Why are investors leaving the buy to let market?

Well I'm glad I gave everyone a chance to vent a little! Thanks to Palerider, Dermot et al. To fill in, my original thoughts were a get a newish 3 bed semi(375-400k) in the better part of Bray. Rent would be currently around €1900. I am aware that sites like Askaboutmoney do tend to attract people looking for answers to issues/problems, and that all those happy landlords with nice tenants don't tend to post here.
However, all the risks outlined above have made me rethink my investment. The powerlessness as described by cremeegg where "I would have no effective means of enforcing my debt nor of evicting the tenant" is a deciding factor. Also, I missed the boat in getting a property at a good price.
So, personally a good look at the farm purchase/lease out area beckons.
 
Very interesting and informative thread. Thanks to all who contributed!

Can i check 1 thing? How does 1 calculate the yield? Is there a simple formula?

Thanks
 
The gross yield is simply the achievable annual rent expressed as a percentage of the acquisition cost (or fair market value) of a property.

I explain on this thread in some detail how I estimate the long-term net yield on a property from this gross figure:

http://www.askaboutmoney.com/threads/buyers-remorse.196291/

So, in D2WW’s example, I would estimate that the Bray 3-bed semi might generate a long-term net yield of around 4%.

As an alternative, and assuming you want to stick with the same asset class, you could purchase shares in a basket of REITs with a dividend yield today of around 3%. Tenant default risk in a REIT will obviously be spread across multiple properties and collecting the rent/managing the property is obviously somebody else’s problem. Would the additional risk and hassle of directly holding a rental property justify an extra 1% in yield?
 
Sarenco said:
So, in D2WW’s example, I would estimate that the Bray 3-bed semi might generate a long-term net yield of around 4%.
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I would estimate that the gross yield would be about 6% assuming a midway price of €388k including acquisition costs. This would very soon evaporate to less than 3% after taxation assuming higher rate tax. You would have to take account whether there were borrowings involved aswell. You also have repairs and maintenance/accountants fees/Tenant breaks/Insurance/property tax and whether there are borrowings involved or not etc. As Sarenco has often stated borrowing at 5-5 and half per cent is not sustainable to purchase a BTL.
For Landlords and Tenants sake Governments need to have a careful look at all the taxation issues and inheritance issues surrounding the private rental market. All businesses need to be profitable to stay in business and being a Landlord is no different. In order for new people to enter the business it has to be profitable and not seen as easy pickings for taxation. It also needs to be affordable and of good quality for tenants as well. It is quite difficult with the current regime taxation wise to do this.
Attacking landlords with taxation and a biased legal system (PRTB) may provide good headlines for left leaning politicians but ultimately provides bad outcomes for Tenants.
I have always believed that the vast majority of tenants and landlords are between good and very good and we have a legal system that essentially punishes that sector and is incapable of dealing effectively with the other small category.
 
I wonder will the current flight of landlords from the rental business turn into a flood over the next couple of years as: (a) many remaining interest-only deals come to an end; and (b) increasing numbers of "accidental" landlords start to emerge from negative equity and are therefore in a position to sell?

If this comes to pass, our increasingly tight rental market will become positively asphyxiated. This can only result in upward pressure on rents as a shrinking number of landlords desperately try to cover their costs.

The real losers in all this will be tenants, many of whom are already in the lower income groups in our society with limited ability to absorb further increases to their rents.

The strange thing is that this evolving crisis in our rental market is almost entirely the result of conscious decisions taken by our last two governments.

I guess tenants don't deserve the same protections as defaulting borrowers.:(
 
Thanks Sarenco and Dermot - that is very enlightening.

I am in a situation where I have some cash on hand that I want to invest. I have, for a long time, being strongly considering getting a second property as a buy to let in addition to already having my PPR. Based on all of the above though I cannot justify taking this route and so I want to explore other options. The REIT option sounds good as does investing in shares in general. I am personally quite risk-tolerant so shares do interest me. I currently have zero investments other than my PPR.

The problem for me is I don't have a clue how to buy shares or an REIT. I know there are other forums here that probably deal with it but how easy is it and is there a link that I can jump to and ill do my own research? I am happy to invest in such a way that I can select my shares, if this is possible, as opposed to having someone pick my shares for me.

Thanks.
 
I think there is a good summary of why landlords are leaving but in fairness there is money to be made by using a good agent and letting them deal with it. The main reason I am leaving is purely for the tax regime as I am PAYE so looking at my tax bill every year depresses me. I suppose the fact that there has been a recovery to normal prices is also a factor. I used an agent in the last five years and it was pretty much stress free. Prior to that I did it myself and it had it's ups and downs.
 
I've looked at becoming a landlord a few times , I am not sure if the government want more landlords or not but they have made it very off putting. Why do they feel the need to tell someone how much rent they can charge , let the supply and demand sort these prices out , as soon as I read "you can't increase rent for x amount of time" I just stopped looking.
Tax is a disgrace as well how are you supposed to make a decent income from it when you have to pay 50%+ tax. I think people should be given a chance if you have one house to let it could be taxed at a low rate , this would give someone a chance to become a landlord and potentially have an income in retirement etc. but as soon as you go beyond 1 house maybe tax at full rate then.
 
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Fella said:
Tax is a disgrace as well how are you supposed to make a decent income from it when you have to pay 50%+ tax. I think people should be given a chance if you have one house to let it could be taxed at a low rate , this would give someone a chance to become a landlord and potentially have an income in retirement etc. but as soon as you go beyond 1 house maybe tax at full rate then.
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The tax rate on rental income is way more than 50% when you count the costs you can't claim as deductions such as 25% of the mortgage interest, travel to/from the property to maintain it and collect the rent, and any improvements you make to the property.

I calculated a few years ago that one of my customers, an accidental landlord who let out his former home, was paying an effective tax rate of 70% on his rental income.
 
Fella said:
I've looked at becoming a landlord a few times , I am not sure if the government want more landlords or not but they have made it very off putting. Why do they feel the need to tell someone how much rent they can charge , let the supply and demand sort these prices out , as soon as I read "you can't increase rent for x amount of time" I just stopped looking.
Tax is a disgrace as well how are you supposed to make a decent income from it when you have to pay 50%+ tax. I think people should be given a chance if you have one house to let it could be taxed at a low rate , this would give someone a chance to become a landlord and potentially have an income in retirement etc. but as soon as you go beyond 1 house maybe tax at full rate then.
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Well, it is income and therefore taxable. And don't agree that there should be different rules for rental income.
I don't agree with the fact that only 75% of interest payments are deductible though.

The main problem is not tax - the main problem is that many of the part-time landlords have a way too high LTV on there BTL in my opinion.
I would argue that anyone who owns one or two BTL's which are funded by a mortgage > 30% LTV shouldn't be in the business in the first place.
If the Investment doesn't provide you the return after tax that you want, why the heck did you do this in the first place?

There are of course the "accidental" landlords that previously lived in the place but had to move (for whatever reason), and now can't sell due to NE, but that's not what you are referring to here.

With regards to "how much rent" they can charge: on most of the continent where renting is the usual way of living, rents are very often (close to always) CPI index linked, contracts tend to be longer term (3 years at a minimum. This takes those mad swings out of the rental market, and makes everything much more predictable.

If I would still be renting in Dublin, and the landlord would tell me that he will increase the rent by a 10+ % from one year to the next I'd tell him were to go - problem is of course that everyone pushes the rents up so people are screwed one way or the other.
 
elcato said:
Noto to go off topic, but surely making improvements which don't require new structures is covered as oppose to extensions etc.
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Technically not. See the old textbook example on replacing wooden windows with PVC or installing a new shower. Some Revenue inspectors may allow these by concession but they're technically not allowable if push comes to shove and in a self-assessment system it is risky to claim them.
 
newirishman said:
I would argue that anyone who owns one or two BTL's which are funded by a mortgage > 30% LTV shouldn't be in the business in the first place.
If the Investment doesn't provide you the return after tax that you want, why the heck did you do this in the first place?
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I don't mean this at all personally in your case, but this is precisely the attitude which the Govt adopted towards individual property investors in 2009 and which their successors shared, and which has brought the market to the abyss. It is also similar to the "let them eat cake" attitude of former Environment Minister Gormley who decided that bedsits were unacceptable and had them shut down, effectively turfing a whole generation of vulnerable people onto the streets and into temporary accommodation if they were lucky.

It's all fine and well condemning individual small-time investors and hunting them out of the market, as both governments have deliberately tried to do, but it's not at all acceptable to do so in such a manner that stifles new investment in the rented market to the point that it creates and sustains a severe and worsening inflationary shortage of available properties.
 
Very good post.

Most landlords are providing a very valuable service in housing tenants rather than the Govt needing to. The recent news that the prefabricated houses would now cost €240,000 and not €100,000 as said at the start is an eye opener. For houses that would last 10 years that's 24 grand a year. A fraction of that would allow these tenants to be housed in the private sector while also allowing landlords to make a fair, but not excessive, return. Yet landlords are being pilloried and taxed/charged to the hilt. Such short term and counter productive thinking. All for a few headlines, while leaving tenants to suffer.

There is no pot of gold when it comes to landlords, most are small, struggling under debt and other charges, etc. Govt policy is being driven on the back of a fairy tale. Once again Irish society has seen that when the Govt intervenes in the property market place excessively, the outcome is a disaster. In this case it is real people who are suffering. And all being backed up by left leaning and oft hypocritical politicians and other parties. Independent politicians and SF indeed, making noise before the election, now ducting for cover and avoiding any participation in Govt at the very time when they could be involved.

Part (not all) of the solution to the housing crisis is to allow the private rented sector to establish itself on a proper commercial footing, scale back the excessive charges, restore the full interest deduction and allow BTLs become a worthwhile part of the market again, rather than driving people out. Incentivise people sensibly (not excessively). This is the best for tenants, landlords and longer term the country and society.

Oh and pigs will fly.................
 
T McGibney said:
Technically not. See the old textbook example on replacing wooden windows with PVC or installing a new shower. Some Revenue inspectors may allow these by concession but they're technically not allowable if push comes to shove and in a self-assessment system it is risky to claim them.
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I'd just like to add to this that I've claimed for new windows and showers etc. And yes I'm aware of the old textbook rules about windows but am prepared to argue my case if ever audited.
 
Bronte said:
I'd just like to add to this that I've claimed for new windows and showers etc. And yes I'm aware of the old textbook rules about windows but am prepared to argue my case if ever audited.
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The thing is, as well as being smart and articulate, you are sufficiently confident to stand your ground against unfair authority. Most people aren't.
 
cremeegg said:
As a landlord the main thing that might prompt me to exit the rental market is the opportunity for a tenant to refuse to pay rent.

I would have no effective means of enforcing my debt nor of evicting the tenant.

This has happened to me only once, and the situation continued only 2 months, but the opportunity exists for any unscrupulous person to do this to any landlord. Potentially the situation could continue for a much longer period.
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there are no consequences for delinquent tenants in this country
 
jim said:
Thanks Sarenco and Dermot - that is very enlightening.

I am in a situation where I have some cash on hand that I want to invest. I have, for a long time, being strongly considering getting a second property as a buy to let in addition to already having my PPR. Based on all of the above though I cannot justify taking this route and so I want to explore other options. The REIT option sounds good as does investing in shares in general. I am personally quite risk-tolerant so shares do interest me. I currently have zero investments other than my PPR.

The problem for me is I don't have a clue how to buy shares or an REIT. I know there are other forums here that probably deal with it but how easy is it and is there a link that I can jump to and ill do my own research? I am happy to invest in such a way that I can select my shares, if this is possible, as opposed to having someone pick my shares for me.

Thanks.
Click to expand...


were it me , i would consider investing in an equity fund which covers the high dividend companies in the FTSE , the FTSE 100 is choc full of high dividend paying companies , 4% should be easily achievable , id probably wait until close to the brexit vote as the pound is likely to weaken further against the euro , that way you can afford to buy more , the uk is not going to become a poor country even they do leave the EU
 
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