Monday, November 19, 2007

Rental Investment

I saw this post on entitled "Landlords subsidising tenants by up to 36-43%: Central Bank". The idea is that rental income is no longer covering the cost of mortgage repayments in the Irish rental market. The state of rental incomes in Ireland seem to go up or down everytime the media changes the ink in their printing presses but that aside I think the idea that landlords are "subsidising" tenants is a ridiculous the glass is half empty view of the rental property market. In reality tenants are subsidising the landlords desire to invest in property and eventually sell that property at a profit.

If a people are really buying property expecting to make all their profit from rental income than they wouldn't object if the government introduced legislation giving tenants ownership rights on the property based on the percentage they have paid of it's value in rent. After all it's all about profits from rents isn't it? Yeah, right.


sliabh said...

I posted about this a while back and I am surprised that people have such a poor grasp of how rental property works. In a normal property market landlords (commercial or private) look for a 5% rental yield to recoup the value of their investment. In Ireland that has been thrown out as people have been betting on capital appreciation to make their investment pay.

In a falling property market investors will have to go back to getting their return from rent. Why are so many people struggling to understand this? Do they think landlords should be happy to throw their money away, or should be providing rental property to the world as a public god?

Declan said...

You may be right but I still disagree when people say landlords are "subsidising" tenants. They still have the property at the end of the lease and their mortgage will be lower than it was a year earlier. The house or apartment will not mysteriously disappear once the mortgage is paid off.

They are not throwing away their money or providing a service out of the goodness of their hearts, they are investing in an asset and finding a way to reduce the cost of that asset. If a tennant pays 1000 in rent and the mortgage repayment is 1200 landlords complain, but at the same time if the same house was sitting empty and they were only paying a mortgage of 200 they would be delighted at their smart investment.

sliabh said...

Well I would say that "there is a gap betweeen the actual cost of the property being rented and the rental income, whihc is being absorbed by the landlord" and describing it as a "subsidy" is the same thing, just a different spin.

Bruce Russell said...

Where's your beret, Frenchie?

Just kidding, Comrade.