Renting out properties stuck in negative equity may only open the door to a new set of problems
ANN BYRNE bought her Portlaoise home close to the top of the property market in 2006 for €330,000. After living in the home for more than a year, the Dubliner and her boyfriend found commuting to work and childcare increasingly difficult, so they decided to move back to the city.
They bought another home property in Dublin, taking on a second mortgage in early 2008 but without offloading Portlaoise first.
By the time they looked at selling it on, it was too late. The crash came, the property wouldn’t sell and by 2013, four-bedroom homes on their estate were going for just €80,000.
Byrne (not her real name) is now both an accidental and reluctant landlord.
“The worst thing about being a landlord is losing money hand over fist every month because the rent doesn’t cover the mortgage,” she says. “We have never seriously considered handing the house back to the bank. We take the attitude that we made our bed so should now lie in it. We made this investment, so don’t want to walk away.”
Byrne’s experience has been marred by some difficult tenants. She ended up turning to the Private Residential Tenancies Board to solve a dispute with one set after they stopped paying their rent for six months and damaged the house. The board ruled in favour of the landlords, though they never managed to recover the money.
When the tenants were finally evicted, they tried to resist by changing the locks but were intercepted by Byrne and her boyfriend. “Tenants can be a nightmare especially when they don’t pay their rent,” she says.
“They have all the rights and we are viewed as the big bad landlord all the time, despite the fact we’re just trying to pay our mortgages. I’d like to see landlords and tenants have equal rights. There are bad landlords out there who do treat their tenants horrifically but there are tenants who take advantage.”
Accidental landlords aren’t a totally new phenomenon; in years gone by, people who inherited properties and then decided to rent them out could have been regarded as accidental landlords.
But in the past few years a new breed has emerged, many of whom feel as if they’ve been involved in a collision and now have to live with the scars.
Research suggests this breed is growing in numbers — a report published in October last year by the board shows 36% of the 400 landlords surveyed in a Red:C poll indicated they were accidental landlords.
Institutional landlords have been active in recent years but for the most part, Irish landlords operate on a smaller scale. “We know from both this research and from the PRTB Register of Tenancies that the majority of landlords in Ireland [65%] own just one property while 17% have two properties and 9% own three,” says Anne Marie Caulfield, director of the PRTB. “Unsurprisingly, 82% of accidental landlords have only one.”
The claim that about a third of all landlords in Ireland fall into the “accidental” category is only a rough one as 400 is a small sample of the 156,000 or so landlords registered with the board. On top of this figure, some landlords have not registered with it as they don’t want their changed situation known to Revenue and the banks.
Perhaps what is more interesting about the Red:C research is the reasons landlords gave for their “accidental” status, which seem to reflect what is going on in wider society.
Some bought houses with the intention of always calling them home but the recession meant they could no longer make the mortgage repayments so decided to move in with family and let the property.
Others saw their home purchase as the first step on the property ladder, with the aim of moving to bigger and better things when their circumstances changed. The recession put paid to this aspiration as negative equity prevented people selling their properties, while their changing circumstances forced them to move on and let the property.
Moving to take up employment opportunities and letting out the original family home was another of the common reasons given for being an accidental landlord in the PRTB report.
For those accidental landlords who don’t register with the board or declare their rental income, the 75% relief on their mortgage interest will not be applicable if Revenue catches up with them somewhere down the line, notes Marie Flynn, tax director at PwC.
Caulfield says some categories of accidental landlords have limited financial reserves, and in those circumstances can find it difficult to maintain the rented dwelling to the proper standards.
“This could also put their tenants in a very difficult position, for example, if a boiler breaks down in winter. Many accidental landlords are also very dependent on rental income to service the mortgage on the rental property. Therefore, rent arrears or vacant periods can have serious consequences for them,” says Caulfield.
Martin Reaney, founder of Reaney Property Management in Dublin, believes that when people make the decision to become a landlord, whether consciously or reluctantly, they don’t appreciate what they’re getting themselves into or how it might change their lives.
“In my 20 years working in the property sector I have experienced some terrible scenarios, such as plumbing leaks ruining entire houses, but in most cases there are going to be niggling problems,” says Reaney.
“When you’re living in a property you patch things up and make do but as a landlord things have to be up to standard to protect tenants.”
He notes that informing your insurance company that your property is being rented out is important.
“You need to look through your insurance policy closely to make sure there are no clauses about renting. People sometimes decide to wing it, but I always advise erring on the side of caution as you’re responsible for people’s lives.”