Advice on Renting out one home, and renting another

roughpatch

'm looking for some advice from anyone who has successfully rented out the property that they own/lived in (house/apartment), and then renting another property somewhere else.

Myself and my wife and baby son are currently living in the 2 bedroom apartment that we own (purchased in 2007). The apartment has suited us up to now, but with the arrival of the baby, we are looking to get into a house. Selling the apartment is not an option, as it's in negative equity somewhere in the region of €150,000 i would estimate - so we need to take the rental route. I'm sure this something that countless people have done successfully, so just looking for advice, and pointers to some queries i have.

1 - Matching Rent to Mortgage repayments.

If this is to work, i need the bank to agree to match (or come close to) the rent we would receive for our apartment to our mortgage repayments. I would be confident that we could achieve some where in the region of €950 - €1000 a month rent on our Apt, however the mortgage is approx €1250. Houses in the area that we are looking to move to are renting at between €1200 - €1400, so i'm not sure i could afford the make up the difference between rent received and mortgage, and paying rent on house. That gap will also widen, as i believe once i rent out my apt, i will lose my Tax Relief at Source which would bump up the mortgage by another €250-300.

So has any one negotiated with their bank to restructure their mortgage to match rental income? (my bank is PTSB)

2 - Tax Implications

Tax if payable on rental income, but i believe there are a number of ways in which you can right the tax off against things -any one got any ideas?

3 - Self Let or Agency - what's best?

Would love to hear from someone who has gone through a similar process.

RP

Ray Palmer

I think you have this seriously wrong.

If your rent match your mortgage you are already way behind as you HAVE TO pay tax on that income. There is no way around that other than not paying tax. You are not considering any running costs like replacing a fridge, bed or plumbing problems.

You will roughly get 50% of the rental income with things going well. So in your example

You are paying €750 to let people rent your place and then have to pay rent on the other property so €2150 roughly a month over all to do what you want. Does that sound like a good idea to you?

The tenant could just stops paying rent and it takes you over a year to get them out. You will be in financial ruin.

Have you just got one child or two? It is a little confusing in your post, 2 bed with one child should certainly be doable for a number of years. Otherwise you are paying a lot of money for more room.

roughpatch

Cheers - this idea is in its infancy, that's why i'm looking for as much advice and ideas as possible, so appreciate the feed back.

Agreed that the apartment is big enough for one child, but it's not always going to be big enough, so even if do stay there for a few more years, eventually I will be faced with this problem, the need to move. I would have thought that a lot of people do this...

D3PO

OP its doable but its not cheap.

As has pointed out your rental income will be taxable. You can reduce the taxable amount with deductions.

Mortgage interest 75% of which can be written off against tax
Management fees
Accountants fees (if you use one to do your returns and given your asking questions in this regard Id highly suggest it)
You can write down 12,5% against the contents etc.

If your clever you could get your tax bill down to a very small amount.

However your going to have to cover the difference between rent and your mortgage. Banks wont entertain your proposal as a fully up to date mortgage payer. There is no incentive for them to do so.

So your going to have to cover that, your also going to be left with some periods of unoccupancy so you will need some savings put aside for when that happens and it will happen at some point.

Renting a house is also likely to be more expensive Id imagine so your going to have extra expense that end too.

So with that in mind its going to cost you at least a few hundred euro a month to do, and that's if everything goes well. If you end up with a non paying tenant or the likes your going to be up the creek without a paddle so unless you have a decent amount of rainy day money saved just in case its a risky proposition to consider especially as you have only one child and a 2 bed apartment which does suit your needs as it stands.

Ray Palmer

roughpatch wrote: »

Cheers - this idea is in its infancy, that's why i'm looking for as much advice and ideas as possible, so appreciate the feed back.

Agreed that the apartment is big enough for one child, but it's not always going to be big enough, so even if do stay there for a few more years, eventually I will be faced with this problem, the need to move. I would have thought that a lot of people do this...

People who can afford it do it. Some risk not paying tax (no way advisable). This is the trap of negative equity and why it is such a big deal. The people who bought apartments are in the worse situation as they can't do anything to extend the property. Many people think it is possible until they look at the figure properly.

Look at space saving solutions to increase the longevity of the property. A wall bed could easily make the child's bedroom more useful. Not cheap but better than an on going €900-1000 a month.

I am a LL and I would never want to be in the situation where I would be that reliant on rent. It is too risky

ElKavo

Hey Rough Patch,

I'm in a very similar position. The tax implications do have to be taken in to account. Should you go down the route of declaring the income. Obviously you will also have to count the maintenance and refurb of the property. My house will only get approx 600 - 650 in rental income pm and the mortgage is currently 520. We're on a tracker too so the loss of trs will be small, as will the relief of tax on interest.

Ultimately you will have to decide on whats best for your family. Is it that brand new pair of shoes / nights out or a bigger and more suitable property. I wouldn't go letting other people sway your decision.

murphaph

You can only (totally unfairly but that's another thread) deduct 75% of your mortgage interest and the government had indicated it intends to eliminate this relief completely. Given that I think you're only financially sound option is to stay put and hope that property prices increase over the coming decade. They might in Dublin which is where I'm guessing your apartment is based on your figures. They might not. I do feel for you but at least you're in a 2 bed. Many are stuck in 1 beds with a child.

murphaph

ElKavo wrote: »

The tax implications do have to be taken in to account. Should you go down the route of declaring the income.

The days of hiding rental income are largely gone. Too many ways for Revenue to become aware of it, it's an asset that can't easily be hidden and severe penalties when caught. It's really not even an option these days, nor should it be of course. I'm sure you weren't advocating it so I'm not having a go, just pointing this out to the OP.

Ray Palmer

D3PO wrote: »

If your clever you could get your tax bill down to a very small amount.

.

Care to share because I have been in this game a long time and I know the tax system very well? There is no way to get your tax down on rental income I am aware of. You can certainly get tax breaks on expenditure but and technically you are paying less tax. It does of course mean you are spending more so no benefit if you don't have the money.

murphaph

Ray Palmer wrote: »

Care to share because I have been in this game a long time and I know the tax system very well? There is no way to get your tax down on rental income I am aware of. You can certainly get tax breaks on expenditure but and technically you are paying less tax. It does of course mean you are spending more so no benefit if you don't have the money.

Indeed. I have property in Germany and Ireland and you can deduct almost nothing in Ireland to reduce your taxable rental income. The things you can deduct will all have been real expenses so reduced profit or increased loss. In Germany for example you can deduct the reasonable costs of inspecting the properties such as flights and accommodation.

ElKavo

murphaph wrote: »

The days of hiding rental income are largely gone. Too many ways for Revenue to become aware of it, it's an asset that can't easily be hidden and severe penalties when caught. It's really not even an option these days, nor should it be of course. I'm sure you weren't advocating it so I'm not having a go, just pointing this out to the OP.

No I am in no way advocating tax avoidance. The Op will also want to register with the PRTB, I'm sure that they will ultimately share the information with the powers that be.

roughpatch

Apologies if my OP was confusing, it was a bit rushed. When i talked about writing tax off, what i meant was using credits etc to lower it, not completely avoid or evade it, it would be my intention to declare fully. I also should have pointed out that i am aware of the pitfalls that go along with being a landlord such as bad tenants, and running costs. These are all things that i have to take into account, as i said i'm at the start of this process (might also be at the end of it). Apt is in Dublin, in well serviced and central location, no pyrite or any nasties like that, so things of course could be worse. We do have some extra income that would bridge some gaps. The reason i brought up matching the rent to the mortgage (outside of the tax issues) was that at recent meeting with my bank, the financial adviser at our SFS meeting told us that restructuring the mortgage to meet potential rent received was something they could look at, due to the fact that we had a baby, and would need a bigger home. That could have been just her personal assertion, and not the stance of the bank.

Scortho

roughpatch wrote: »

Cheers - this idea is in its infancy, that's why i'm looking for as much advice and ideas as possible, so appreciate the feed back.

Agreed that the apartment is big enough for one child, but it's not always going to be big enough, so even if do stay there for a few more years, eventually I will be faced with this problem, the need to move. I would have thought that a lot of people do this...

Then you do it when the time comes in a few years time. As it is two bedrooms are all you need. People on the continent are easily capable of doing it.

Or you rent out the apartment at market rate and rent in somewhere like portlaoise and commute to dublin (if as I think you work in Dublin)

Or and it's a big or, you default on your mortgage and go on holiday to the uk for 15 months.
Both you and your partner would have to take this route as your both (most likely anyway) are jointly and severly liable for the mortgage.
You'd probably have to rent the rest of your lives (unless the bank get foolish again) but at least it's somewhere where you're happy.

I know that if I was in your position and the position of many others is be heading to the uk.
Not going to be a popular choice on here and I know I'm going to get slaughtered for it, but my family and children's future come before the country's!

roughpatch

UK's not an option i'm afraid. Can anyone recommend any good online resources or information on tax on rental income other than revenue.ie - if find that site very hard to digest. Or anything on renting really?

Ray Palmer

roughpatch wrote: »

Apologies if my OP was confusing, it was a bit rushed. When i talked about writing tax off, what i meant was using credits etc to lower it, not completely avoid or evade it, it would be my intention to declare fully.

There are no special uses of taxes in anyway that I am aware of that can be used to reduce your tax liability. If you aren't using tax credits now the question would be why but you won't get anymore. The interest relief is it and it is very small and unlikely to last.

I never thought you planned evading tax. Not fully convinced you understand the pitfalls of being a landlord. One bad tenant could destroy you with this set-up very easily.

ElKavo

I find http://www.askaboutmoney.com/ to be a good resource.

ElKavo

Ray Palmer wrote: »

One bad tenant could destroy you with this set-up very easily.

Sorry Ray, Could you explain this? I'm in the same situation and I'll probably end up renting out my own property. Surely if a tenant is not paying up you just kick them out? shut off the electric / water. Or am I being naive to the extreme here?

Pawwed Rig

Is there an option for you to rent a cheaper house? If you leave the area you are in there are many places where you can rent a 3 bed for 500euro or less, it depends on where you have to be for work etc.
By the sounds of it you will not pay much tax on the rental income as you are paying alot of interest and presumably your house is decorated to a good standard.
There will be property taxes and other charges though.

ElKavo wrote: »

Or am I being naive to the extreme here?

Unfortunately you are. Read the horrow stories on this forum

roughpatch

Should have said that i am aware that there are pitfalls, and that it's not a stroll in the park when it comes to being a landlord, but i 100% see where you are coming from Ray - it's not a decision to be made lightly! From your (and other's) experience - is the Dublin City Council's Rental Accommdation Scheme (http://www.dublincity.ie/Housing/RAS/Pages/Information%20for%20Landlords.aspx) a recipe for disaster?

It seems to me that the hardest part of this equation is dealing with the property you own, and being a landlord. The being a tenant part is more straightforward. I think i'll look at the "selling with negative equity" forum

murphaph

Pawwed Rig wrote: »

By the sounds of it you will not pay much tax on the rental income as you are paying alot of interest

Unfortunately it would be a bad idea to base the decision on something that could likely be eliminated at the stroke of a minister's pen. Landlords are an easy target politically.

djimi

ElKavo wrote: »

Sorry Ray, Could you explain this? I'm in the same situation and I'll probably end up renting out my own property. Surely if a tenant is not paying up you just kick them out? shut off the electric / water. Or am I being naive to the extreme here?

Youre being naive unfortunately. You need to follow the legal process, which means going through the PRTB and waiting a long time for the case to be heard. If you do anything that would be considered to be against the law, even after an eviction process has begun, the tenant could end up winning and you could end up with a fine.

ElKavo

djimi wrote: »

Youre being naive unfortunately. You need to follow the legal process, which means going through the PRTB and waiting a long time for the case to be heard. If you do anything that would be considered to be against the law, even after an eviction process has begun, the tenant could end up winning and you could end up with a fine.

What is the best way to protect yourself from rouge tenants? Bar the obvious references etc?

Ray Palmer

ElKavo wrote: »

Sorry Ray, Could you explain this? I'm in the same situation and I'll probably end up renting out my own property. Surely if a tenant is not paying up you just kick them out? shut off the electric / water. Or am I being naive to the extreme here?

That just screams out how little you know and how oblivious to the dangers you are.

You certainly cannot switch off services. You cannot just kick a tenant out easily.

A tenant can simple just not pay you and you have to bring them to court to get them out. They will likely never pay the rent even if a judgment is made against them. Mean while your mortgage payment still have to be made.

RAS is meant to be a good system but you are talking about being approved first. Your property may not be seen as good choice and as an apartment this is quite likely. You are also reliant on a system that may drop the rent and/or failure by a tenant to keeping records up to date. This can mean sudden stops in rent and non payment.

There are fine that can be placed against you if you fail to follow out things properly. While it is not actually as likely as people like to say here it is certainly a large risk if a tenant is well informed and intent on not paying rent. There are people who do this repeatedly and ask for money to move out too.

murphaph

ElKavo wrote: »

What is the best way to protect yourself from rouge tenants? Bar the obvious references etc?

Checking references!

Ray Palmer

ElKavo wrote: »

What is the best way to protect yourself from rouge tenants? Bar the obvious references etc?

There is very little to pretty much nothing you can do. Making sure somebody has a good job is about it. Avoiding RA tenants is certainly something I would say to any novice LL. It is very frustrating system and easily messed up.

ElKavo

Ray Palmer wrote: »

That just screams out how little you know and how oblivious to the dangers you are.

You certainly cannot switch off services. You cannot just kick a tenant out easily.

A tenant can simple just not pay you and you have to bring them to court to get them out. They will likely never pay the rent even if a judgment is made against them. Mean while your mortgage payment still have to be made.

RAS is meant to be a good system but you are talking about being approved first. Your property may not be seen as good choice and as an apartment this is quite likely. You are also reliant on a system that may drop the rent and/or failure by a tenant to keeping records up to date. This can mean sudden stops in rent and non payment.

There are fine that can be placed against you if you fail to follow out things properly. While it is not actually as likely as people like to say here it is certainly a large risk if a tenant is well informed and intent on not paying rent. There are people who do this repeatedly and ask for money to move out too.

So it would seem, have you ever had any tenant like that? I don't want to take tenants from RAS or with rent allowance after reading up on it. My house is in a small rural community and I would imagine that I will probably know the tenant or know their family. I am moving to provide a better life for my family and to cut my commute from 3 hours to 1 hour. The last thing that I want to do is bring more hassle to my door. Surely landlords must be able to get decent tenants or why would they bother?

ElKavo

why can't you just switch off water / power? surely if the tenant isn't paying their rent then they have no right to be there?

Pawwed Rig

murphaph wrote: »

Unfortunately it would be a bad idea to base the decision on something that could likely be eliminated at the stroke of a minister's pen. Landlords are an easy target politically.

It is not an irreversible decision though. If things get tough he can just move back in or get a cheaper house.

Ray Palmer

ElKavo wrote: »

So it would seem, have you ever had any tenant like that? I don't want to take tenants from RAS or with rent allowance after reading up on it. My house is in a small rural community and I would imagine that I will probably know the tenant or know their family. I am moving to provide a better life for my family and to cut my commute from 3 hours to 1 hour. The last thing that I want to do is bring more hassle to my door. Surely landlords must be able to get decent tenants or why would they bother?

Yes of course you can get decent tenants but to a certain extent it is a gamble each time. The point is other LL aren't on a knife edge with their finances so can afford to take a loss. I have had tenants who just point blank refuse to pay the rent. One who got RA and spent it and refused to move on. A lot of places over a long time so generally not that bad. A tenant actually just disappeared two weeks ago on me. The place was absolutely disgusting. All carpets, cooker, fridge had to be thrown out. I may even have to replace the kitchen sink as I can't get it clean. I don't know how he lived like that as a year ago the place seemed fine.

ElKavo wrote: »

why can't you just switch off water / power? surely if the tenant isn't paying their rent then they have no right to be there?

You can't because it is illegal. It makes perfect sense that if they believe the legal route is the way you have to go that you can't interfere with the property while that is going on.
While you are trying to evict somebody you are also under the same normal rules as a LL. So if their fridge breaks down you still have to fix it even though they aren't paying the rent.

camphor

ElKavo wrote: »

Surely landlords must be able to get decent tenants or why would they bother?

Large numbers are not bothering. That is one of the factors behind the rise in rents. Look at the irish landlord forum. Nothing but hassle.

djimi

camphor wrote: »

Large numbers are not bothering. That is one of the factors behind the rise in rents. Look at the irish landlord forum. Nothing but hassle.

In fairness the problem with internet forums is that you will only see one side of the issue, and you will only hear from posters when they have an issue. To look on places like Irish Landlord and on here you would swear that it is an absolute apocalypse out there when it comes to renting, however the reality is that almost everyone I know who rents (either as a tenant or a landlord) does so with virtually no issues whatsoever. Im not saying that its all rosey and perfect, but for every problem tenancy there are many more that are running quite smoothly for both parties.