Investing in property - not a lucrative business.

A

Acorn22

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Hi, i'm presuming everyone has already notice this? Investing in rental property at the moment is not a lucrative venture. For e.g.

Rent: 12 months =
€12,000 per annum - €1,000 per month

Expenses:
Mortage interest (repayments 6,000) = €3,000
Costs:
Repairs, painting,PRTB, insurance = €2,000
Furniture F&F (€3,000) - lasts more than 1 year
Allowed only 12.3% € 375

Total: €5375
Taxable Income €6,625
TAX@40%/USC 8%
PRSI 4% = 52% - 3,455



2. simplified version of above:

Cash flow
rent : €12,000
Mortgage repayments: 6,000
including interest

cost of repairs etc., 2,000
furniture: 3,000
Tax USC/ PRSI 3,445
LPT: 200
Overspend: -€2645

I can see why most landlords do not invest in their rental property!
 
If you own a property outright it may be worth it but you're still getting taxed @52% on profit. So the tax incentives are not there.
 
For what I'm witnessing a lot of landlords must be doing it this way:

Rent : €12,000
Interest: €3,000
Taxable Income: €9,000
52% tax : 4,680

Landlord Cashflow: €12,000
Repayments: €6,000
Tax: €4680

Surplus:€ 1,320 ( there's a lot of work involved in being a landlord for such a small return)
 
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Yes Noproblem, if houses are in demand and the government are struggling then they are looking for landlords to sell up (to free up units and eliminate the housing crises). It's a very unattractive business venture at the moment - that may only get worse for people if new policies come into play due to change of government. Any other countries that it looks more lucrative? I know people who have holiday places in Spain etc.
 
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kingvagabond said:
Mortgage repayments: 6,000
Click to expand...

but obviously mortgage repayments are effectively buying an asset, so that 6,000 euros (excluding interest) is new asset that has been added to your balance sheet, so you have become richer because you now own a bigger proportion of the asset. I cant get a mortgage at reasonable interest rates to buy shares, I cant borrow 200k over 20 years to buy a share portfolio so that is an enormous advantage. You have acquired a for example 200k asset today and dont have to repay that for 20 years. So you gain all the advantages of asset appreciation straight away on that 200k, unlike shareholders that might take many years to build up a 200k portfolio with all the associated taxes.
 
Thanks for your reply joe sod. I don't consider an asset to be an asset until I own it outright as there are so many variables in the market that can change and make it difficult for you to pay off the mortgage for e.g. renting it out - if or when supply meets demand - oversupply of houses in market then I'd say you'd be struggling to get tenants and even if you wanted to sell it may be very slow to go. You may have to lose it (the property that is). And if all went well and you did end up paying it off then you're left with the government taxing you on 52%. That's big. Can this big tax be avoided in anyway? Also, the tenant situation is tough at the moment. I know people who have investment properties and can't get the tenants to move out. You may have to go down the legal road which is costly.
 
True Brendan. Anyone able to give more info on this to help me understand the issues more? Thanks K.
 
I have found a helpful post 'Property Investment and Tenant Rights' (I'm not quite sure how to post the link here) but it seems helpful for anyone interested in investing in property. There are a few others too I've spotted so I'll start there.
 
If you are interested in investing in property, and getting input from posters here, pick a potential property and look at what that would cost you to buy. Then look at the rental income you could reasonably expect to receive.

Look at the profit you would expect to make and separately look at the cashflows you would expect to have.

The example you have posted above doesn't even identify a profit figure.
 
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