# My experience as a reluctant landlord



## thos (29 Nov 2018)

Seems to be a recurring question here about people looking to rent out or sell their rental, so thought I’d share my wee story of 4yrs as a reluctant landlord. More of a blog entry than a post, but might be useful for some.

Back in 2006, as a single chap, I made the decision to buy a 2-bed apartment for the princely sum of €385k. Gosh. We all know what happened in the coming years in terms of the crash. In the fire sale auctions of the time an apartment in my block went for €105k. Ouch. But, life also went on met a girl, got married, wanted a bigger place.

So in 2014, I found myself with an apartment still in negative equity but no longer meeting my needs. We were lucky enough to be able to build our a new home for ourselves elsewhere, but options were limited for the apartment and we reluctantly decided to rent it out and become a landlord.

Tracker mortgage at 0.95% meant mortgage repayments of €875, and rental income was €1200 a month.

I lived about an hour from the rental property, and worked 9-5, so managing the property myself was never really an option, so I used a local property management agent. They had known tenants on their books, and had the place filled quickly. Life was good.

It was first rented in November 2014. The management fee was 10%, which I questioned from time to time. But shortly after being rented out, on New Years Eve, the apartment upstairs flooded, and water came down into my apartment. The management agent was worth a lot more than 10% that month. Good choice. I didn’t question the 10% after that.

2yrs went by with same tenant before we hit first issue. Rent was late. Rang the agent, they explained they were already in touch with the tenant, the couple had separated and were trying to work things out. Asked me what I wanted to do. Wasn’t really interested in being responsible for kicking out a single mother and child, so gave them some time to work it out. 2 weeks later money was paid, arrears cleared. Phew.

For the next 2 yrs (4yrs in total) I had the same tenant, above late rent was the only issue.

The agent took care of boiler servicing when required, and replaced the hob when it died. I got a call for the alarm PIN at one time, but other than that the phone never rang, and the rent arrived every month. Easy enough.

I missed opportunities to raise the rent, and got caught out when the Rent Pressure Zone’s landed. Rent was raised to now €1300ish, compared to new units on the market at 1600. But, but, but …. yeah, what could have been.

Nearly got myself into trouble with the first years tax, and ended up paying 10% late fee on my return, but got an accountant sorted after that, and was put straight for the years after. Tax was working out around €4-4.5k, bit of a kick in the teeth really for all those who think ‘_sure the rent covers the mortgage_’ …. yeah, but not the tax bill.

Over time, my thoughts on the apartment varied from “_I’ll be stuck with this forever_”, to “s_ell it as soon as it clears itself_” and more optimistic views of “_it’ll make a nice pension in in the future_”. Mostly heart over head.

So this year, I took a look at what the apartment was doing for me and whether it was worth keeping. On the home front, we had 2 little kids, and a wife considering taking some time off work. The apartment was doing ok, but really needing 300quid top-up a month to ensure it cleared the tax bill and other expenses. This wasn’t much in the scheme of things, but single income carrying the risk of rising interest rates on 2 mortgages wasn’t something I wanted to consider for the future.

The market looked to be doing well, apartment valued @ €310k with an outstanding mortgage of €270k, so it would give me back some change. It also allowed me to recognise a loss, which I can use against some shares which have faired better over the past few years. Seemed a safe way out.

So, apartment sold, €40k cleared off the PPR mortgage. Will sell the shares shortly and knock those off the mortgage also.

Overall, I think I got lucky with a decent management agent and a reliable tenant. But, all things being equal, I was carrying more risk than any short term reward it was going to pay me, and I’m at a time where I’d rather simplify things for a little while. Never really wanted to be a landlord, so I’m not anymore.

Tom


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## Gordon Gekko (29 Nov 2018)

A very interesting post, well done.

I suspect that you made the wrong decision from a financial perspective but the right decision from a stress perspective.


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## thos (30 Nov 2018)

Thanks for the likes, glad to see it was of interest for some.



Gordon Gekko said:


> A very interesting post, well done.
> 
> I suspect that you made the wrong decision from a financial perspective but the right decision from a stress perspective.



Thanks.
The bit that concerned me most was - this was as good as it was going to get. And I didn't think it was that great. 
Interest rates have never been lower, and rental demand has never been higher. But with rent pressure zones, it doesn't allow me to benefit. While I don't think interest rates are going anywhere in a hurry, they can only ever go up from here, and €50/year rent increase isn't a whole lot to get excited about. So if you can't make money while the going is good, I don't see why I would stick around to lose it when it gets tough. When I initially moved into the apartment, I saw the interest rates increase throughout that first year(2007), where the mortgage was near €1600. I don't have the appetite for that again.
My timing on getting into the market wasn't exactly great, so I'm not going to attempt to time it on exit. My primary financial goal right now is to clear our PPR mortgage, reduce outgoings and reduce exposure, so this is a least-worst exit scenario and meets my needs right now.

The second part was, apartment is now 12yrs old, and is approaching a time where it needs more cash for upkeep. Appliances, carpets, furniture all started to age. I didn't think I could stretch a refurb to a level to start avoiding RPZ rules, and also, not sure if I want start looking for new tenants, trying to squeeze every penny out of the market either. As good as the management agent was, the apartment was going to need more time and attention as time goes by, and honestly I'd rather spend that energy elsewhere.


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## Gordon Gekko (30 Nov 2018)

What’s done is done, but you were making money...a fortune actually


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## Bronte (30 Nov 2018)

thos said:


> 2006, 2-bed apartment €385k.
> In 2014, negative equity (no longer meeting my needs)Built our a new home
> Tracker mortgage at 0.95% meant mortgage repayments of €875, and rental income was €1200 a month.
> 2018 Rent €1300 X 12 = 15600
> ...



There is no logic to this hard luck reluctant landlord story. And I disagree with your assessment. 

You had a valuable property on an exceedingly low interest tracker. Your rent was high. And could be higher. There was no reason for an agents costs. You should not have sold.

- The water issue was something that would have happened if you were there.
- Same thing with any repairs, which are all tax deductable
- The fact you got married and had children is irrelevant
- Paying interest on tax was your own fault
- I'm not seeing any risk on a property with 12 years of mortgage paid, 4 of which the vast majority of the payments came out of rent
- You'd probably have it paid off in another 13 or 18 years. 
- Even if property collapsed again it's not relevant as there is plenty of rent and there is for the foreseeable future. 

But as long as you are happy with your decision than the story ends well.


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## thos (30 Nov 2018)

Bronte said:


> There is no logic to this hard luck reluctant landlord story. And I disagree with your assessment.


Not intended to read as a hard luck story. I know I'm far from a hard luck story in this case.

If the market had been such that in 2013/2014 I could have sold and broken even, or straight cleared the mortgage. I would have done so. 
The reluctant part was that I never intentionally set out to become a landlord, or consciously decided to invest in property (apart from serving PPR needs). Accidental landlord might be a more appropriate title.

Having kids doesn't change the figures alright, but what it changed for me was a family decision to move from 2 incomes to 1, and to me that meant simplify our finances. For me, this also means cashing out some shares which are performing well, and 'banking' a little bit of this paper wealth to help clear our mortgage.

Thanks for the breakdown and counter argument. There seems to be people stuck in limbo with bad property and undecided how to handle, but even for a property which is performing I don't see it as a 'must hold' but more that the option is open to sell.


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## cremeegg (30 Nov 2018)

thos said:


> Tracker mortgage at 0.95% meant mortgage repayments of €875, and rental income was €1200 a month.
> 
> with an outstanding mortgage of €270k




It is not clear to the casual reader that you were making a profit of more than €8,000 per annum on the property. This is of course before tax, but then all income is taxable.

Income €14,400
Interest 0.95% of €270,000 is €2,565
Agent Expense €1,440
Other expenses estimated €2,000 (to include mgt fee)



thos said:


> The bit that concerned me most was - this was as good as it was going to get.



That is probably true.



thos said:


> The bit that concerned me most was - this was as good as it was going to get. And I didn't think it was that great.



I think it was super.


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## Blackrock1 (30 Nov 2018)

unfortunately the capital portion of the mortgage repayment whilst not a P&L item it is a cashflow item. for most with young families and changing priorities it isnt money you can afford to have going out.


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## misemoi (30 Nov 2018)

Don't underestimate the mental labour of being a landlord. The potential pitfalls are always there, even with an agent. Life with small kids is busy and full of it's own stresses, especially if finances need to be carefully watched as well. It can't always be a financial calculation unfortunately.


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## Bronte (1 Dec 2018)

cremeegg said:


> It is not clear to the casual reader that you were making a profit of more than €8,000 per annum on the property. This is of course before tax, but then all income is taxable.
> Income €14,400
> Interest 0.95% of €270,000 is €2,565
> Agent Expense €1,440
> ...



It was super and where else would he get such a return.  Plus he’d really zero issues and he didn’t even have to manage it as he had a really top agent.

And I agree with him that he was an ‘accidental’ Landlord.

I met a man this week who works in Facebook in Dublin, he built a McMansion for 360k and sold it for 160k.  Ouch.  Now living in a two bed in Dublin, with everybody begging him to rent his spare room.


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## Bronte (1 Dec 2018)

Theo I’m glad you made the right decision for you. You seem to be doing well so best of luck. And thanks for your perspective.  Also thanks for accepting our challenges with good grace.


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## Gordon Gekko (1 Dec 2018)

€8,000 a year profit on a €40,000 investment.

The takeaway for people should be that one must look at two things: the cashflow aspect (i.e. rent minus costs including tax and mortgage repayment) and the fact that capital repayments represent deferred savings.


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## PaxmanK (1 Dec 2018)

It only ended well because of the way.both rental and purchasing prices of property have gone in recent years.  If we did not have a housing crisis and the OP was forced to sell about 5 or 6 years ago it would be a very sad story.  
The property crisis is the only reason most landlords have their heads above water now.  Who would have seen the down and the the up to come back when the op bought it.  Anything can happen and the op was dead right to cash out imo


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## Easeler (1 Dec 2018)

It also shows the importance of having a property in a good location.


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## joe sod (1 Dec 2018)

Bronte said:


> I met a man this week who works in Facebook in Dublin, he built a McMansion for 360k and sold it for 160k. Ouch. Now living in a two bed in Dublin, with everybody begging him to rent his spare room.



just shows you the high tech workers are not the smartest bunch financially. What was it with the Mcmansions during the boom everybody was at it even the most committed city slickers. The ones on the east coast are probably getting close to their build costs, the ones on the western seaboard are still basket cases. They were one of the worst excesses of the celtic tiger along with the ghost estates


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## Palerider (1 Dec 2018)

An apartment costing €360k in 2006 was definitely in a good location.

I think this is an excellent blog/post by the OP and will add value to those who search the forum in the future, thanks for taking the time to post your experiences.


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## Sarenco (1 Dec 2018)

In round numbers, paying €40k off the PPR mortgage would save around €1,500 per annum in interest payments, versus an after-tax profit of €4,000 on the rental.

Is €2,500 sufficient reward for all the risk and hassle associated with running a rental business?  Maybe.


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## Palerider (1 Dec 2018)

Is €2 said:
			
		

> Absolutely not.
> 
> Consider a tenant missing payments, a slow payer, annual repairs, paint touch up, replacements, cleaning, servicing items, equipment breakdown , managing agent fees and chase up, OMC issues, non payers in the building, poor behaviours of other tenants in the building and all that assuming you actually get your rent which in our country is no longer a definite.
> 
> ...


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## galway_blow_in (1 Dec 2018)

Palerider said:


> An apartment costing €360k in 2006 was definitely in a good location.
> 
> I think this is an excellent blog/post by the OP and will add value to those who search the forum in the future, thanks for taking the time to post your experiences.



Two bed apartments in one development in navan were 290k off plan in 2005,was living there at the time and remember the construction site.

Dublin would always be 50% more expensive so not sure 360k in 2006 was that unusual anywhere half decent?


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## Gordon Gekko (1 Dec 2018)

It’s €2,500 on a €40,000 input.

And I would dispute the €2,500 figure.

€15,600 income

Less:

€2,500 interest
€1,560 agent fees
€1,200 service charge(?)
€5,000 tax(?)

Circa €5,500 profit...on €40,000!


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## Sarenco (1 Dec 2018)

Hi Gordon

I just took the €8k pre-tax profit from your previous post and divided it by two to arrive at a very crude after-tax figure.

But even if you use €5,500 as your after tax profit, I’m not sure that €3,000 (€5,500 after-tax profit, versus €1,500 interest saving on the PPR mortgage) is a particularly compelling reward for the all the risks and hassle involved.


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## Gordon Gekko (1 Dec 2018)

Sarenco said:


> Hi Gordon
> 
> I just took the €8k pre-tax profit from your previous post and divided it by two to arrive at a very crude after-tax figure.
> 
> But even if you use €5,500 as your after tax profit, I’m not sure that €3,000 (€5,500 after-tax profit, versus €1,500 interest saving on the PPR mortgage) is a particularly compelling reward for the all the risks and hassle involved.



Someone else had mentioned the €4,000 number.

€5,500 less €1,500 is obviously €4,000 which is a pretty compelling reward on €40,000 of capital deployed.


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## Sarenco (1 Dec 2018)

Oops, yes €5,500 less €1,500 is obviously €4,000.

Is €4,000 a compelling reward for the hassle and risks involved in running a leveraged rental business?  I’m not sure it is but others may take a different view. 

I certainly don’t think it’s a sufficient reward if the reduced cash flow (due to principal repayments) unduly restricts the OP’s lifestyle or his ability to maximize his tax relieved pension contributions.


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## Gordon Gekko (1 Dec 2018)

Sarenco said:


> Oops, yes €5,500 less €1,500 is obviously €4,000.
> 
> Is €4,000 a compelling reward for the risks involved in running a rental business?  I’m not sure it is but others may take a different view.
> 
> I certainly don’t think it’s a sufficient reward if the reduced cash flow restricts the OP’s ability to maximize his tax relieved pension contributions.



Agreed


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## cremeegg (1 Dec 2018)

Now that the casual readers have caught up, perhaps we might address another common misconception about the property rental business.



Sarenco said:


> Oops, yes €5,500 less €1,500 is obviously €4,000.
> 
> Is €4,000 a compelling reward for the hassle and risks involved in running a leveraged rental business?



There was no leverage risk in the OPs situation. So long as he had sufficient cashflow to sustain his borrowings, he would not be a forced seller. He could continue to take his profit every year irrespective of the capital value of the investment.


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## Sarenco (1 Dec 2018)

cremeegg said:


> So long as he had sufficient cashflow to sustain his borrowings, he would not be a forced seller.


Well, yes, but what if he doesn’t?

His tenant might lose his job and stop paying his rent or the OP might lose his job.  Interest rates could take off without a corresponding increase  in rents.  The property could become uninhabitable for any number of reasons, etc.

You know, risks.

Just my 2cent as a “casual reader” (whatever that means).


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## Gordon Gekko (1 Dec 2018)

There’s always risk when a lender is involved. The value falls and the bank calls in the loan or the tracker rate is taken away because the place was rented out.


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## Leper (2 Dec 2018)

The Original Poster never intended in becoming a landlord. In fact, he didn't wear the title with gusto. He was making money. But, he wasn't happy and woke up every morning not pleased with being a landlord. The property although making money was a millstone.

Imagine yourself in a job that paid well and might even have given you some promotion. You hate every minute, every hour, every day, every week, every year. And it isn't going to change next year.

What price peace-of-mind? What price being unhappy every day? The thoughts Thos. went through continuously must have been taking toll on his health. Fortunately, he got out in time with good health and with the wherewithal to post here where the tone of nearly every minute is profit orientated. 

Good on ya, Thos!


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## Bronte (2 Dec 2018)

Gordon Gekko said:


> It’s €2,500 on a €40,000 input.
> 
> And I would dispute the €2,500 figure.
> 
> ...


He's also acquiring an asset.


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## Bronte (2 Dec 2018)

Sarenco said:


> Well, yes, but what if he doesn’t?
> 
> His tenant might lose his job and stop paying his rent or the OP might lose his job.  Interest rates could take off without a corresponding increase  in rents.  The property could become uninhabitable for any number of reasons, etc.
> 
> ...


What percentage of landlords would have encountered such a doomsday scenario though. The Celtic tiger accidental landlords and those who over borrowed during the tiger to become landlords. 

And you'd need a combination of

- lost job
- massive interest increase
- tenant not paying rent 
- property collapsing in value
And 
bank calling in loan 

To occur.

Whereas if you borrowed at a level where rent adequately covered most costs, calculated for interest hikes, kept a rainy day fund, then losing your job, property devaluing or the tenant not paying would be irrelevant.


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## Bronte (2 Dec 2018)

Gordon Gekko said:


> There’s always risk when a lender is involved. The value falls and the bank calls in the loan or the tracker rate is taken away because the place was rented out.



Banks don't call in loans if you pay your mortgage. 

How many people lost their tracker because they rented out? And if going from 2% to 4% breaks you then you didn't make that part of your initial calculations. Stress testing us a must.

Which reminds me. It was encouraged on this website to borrow interest only for landlords. Advice now not encouraged. But I heard an ad on the radio for some bank that will lend interest only and I said to myself, Tiger 2 on its way.


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## cremeegg (2 Dec 2018)

Gordon Gekko said:


> There’s always risk when a lender is involved. The value falls and the bank calls in the loan



Seriously ?

Loans advanced under a mortgage cannot be called in due to a fall in the value of the security. 



Bronte said:


> Banks don't call in loans if you pay your mortgage.



Indeed. In fact they cannot.


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## Gordon Gekko (2 Dec 2018)

cremeegg said:


> Seriously ?
> 
> Loans advanced under a mortgage cannot be called in due to a fall in the value of the security.
> 
> ...



There is so much wrong with your post.

With these cases, a person was typically given a home mortgage. Now they’ve an investment property. Are they still entitled to the same tracker rate? Does the rate change depending on value? I would assume nothing when “fraud light” may have taken place.


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## Sarenco (2 Dec 2018)

Gordon

Mortgages are not generally callable in Ireland.

That doesn’t mean that leveraged investments don’t come with additional risks.


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## Gordon Gekko (2 Dec 2018)

Sarenco said:


> Gordon
> 
> Mortgages are not generally callable in Ireland.
> 
> That doesn’t mean that leveraged investments don’t come with additional risks.



Ah, Sarenco...in for your monthly argument I see!

All bets are off when a home mortgage has, unbeknownst to the bank, become an investment property mortgage.

Are you and others definitively saying that a bank cannot call in a home mortgage when the borrower surrepticiously changes the very nature of the arrangement on the QT?


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## Sarenco (2 Dec 2018)

No argument Gordon.

You said that there was a risk that a bank could call in a loan due to a fall in value of the underlying collateral.

That is not correct.

As long as a borrower continues to meet their contractual obligations then there is no risk of a mortgage lender escalating the loan.


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## Gordon Gekko (2 Dec 2018)

Sarenco said:


> No argument Gordon.
> 
> You said that there was a risk that a bank could call in a loan due to a fall in value of the underlying collateral.
> 
> ...



I don’t believe that’s correct when a home loan has been changed into something else without the lender’s consent.

But I’m delighted to see that contract law is one of your core competencies!


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## Sarenco (2 Dec 2018)

Well, I’m afraid your belief is without any foundation.

Mortgages in Ireland are not callable if a borrower meets their contractual payment obligations.  

It really is that simple.


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## Gordon Gekko (2 Dec 2018)

Sarenco said:


> Well, I’m afraid your belief is without any foundation.
> 
> Mortgages in Ireland are not callable if a borrower meets their contractual payment obligations.
> 
> It really is that simple.



I would venture that it is not, but we’ll leave it there.


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## Palerider (2 Dec 2018)

Speaking as a former Banker I have never seen a Bank chase any borrower for not advising them of the property becoming an investment property, to be honest the Banks are delighted to have a borrower repaying on time every time.

The post is moving away from its initial purpose, we all believe we know best but at the end of the day it is for the individual to decide their best course of action.


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