25% of mortgage interest not allowed.Out of curiosity how did you get to a 70% in year one as marginal tax if the actual rates are 40%, plus USC and PRSI? I don't understand.
Thanks.
Conclusion - one of the main reasons, if not the main reason, why the rental market is in such a dire state is the high level of taxes that private landlords are required to pay
I'd start from the general position that unless a landlord is bringing labor or equity to the table, the market shouldn't be rewarding him with a profit. Our tax policy should discourage any situation which would allow punters to turn pure risk into profit, especially where we're protecting the punters from the downsides of that risk (reposession). If you look at your scenarios from the perspective of what you (rather than the bank) are bringing to the table, the numbers make more sense.House cost 300k, int rate 4%, marginal tax rate 50%. Monthly rent 1,600, 25 year mortgage. Net rent (gross less maintenance, outgoings, expenses, but before mortgage)= 75% of gross.
300k mortgage @4% costs 1,585 per month over 25 years. For simplicity - 0% inflation and no change in interest rate.
Scenario 1 - as above. Based on present system it would cost a private individual about 230k to fund that BTL over 25 years. At the end they would own the house, making a return of net 70k (300-230k).
[Scenario 1a] It would be far better to simply invest that 230k in a bank deposit accounts for 25 years!
Hang on. My understanding is that there's no way (here) for a landlord and tenant to agree a binding long-term lease with proper protections for both parties?The real reason that long-term letting arrangements are uncommon in Ireland is simply down to tenant preferences - it has nothing to do with the nature of the landlord base.
Hang on. My understanding is that there's no way (here) for a landlord and tenant to agree a binding long-term lease with proper protections for both parties?
I take your point, most tenants probably do think this way. Why wouldn't they, they've never been exposed to the alternatives.The reality is that most tenants don’t consider long leases because deep down they consider themselves to be latent buyers that are simply biding their time until they are in a position to "get on the ladder".
If the legal picture for long term leases is totally benign, why don't most/all landlords offer them as an option? Wouldn't they save on vacancy, advertising and viewing costs?
I've no doubt that most residential landlords would be thrilled if tenants agreed to multi-year tenancies with regular rent-reviews, etc. However, there is no point offering a product or service if your customers don't have any appetite for that product or service.
It's a shame really.
I'd start from the general position that unless a landlord is bringing labor or equity to the table, the market shouldn't be rewarding him with a profit. Our tax policy should discourage any situation which would allow punters to turn pure risk into profit, especially where we're protecting the punters from the downsides of that risk (reposession).
You can't ignore capital growth. Allowing for a conservative 1% growth in the property's value, your property is worth 385k after 25 years, so your net return would be closer to 70k + (85k*.67) = 132k.
You can't ignore the time value of cash. €900 per month over 25 years (Scenario 1) is worth a lot less than 230k in your hand today (Scenario 1a).
- At 2.75% interest (after tax), your (Scenario 1) 900 per month would amount to 385k after 25 years.
- At 2.75% interest (after tax), a (Scenario 1a) 230k lump sum would amount to 450k.
Most funds can't borrow.However, what about the alternative that is being promoted, is it really any better or lower risk? Funds, including foreign, investing other peoples money, borrowing etc.
Funds bring their shareholders' money to the table, so the risks and rewards ultimately rest with them. As long as the risk is borne by private money rather than state-backed banks, I'm happy enough.I would say that much of the investing by funds is much higher on the speculative risk scale and seeking to turn pure risk into profit. The second that the returns dry up they will be gone.
That's fine. They'll sell their properties for whatever somebody else is willing to pay, and life will go on.The second that the returns dry up they will be gone.
Most funds can't borrow.
REITs can borrow, but only up to 50% of their assets.
They'll sell their properties for whatever somebody else is willing to pay, and life will go on.
Most funds can't borrow.
REITs can borrow, but only up to 50% of their assets.
It seems like many if not most individual BTL investors carry debt in the 80-120% range.
Funds bring their shareholders' money to the table, so the risks and rewards ultimately rest with them. As long as the risk is borne by private money rather than state-backed banks, I'm happy enough.
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