Excluding interest – and I have covered that in my proposal -landlords make about an 80% margin

Blimey.

12 thoughts on “They do?”

  1. Bullshit!

    Where are these landlords he is talking about? I want to know what they are doing so I can copy them…

    FD

  2. Maybe he is referring to the “landlords” who benefitted so richly from Blair and Browns profligacy.

  3. DocBud

    You’re a typical parasitical rentier. About time Oz introduced 75% tax rates on your rental income like the enlightened Frogs

  4. sskgkjhsdfuytoiut!!!!

    I’m just glad I’d put my cuppa down before reading that.
    50% of my income goes on rent/rates/repairs/maintainance/insurance/etc. Costs of *creating* that income. Interest is only 10%, so even “excluding interest” he’s costing keeping the building standing at zero. Wish he’d tell me where he gets his insurance and building contractors from.

    And my “margin” has only crept up to the above this year because I’ve finished paying for a new roof, windows, bathroom, kitchen, heating, carpets, doors.

  5. Well, here’s a test.

    If Landlords make 80% profit, presumably they would have no problems if they personally guaranteed 50% profit, if they could take half of that profit. I mean, it’s money for old rope if there’s 80% profit across the board.

  6. The Pedant-General

    80%?? Is he actually nuts? Has he even spoken to anyone at all in the private rental sector?

    Rents are almost locked at around 5-7% of capital value. i.e. I buy a flat on the open market for £100k, I’m just never going to be able to charge more than £450-550 pcm. If I could, the capital value would rise. Sometimes rents diverge from this, but these are usually signs that a massive housing market correction is about to happen.

  7. you can really improve your margin by renting on triple net leases that push all costs to the tenant.

    of course your rent goes down, but the margin is higher

    the margin on my real estate investments is ok, but on my bonds i make a near 100 percent margin on my interest (pre tax).

    both do tie up a lot of capital though

  8. Oh, he claims as a tax accountant to have done the books for many landlords. I suspect a self-selcted subset representing the larger and more profitable ones for whom the use of an accountant makes more sense.
    But what he’s ignoring is any capital employed – because that apparently doesn’t matter in his eyes. Thus if you are getting £450-£550/m then that’s around £6k of income with few expenses. If we assume a property in good condition and no voids, then expenses might well be under £600 – so 90% or more gross margin.
    I’m certain that’s why he believes that all landlords could stand having no rent for several months – apart from those few bills and of course, mortgage payments, there are no outgoings in his mind.

  9. The Pedant-General said:
    “Rents are almost locked at around 5-7% of capital value”

    That’s return, not gross. Murphy means that, of the rental income, only 20% or less goes on expenses (excluding interest or other financing costs).

    In some cases he’s probably right. Landlord’s insurance, an annual gas safety check and occasional maintenance – the latter will be much higher in some years but lower in others, but probably altogether averaging out at around 20%. 15-20% costs (ex. mortgage) is a rule of thumb I’ve heard used in landlord circles.

    However that’s only if the landlord doesn’t use letting agents, and does all that work themselves.

    Also it’s only really for unfurnished lettings; replacing furniture periodically will tip you well over the 20%, unless you’re really in the slum category. (although I think most letting these days is either unfurnished or students, so possibly replacing furniture isn’t a common problem).

    More importantly, he’s also only correct if you don’t have problem tenants. Even with just one difficult tenant every few years, the debt collection, legal fees to evict, and repairs in excess of the deposit will soon blow that 20% expenses figure out of the water.

    It’s probably also only true if you have relatively long-term tenants. If you’re having to find new tenants every 12 months, then the advertising costs, credit checks etc. on new tenants, certainly agents’ fees if you use them, and the void periods will soon use up that 20%.

  10. Excluding interest? Interest payments on loan are the make or bust for landlords. ‘Conservative’ Osborne singling out one business and removing tax-deductible* has led to exodus and higher rents.

    If landlords were making an RoI of 80% the UK would be flooded with empty properties to rent at low prices

    “my proposal” based on his calculations where, like Guardian, will be order(s) of magnitude out

    Ritchie is detached from reality

    * tax-deductible: BP, BAe next?

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