Irish property market

Well, let's make a few assumptions. The first is that the landlord is already a higher rate tax payer and higher rate USC payer - i.e. he earns over 70k a year from his work. Very generous, but it makes the maths below a little easier.

The second is that the landlord deducts around 10% of the rent on maintenance and capital allowances per annum (which, I think, is about normal). Let's say that figure includes all deductions, like insurance, RTB registration, letting fees, etc etc, and whatever capital deductions he has. That's about fair. There's a reason by to let mortgages only allow you to use 10/12ths of the rent in your income calculations, because they assume houses are empty one month a year and that one month's rent per year is necessary for ongoing maintenance etc. It is tricky for tax, in that some things can only be written off over 8 years, like buying new furniture and the like, but let's allow 10% off rental income for practicality.

So, let's say that the place is rented for €1,000pm. That's €12,000 per annum. Now, in terms of tax, he's entitled to deduct 80% of the interest from the mortgage. So he pays €2,400 per annum interest. That means he can deduct €1,920 from his gross income. Say he does have €1,200 on allowable deductions, including wear and tear allowances, that's totally deductible. That gives a net income for tax purposes of €8,880. Now, you have to pay income tax and USC on that. Tax is 40%, USC is 8%. That's €4,262.40. So from his €12,000 income, he has paid out €12,000 on mortgage, €1,200 on maintenance and €4,262.40 tax and USC. That leaves him down €5,462.40 in cash flow, but having paid €10,000 capital off his mortgage, so he is still up overall.

The second example was €1,200pm. That's €14,400 per annum. He can still deduct €1,920 for interest, and let's say now €1,440 in maintenance etc. That's a net income for tax purposes of €11,040. He thus pays €5,299.20 tax and USC (48%). So on his €14,400 income, he has paid out €12,000 on mortgage, €1,440 on maintenance and €5,299.20 on tax and USC. That leaves him down €4,339.20 in cash flow, but again having paid €10,000 capital off his mortgage, so again still up overall.

The third example was €2,000pm. That's €24,000 per annum. Again assuming €1,920 deductible for interest and 10% (€2,400) maintenance etc, he has a net income of €19,680. He thus pays €9,446.40 in income tax and USC. So on his €24,000 income, he has paid out €12,000 on the mortgage, €2,400 on maintenance and €9,446.40 on tax and USC. That leaves him up €153.60 on a cash flow basis, again also having paid €10,000 capital off his mortgage.

In all instances, he is making a healthy profit. Most landlords are - if you aren't, you're a f**king idiot. The major issue for many landlords is that they don't have a positive cash flow, but that's only because they are paying off the capital of their mortgage. Landlords saying they are getting out of the market because they are losing money probably mean they are losing cash, but neglecting to mention the fact that they are paying off capital on their mortgage the whole time.

The other factor is that the tax deduction for mortgage interest will decrease each year, as the proportion of the payments that are interest obviously decreases each year. In your first year of a 25 year mortgage, your payment will be mostly interest, but in the last year, it will be over 96% capital and only 4% interest.