Monday 23 September 2019

'As an accidental landlord, do long leases make sense?'

 

According to research carried out by Threshold, 70pc of renters don't want to be renting
According to research carried out by Threshold, 70pc of renters don't want to be renting

Karl Deeter, Head of compliance at mortgage and insurance brokers Yes.ie

Your questions answered

Q: I'm currently advertising a three-bed house that would be suitable for young families and, while I've had plenty of interest, I've also had a few queries about the possibility of signing a long-term lease rather than just renting on a monthly basis with no security of tenancy. I'm more of an accidental landlord because I was unexpectedly gifted the property (which is in good condition) in a will. So, I haven't done much research on this but the idea of offering tenants a degree of certainty over five or even 10 years does appeal in terms of reducing the hassle factor but also amid rising rents and the heartache so many families are experiencing in the current market. But what might the disadvantages of this from my perspective?

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Elaine, New Ross, Co Wexford

Long leases are how most of the nation worked for the last 300 years. They are a great idea but both landlords and tenants sometimes don't want them for a variety of reasons. According to research carried out by Threshold, 70pc of renters don't want to be renting, many aspire to home ownership and longer commitments can be daunting.

That said, 44pc of renters have been doing so for more than five years which means that longer-term renting is a very real and common thing to do. A fixed tenancy gives a person better tenancy rights. For instance, if a person is on a fixed-term tenancy, you can't ask them to leave if you want to sell the home and that causes concerns for some landlords. That is why the shorter-term periodic lease which converts into a 'part 4 tenancy' (a less formal type of tenancy) has become common.

Remember that if you make a lease too long, say 20 years, it becomes a 'freehold equivalent' and that means the tenant is liable for local property tax. If you find a long-term tenant it's better for you (and them as a renter) because you tend to have less damage, less costs of re-letting and re-registering with the RTB.

Personally, I'm a fan of five-year leases and advise landlords to offer them by default. So much of our current housing crisis could have been averted if people had used the types of tenancies that were enshrined in law in the 1881 Land Act, which offer far more protection than the more common modern short-term lease.

Financial vs personal

Q: I don't earn a big salary but I've managed to build up a €120,000 fund to get back on the property ladder for myself and my young son. Some of this is the proceeds of my ex-partner buying me out of my share of the home we once shared, but it also means that I won't qualify for any first-time buyer help-to-buy incentives. We really want to stay in the area (north Dublin) but on my low salary the most I can get in a mortgage at my age (48), plus the €120,000, still puts a lot of places out of our reach. So I'm wondering if it makes more sense in the current market to resolve to continue to rent and invest the money elsewhere or continue to scrimp and save and get on the ladder?

Aine, Swords, Co Dublin

You are correct that things like help-to-buy (HTB) don't apply to you, not least because it's about helping you to obtain a deposit, which you already have, and a substantial one.

The real question is about balancing your financial and personal objectives. You could move to the midlands, buy a house for cash and be debt-free but then face a large commute to work, doing that while being a single parent would be near impossible. This means deciding what is both practical and possible. You may have to move to a cheaper location if you want to buy a house. Affordable homes are still out there, three-bed homes in North County Dublin and some parts of Dublin 17 can be bought at or below €200,000. You could consider using a Rebuilding Ireland home loan which you might qualify for because of your circumstances.

There is also an 'incremental ownership' scheme run by local authorities that took over from the older 'shared ownership' scheme, this may be worth looking into as well.

The issue is about the trade-offs you are willing to make rather than the possibilities that are open to you, and in your favour you have an income and a large deposit. The final issue of your age is not as detrimental as you think. You won't reach retirement until age 68 because of the new retirement rules, and that means you have 20 years to pay off what will likely be a modest enough loan, irrespective of who provides it.

Classic cars and BIK

Q: I'm a senior director in a printing firm, and we have a fleet of various different vehicles that some of my colleagues use as company cars, but a friend has told me that I could run a classic car as a company car and that it could make financial sense. I'm fuzzy about the details he mentioned, but at least one of the advantages is that the benefit-in-kind tax I would pay is based on the original market value of such a car. Is my friend onto something? Could I persuade the boss to do this?

Jason, Galway city

Your friend is broadly correct in what they told you. Benefit-in-kind (BIK) on a classic or vintage car is calculated in the same way as any other car as per section 121 of the Taxes Consolidation Act 1997. What that means is that the original market value (OMV) applies when calculating the notional pay on a company car.

Let's take a 1981 Porsche 911. I took a look and found that in 1981 it would have cost you about $32,000, which in punts was about £20,000, or €25,400. That car might be worth a king's ransom today, but the OMV will be the euro figure just mentioned.

The BIK payable depends on the mileage undertaken by the car, which is 30pc up to 24,000km (it goes down the more you drive). We'll assume you aren't going to be doing more than that mileage a year in a classic. So you'd be looking at a notional pay of just over €7,500.

If you really want to use the rules to your advantage and aren't doing big mileage, why not consider a fully electric car and then you'd have no BIK at all once the value is below €50,000.

One last thing to consider is that all vehicles on the road must be insured. As a printer, you might not be able to get commercial insurance on a classic car; they are normally underwritten on a 'pleasure only' basis and normally have mileage restrictions. The point is that while you may get that car of your dreams on one hand, on the other you might not be able to use it in the way you intended to.

  • Email your questions to  lmcbride@independent.ie or write to 'Your Questions,  Sunday Independent Business, 27-32 Talbot Street, Dublin 1'. While we will endeavour to place your questions with the most appropriate expert for your query, this column is not intended to replace professional advice.

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