Why are investors leaving the buy to let market?

Hi,

I am another landlord that is selling up. I bought my apartment in 2007 for €325K and am hoping to achieve €240K by selling it.
Similar to some of the other posters on this forum the increased taxes and regulation have killed it for me.

Considering the government's tax take is 54% on rental income it was particularly galling to hear Joan Burton talking about "greedy landlords" hiking prices.
Every Budget seems to introduce yet another fee, tax or levy on rental income.

The rental prices are going up because the rental supply is reducing as landlords flee. Let's face it, negative equity kept landlords pinned to the ropes.
Once property prices rose sufficiently there was always going to be a queue for the exits.

I contacted the Media Enquiries section of the PRTB and they supplied me with this figure for the count of registered landlords in the last three years. Sherry Fitzgerald are the only ones that are bringing this issue to public attention.

2013, 253,480
2014, 160,160
2015, 170,282

If it helps the original poster here is a detailed breakdown of how much it costs me to rent out a 2bed apartment per annum
...approx. EUR6481 to hold onto per annum.
..............................................................

Gross Rental Income: EUR15,600 (i.e. EUR1300 per month, 2 bed apartment close to Phoenix Park assuming full occupancy.

Deductible Expenses
  • Mortgage Interest: EUR2625 (only 75% of mortgage interest is tax-deductible; The 75% restriction dates from 2009 when the late Minister Brian Lenihan adopted a number of tax measures aiming to discourage investment in rental residential property in the wake of the Celtic Tiger crash.)
  • Water charges: EUR260 (water charges are a legitimate property related expense that may be deducted from gross rent for income tax purposes)
  • PRTB: EUR90 (The PRTB registration fee is an allowable expense to offset against your rental income.)
  • Service Charges: EUR1800
Taxable Income: EUR 10,825.
Tax @41%: EUR4438
PRSI @5%: EUR541 (payable on rental income from Jan 2014).
USC @8%: EUR866 (introduced 2011, increased from 7% to 8% in last Budget)
LPT Charge: EUR344 (introduced 2013. You cannot write off the cost of the local property tax or the NPPR charge against your rental income tax bill.)
===================
TOTAL TAX: EUR6481.

And a small chapter in closing on the PRTB.

The PRTB and regulation of the sector is a good idea but is it fair that only the landlord pays?
The PRTB can spend €300,000 of landlords money on a bus shelter campaign advising tenants of their rights (or how to take vexatious cases against landlords for only €15 depending of course on your perspective!).
The assumption here is the same as the governments i.e. that the landlords can afford it. The tenant is entitled to free legal aid but not the landlord. The biggest problem though is that the PRTB is toothless and has no enforcement powers.
You could spend months as a landlord attending hearings (days off work, etc) and at the end the PRTB could decide in your favour. However you then have to go to the Circuit Court and spend €3000-€5000 to enforce the PRTB ruling.
I will add that I had one and only one dealing with the PRTB and I found them to be very professional and competent but it really comes down to whether the landlord and tenant are both willing to compromise.

Thanks, Harry.
 
Great post Harry.
Out of your rental income of €15,600 you are left with €4344.
From that you still have €656.25 of interest which is not tax deductible, your own costs of maintenance and the allowance you have to make for refurbishing the place every few years. €1000 a year seems to be a conservative allowance for that.
So, what are you really left with and, taking into account you are paying off a mortgage (turning net yield into a fixed asset), how much cash does the property generate?
 
I think the ability to leverage to 70-90% with property investment has always been the draw for investors owning one or two investment properties. This generates real tax advantages compared with non-leveraged investments. It also increases the expected return from the investment but in tandem with this increases risk. Every additional % of leverage increases the risk of your equity investment in the property. This increase in risk was masked during the boom by the large and consistent annual increases in property values. When property prices fell the higher risk (always present in a leveraged investment) became apparent.

The other draw for investors I think is the relatively high and stable cash generation of property (i.e. rent), compared to equity or bonds. This does not mean of course that the return from investing in property exceeds that of equities but it is more apparent to a layman.
 
tvman said:
I think the ability to leverage to 70-90% with property investment has always been the draw for investors owning one or two investment properties. This generates real tax advantages compared with non-leveraged investments. It also increases the expected return from the investment but in tandem with this increases risk. Every additional % of leverage increases the risk of your equity investment in the property. This increase in risk was masked during the boom by the large and consistent annual increases in property values. When property prices fell the higher risk (always present in a leveraged investment) became apparent.

The other draw for investors I think is the relatively high and stable cash generation of property (i.e. rent), compared to equity or bonds. This does not mean of course that the return from investing in property exceeds that of equities but it is more apparent to a layman.
Click to expand...

id have thought equities and bonds are considerably more stable in terms of generating cash , a company with a twenty year plus record of paying out dividends is surely more reliable than a tenant in a BTL , price movements in equities are however more unstable in the main than property

over the very long term , capital returns from equities beat property by a distance ( in the majority of cases )
 
apologies if this is slightly off topic. How does 1 go about in investing in equities on a small enough scale initially? I have some money to invest and id be happy to pick my own shares and manage them if that's possible? is it possible to have an online a/c that you can trade shares on easily?
 
We have already gone off topic so maybe try starting a new thread would be my advice.
 
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tvman said:
The other draw for investors I think is the relatively high and stable cash generation of property (i.e. rent), compared to equity or bonds. This does not mean of course that the return from investing in property exceeds that of equities but it is more apparent to a layman.
Click to expand...

That's a very good point. But it's also true to say I think that some of us, myself included, do not understand equities.
 
Harry Whelks said:
I contacted the Media Enquiries section of the PRTB and they supplied me with this figure for the count of registered landlords in the last three years. .

2013, 253,480
2014, 160,160
2015, 170,282


The PRTB can spend €300,000 of landlords money on a bus shelter campaign advising tenants of their rights (or how to take vexatious cases against landlords for only €15 depending of course on your perspective!).
Click to expand...

I'd like to thank you Harry for that very detailed post. Some things stood out for me

- shocking the numbers leaving the sector
- vexed the PRTB spent my money on a €300,000 campaign
 
Thank you Harry Whelks for an informative post. You say that the water charge is a deductible expense of €260... "water charges are a legitimate property related expense that may be deducted from gross rent for income tax purposes". I always assumed that the user (i.e. tenant) paid for the service?
 
I think the socialist approach has had a major negative impact the cost of rent and the number of landlords in the market.

Take, for example, local services tax or property tax as it’s called. My landlord pays it for the house I live in. It would cost me far less if I paid it rather than him.

The house I live in is worth around €500,000 so the LPT is €900. This is tax deductable. The NPPR charge is €200. This is not tax deductable. Therefore he had to earn €425 to end up with that €200 so that’s a total of €1325 he had to get from me in rent to pay those taxes. I in turn have to earn nearly €3000 to pay my landlord that €1325.


The fact that my landlord has to pay income tax on his costs, be they the NPPR charge or the 25% of his mortgage interest costs which are not allowable as a cost, adds directly to my rental income.


It is absurd to suggest that landlords should somehow absorb these costs, particularly in a market where demand far outstrips supply.


The solution from our last Minister with responsibility for housing was to increase rent allowance, thereby increasing government spending and so the tax burden and so tax rates and so the amount of money I and my landlord have to earn to pay our after tax taxes. I understand why he did it; he’s a socialist and so by definition doesn’t understand how markets work.


What I find most surprising is that anyone is surprised landlords are leaving the sector. Why would they stay when they are treated like social pariahs who exploit the poor and vulnerable when in reality they provide a social good.
 
Hi Purple

I agree with your general argument but, on a point of detail, LPT is not tax deductible for landlords and the NPPR hasn't been levied since 2013. Minister Noonan has acknowledge that LPT should be tax deductible but he hasn't actually done anything to make it so.

The inability to deduct 25% of interest payments or LPT, plus the fact that USC (before deduction of capital allowances) and PRSI are now levied on net rental income, is undoubtedly causing landlords to quit the sector in ever increasing numbers.

The result? Spiralling rents.
 
Just one more reason why a landlord might want to get out of the business. many of your competitors are being subsided by the government, they are not playing their mortgages.

From Brendan's post http://www.askaboutmoney.com/threads/central-bank-publishes-quarterly-arrears-figures-for-q1.199259/

  • Buy-to-let (BTL) mortgage accounts in arrears over 90 days decreased by 3.5 per cent during the first quarter of 2016. At end-March there were 14,924 BTL accounts in arrears over 720 days, with an outstanding balance of €4.4 billion, equivalent to 17 per cent of the total outstanding balance on all BTL mortgage accounts.
 
Harry,
I'm surprised you haven't allowed for insurance in your expenses plus having to buy new appliances, etc?
 
cremeegg said:
Just one more reason why a landlord might want to get out of the business. many of your competitors are being subsided by the government, they are not playing their mortgages.
Click to expand...
You are saying that blocking repossession on mortgages in arrears amounts to a subsidy?
To split hairs:
Where a landlord has got arrears, and the government does not allow the bank to repossess their asset, then the whole mortgage amounts to a government loan - it would no longer exist but for government intervention.
If the state were to order a write-down on arrears/interest, then I'd call it a subsidy.
 
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