Are you ready to be a proper landlord?
Our rental crisis might spell opportunity for property investors, but it's no small step
Published 21/06/2015 | 02:30
There's been a big focus in recent weeks on the crisis in the private rented sector, with a sharp rise in the numbers of people renting thanks to a shortage of housing supply and lack of mortgage lending.
But what does the crisis mean for anyone with money to spare or in a position to buy to let? Does it represent an opportunity or should they run a mile? Even if the sums add up, can you realistically be a part-time landlord?
One thing for sure is that the rental market is booming, and not just in Dublin but in every regional city. According to property buying agent Carol Tallon and author of the Irish Property Buyers' Handbook 2015, more than 30 rental units were lost to the market every day last year.
"Home-buyers are buying up any decent rental stock for their own use. This leaves a growing number of tenants fighting over a smaller number of properties that are, as a consequence of the market, of lower quality."
Figures from the rental market watchdog, the Property Residential Tenancies Board (PRTB), show that almost 700,000 people are now living in private rented housing compared to just over 455,000 in December 2013.
There are some 170,000 landlords currently in the market, but are diverse in terms of age, background and nationality, according to the PRTB.
But some two-thirds of all landlords own just one property, while 84pc own two or fewer. A lot of these people are 'accidental landlords' who were caught in the property bubble, and their houses or apartments are no longer suitable for their needs.
The enduring Irish affinity to property as an investment, allied with the current strength of the property market, means that many people are likely to be tempted to, once again, dip their toes in real estate.
Ronan Lyons - economist with property website Daft.ie - says its a case of "every individual doing their own maths", but the sums currently add up more satisfactorily for landlords with one-or two-bedroomed properties than larger ones with three or four bedrooms.
Daft's most recent report on the Irish property market from last year included comparisons of typical rent payments with mortgage repayments on the same two-bed, three-bed and four-bed houses in Dublin.
"The overall finding is that the bigger the property the more likely it is that the mortgage is more expensive than the rent," said Mr Lyons.
Karl Deeter of Irish Mortgage Brokers says that the sums certainly don't add up if you intend only to buy one property, particularly if it's with a mortgage.
"Personally I think that in cities, at present prices and with the taxation regime as it stands, investing in a single property, if you are using a mortgage, lacks a strong financial argument. People will still do it but it isn't on financial reasons alone."
Crunching the numbers on a single property bought with a €300,000, 20-year mortgage and with a rental income of €13,200 a year (€1,100 per month), Deeter calculates that, after paying mortgage interest and capital repayments, local property tax and other running expenses, and then income tax, PRSI, USC etc, the owner would be bearing a loss of nearly €12,000 a year.
Cash buyers are a different story, he said, because with deposit rates so low they can get a higher yield by holding property.
But, in general, there may not be many people willing to invest in housing-to-let if the taxation field is not made level with other businesses, said Mr Deeter.
"At a time of a shortage, to allow that situation to continue is irresponsible."
Would-be landlords may also need to take heed of recent proposals drawn for the Government by the National Economic and Social Council to introduce tax reliefs for landlords and longer leases for tenants.
Mr Lyons doesn't believe that tax reliefs will fundamentally alter the fundamental problem of the cost base, which is where he believes the 'blockage' in the system currently exists.
He also sees an issue with longer leases.
"That would scare a lot of small-time modest landlords out of the market. Somebody who moves in and after a year can be there for life - I think that for many people who buy property as an investment, they buy it with a view to thinking my children are going use it or whatever it might be, that they have other plans for the property 15 or 20 years down the line."
But Ms Tallon says few landlords are giving any consideration to a new class of tenant that has emerged since the crash.
"These tenants tend to be families in their late 30s and 40s who, as a result of their age, financial circumstances and Ireland's archaic - albeit slightly improved - personal insolvency regime, are unlikely to ever obtain a mortgage in Ireland again."
These tenants, she says, are resigned to renting for life and look to other options for investing and protecting their financial futures. But they need large family homes in residential neighbourhoods within the school catchment areas, but finding such homes is proving a huge challenge. These are people who would look to rent in one place for at least 10 years, or more.
"The Irish market has never had to deal with this situation, but landlords who opt to cater to these tenants will have fewer property headaches in the longer term."
As more 'accidental' landlords seek to leave the market, the opportunities for those who are willing to provide quality accommodation and do the job properly should become clearer.
"Amateur landlords assess the risk as being market fluctuations," said Ms Tallon. "Experienced landlords understand that over the term of the investment, there will be peaks and troughs and that the real risk lies with the management of the investment as a business. And make no mistake, being a landlord is a business and for most first-time landlords, it is a full time one."
"There are start-up costs, the issue of positioning is crucial and compliance is just a part of the job."
Indeed, Mr Lyons says that Ireland is currently seeing a shift away from part-time, mom-and-pop landlords to a new "professional landlord class".
"In a way, this is history repeating itself because in the late 1800s there was a similar sort of move away from people doing it as income on the side to professional institutions set up specifically to develop and then rent out properties in Ireland.
"Unfortunately they got crippled by rent controls and other changes in the law around tenancies, so there are lessons from history there as well and we ended up back with a part-time landlord set up. Now it's going the other way again."
Indeed, the emergence of REITs (real estate investment trusts) means that an individual with €100,000 or €200,000 to invest might find it hard to compete against the new breed of institutional property owning firms, but they can buy shares in REITs, said Mr Lyons.
"The whole point of setting up REITS was specifically to allow people to get exposure to real estate without getting exposed to the maintenance costs, the phone calls, the flooding and all that kind of stuff. That's the institutional set-up, and I think that's where the market is going."
Sunday Indo Business