Would it make sense to leave a rental empty for 2 years to avoid the RPZ rent limits?

Brendan Burgess

Brendan Burgess

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A studio apartment is available for sale for €160k.

Because it's a studio, the banks won't lend for it.

So the only possible buyers are investors...

But the problem is that it's in a RPZ and with a monthly rent of €750 - well below market value. So investors are not interested in it either.



Brendan
 
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Brendan Burgess said:
But the problem is that it's in a RPZ and with a monthly rent of €750 - well below market value. So investors are not interested in it either.
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Assume a market yield of 10%.

A cash investor would be best off purchasing, leaving empty for two years, then letting again at the market rent.

Breakeven point is less than five years.

Rent controls have led to some truly awful unintended consequences.
 
That's a very rough calculation. My rent is 650 under the market at least, could be as high as 800. If we consider that the rent increase by 2% for each of these rental prices during the 2 years (and I leave it here and do not consider the further 3 years of possible increases), the difference would then be €676.
My income is currently 10600 and I would estimate a cost of 2000 for an empty property. So I would recover that in 37 months if I left it empty and then reach the current price (I already left the property vacant for 2 months just to consider my situation before deciding on renting it again)
I briefly thought about it but did not consider it really seriously. My thought is that in 5 years, one of my children could possibly live in it so I would be out of the RPZ system anyway.
I also considered the above option.
 
ClubMan said:
True, but how common would this scenario (of leaving property empty for 2 years) actually occur in practice? Maybe it's just a very rare edge case?
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I would say the data on that is inexistent. However the longer rent controls remain into place, the more common it could become whether you want to stay in the rental market or you want to sell.
 
But if supply is likely to increase and government interference in the market persists (or even increases) then wouldn't it be foolhardy to pursue this vacancy strategy?
 
Don't know how foolhardy it would be. To be honest, I have to convince myself that I am not totally stupid continuing renting and not selling at the moment. However I think it's mad that in the middle of a lack of supply and housing crisis, one would even consider that option and it is an option I would consider very seriously if I felt that my property would only attract investor if needed to be sold and thus was hugely devalued by Rpz.
 
ClubMan said:
True, but how common would this scenario (of leaving property empty for 2 years) actually occur in practice?
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Anyone who let at market rents c. 2010-2014 and never raised them is now at something like 60% below market value.

I doubt it's common but I doubt it's "rare" either.

A lot of landlords either through good will or inertia won't raise a rent on a sitting tenant.
 
You don't even need to be a landlord like that.I entered the market at what was the market price in 2014. The first rent freeze was 2015. No good will from me. I increased once the rent without control. I increased every year up to the limit after that. So any one that followed the rules should be more or less in that situation, or not far from it. I am about 50 per cent below market minimum. So in theory, it should be common.
 
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ClubMan said:
True, but how common would this scenario (of leaving property empty for 2 years) actually occur in practice? Maybe it's just a very rare edge case?
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I had a share in an apartment in Dublin and we left it empty for 2 years before selling it. The Estate Agent said that it added around €60k to the price.
 
When I looked into buying a property, I looked specifically at 2 locations. One was very much a rental market and was relatively more expensive, one was a mixed residential market (further from Dublin, cheaper to buy and lower rent). I decided to invest in the residential area as I knew it better, it was more convenient for me and I could get something bigger for the same price - 2 bedrooms v 1 bedroom). In today's market, according to the valuations I received and property websites, my property would now be more expensive than the equivalent in the "rental area" with 2 bedrooms. I strongly believe that it is because my property could attract first-time buyers and downsizers.
 
azerty said:
When I looked into buying a property, I looked specifically at 2 locations. One was very much a rental market and was relatively more expensive, one was a mixed residential market (further from Dublin, cheaper to buy and lower rent). I decided to invest in the residential area as I knew it better, it was more convenient for me and I could get something bigger for the same price - 2 bedrooms v 1 bedroom). In today's market, according to the valuations I received and property websites, my property would now be more expensive than the equivalent in the "rental area" with 2 bedrooms. I strongly believe that it is because my property could attract first-time buyers and downsizers.
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I struggle to follow this. Did you buy the property with the lower or higher yield?

Are you saying that the relative yields have changed since? By how much?
 
NoRegretsCoyote said:
I struggle to follow this. Did you buy the property with the lower or higher yield?

Are you saying that the relative yields have changed since? By how much?
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I was talking about selling prices.
I bought a 2 bedroom property in a location. At the time a one-bedroom property in another "rental" area would have been the same price and attracted the same type of rent as my property. A 2-bedroom property in the "rental" area would have been more expensive and attracted better rent.
Currently, properties on sale in the "rental" area are at a lower price point (particularly 1 and but also 2 bedrooms) than what my property was valued (a valuation that I estimate more or less correct as a property in the estate I bought was put on sale and went agreed in less than 2 weeks this month).
My comment was linked to the fact that RPZ devaluates property prices (particularly if these properties are geared towards the rental market) and it could be a good idea to leave a property empty for 2 years before selling.
 
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azerty said:
I was talking about selling prices.
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I still struggle to follow.

What I think you are saying is that prices in areas with higher density of rental properties have not risen as much as prices in areas which are largely owner-occupied. Is that right? If it is it is indeed fully consistent with the impact of the rent controls on market prices.
 
NoRegretsCoyote said:
I still struggle to follow.

What I think you are saying is that prices in areas with higher density of rental properties have not risen as much as prices in areas which are largely owner-occupied. Is that right? If it is it is indeed fully consistent with the impact of the rent controls on market prices.
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That's it. It's what I mean. If a property can attract only investors, RPZ clearly limits its selling price. The impact is not such an issue when a property can attract owner-occupiers. This impact can be seen in the current market. And then it could be really beneficial to leave a property vacant.
 
Article is paywalled but the headline probably says it all:

Owner left 43 homes empty for two years to avoid rent caps and sell for higher price​

Woodbine House in south Dublin was listed for sale at €24 million with potential for rent of €1.47 million per year
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Perhaps they will now sue the State for disproportionate interference with their constitutionally guaranteed property rights. Would make for an interesting case!
 
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