Key Post Why I am selling my 5 investment properties.

[Boyddbookman]

I have been a small time landlord for more than 18 years. Ran it as a business, as one should. Like many others on this forum, all the BTLs are located in a rent pressure zone and therefore rent-capped. Again, like many others, I prided myself offering high quality accommodation and service for fair rent (~15% below market), hence I have had very long term tenants all of whom I have a solid and respectful professional relationship with. Having followed this model, in recent years I found myself with 5 properties each with rents far below current market rent, with no real prospect of ever being able to normalise the rents in line with the market.

Edit: The 15% refers to the discount when rent controls were introduced. The discount is now about 50%.

Having waited with baited breath in the hope of a significant positive change in the recent budget that would encourge small time landlords to remain in business.... well, lets just say, I'm selling up. Over the past week, I have regrettably served notice on 3 of the 5 tenants (in line with the revised PRTB guidelines), with the two remaining tenants to be scheduled for next week. I just wanted to share my experience that this has been such a stressful and wasteful undertaking, for everyone involved. I have been unable to sleep many nights worrying about how to break the news to tenants, some of whom are in these homes for more than 10 years. Against advice from my solicitor, each tenant served so far has been provided with a notice period far exceeding their entitlement (up to 9 months). As I had been hoping for the best but expecting the worst, I had lined up property management contacts in advance.

Fortunately, I have been able to assist using these contacts and prepared references to assist in securing prospective alternate accommodation without discommoding the tenants too much. I just cannot fathom why government policy has brought both tenants and small time landlords to this position. It is regressive, further negatively impacting supply. The stress imposed on individuals and families resulting from disruption to an otherwise stable and long standing commercial relationship is needless, and could have been avoided. In addition to tenant credits, I think it would have been a fair and reasonable expectation that the government could have provided an indication to the service providers (landlords) that rent caps would have a limited shelf life. That some time in the foreseeable future, a mechanism would be provided to allow landlords bring their revenue producing assets in line with the market in terms of return on equity. That may even create an environment where would-be or existing investors would consider expanding their small portfolios to provide more market choice, with the associated easing of spiralling rents.

I, and I expect many others, are now in a position where they have to release the investment equity by selling and will most likely choose to invest abroad in order to realise best returns. All this upheaval.... simply crazy. I cannot see a single positive for anyone due to government policy and attitude to small time landlords.

Sorry for the long winded back story.... my point to the OP is that since serving notice and helping to successfully find alternate accommodation far more quickly than I had expected, it feels like such a weight has been lifted. My advice..... sell.

 

[Sarenco]

Good post @ Boyddbookman - suggest you forward it to your local TDs.

 

[noproblem]

I have been a small time landlord for more than 18 years. Ran it as a business, as one should. Like many others on this forum, all the BTLs are located in a rent pressure zone and therefore rent-capped. Again, like many others, I prided myself offering high quality accommodation and service for fair rent (~15% below market), hence I have had very long term tenants all of whom I have a solid and respectful professional relationship with. Having followed this model, in recent years I found myself with 5 properties each with rents far below current market rent, with no real prospect of ever being able to normalise the rents in line with the market.


Having waited with baited breath in the hope of a significant positive change in the recent budget that would encourge small time landlords to remain in business.... well, lets just say, I'm selling up. Over the past week, I have regrettably served notice on 3 of the 5 tenants (in line with the revised PRTB guidelines), with the two remaining tenants to be scheduled for next week. I just wanted to share my experience that this has been such a stressful and wasteful undertaking, for everyone involved. I have been unable to sleep many nights worrying about how to break the news to tenants, some of whom are in these homes for more than 10 years. Against advice from my solicitor, each tenant served so far has been provided with a notice period far exceeding their entitlement (up to 9 months). As I had been hoping for the best but expecting the worst, I had lined up property management contacts in advance.

Fortunately, I have been able to assist using these contacts and prepared references to assist in securing prospective alternate accommodation without discommoding the tenants too much. I just cannot fathom why government policy has brought both tenants and small time landlords to this position. It is regressive, further negatively impacting supply. The stress imposed on individuals and families resulting from disruption to an otherwise stable and long standing commercial relationship is needless, and could have been avoided. In addition to tenant credits, I think it would have been a fair and reasonable expectation that the government could have provided an indication to the service providers (landlords) that rent caps would have a limited shelf life. That some time in the foreseeable future, a mechanism would be provided to allow landlords bring their revenue producing assets in line with the market in terms of return on equity. That may even create an environment where would-be or existing investors would consider expanding their small portfolios to provide more market choice, with the associated easing of spiralling rents.

I, and I expect many others, are now in a position where they have to release the investment equity by selling and will most likely choose to invest abroad in order to realise best returns. All this upheaval.... simply crazy. I cannot see a single positive for anyone due to government policy and attitude to small time landlords.

Sorry for the long winded back story.... my point to the OP is that since serving notice and helping to successfully find alternate accommodation far more quickly than I had expected, it feels like such a weight has been lifted. My advice..... sell.

Woul agree with a lot of what you're saying. However, by going abroad to realise the best returns might leave you with a bigger headache than you have now. I'd love to know where and how you intend to achieve that.

 

[LS400]

Very sad post, in the sense that, these 5 tenants had a Landlord such as yourself, who, seemed to care a lot about their well being. Unfortunately, they will be unlikely to secure a similar arrangement. And thats suppose to be progress!!!

It really is a disgrace, that LLs such as yourself are throwing in the towel due the the shambolic system we now have.

 

[Brendan Burgess]

Great post and I have made it a Key Post to highlight it.

(~15% below market)

In one sense, 15% is a lot. But on the other hand, rents are very high.

So on a purely financial basis, are you not still getting a very good return on your money?

I was under the impression that landlords were leaving because of the threats to their business - that they might not be allowed to sell. Or only allowed to sell with the tenants in situ which would dramatically reduce their market value.

Could you give a typical example of one of your properties. Its value and the rent you are getting on it and the costs. And any mortgage information if you have one.

The rental market is still profitable. It's hassle-free if you rent to a local authority.

Not at all suitable for someone with one property which they might well want to sell. But for someone like yourself with a long-term view and multiple properties, I would imagine that it's still profitable.

Brendan

 

[Ent319]

I'm not quite sure I get this post. I was about to post something similar to what Brendan posted. It would be very helpful to understand what other investment opportunities you've identified that will give you a better ROI relative to your current situation. If you take pride in offering tenants rent below market rate (fair play to you), why are current policies an issue?

 

[The Horseman]

Great post and I have made it a Key Post to highlight it.



In one sense, 15% is a lot. But on the other hand, rents are very high.

So on a purely financial basis, are you not still getting a very good return on your money?

I was under the impression that landlords were leaving because of the threats to their business - that they might not be allowed to sell. Or only allowed to sell with the tenants in situ which would dramatically reduce their market value.

Could you give a typical example of one of your properties. Its value and the rent you are getting on it and the costs. And any mortgage information if you have one.

The rental market is still profitable. It's hassle-free if you rent to a local authority.

Not at all suitable for someone with one property which they might well want to sell. But for someone like yourself with a long-term view and multiple properties, I would imagine that it's still profitable.

Brendan

A property is only worth what someone is willing to pay. If Sinn Fein are elected and introduce their plan to sell with tenants in situ then the value of the property will only be a multiple of the rent.

Also with all the anti landlord stance why would any one buy it?

So a good return now will be diminished when it comes to selling with tenants in situ.

 

[wondering]

Having waited with baited breath in the hope of a significant positive change in the recent budget that would encourge small time landlords to remain in business.... well, lets just say, I'm selling up.

What changes would have kept you from selling?

 

[Brendan Burgess]

If Sinn Fein are elected and introduce their plan to sell with tenants in situ then the value of the property will only be a multiple of the rent.

I agree fully, but he said the Budget decided him to sell. As I said:

I was under the impression that landlords were leaving because of the threats to their business - that they might not be allowed to sell. Or only allowed to sell with the tenants in situ which would dramatically reduce their market value.

 

[The Horseman]

I agree fully, but he said the Budget decided him to sell. As I said:

The mooted changes in the budget were reduced tax for landlords.

Actions speak louder than words. There was nothing really for landlords in the budget. It appears the govt don't care if the private landlords are leaving.

Their actions (or inaction) suggest they don't see us as part of the solution to the housing situation.

It is the message the govt are sending.

 

[wondering]

So what happens then to all the properties? Is there any rule that they have to remain as rentals - I mean even with tenants having left - or could they be converted to non-rentals?

 

[DazedInPontoon]

I cannot see a single positive for anyone due to government policy and attitude to small time landlords.

In your case maybe not, but in many cases landlords will not bother selling and tenants will have the positive that their rents did not spiral up to a level they cannot afford. On that note, would your tenants have been able to afford market rent anyway?

I'm not saying rent caps are a good policy overall, they probably aren't, but there are some tenants benefiting from them.

 

[Knuttell]

I'm in a similarish boat to OP. I want to move on after 23 years but have no idea what to do with cash when I sell them. Especially concerning in high inflation environment.Not really the type to purchase shares as do not like the risk.

 

[NoRegretsCoyote]

I'm not quite sure I get this post. I was about to post something similar to what Brendan posted. It would be very helpful to understand what other investment opportunities you've identified that will give you a better ROI relative to your current situation. If you take pride in offering tenants rent below market rate (fair play to you), why are current policies an issue?

For a lot of landlords it's more a feeling than a very precise set of calculations.

The RTB did a survey last year and the biggest reason small landlords gave (45%) was "no longer wish to be a landlord"

See here figure 2.62

 

[wondering]

I thought the idea of property investment is that you hold onto it long-term (irrespective of what's happening in the market short-term).

 

[Brendan Burgess]

Folks

I separated the initial post from another thread because I think it's worth highlighting.

But it turned into another generalised debate on the housing market so I have deleted about 20 posts so we can focus on the concerns of the OP.

You might wait for the OP to respond to the issues raised.

Thanks.

 

[Boyddbookman]

Great post and I have made it a Key Post to highlight it.



In one sense, 15% is a lot. But on the other hand, rents are very high.

So on a purely financial basis, are you not still getting a very good return on your money?

I was under the impression that landlords were leaving because of the threats to their business - that they might not be allowed to sell. Or only allowed to sell with the tenants in situ which would dramatically reduce their market value.

Could you give a typical example of one of your properties. Its value and the rent you are getting on it and the costs. And any mortgage information if you have one.

The rental market is still profitable. It's hassle-free if you rent to a local authority.

Not at all suitable for someone with one property which they might well want to sell. But for someone like yourself with a long-term view and multiple properties, I would imagine that it's still profitable.

Brendan

Just by way of context, my post was in response to a question posted on another thread concerning a landlord debating whether or not to avail of a current opportunity to sell her BTL, as her tenant is exiting the tenancy agreement. As such, the detail provided was done so to provide a backdrop to share the difficult recent, and ongoing challenges I am contending with having been a small time landlord for more than 18 years.

Thank you for the feedback and questions posed. I will attempt to provide some additional information as requested.

The reference to ~15% below market rate refers to rents charged prior to the introduction of rent caps in December 2016 impacting the geographic area where my BTLs are located. Residential rents in the area where the properties I own are located have increased (approximately) between 8% and 11% annually since 2016. Ignoring indexation based inflation since then (for the sake of simplicity) and taking the most conservative annual increase of 8% over 6 years (2016 to 2022), that is an approximate 48% increase in market rent since 2016.

The approximation of being 15% under market value prior to 2016 means prospective rent increases effectively loses cumulative benefit, similar to compounding, or the lack thereof. Without thinking too deeply about it, as it will only cause upset and frustration and perhaps be sufficient to tip one over the edge, on paper I am approximately 50% below market rent (revenue) for each investment property.

Rents pitched 15% below market rent prior to 2016 correlated to reduced risk of vacancy between tenancies. The net effect of this pricing was a cost I was willing to eat. However, 50% below market rent is not a cost that is sustainable. As with any business, there comes a tipping point where capital should be redeployed elsewhere to achieve a more efficient use of capital and return.

Each investment property was debt funded via a semi-commercial mortgage interest rate of about 5.5% (depending on when each of them was purchased). 4 of the 5 properties are now debt free.

I would like to state clearly that for me, this is a business, and I always tried my best to approach various hurdles objectively. My emotive concern is for the tenants who are discommoded through no fault of their own. Some have kids in schools, hold jobs near where they live and all have friends located nearby.

One of the responses queried whether the basis for my decision to sell all my BTLs was purely based on the rent caps. The quick answer is, no. Each of the legislative changes introduced, government policies applied and general vilification of the small landlord by the media has accrued to the point where for me, the overall market conditions do not support continued investment, let alone further investment.

However, if I was asked to identify one main decision point, it would be future uncertainty due to government interference in the market. Would a bank lend to a small business where the business was unable to provide some risk-reward assessment of future market conditions? I don’t think so, and quite rightly. This is a risk versus reward business. In my opinion there is a significant degree of market uncertainty due to the continued shift of risk to the landlord. Various reports about possible further changes to government policy (largely driven by opposition parties, who may have a say in policy in the next election) create too much volatility and an unacceptable level of risk for me. Therefore, I will simply chase the investment return elsewhere.

I have had limited and unhappy dealings with HAP scheme tenants and have zero appetite for that model. It may work for a cashflow model, but not a combined cashflow and asset appreciation model. The main issue I have based on personal experience is that the landlord has zero say on the tenant that will occupy the property, but yet it is the landlord who has to deal with problems arising with neighbours and neighbour hood watch schemes. The landlord is absolutely powerless to address these types of issues…. Final point on this is that if the tenant stops paying, the local authority stop paying the landlord with no defined redress path available.

 

[NoRegretsCoyote]

The approximation of being 15% under market value prior to 2016 means prospective rent increases effectively loses cumulative benefit, similar to compounding, or the lack thereof. Without thinking too deeply about it, as it will only cause upset and frustration and perhaps be sufficient to tip one over the edge, on paper I am approximately 50% below market rent (revenue) for each investment property.

I'm curious why you didn't increase rents by the maximum allowed in the interim.

I'm not going to attempt to work this out as it has changed so much but IIRC what was allowed was 4%pa 2017-2020, and then 2% from 2021 onwards.

That doesn't bring you anywhere close to market rent of course, but it wouldn't have left you so far behind either.

 

[Brendan Burgess]

Having waited with baited breath in the hope of a significant positive change in the recent budget that would encourge small time landlords to remain in business.... well, lets just say, I'm selling up.

Hi Boyd

Your account is interesting and it really shows the madness of the system.

But I presume that the Budget didn't actually make any difference to you? If your rents are substantially below the market value, what change could they make?

The only change which would keep you in the market would be some sort of lifting of rent controls or some signal that they would be lifted. But even more than that, you would need a signal that they were stopping the vilification of landlords.

Had they announced in the Budget that they were going to allow 150% of mortgage interest against tax, that would have been of no value to you.

A reduction in CGT for long-term holders of property would probably just reinforce your decision to sell while you are allowed to do so.

Brendan

 

[Boyddbookman]

I agree fully, but he said the Budget decided him to sell. As I said:

The rent caps are also a major factor. A decision to purchase is made on the basis of risk adjusted IRR (Internal rate of return) for any BTL investment decision. By way of example the IRR on a €250,000 investment with a monthly rent of €1,300 limited to a 2% rent cap modelled with a 3% discount rate over 20 years is 3.8%. Removing the rent cap and using an assumed 5% annual increase in rent moves the IRR close to 7% (using a 1,000 monte carlo iteration with a STDev of 2.5%). With the rent cap the risk/reward does not justify the investment. Without the rent cap, it becomes somewhat more attractive.

I tried to copy a screen shot of the above numbers into this forum but don't think it allows me to do so.