Tax Treatment of Landlords has to be Revisited

[RonnieShinbal88]

I'm thinking about a place abroad that has a 6% rental yield if you rent it out for the peak vacation month of August alone (rents double in August), in laws own one in the same location already. Wouldn't be great investment return on the money tied up due to income tax but you would have it for personal use the rest of the year, so the overall package might be quite appealing.

 

[Always Learning]

I'm thinking about a place abroad that has a 6% rental yield if you rent it out for the peak vacation month of August alone (rents double in August), in laws own one in the same location already. Wouldn't be great investment return on the money tied up due to income tax but you would have it for personal use the rest of the year, so the overall package might be quite appealing.

Wow, 6% for one month. Is that before or after costs / fees for letting etc. Would you just have an agent over there let it out for you and look after that end? Is there demand over there to fill it for a few more months of the year? Is it a villa or an apartment or room in a hotel or what?

 

[RonnieShinbal88]

Wow, 6% for one month. Is that before or after costs / fees for letting etc. Would you just have an agent over there let it out for you and look after that end? Is there demand over there to fill it for a few more months of the year? Is it a villa or an apartment or room in a hotel or what?

That's before all costs, I'd have some in laws on the ground locally to help in organising a cleaner etc., I would use a site to advertise, think they charge quite high fees. I think the local agencies if you were trying to manage everything from abroad are practically thieves so that's the catch, it's a non runner from here as an investment I'd say, it's mostly about people getting extra money from somewhere they use themselves.

Anyway just to answer the other questions out of interest, you'd get good occupancy July at lower rent than August. You'd also get some bookings in May, June and September at much lower rent. I'd probably be planning on using it myself for the whole summer except August, the high rent in August is handy if you are using it yourself but want to get some return for limited hassle.

That's based on a place in a holiday village by the sea, terraced 2 story with a small front garden, 3 bedrooms, 2 bathrooms, cellar, main living/kitchen where you'd have a couch bed too. The advertised price of them varies quite a bit 155-200k, depending on the sea views etc., you might get a small detached place with a gated garden in the area for around 260k. There are always a few on the market, maybe trending up a bit in price recently. Around 2,200 a week rent in August for a 3 bed.

 

[Leo]

Whatever approach you take I think most would agree that 1.5% risk premium is too small given the risks in Irish property, so there is something wrong (mostly on the risk side which they won't change so that leaves the yield).

Your view is that there is no point in trying to incentivise small landlords, supply will come to the rescue so we don't need them.

All investment is driven by your appetite to the risks involved. There are no sure things. In your case, it appears you are very adverse to the risk of 3+ years of arrears occurring. My point is it's a waste of time to offer small incentives to investors who are so inclined, they'll benefit some already in the market but will be unlikely to attract more investment.

If there were thousands of properties available that would become new private rentals overnight with a taxation tweak, then it would indeed make perfect sense to introduce an incentive. But that's not the case, and any such measure that the government could reasonably introduce would just be another band aid that fails to address the root of the issue.

In a market where demand greatly outstrips supply, the only options that bring equilibrium are increased supply or decreased demand. All projections have our population continuing to rise, so increased supply is where the solution lies.

 

[NoRegretsCoyote]

In a market where demand greatly outstrips supply, the only options that bring equilibrium are increased supply or decreased demand. All projections have our population continuing to rise, so increased supply is where the solution lies.

I fully agree.

However in most markets a material % of new build is financed by private landlords using leverage. That seems close to non-existent in Ireland right now. BPFI numbers show a mere 1,000 BTL mortgages being issued annually now and presumably the vast majority are for existing properties.

A lot of this is due to lenders' low risk appetite which is something the government can't fix. But there is something wrong with the tax treatment if a 10% expected gross yield can't get private landlords buying into new build at any material rate.

 

[Leo]

But there is something wrong with the tax treatment if a 10% expected gross yield can't get private landlords buying into new build at any material rate.

Institutional money is acquiring some of the most suitable rental properties before they ever get to the market, buy my suspicion is the bigger problem isn't the yield, but prospective small time investors being put off over uncertainty over increasing tenant rights.

 

[Mocame]

To my mind it is glaringly obvious that the exodus of small landlords is to the introduction of rent pressure zones in 2016. These were preceded by a one year rent freeze introduced by Alan Kelly, then rent increases were limited to 4% pa, then frozen during Covid and now limited to 2% pa. Any landlord who owned a property in 2016 is now facing a massive growth in maintenance costs, a chunky growth in interest payments but a tiny growth in rent since 2016 and going forward. It will get worse in Sinn Féin gets into government and imposes the rent freeze it has promised. I am not sure a tax break will be enough to fix this.

 

[PebbleBeach2020]

But there is something wrong with the tax treatment if a 10% expected gross yield can't get private landlords buying into new build at any material rate.

buy my suspicion is the bigger problem isn't the yield, but prospective small time investors being put off over uncertainty over increasing tenant rights.

there is the issue. If 10% yields can't attract new landlords or retain landlords, why? Taxation? Evicting tenants? Ever changing regulation and threats by SF re tenancy of indefinite duration? That's the issue here.

Yes supply must be increased, but in 81 days time the eviction bans ends. They need to do something in advance of that to try and reduce/slow the number of evictions that will happen over the next 12-18 months.

 

[PebbleBeach2020]

To my mind it is glaringly obvious that the exodus of small landlords is to the introduction of rent pressure zones in 2016. These were preceded by a one year rent freeze introduced by Alan Kelly, then rent increases were limited to 4% pa, then frozen during Covid and now limited to 2% pa. Any landlord who owned a property in 2016 is now facing a massive growth in maintenance costs, a chunky growth in interest payments but a tiny growth in rent since 2016 and going forward. It will get worse in Sinn Féin gets into government and imposes the rent freeze it has promised. I am not sure a tax break will be enough to fix this.

it needs to get to a stage where the rental market is absolutely destroyed before the government (whoever they are!) decide that they made a mistake and cue the tax breaks to attract investment back into the sector again. As sure as light follows day!

 

[Leo]

Yes supply must be increased, but in 81 days time the eviction bans ends. They need to do something in advance of that to try and reduce/slow the number of evictions that will happen over the next 12-18 months.

In reality, is there anything the current government could realistically do to assuage the fears of what SF might do if they got into power?

 

[PebbleBeach2020]

In reality, is there anything the current government could realistically do to assuage the fears of what SF might do if they got into power?

I'm robbing another suggstion here. Extend the rent-a-room relief to rental properties. If annual rent is under €15,000 a year, its tax free. Anything over that and the whole lot is taxed accordingly. Landlords benefit from no income tax and renters benefit to the tune of monthly rents capped at €1250 a month. I for one would remain in the market instead of selling in the summer.

 

[RonnieShinbal88]

I think it would work better as a cap based on some multiple of LPT so it's linked to the property value (and they already have the database).
If the rent exceeds that cap you don't qualify for any exemption.
If the rent is less than that you get the first 1250 of the rent a month tax free.

That would keep me in too, however it's unlikely to happen because the cost would exceed the political gains (which might even be negative for them).

 

[Leo]

I'm robbing another suggstion here. Extend the rent-a-room relief to rental properties. If annual rent is under €15,000 a year, its tax free. Anything over that and the whole lot is taxed accordingly. Landlords benefit from no income tax and renters benefit to the tune of monthly rents capped at €1250 a month. I for one would remain in the market instead of selling in the summer.

A huge boon for landlords in low demand areas while doing little for areas with most demand, trapping some landlords in RPZs on low rents.

 

[RonnieShinbal88]

A huge boon for landlords in low demand areas while doing little for areas with most demand, trapping some landlords in RPZs on low rents.

see my suggestion^

 

[RonnieShinbal88]

Also they would no longer need RPZ's, it's a free market solution

 

[PebbleBeach2020]

A huge boon for landlords in low demand areas while doing little for areas with most demand, trapping some landlords in RPZs on low rents.

i would say it would appeal greatly for new investment in the rental sector throughout Ireland.

Have you any suggestions yourself Leo?

 

[Leo]

i would say it would appeal greatly for new investment in the rental sector throughout Ireland.

Any funding should be prioritised to where the problem is at it's most acute, and that is in the RPZ areas where that proposal would have little appeal.

Have you any suggestions yourself Leo?

I've said it already, it's all about supply and anything else is just the application of band aids that are unlikely to have any real effect.

 

[PebbleBeach2020]

I've said it already, it's all about supply and anything else is just the application of band aids that are unlikely to have any real effect.

So in 81 days time when the eviction ban ends, to stop landlords evicting thousands of tenants over the course of 2023 and selling up, you action plan is build more houses. Unless they are to be housed in concentration style log cabins or steeltech sheds, I don't see that being very practical.

It's a bit like a house being on fire and instead of putting the fire out, talking about how to stop houses going on fire in the future.

Your answer is correct, don't get me wrong, it is supply, but supply takes years and years and years. We need immediate action right now. Today, tomorrow and yesterday! As well as in 3, 5, 10 and 20 years times.

 

[RonnieShinbal88]

Any funding should be prioritised to where the problem is at it's most acute, and that is in the RPZ areas where that proposal would have little appeal.


I've said it already, it's all about supply and anything else is just the application of band aids that are unlikely to have any real effect.

I'm in an RPZ area and the proposal would make me stay in.

My suggestion was that the rent cap would be based off of value from the LPT register and would apply to all rentals.

I don't know what the cap should be but the idea is that it would result in cheaper rents, e.g. at 6% cap, if the property value were 250,000 that limits you to 1250 per month.

If the annual rent is less than 6% of the property value (as recorded in the LPT DB) then you get a tax exemption on the first 1250 of rent.

If 6% of the property value is 2500 per month, you don't pay tax on the first 1250 (as long as the rent you charge is not too high/over 2500).

As the rent is being set/capped in the scheme by the government you would make the property exempt from RPZ.

 

[LS400]

A huge boon for landlords in low demand areas while doing little for areas with most demand, trapping some landlords in RPZs on low rents.

I think it goes without saying, adopting the possibility of the tax reduction, there should be no need for RPZs. Tax incentive would be all that's needed to rid that rotten apple.

That would be a start in solving the basket case we have at the moment.

So what if a one bed owner in longford benefits from it, its for the greater good..

I've said it already, it's all about supply and anything else is just the application of band aids that are unlikely to have any real effect.

We don't have supply, and we wont have the supply for some time, we, tenants/Property owners cant afford for the can to be continually be kicked down the road, only for some other bright spark to mess it up even more than it already is.

If action was implemented now, it would be a start in repairing the damage done these last few years, or, we could just carry on and find ways for it not to work.

Reducing the tax would work, but is anyone brave enough to implement it.. That, would be addressing major issues with the young people of this Country, for as a LL, (and I hate that term) I could reduce my rent accordingly.

Its sad to say, but I've flip all faith in the right thing being done.