My experience as a reluctant landlord

Sarenco

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Hi Gordon

I just took the €8k pre-tax profit from your previous post and divided it by two to arrive at a very crude after-tax figure.

But even if you use €5,500 as your after tax profit, I’m not sure that €3,000 (€5,500 after-tax profit, versus €1,500 interest saving on the PPR mortgage) is a particularly compelling reward for the all the risks and hassle involved.
 

Gordon Gekko

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Hi Gordon

I just took the €8k pre-tax profit from your previous post and divided it by two to arrive at a very crude after-tax figure.

But even if you use €5,500 as your after tax profit, I’m not sure that €3,000 (€5,500 after-tax profit, versus €1,500 interest saving on the PPR mortgage) is a particularly compelling reward for the all the risks and hassle involved.
Someone else had mentioned the €4,000 number.

€5,500 less €1,500 is obviously €4,000 which is a pretty compelling reward on €40,000 of capital deployed.
 

Sarenco

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Oops:oops:, yes €5,500 less €1,500 is obviously €4,000.

Is €4,000 a compelling reward for the hassle and risks involved in running a leveraged rental business? I’m not sure it is but others may take a different view.

I certainly don’t think it’s a sufficient reward if the reduced cash flow (due to principal repayments) unduly restricts the OP’s lifestyle or his ability to maximize his tax relieved pension contributions.
 
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Gordon Gekko

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Oops:oops:, yes €5,500 less €1,500 is obviously €4,000.

Is €4,000 a compelling reward for the risks involved in running a rental business? I’m not sure it is but others may take a different view.

I certainly don’t think it’s a sufficient reward if the reduced cash flow restricts the OP’s ability to maximize his tax relieved pension contributions.
Agreed
 

cremeegg

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Now that the casual readers have caught up, perhaps we might address another common misconception about the property rental business.

Oops:oops:, yes €5,500 less €1,500 is obviously €4,000.

Is €4,000 a compelling reward for the hassle and risks involved in running a leveraged rental business?
There was no leverage risk in the OPs situation. So long as he had sufficient cashflow to sustain his borrowings, he would not be a forced seller. He could continue to take his profit every year irrespective of the capital value of the investment.
 

Sarenco

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So long as he had sufficient cashflow to sustain his borrowings, he would not be a forced seller.
Well, yes, but what if he doesn’t?

His tenant might lose his job and stop paying his rent or the OP might lose his job. Interest rates could take off without a corresponding increase in rents. The property could become uninhabitable for any number of reasons, etc.

You know, risks.

Just my 2cent as a “casual reader” (whatever that means).
 

Gordon Gekko

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There’s always risk when a lender is involved. The value falls and the bank calls in the loan or the tracker rate is taken away because the place was rented out.
 

Leper

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The Original Poster never intended in becoming a landlord. In fact, he didn't wear the title with gusto. He was making money. But, he wasn't happy and woke up every morning not pleased with being a landlord. The property although making money was a millstone.

Imagine yourself in a job that paid well and might even have given you some promotion. You hate every minute, every hour, every day, every week, every year. And it isn't going to change next year.

What price peace-of-mind? What price being unhappy every day? The thoughts Thos. went through continuously must have been taking toll on his health. Fortunately, he got out in time with good health and with the wherewithal to post here where the tone of nearly every minute is profit orientated.

Good on ya, Thos!
 

Bronte

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It’s €2,500 on a €40,000 input.

And I would dispute the €2,500 figure.

€15,600 income

Less:

€2,500 interest
€1,560 agent fees
€1,200 service charge(?)
€5,000 tax(?)

Circa €5,500 profit...on €40,000!
He's also acquiring an asset.
 

Bronte

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Well, yes, but what if he doesn’t?

His tenant might lose his job and stop paying his rent or the OP might lose his job. Interest rates could take off without a corresponding increase in rents. The property could become uninhabitable for any number of reasons, etc.

You know, risks.

Just my 2cent as a “casual reader” (whatever that means).
What percentage of landlords would have encountered such a doomsday scenario though. The Celtic tiger accidental landlords and those who over borrowed during the tiger to become landlords.

And you'd need a combination of

- lost job
- massive interest increase
- tenant not paying rent
- property collapsing in value
And
bank calling in loan

To occur.

Whereas if you borrowed at a level where rent adequately covered most costs, calculated for interest hikes, kept a rainy day fund, then losing your job, property devaluing or the tenant not paying would be irrelevant.
 

Bronte

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There’s always risk when a lender is involved. The value falls and the bank calls in the loan or the tracker rate is taken away because the place was rented out.
Banks don't call in loans if you pay your mortgage.

How many people lost their tracker because they rented out? And if going from 2% to 4% breaks you then you didn't make that part of your initial calculations. Stress testing us a must.

Which reminds me. It was encouraged on this website to borrow interest only for landlords. Advice now not encouraged. But I heard an ad on the radio for some bank that will lend interest only and I said to myself, Tiger 2 on its way.
 

Gordon Gekko

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Seriously ?

Loans advanced under a mortgage cannot be called in due to a fall in the value of the security.



Indeed. In fact they cannot.
There is so much wrong with your post.

With these cases, a person was typically given a home mortgage. Now they’ve an investment property. Are they still entitled to the same tracker rate? Does the rate change depending on value? I would assume nothing when “fraud light” may have taken place.
 
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Sarenco

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Gordon

Mortgages are not generally callable in Ireland.

That doesn’t mean that leveraged investments don’t come with additional risks.
 

Gordon Gekko

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Gordon

Mortgages are not generally callable in Ireland.

That doesn’t mean that leveraged investments don’t come with additional risks.
Ah, Sarenco...in for your monthly argument I see!

All bets are off when a home mortgage has, unbeknownst to the bank, become an investment property mortgage.

Are you and others definitively saying that a bank cannot call in a home mortgage when the borrower surrepticiously changes the very nature of the arrangement on the QT?
 
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Sarenco

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No argument Gordon.

You said that there was a risk that a bank could call in a loan due to a fall in value of the underlying collateral.

That is not correct.

As long as a borrower continues to meet their contractual obligations then there is no risk of a mortgage lender escalating the loan.
 
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Gordon Gekko

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No argument Gordon.

You said that there was a risk that a bank could call in a loan due to a fall in value of the underlying collateral.

That is not correct.

As long as a borrower continues to meet their contractual arrangements then there is no risk of a mortgage lender escalating the loan.
I don’t believe that’s correct when a home loan has been changed into something else without the lender’s consent.

But I’m delighted to see that contract law is one of your core competencies!
 

Sarenco

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Well, I’m afraid your belief is without any foundation.

Mortgages in Ireland are not callable if a borrower meets their contractual payment obligations.

It really is that simple.
 

Gordon Gekko

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Well, I’m afraid your belief is without any foundation.

Mortgages in Ireland are not callable if a borrower meets their contractual payment obligations.

It really is that simple.
I would venture that it is not, but we’ll leave it there.
 

Palerider

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Speaking as a former Banker I have never seen a Bank chase any borrower for not advising them of the property becoming an investment property, to be honest the Banks are delighted to have a borrower repaying on time every time.

The post is moving away from its initial purpose, we all believe we know best but at the end of the day it is for the individual to decide their best course of action.
 
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