’s 4 years. I’m open to correction if a further Part 4 cycle beginning after that has to revert to 6 years.

If you are a cash buyer, it makes sense to keep the tenant. Personally, I’d assess to see if it could be substantially renovated and then advertised at market rate, if the current rent is only half that, you are losing a lot of money now, but also in future as rent increases will be pegged to the current rent.

Claw Hammer

Darc19 wrote: »

Is it not a 6 year cycle since 2016?

And he could be there 8 years, (I know it's min 7) so rather than having a confrontation, I'd prefer to pay a lower price to take account of a Lower rent and both of us are happy.

In order to register the letting, you have to know when the letting started. The 6 years cycles kick in when the last post 2016 cycle ends so he is likely in a 6 year cycle now.
You won't get a mortgage with a tenant there so you will be paying out a lot of money without certainty as to whether you can register the tenancy. If you can't register the tenancy you will have difficulty ever removing that tenant.

FishOnABike

AFAIK the +4% per year is tied to the property, not the tenancy. Unless you leave the property unlet for two years you will be tied into the current below market rental rate (with allowable +4% per year).

If the current tenant has not had a rent increase in a number of years then you should use the formula on the residential tenancies board website ( https://www.rtb.ie/beginning-a-tenancy/setting-rent ) to calculate the increase allowed - this can be a multiple of the 4%

CoViD-19 emergency legislation precludes terminating a tenancy or increasing rent at the moment, see https://www.rtb.ie/covid-19-emergency-legislation-for-rental-sector

Darc19

Claw Hammer wrote: »

In order to register the letting, you have to know when the letting started. The 6 years cycles kick in when the last post 2016 cycle ends so he is likely in a 6 year cycle now.
You won't get a mortgage with a tenant there so you will be paying out a lot of money without certainty as to whether you can register the tenancy. If you can't register the tenancy you will have difficulty ever removing that tenant.

Yep, I'm assuming 2018, thus giving til 2024, and rent at 4% increases ongoing.
It's pension based, so mortgage not required.

Plan is to have vacant property at some point in the next few years and sell at that stage to owner occupier.

It's a bit of a gamble, but the stock market is just too high and I'd prefer to switch out.

Dav010

Darc19 wrote: »

Yep, I'm assuming 2018, thus giving til 2024, and rent at 4% increases ongoing.
It's pension based, so mortgage not required.

Plan is to have vacant property at some point in the next few years and sell at that stage to owner occupier.

It's a bit of a gamble, but the stock market is just too high and I'd prefer to switch out.

How close are you to retirement?

Selling to OO’s isn’t the best way to maximise your profit, putting it on the market is.

Darc19, if the property doesn’t increase in price, you are still losing a whole lot of your retirement fund by renting at half market rate. After you are taxed on the income, you are going to make feck all.

If the property does increase, CGT might take a nice chunk of your retirement fund, again, looking back you may have regrets about not maximising rent. You may have a private pension, if you don’t, the tax relief/profit lost by not paying into one will also have to be measured against the rental income/appreciation in value.

Honestly, you should be looking at getting that rent up to market value as quickly as possible by spending money on refurbishment that qualifies for raising rent.

Darc19

I'm 15ish years away from retirement. This will be part of a pension unit trust, so no income tax and no cgt. (that's why it is particularly attractive) It will represent about half my pension. Currently it's all in market funds, so it's about diversification.

Purchase price calculation will be based on the lowest income, longest lease calculations

Someone else will possibly bid over what my max is and it's back to waiting.

Claw Hammer

Darc19 wrote: »

Yep, I'm assuming 2018, thus giving til 2024, and rent at 4% increases ongoing.
It's pension based, so mortgage not required.

Plan is to have vacant property at some point in the next few years and sell at that stage to owner occupier.

It's a bit of a gamble, but the stock market is just too high and I'd prefer to switch out.

What good is assuming 2018? What if you are wrong? How are you going to get possession?