Leasing house to council

PokeHerKing

Hi All

We are starting to look at buying a new house. The new house would be our PPR and we are thinking about renting our existing home.

My wife is not keen on being a LL but I'm not keen to sell as we bought very cheap in 2013 and I feel it would be a way to fund early retirement.

So was looking at the standard 10-25 year lease to Local authority. 20 years and then we'd sell and retire early.

Anyone done/doing this? Any feedback on pitfalls etc? 20 years is a long way away of course but it seems like a win/win for the owner(me)?

DownByTheGarden

Read lots of info on here about leasing to the council experiences.

If you are friends with anyt of your neighbors and you lease to the council you wont be friends with them for much longer.

Most landlords are getting out now. They are people with decades of experience and rents now are at record highs, yet they are still getting out. Ask yourself why. You can read hundreds of accounts just on boards from the last few years.

Caranica

Don't forget there will be capital gains tax on any increase in value relative to what you paid in 2013 if you rent and then sell.

Personally I wouldn't recommend being a landlord to my worst enemy, been there, done that. Glad to be out of it

endacl

How does capital gains effect things if one were to rent for a number of years, then move back in for some time before selling?

For example, if the OP were to rent house 1 for 10 years, then move into it and rent house 2. Stay in house 1 for a few years before selling and moving back to house 2.

Would be an awful faff, and I’m not suggesting it, but out of interest?

PokeHerKing

Cheers all. Couple of updates nelow:

1. Neighbours opinions/tenants - no concern of mine.

2. My thinking is I'm not an LL. Council are the LL according to HA website. I'm just collecting the rent and paying down mortgage. Is this flawed thinking?

3. CGT - noted but still worth it based off point 2 in my mind as 100% passive income as council do all leg work. Again is this wrong assumption?

Hopefully someone who's done this/doing this chimes in as realistically that's why I created OP. But happy for people to keep giving their 2 cents etc.

Mrs OBumble

What shape do you hope the property will be in when you get it back? If you need it to maintain its value, then this may not be a good plan.

PokeHerKing

https://www.boards.ie/discussion/comment/121042584#Comment_121042584

Still standing would be the only requirement really. I'd be most likely selling it straight afterwards or potentially lease it again.

Hard to say as long way off, who knows what the property market will look like then.

RichardAnd

https://www.boards.ie/discussion/comment/121042584#Comment_121042584

I think the council is obligated to return the property in good condition to the owner. How much damage can a pack of yahoos do in ten years? Ahem

Treppen

We nearly did it with RAS scheme with council. Looks promising and they guaranteed 85% of market for rent with review in 5 years. They use the daft report for rent in that area depending on bedroom numbers etc.

Be very careful about tax though as when we sat down and did the sums it wasn't paying the mortgage on the house. But that was us, if you have a small mortgage then it could work. Roughly every €2000 you take in €800 is gone (others here might clarify so I stand corrected).

Another thing if you are going to do it is consider converting a room to a bedroom if possible as that will up the rent owed.

Kind of regret not doing it as it would be nice to have kept the asset for kids etc. But then again we used the equity on the sale to reduce our current mortgage, so swings and roundabouts etc.

Allinall

I know two separate people who have done it. No issues whatsoever.

Despite what you might read, the vast majority of local authority tenants are perfectly good, and just want an affordable place to live.

Most would take pride in their home, so from a damage point of view, i would have no qualms. You would be unlucky ( same as with any tenancy) to come across one of the bad ones.

Large bottle small glass

https://www.boards.ie/discussion/comment/121042437#Comment_121042437

You pay no CGT for the years it was your PPR.

EG in a sample 20 years if profit was 100k but you have lived in it for 9 years then you get 9years plus 1 years grace.

Therefore only 50k is taxable,@33%.

If you have made AND returned other capital losses these are deductable from the 50k taxable profit

I think 😄

PokeHerKing

https://www.boards.ie/discussion/comment/121042851#Comment_121042851

Cheers. Yeah the economics of our current scenario essentially make it a no brained as far as I'm concerned.

Just need to convince the wife!

wpd

I am sure i have read situations were house was leased to council but when tenant refused to pay it was the property owners problem and the council

wouldnt underwrite the rent or evict the tenant. However maybe i am not remembering correctly

densification

https://www.boards.ie/discussion/comment/121043078#Comment_121043078

No, the property owner is leasing to the council, who then use the property for someone on the social housing list. You have an agreed rent with the council who you can rely on paying. The council have a tenancy agreement with their tenant. The amount/ collection of that rent is between the council and the tenant. Could be €800 a month or could be €200 a month.

Having worked in this long term leasing, I was always under the impressions that the LL got quite a good deal by leasing to the council. Yes the rent is a bit lower, but you don't have the other stuff that goes along with being a landlord.

Gregor Samsa

https://www.boards.ie/discussion/comment/121043078#Comment_121043078

According to Clare County Council's page on leasing houses to them for social housing, one of the selling points of doing so is:

• A guaranteed rent, even when the property is vacant

So, it appears that the Council do indeed underwrite the rent (at least in Clare).

https://www.clarecoco.ie/services/housing/social-leasing/

BlueSkyDreams

If the tenant is on HAP and they stop paying their nominal contribution, then the council stop paying you the rent.

There is a grace period now, but only 6 months i think. So you would probably want to avoid HAP.

Mrs OBumble

https://www.boards.ie/discussion/comment/121043142#Comment_121043142

Correct.

But the OP is considering long term leasing, not HAP.

Two different schemes.

BlueSkyDreams

https://www.boards.ie/discussion/comment/121043170#Comment_121043170

Are you fully protected with long term leasing though?

Gregor Samsa

https://www.boards.ie/discussion/comment/121043188#Comment_121043188

Yes. Your lease purely is with the Council itself, not the tenant. The Council have to pay even if there isn’t a tenant in the property at all. Effectively, the Council is sub-letting to the tenant and is the tenant’s landlord

With HAP, the rental agreement is between the Landlord and the tenant, with the Council only involved in supplementing the tenant’s rent and facilitating the payment of it to the landlord.

Treppen

Ya neighbors around the corner went through with it (RAS scheme). Rent is guaranteed, definitely no hap involved with house owner.

It lay empty for over one year before people moved in... The neighbour said they had to sneak in while it was empty and check all plumbing was good, run the taps for a while etc. They didn't have to but didn't like the thought of it being left unoccupied for an indefinite time.

If you have bought stuff for the house (couches, washing machine, dryer, TV) recently then you can write the depreciation off the tax. Not a lot but still. Definitely get an accountant beforehand to prepare you. Taxassist were good, kind of a flat rate fee no messing thing.

Now be careful about exiting early, there might be penalties, you never know, you might need access to a lot of money / rainy day fund. I.e. lose job, I'll health etc. So consider your asset as tied up for 10 years.

You'll have to hire a solicitor beforehand also to go through everything legal wise. I think solicitor and accountant fees are tax deductable, but it was a long time ago so can't remember.

Grumpypants

You basically have two options. 5 years at 90% and you are the landlord. Or 10+ years at 80% and they take it over. You get it back in 10 years.

I've mine rented to Clare county council and have zero issues. Not market rate but no bull either.

Just waiting on the budget to see what the tax treatment is to decide if I'll lock in for ten or sell up.

tesla_newbie

https://www.boards.ie/discussion/2058311320/leasing-house-to-council

have the council reinstated those long term lease agreements?, they were suspended about two years ago, I’ve a ten year lease with limerick city council since 2018

no idea who they have in it these days but I last inspected the place in May 2019 , ten months after handing over the keys in july 2018

carpet was missing off the stairs, walks wallpapered over , house filthy and the back yard full of rubbish, the council had leased the house to a charity and they put a highly dysfunctional individual in it , I paid 72 k for the two bed terraced house and spent another ten grand between stamps duty , legal fees and then buying furniture and general improvements , got paid 850 for the first three years and two years ago the council increased it to 910 per month

haven’t had to spend a bean but I wouldn’t do it with an expensive house

Ezeoul

AFAIK, you'll still be responsible for all external and structural maintenance, and also for buildings insurance.

Depending on the scheme you lease under, you could also be responsible for internal maintenance and repairs while the property is leased to the council.

tesla_newbie

https://www.boards.ie/discussion/comment/121043078#Comment_121043078

That doesn’t apply under the long term lease agreement, you’re thinking of HAP or RAS

under long term lease, the council is the tenant and they sublet to someone they select , the landlord won’t even know the person’s name

PokeHerKing

https://www.housingagency.ie/housing-information/information-property-owners-and-landlords

For anyone interested in the various options. The one in my OP is the standard lease to LA option.

Good to hear from people who've done it and confirmed my initial thinking that its a slam dunk for the owner.

We've a good few i's to dot and t's to cross before we pull trigger but I'll update this thread with any progress.

Depends on the tenants the local authority put in the house.

If they are good it's a great program and takes the hassle out of renting a property.

There is a high probability the council will stick problem tenants in the property. The council will repair damage before they return the property but be prepared to have nothing matching in the house if a press door or floor tile breaks they often will just replace the one. You need to be careful what specified in the contracts for the return of the property, it needs to be returned without tenants in situ.

If you have neighbours or are a member of a property management company be prepared to deal will any complaints as the councils generally ignore them.

Del2005

How will these leases to the LA work when the proposed lifetime tenancies are introduced? I can't see an LA evicting a family after 10 years to give your property back to you.

PokeHerKing

https://www.boards.ie/discussion/comment/121047701#Comment_121047701

I don't know your world views or politics but I'd be in a legal contract with the LA.

If they did what you're suggesting then we'd be North Korea. Not saying it couldn't happen but I think it's highly unlikely.

Peregrinus

Presumably the 80-85% of market rent that is promised is based on the market rent from time to time during the 10 to 25 year term — there'll be periodic rent reviews.

Over a period of 10-25 years its entirely possible that there will be times when interest rates will rise and also that there will be times when market rents will fall. If these two things happen together, and allowing for the 15-20% discount on market rent, there's a significantly increased risk (compared to a case of direct letting to a tenant at market rent) of finding that the net rental income is less than the amount required to service the mortgage. Obviously this risk also depends on the amount of mortgage that you are carrying.

I think anyone contemplating this deal needs to stress-test it against the hypothetical scenario of rising interest rates combined with stagnant or falling market rents. If that were to happen, could you still service the mortgage from your other income? If that would put you under pressure, you'd want to think carefully before committing to this deal.

sonyvision

Don't over look your CGT gain as it was your PPR Most houses bought in 2013 are near double. In simple maths and without knowing your details.

House bought 250k

House now worth 400k.

If you sell today you make 150k in the bank over 10 years. That's yours to keep no tax due as it was PPR.

When the house is rented you must pay CGT at 33%. Let's say you rent it for 6 years till 2030 and then sell. House prices have become flat and not increased due to rate raises. Your 150k gain on the house is now split between 10 years PPR and 6 years rental meaning 100k becomes tax free and approx 50k is taxed at 33%. While rental income has come in when the house is sold you have an additional tax cost of 16k ish than if you had sold it 6 years early. You must look at the 16k as an additional cost of renting and accept it.

I have a 2nd property rented out. It suits my wife and I as its her only income so she doesn't pay 50% tax. It is rented out through a managing agent and apart from one neighbour given out over summer BBQs it's find 12 months on.

It's all about the tenant type and agent you have managing it. Personal I wouldn't let through the council as with any government body they dont care. Find the right agent with the right fees and tell him the type of tenants you want.

kevgaa

OP as someone who just came out of along term contract with the council and sold up. My advice to you is engage a tax consultant and financial advisor and get all your figures calculated before you sign any contracts.

As discussed above you will have 2 main things

1). A tax liability on the rent received. In essence you will have very little to claim relief against except maybe Mortgage Interest relief and accountant fees. So basically full tax on all rental so the important thing is will you have enough to cover the mortgage insurance etc after you your Tax liabilty.

• note you will have to submit a tax return each year and must be tax compliant otherwise the council will not pay you..

2). CGT: As discussed value your house now because if you sell now you have no tax liability and the money is all yours. Longer you rent the bigger your CGT liability will be..

This is where talking to a financial advisor is key as you may end up making more money by investing the profit you make on selling with some smart investments or contributing to your pension pot..