# Buy to let, where to from here?



## moycullen14 (4 Jul 2010)

Hi,

I've have a BTL apartment in a complex of about 50 units in a provincial town - the sort of place that PTSB won't give a mortgage on!

Ignoring the self-flagellation on what a bad investment it has been, I'm starting to wonder what, in general, can be done with this and thousands of similar investment properties in the country. 

Briefly, the property produces about €600 gross pcm but when management fees, voids, letting fees, PTRB fees, maintenance, etc are factored in the yield on the purchase price of €190K is about 2% - so far, so bad. The property is well maintained (so far) and rents pretty well - we've had a drop of about €150pm on the rent from the peak but that seems to have stabilised.

The property is virtually unsellable at the moment - I can't make up the negative equity to the bank even if I could get a buyer. 

I know 5-6 other investor owners and they, like me, would love to be shot of the properties but can't. Even if the apartments can fund most (some) of the interest on a mortgage, once repayments are factored in, the investment will cost 10-15K pa which landlords just can't afford (I know, I know we should have been aware of the risk, but in Brian Cowan's immortal phrase - 'We are where we are!)

One think that the crash has shown is that PTL on a small scale is not financially viable unless there is massive capital appreciation. 

Also, and this is the key here, multiple landlords in an apartment complex is incredibly inefficient and there is a huge risk of default by individual landlords on management fees. 

A better model would be if a single entity was responsible for the complete management of the block - from maintenance to letting to actually owning the freehold. 

If it was possible, it would be better for all the landlords (about 75% of the owners) could form themselves into a co-op or ltd company, transfer the properties into the company and run it as 'profitable' business with the owners sharing in whatever profits accrue in the long run.

More practical would be for some 3rd party to buy all the leases at whatever knockdown price and run i on some sort of sound commercial basis. This probably couldn't work because of negative equity. A move like this would have to be driven by the debt holders (banks). 

Something needs to be done, othewise thousands of perfectly good apartment complexes around the country will fall into ruin as landlords slowly but surely go broke. 

I am not advocating a 'save the landlords' campaign, just something that will stop a bad situation getting worse. 

Any thoughts?

- M


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## jpd (4 Jul 2010)

moycullen14 said:


> Something needs to be done, othewise thousands of perfectly good apartment complexes around the country will fall into ruin as landlords slowly but surely go broke.



This the nub of the problem - they are not perfectly good apartment complexes - nobody wants to live in them, or at least, not enough people to make them economically viable. The only future for a lot of these is to turn them into  hospitals, schools, dog homes, whatever.

The real question is how to share out the losses between the owners and the banks - remembering that for the banks, read the taxpayers. This is not an economics question - it is a political question and has to be decided politically. For the moment everyone is tip-toeing around the question and it has not yet been made public in any large sense - it is of course political dynamite as there are probably many people who will say - we are where we are and that those who invested unwisely have to take the lions share of the losses.


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## Brendan Burgess (5 Jul 2010)

> A better model would be if a single entity was responsible for the  complete management of the block - from maintenance to letting to  actually owning the freehold.



In reality, letting property is best done by individuals and not by corporations. 

Landlords provide all the services free: maintenance, decoration, sourcing tenants and collecting rents. If a company had to pay for them, it would be even less profitable and efficient. 

Tenants are more likely to screw some company than an individual lanlord. So the current model is better than a corporate model.

Owing a property directly is more tax efficient than owning shares - however, this probably doesn't matter so much when Capital Gains are so unlikely for a long time.

If you believe a corporate model might work, you could start assembling it with some of your fellow landlords. 

The company would probably only get a mortgage for 60% of the current value of the property. So say you have an apartment worth €100k with a mortgage of €180k. You will need to put €40k cash into the company and find €80k cash to pay off your personal mortgage.


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## Protocol (6 Jul 2010)

In many other countries, institutions like pension funds, etc. do own blocks of flats.


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## nadnerB (10 Jul 2010)

moycullen14 said:


> Something needs to be done, othewise thousands of perfectly good apartment complexes around the country will fall into ruin as landlords slowly but surely go broke.



The reality is:
1. Nothing will be done because it is a lost cause and nobody can turn it into a profitable opportunity
2. These are far from being prefectly good apartment complexes, if they were you wouldn't be here talking about it but you'd be enjoying the profits made by your BTL
3. Landlords will go broke as any investor that bet on the wrong horse and don't cut the losses early.

For BTL investors it is time to throw the rose-tinted glasses in the toilet, accept reality and cut the losses no matter what they are.


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## Brendan Burgess (10 Jul 2010)

Protocol said:


> In many other countries, institutions like pension funds, etc. do own blocks of flats.



Sure, but these countries have different legal systems and different cultures whereby the laws are actually enforced. Tenants who don't pay their rent can be evicted at low cost. 

Irish Life used to have apartments in its property portfolio, but couldn't make it economically viable. 

brendan


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## darag (10 Jul 2010)

Brendan Burgess said:


> Sure, but these countries have different legal systems and different cultures whereby the laws are actually enforced. Tenants who don't pay their rent can be evicted at low cost.


I don't follow your logic here Brendan; the risk of having to bear relatively high costs for evicting a problem tenant would make the business more attractive for corporate entities which held a large stock of units - which on aggregate would suffer less from this risk, surely?  

Also, as a counter-example, Switzerland has one of the highest proportion of renters v. owners in Europe.  In Zurich, for example, less than 15% are owner occupiers and the vast majority of the rental stock is owned/operated by corporations - generally they own the entire building/block or even complex.  Yet there is very strong legal protection for tenants.  

It is considered a very low risk (and return) business - pension funds and the like are heavy investors.

I agree with the original poster; individual part-time amateur landlordism looks like a highly inefficient/implausible business.  I know there is a culture for it in Ireland (and the UK, etc.) but, like having showers that can only manage to dribble tepid water on you, just because it is the norm in Ireland doesn't mean that there is a good reason for it.


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## Marconi2012 (10 Jul 2010)

*Btlp*

I recommend contacting your local authority to see if they can lease/ rent property medium/ long term under their Social Housing Schemes- Long term leasing or Rental Accommodation Scheme. You can discuss arrangements locally (if they are interested) regarding selection of tenant, etc- at least revenue stream in the long term!


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## moycullen14 (12 Jul 2010)

I don't think anyone is hanging on in the hope of the good days returning. It's because there is no way out - or at least an obvious way out.

These apartment blocks may be useless investments for the BTL landlord, but at some some level they can provide a profitable income. At a 6% yield, 6K nett income values the property at 100K - now that can be made to work, just not for the original investor. Is there some way to get the original BTL landlord out of these situations


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## jpd (12 Jul 2010)

Get the Gov't (ie taxpayers) to borrow 200K or 300K or whatever he paid  to buy him out. The Gov't (ie taxpayers) can pay back the loan over  10/15/20 years.

As a taxpayer, I object strongly to this - in fact, I'd probably go onto the steets if they tried to do this.


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## Yeager (12 Jul 2010)

This may be a mad point and question to some people but won't demand for these start picking up as there are no new ones getting built so surely at some point (within reason) with no new ones getting build demand for existing ones will increase? People have to live somewhere. Or am I completely off the mark thinking this as more and more people leave the country or are there just 1000's too many to fill?

I'm in the same position myself. 2 bed apartment in the middle of nowhere. I have it rented but monthly rent is not covering the mortgage. I'm well able to meet the shortfall per month as things are but I may aswell be throwing money in the bin. 

Not a clue what to with it other than keep going and not default as I will want another mortgage at some point to buy what will be my family home I guess. 

I jumped in blind, naive and foolish, something I blame no one for other than myself. Its embarrassing really and a problem my wife was unfortunate to have inherited after we got married. There are no solutions I'm afraid, I guess it will go away in 27 yrs when the mortgage is paid, its just a long wait.


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