Who would be a landlord?
Many would sooner admit to being an axe murderer these days. Commentators with a knack for a soundbite have merged those who rent out property into one convenient, avaricious bogeyman. Some landlords are making lots of money, of course, but others really are not.
Cuckoo, vulture, parasite, profiteer – many landlords don't recognise themselves in the housing debate. The soundbite merchants would have you believe that foreign funds own the entire rental sector, hoovering up housing stock and renting it back to us at extortionate rates. The reality is that a landlord in Ireland is far more likely to be your retired uncle, your taxi driver, your sister or the owner of the corner shop.
Small landlords house the vast majority of Ireland's renters. And if being one is such a cushy number, why are so many leaving?
Some 46 per cent of landlords here are PAYE workers, according to the CSO, while approximately 15 per cent were self-employed in 2019. In fact, the Residential Tenancies Board (RTB) says about 86 per cent of private landlords own just one or two properties and supply just over half of the total market.
Of 173,000 private landlords, 121,000 rent out just one property. Small landlords house the vast majority of Ireland’s renters. And if being one is such a cushy number, why are so many leaving?
Mary Conway is a landlord for 26 years. She and her former husband bought their first rental property in the mid-1990s.
“I was working as a nurse full-time, my husband was working and we just thought it would set us up for our old age.” The banks were happy to lend. The couple amassed several properties in Dublin.
“I loved being a landlord and a ‘Dublin Mammy’ to my overseas tenants,” she says. “On the darker days I’ve been spat at and threatened with a knife, but the good days have outweighed the bad.”
They bought some of their properties in the boom and that has caused problems. To those who say she was foolish, Conway says, “hindsight is a great thing. I’m only giving you my story, but I could give 10 examples of people I know who did the same thing.”
She says perceptions of landlords are far from the truth. People think that “they don’t have a mortgage to pay, no tax, they don’t have any expenses and if they get €2000 on an apartment a month, that all goes into their back pocket”.
That’s not true in Conway’s case.
“If you are a higher earner, you are paying 55 per cent tax, plus you have mortgage repayments. If it’s an apartment block, you have management fees. You have insurance. If the water pump breaks that’s €1000, if you need a new boiler, that’s €2500. People hear about money coming in, but they don’t realise what the outgoings are.”
Six years ago, Conway went back to college and studied for her PSRA (Property Services Regulatory Authority) license. She now runs Janus Estates, providing services to property owners facing illness, bereavement, separation and divorce. One of the first of the RTB’s accredited “Betterlet” landlords, even she finds the ever-changing regulations hard to follow.
“When I go to write a lease for a landlord, I have to read the legislation because it keeps changing. I think it has changed something like five times in the past year. I don’t know how anybody who has a full-time job and has property has the time to keep up to speed on it.”
According to Conway, landlords are leaving because of high tax and over-regulation. She is in the process of selling seven properties. She knows “five or six others who are in exactly the same position”.
Government policy is effectively getting rid of her ilk, which will make the housing crisis far worse, she says. “Most landlords are good people, trying to provide a good service while providing some security for a pension for their old age or educate their families.”
She deals regularly with the big housing charities, matching their clients to landlords on her books.
“The Reits, the institutional landlords, they are not going to deal with these people. I’ve never had any hassle with HAP tenants. They are just people who have fallen on hard times. The Reits have no interest in them. It’s the small landlords that are providing housing for lots of people.”
Small landlords get a bad rap and the Government is making it difficult for many of them to continue, says Margaret McCormack of the Irish Property Owners Association. She cites a Residential Tenancies Board survey last year which found more than three out of four tenants (79 per cent) were 'positive or very positive' about renting their current property.
“The sentiment in the market is very anti-landlord, the rhetoric is anti-landlord and they are being vilified,” McCormack says of her members.
"One person's rent is another person's income – it might be their pension, it might be how they pay their mortgage," argued Leo Varadkar against Opposition calls for a three-year rent freeze. His comments drew ire. Woe betide anyone who tries to disentangle the disparate group, collectively maligned as 'landlords'.
“We are being fleeced with huge rents because this Government is letting landlords do what they please,” claims People Before Profit. For such a seemingly profitable gig, landlords can’t wait to get shut of it – about 2,000 are selling up every year, according to figures from the RTB.
There were 165,736 private landlords associated with registered tenancies at the end of 2020 compared with 212,000 in 2012. Nearly half of landlords say they would be unlikely or very unlikely to recommend becoming a landlord to a friend, according to an RTB survey.
Thomas Reilly is another who is opting out. He has been a landlord since the 1980s, with houses and apartments in Dublin, Limerick and Cork. “My objective at the moment is to sell,” he says.
He has rented to students, private tenants and those on HAP. It’s only in recent years that things have gotten difficult, he says. The introduction of rent pressure zones (RPZ) was a tipping point.
Even for those on tracker mortgage rates, the income tax on rental income sucks up everything
“Many people like myself had good tenants in situ. We allowed them to stay on, which would be the normal pattern of things. Most of us who were happy with our tenants didn’t increase the rent.”
Before too long, however, a chasm developed between the rent that landlords like him were charging and the then market rent: “That’s when we were really screwed.” RPZ caps have not only capped rental return but devalued his property, he says.
Remaining a landlord no longer makes sense to Reilly.
“Where is the incentive for a landlord to stay? In an RPZ, where is the incentive for a landlord to upgrade his property?”
He doesn’t see why landlords would invest the large sums needed to top up Government retrofit grants when rents can’t be increased to reflect the upgrades. The prospect of the introduction of tenancies of indeterminate length is also “extremely worrying” for smaller landlords who need flexibility as their life circumstances change.
Interest rates
Half of all rental properties were acquired “with an owner-occupier mortgage” according to RTB figures. Indeed, some 70 per cent of all properties owned by younger landlords age 25-44 were acquired “with an owner-occupier mortgage” compared with 51 per cent of all properties owned by landlords age 45-54. If you were thinking of becoming a landlord these days, you really wouldn’t start from there.
Tax on income of up to 55 per cent, rent caps, inflation and predicted rising mortgage interest rates mean the sums for these types of owners just don’t add up. Even for those on tracker rates, the income tax on rental income sucks up everything. Opposition calls for rent freezes are a further death knell.
Still, there are other ways to become a landlord, and they make a lot more financial sense.
Watching the exodus of the battle-weary old guard, there is another type of small landlord. These aren’t the big investment funds but individuals who with better tax advice are structuring rental property ownership in a way that makes it a far better bet.
“Those landlords are absolutely entering the market; the difficulty they have is sourcing properties,” says Angus Burns, a partner with Grant Thornton. “The people we are seeing tend to be small business owners, shop owners.”
Where they are generating surplus cash from their work, it’s wise to protect this wealth from the risk of the business. Investing in property is a way to do it, and it enables them to build up private wealth quickly.
One route is to set up a group structure, with monies being transferred from a trading company to a separate property company. The company will pay corporation tax and not income tax on rental income. With surcharges included, that comes to around 40 per cent – a good bit less than the 52 per cent to 55 per cent paid by PAYE-earning landlords.
“For building wealth over decades, that is quite popular because the tax rates are far less,” says Burns.
Another option is Small Self-Administered Pension (SSAP) trust. It could be used by a tech industry professional, for example, who has set themselves up as a company, contracting out their services.
“This generally involves them making employer contributions into a self-administered pension,” says Burns.
A pension contribution is treated as a payroll expense, so their company gets a corporation tax deduction of 12.5 per cent on it. An individual could transfer €100,000, for example, or indeed many multiples of their salary, from their company straight into their pension without any deduction of income tax.
New rules have placed some restrictions on the ability to use pension to buy property, but there are structures that provide the same effect, says Burns.
Tax-free
By purchasing a property in this way, any rental income less expenses can be pumped back into the pension and reinvested. Any returns are also tax-free. If you decide to sell the property, there is no tax on gains.
What types of properties are these investors buying?
“Some of the highest yields are on properties bought from the €220,000 to €230,000 and up to €300,000 mark. You can be getting rent of €2,000 a month,” says Burns.
Apartments, which have less wear and tear costs, are more appealing than houses. Landlords investing this way have been getting between 6 and 10 per cent gross yield for a number of years because rents have been high while property price growth in rental accommodation, a different beast to owner-occupier homes, has been relatively modest, says Burns.
It’s this mix that makes buying rental units in areas like Crumlin, Clondalkin, Tallaght, Balbriggan and Santry an attractive punt.
It's no wonder small landlords with a traditional mortgage and charging moderate rent, or accidental landlords edging out of negative equity are feeling burned.
Property auction website BidX1 confirms interest from this cohort, too. “We are seeing investors looking to create small portfolios for themselves,” says head of property Jonathan Fenn.
Users of the site tend to be cash-ready and 90 per cent of them are Irish. Rent pressure zone rules, however, have made some properties less attractive than others.
“If the rent is from 10 years ago and it’s now capped, there is going to be nervousness and you are not going to have the same type of demand for that asset. It will be priced accordingly.”
It’s no wonder small landlords with a traditional mortgage and charging moderate rent, or accidental landlords edging out of negative equity are feeling burned. The identical property next door could be getting €400 more a month in rent, with its landlord paying no income tax.
When the long-standing private landlord sells, his neighbour is likely to be first in line to buy. He’ll probably nab a bargain too.
