Landlords NOT selling up

It's about degree, not the principle. If you had 20% debt across a portfolio you have close to zero risk of negative equity or not being able to meet your repayments.


Not really. If your gross yield is greater than your cost of finance then the bank's money is going the work for you. Suppose you have €1m and properties yield 10%. You can opt to borrow another €500k or not. For simplicity I assume no maintenance costs

No debtDebt at 33% of portfolio
Equity1,000,0001,000,000
Debt0500,000
Value of portfolio1,000,000

1,500,000
Gross rental income @10% yield100,000150,000
Cost of debt@6%030,000
Net rental profit100,000120,000

You take on some risk but you get an extra 20% profit. Potential for more CGT gains as well. It all depends on your risk tolerance. For me anything above 50% leverage on a rental property is too risky. 2004-2008 era saw landlords take on 100% interest-only mortgages which was madness both from borrower and lender perspective.
 
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Thanks for taking the time to break that down, much appreciated. I suppose I've always be so staunchly against having any debt that I didn't give proper consideration into the benefits of a small amount a debt. Leveraging by 20-25% seems like a pretty negligible risk after giving it a little consideration. I'm going to give that some serious thought. Could be the difference of an extra property in the portfolio.
 
Always Learning said:
Leveraging by 20-25% seems like a pretty negligible risk after giving it a little consideration. I'm going to give that some serious thought.
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Do your homework carefully on this as some of your rental income will of course go toward paying down capital. You should only leverage to the point where you can deal with an increase in rates and/or a non-paying tenant without any impact on your lifestyle.

You may need to talk to a broker. There are only about a thousand BTL mortgages granted a year in Ireland these days (not a big number) and I suspect not all lenders do them.
 
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Maybe another point, but given the fact that 70% of apartments are rental units and a very significant % of 1994-2008 apartment units have defects that make them very difficult to borrow against, would this also be an explanatory reason why some landlords are not selling up?
 

After speaking with the bank, looks like I will have to do this in the format of a mortgage for each investment property, one at a time. I was hoping perhaps they could make a facility available whereby I could simply get passed for a loan of maybe 200-300K which I could draw down as and when is needed on certain properties. I can't though. have to be a BTL mortgage for each one otherwise they consider it lending for speculative purposes.

My next question, what's best in this climate. A variable or a fixed rate?
 
Always Learning said:
I can't though. have to be a BTL mortgage for each one otherwise they consider it lending for speculative purposes.
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Be careful here. Revenue state that interest is only an allowable expense under certain circumstances:

The interest must be from a mortgage that is used to purchase, improve or repair your rental property.

So I don't think top-up finance will be eligible here on a property you already own, you would have to borrow on a new purchase. Personally I find this a silly rule - interest should be allowable at portfolio level up to a certain LTV - but it is what it is.

Otherwise lenders will probably insist on individual loans secured against individual properties. It's far simpler for them to deal with when things go wrong.
 
I presume it's to stop people taking a bigger mortgage on their rental properties in order to clear the mortgage on their PPR and then claiming tax relief on the interest.
 
Purple said:
I presume it's to stop people taking a bigger mortgage on their rental properties in order to clear the mortgage on their PPR and then claiming tax relief on the interest.
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True. But it leads to the silly situation where two landlords with mortgages paid off can sell the houses to each other and take out mortgages to claim tax relief. But if they just remortgage the properties the tax relief can't be claimed.

Personally I would tax rental income entirely differently. But if you are going to allow mortgage interest as tax deductible it should be at something like a cap of 50% of portfolio value and shouldn't be tied to specific purchases.
 
That facility you describe was termed revolver credit. I used it in the late '90s for short time, but have not encountered it being offered by Irish banks since then.
 
Boyddbookman said:
That facility you describe was termed revolver credit. I used it in the late '90s for short time, but have not encountered it being offered by Irish banks since then.
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It's frustrating because I have sizeable funds in my account, enough to buy the property in question ten times. I just want to leverage that by a small amount, maybe 25% in order to spread across a couple of investment property investments. However, not only do I need to go through the mortgage application each time, they guy in the bank is telling me I may not even be eligible for a mortgage of €50,000 on this property because I am technically unemployed. But that's because I recently sold a business which left me with a sizeable investment fund which I want to make make go as far as possible, hence the requirement for some leverage. Tricky situation. Maybe this does require a new post...


I don't own the property though, I'll still be using the funds to purchase new properties.
 
Banks are sometimes also less likely to lend to you if they see you have a large amount of cash and would be able to pay back the debt earlier (meaning they make less from the loan).

I was told this when looking into a BTL mortgage as we had 100% of the cash required to buy the property but wanted to hold some cash back and get a mortgage instead
 
Hi Knuttell

It's not off topic. People investing in BTLs are similar to those not selling existing ones.

And after 4 pages, threads do meander anyway.

You have made your point very well in the first couple of pages.

Brendan
 
Your frustration is understandable.

There used to be derivative mortgage products offered by some banks pre 2008, one of which was a cash backed security. In effect, this meant that if you had sufficient funds on deposit to cover the loan amount, you could essentially borrow against that cash security. I expect that these types of products may have disappeared once banks themselves started being charged to hold large depository amounts with the ECB.

Have you considered working with a specialist mortgage broker rather than dealing with a "life and pensions" type sales agent AKA bank teller ?
 
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It does seem ridiculous that a rent roll on your scale would not quality you for a very small amount of leverage.

I think I said before but there are about 1k BTL mortgages issued in Ireland every year (a very small number).

I don't know who does them but I would think a brokers is best placed to tell you where and how to pitch your business plan.
 
Always Learning said:
It's frustrating because I have sizeable funds in my account, enough to buy the property in question ten times.
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I can see exactly where the bank is coming from, You have the funds to purchase , but want the bank to take a risk on you with your investing agenda.

Your investing in property, and maybe other avenues to maximise your return, but these are funds you have, and are willing to risk it..

Your not employed, and if things go belly up with any of this, bottom line is, you don't have a job for continued income in which to service your loan.

A certain well know multi millionaire also had a very much funded deep well of money, made some bad investments/choices, and it all came crumbling down, you are no different. As far as the bank should be concerned, there would be nothing to stop you taking a punt on crypto or some other no-brainer and end up in a bad situation.

There is a risk here in what you want to achieve, having a proven ongoing employment record, would see them lay out the red carpet for you.
 
LS400 said:
Your not employed, and if things go belly up with any of this, bottom line is, you don't have a job for continued income in which to service your loan.
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The probability of a full portfolio of residential properties failing to pay their rent at the same time is basically zero.
 
With a certain political party on the cusp of power, I'm a lot less confident than before on that score.
 
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