Advice on Renting out one home, and renting another

ElKavo

djimi wrote: »

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.

That is good to hear. For both the OP and myself will be LL's not by choice per say, more out of necessity. What do landlords do if they do not have tenants in their properties? I had heard that commercial landlords would rather have no one in their properties rather than reduce their rents as they can right off vacant property's from tax. Is that true? How does that affect single dwelling LL's ( for want of a better phrase)? I.E. if I have no one in my property and I'm renting a property is their any break? what about mortgage? I should be able to cover the mortgage even if I'm in a rental and my own property isn't rented. What happens if I suddenly can't? Is it a case that the bank just have to wait? ( not advocating non payment of mortgage)

Thanks

camphor

ElKavo wrote: »

That is good to hear. For both the OP and myself will be LL's not by choice per say, more out of necessity. What do landlords do if they do not have tenants in their properties? I had heard that commercial landlords would rather have no one in their properties rather than reduce their rents as they can right off vacant property's from tax. Is that true? How does that affect single dwelling LL's ( for want of a better phrase)? I.E. if I have no one in my property and I'm renting a property is their any break? what about mortgage? I should be able to cover the mortgage even if I'm in a rental and my own property isn't rented. What happens if I suddenly can't? Is it a case that the bank just have to wait? ( not advocating non payment of mortgage)

Thanks

You are hearing too many fairy stories.
Landlords of commercial properties often have to pay rates while the property is vacant.
The bank doesn't care whether you have your property is let or not. Your contract is to pay the money on time. If you can't pay the bank will appoint a receiver/repossess/ruin your credit rating etc.

djimi

ElKavo wrote: »

what about mortgage? I should be able to cover the mortgage even if I'm in a rental and my own property isn't rented. What happens if I suddenly can't? Is it a case that the bank just have to wait? ( not advocating non payment of mortgage)

If you cant cover the mortgage then it goes into arrears. Im not really sure what else you would expect to happen?

ElKavo

camphor wrote: »

You are hearing too many fairy stories.
Landlords of commercial properties often have to pay rates while the property is vacant.
The bank doesn't care whether you have your property is let or not. Your contract is to pay the money on time. If you can't pay the bank will appoint a receiver/repossess/ruin your credit rating etc.

Probably am alright . I have a house next to me that has been vacant for nearly three years now. I know the mortgage hasn't been paid and no sign of anyone coming down to repossess it. Now I have another neighbor who has abandoned their house and is renting a house in a town close by. They too haven't payed the mortgage in a year too. Now their leaving the country. Perhaps its just me but it seems that the country is rampant with non payment of mortgages.

ElKavo

djimi wrote: »

If you cant cover the mortgage then it goes into arrears. Im not really sure what else you would expect to happen?

Oh I know the mortgage goes in to arrears obviously but as I say I have seen two houses in my own estate just left sitting and no bank official has been anywhere near them. I would only hope that their is something going on in the background to try to recoup the loss. Ultimately its you and me who will end up with the tab other wise.:mad:

ElKavo

Is there any allowance for paying rental? I think there used to be many moons ago. If not there isn't really any helping hand from the government for all the people whom are now in houses that do not suit them and can not sell because of massive negative equity. Although I suppose they seem to care less and less about the Irish people and more about the troika etc.

Has anyone actually managed to sell a house in negative equity and just took the loss as a personal loan? How do banks look at something like this? I'm on a tracker and my bank looses out on it. Has anyone actually managed to negotiate a write down on the loss I.E. bank takes a hit and I take a hit? but ultimately they earn interest on the personal loan portion of the negative equity.

My Mortgage is not in arrears ( just to make that clear and I am in no way advocating non payment of mortgage either)

Sorry for all the questions, Just trying to explore all my options.

Pawwed Rig

ElKavo wrote: »

Is there any allowance for paying rental?

No it was abolished

ElKavo

Pawwed Rig wrote: »

No it was abolished

If only there was an unlike icon I could use!

whatnext

Below is a very simple exercise I carried out on my own place (changed the actual figures to save some dignity :-) )
The figures are for illustrative purposes only.
No allowance made for letting agent or accountancy fees

Prop 1 Per Annum

Mortgage 16800
Management 2040
Total 18840
Rent 12100 11 months revenue (1100 per month)
Balance -6740

Tax
Income 12100
Mgmt -2040
Interest -7200 800 per month 75% relief
Fixtures + Fittings -375 3000 12.5% capital allowance
Profit 2485
Taxed at 52% 1292.2

Liability 8032.2 + Property tax + PRTB fee Annual Cost (balance + tax)

NB: no allowance made for repairs or replacing goods or furniture

So effectively it would cost me over 8k pa to rent out my place before I pay for somewhere else

roughpatch

Very useful @whatnext - thanks.

This might be a stupid question, but that 52% rate, where does that come from?

Ray Palmer

whatnext wrote: »

Below is a very simple exercise I carried out on my own place (changed the actual figures to save some dignity :-) )
The figures are for illustrative purposes only.
No allowance made for letting agent or accountancy fees

Prop 1 Per Annum

Mortgage 16800
Management 2040
Total 18840
Rent 12100 11 months revenue (1100 per month)
Balance -6740

Tax
Income 12100
Mgmt -2040
Interest -7200 800 per month 75% relief
Fixtures + Fittings -375 3000 12.5% capital allowance
Profit 2485
Taxed at 52% 1292.2

Liability 8032.2 Annual Cost (balance + tax)

So effectively it would cost me over 8k pa to rent out my place before I pay for somewhere else

As I said in the second post it is rough 50% you will pay on the rental income. It is much safer to use that as a rough guide as it makes allowances real world situations like appliances breaking and vacancies.

Use that you get about €10k annual cost. Having that inbuilt contingency is good practice and much more accurate I find.

As for mention that most renting has no problems I think that might not be quite true. I would say it is at least 1 in 10 that are problem and the lower you go down the renting market that increases. People who don't normally gamble seem to underestimate risk and take bigger gambles as a result.

whatnext

Ray Palmer wrote: »

As I said in the second post it is rough 50% you will pay on the rental income. It is much safer to use that as a rough guide as it makes allowances real world situations like appliances breaking and vacancies.

Use that you get about €10k annual cost. Having that inbuilt contingency is good practice and much more accurate I find.

As for mention that most renting has no problems I think that might not be quite true. I would say it is at least 1 in 10 that are problem and the lower you go down the renting market that increases. People who don't normally gamble seem to underestimate risk and take bigger gambles as a result.

Hi Ray.
I just put that up to emphasise that there is likely to be a significant cost no matter how simple it looks. As you say no allowance made for what happens in real life. I too am a landlord and would agree that the majority of tenants are well meaning and honest, but the ones that are not can cost thousands in a very short period of time.

Even looking at that now I realise that I did the figures before the PRTB or Property tax came into play, they are other expenses to be taken into account. (will edit)

Anyone looking to go down this route needs to be very careful. Even if the figures seem ok on paper on an annual basis you have to consider cash flow too. All the expenses could conceivably come in on the same month, would you have the cash reserves to handle it?

Ray Palmer

whatnext wrote: »

Anyone looking to go down this route needs to be very careful. Even if the figures seem ok on paper on an annual basis you have to consider cash flow too. All the expenses could conceivably come in on the same month, would you have the cash reserves to handle it?

I agree the dangers are huge in doing this especially without a decent contingency fund. I would want to have €10-20k put aside before venturing into the situation myself. Too many important things at risk if something goes wrong.

ElKavo

Mortgage 5720
Management I'll have to do this myself
Total 5720
Rent 7150 11 months revenue (650 per month)
Balance + 1430

This is where im a bit unsure if anyone has any input to help me out that would be great.

Tax
Income 7150
Mgmt 0
Interest - im on 1.45% per month 75% relief How does this work?
Fixtures + Fittings -375 3000 12.5% capital allowance How does this work?
Profit ??
Taxed at 52% ?? My income is 37.5k so I don't think much of the rental income would fall into the higher bracket.


Thanks guys... I feel like johny 5 at the moment (need input)

Pawwed Rig

roughpatch wrote: »

This might be a stupid question, but that 52% rate, where does that come from?

41% tax + PRSI + USC


Income 7150

Mgmt 0

Interest - im on 1.45% per month 75% relief How does this work? It is the amount you pay. Say your interest for the year is €3,000 then you can deduct 2,250

Fixtures + Fittings -375 3000 12.5% capital allowance How does this work? Cap allowances 12.5% of the cost of the F&F say 4,000 then you deduct €500 per annum

Profit

Taxed at 52% ?? My income is 37.5k so I don't think much of the rental income would fall into the higher bracket. - All of it will unless you are married.

D3PO

ElKavo wrote: »

Mortgage 5720
Management I'll have to do this myself
Total 5720
Rent 7150 11 months revenue (650 per month)
Balance + 1430

This is where im a bit unsure if anyone has any input to help me out that would be great.

Tax
Income 7150
Mgmt 0
Interest - im on 1.45% per month 75% relief How does this work?
Fixtures + Fittings -375 3000 12.5% capital allowance How does this work?
Profit ??
Taxed at 52% ?? My income is 37.5k so I don't think much of the rental income would fall into the higher bracket.


Thanks guys... I feel like johny 5 at the moment (need input)

you should know roughly how much interest you pay on your mortgage !! If you don't you need to figure it out,. Your bank would provide you a statement of this yearly so for rough guide use last years statement of interest.

Capital allowance you should know what you spend on fixtures and fittings and you can deduct 12.5% of this yearly for depreciation. Make sure you can prove your figures with receipts should you be audited.

If your income is 37.5k ALL your rental income will fall into the higher bracket as your already in that bracket for income tax and this is additional income on top of that.

ElKavo

Pawwed Rig wrote: »

41% tax + PRSI + USC


Income 7150

Mgmt 0

Interest - im on 1.45% per month 75% relief How does this work? It is the amount you pay. Say your interest for the year is €3,000 then you can deduct 2,250

Fixtures + Fittings -375 3000 12.5% capital allowance How does this work? Cap allowances 12.5% of the cost of the F&F say 4,000 then you deduct €500 per annum

Profit

Taxed at 52% ?? My income is 37.5k so I don't think much of the rental income would fall into the higher bracket. - All of it will unless you are married.

Ok great I'll do some sums on the interest and I am married so I think my ceiling is 42k. What is the best way to work out the interest? is it on the original loan amount or the current balance? Still owe approx 185k. I'm pretty sure have a statement from the bank. I may just give them a call and ask.

whatnext

ElKavo wrote: »

Mortgage 5720
Management I'll have to do this myself
Total 5720
Rent 7150 11 months revenue (650 per month)
Balance + 1430

This is where im a bit unsure if anyone has any input to help me out that would be great.

Tax
Income 7150
Mgmt 0
Interest - im on 1.45% per month 75% relief How does this work?
Fixtures + Fittings -375 3000 12.5% capital allowance How does this work?
Profit ??
Taxed at 52% ?? My income is 37.5k so I don't think much of the rental income would fall into the higher bracket.


Thanks guys... I feel like johny 5 at the moment (need input)

If you are on a capital repayment mortgage (ie not interest only) there are two parts to your payment. Capital & Interest.
The interest part on a repayment of 1200 could be say 800. only 75% of this is a deductible expense ie €600 per month or 7200 per year.

If you have white goods and furniture in the apartment they are expensed as a capital allowance. so if the good / furniture are worth €3000 you can write off 12.5% of this per annum as an expense.

re your own tax situation I dare not comment - too many variables.

For the sake of €200 or maybe a free consultation I would strongly recommend anyone thinking about this talk to an accountant.

I've been doing this for 15 years and I still don't make a decision without phoning my accountant. The implications of getting something wrong are so vast that my accountants fees seem cheap.

ElKavo

D3PO wrote: »

Capital allowance you should know what you spend on fixtures and fittings and you can deduct 12.5% of this yearly for depreciation. Make sure you can prove your figures with receipts should you be audited.

I have already fitted the house out. It is our home. surely I cant deduct 12.5% from stuff we have already had for 6 years. If i even have receipts for them... Or can I? ** frantically looking through man drawer for receipts folder**

D3PO

whatnext wrote: »

For the sake of €200 or maybe a free consultation I would strongly recommend anyone thinking about this talk to an accountant.

.

which is tax deductible aswell should you do it

sunnysoutheast

ElKavo wrote: »

I have already fitted the house out. It is our home. surely I cant deduct 12.5% from stuff we have already had for 6 years. If i even have receipts for them... Or can I? ** frantically looking through man drawer for receipts folder**

The allowances are available on "fixtures and fittings". If they are already in the property then, according to the advice I was given, you can depreciate them to zero over 8 years based on the fair market value at the commencement of the letting. There are no hard and fast rules (that I know of) but I would suggest that if you took their purchase cost less 12.5% for each year of your personal use and then used that figure as a start value that would be justifiable to Revenue. That method is the one I use.

As to what constitutes "fixtures and fittings", this is another area where there is confusion and some LLs and accountants are more aggressive with tax avoidance than others. Personally I include anything that could, in theory, be taken with you if you sold the property. Note that any material improvement to the property (not a L4L repair) is not allowable, although this can be claimed against capital gain (ho ho) on sale. The repair is fully claimable.

Pawwed Rig

ElKavo wrote: »

Ok great I'll do some sums on the interest and I am married so I think my ceiling is 42k.

whatnext wrote: »

re your own tax situation I dare not comment - too many variables.-

whatnext is right. Tax is a very individual thing. Were I to give you proper advice on this I would need to meet you and get a whole pile of info from you such as whether your wife works, what salaries you both have, medical expenses, education expenses etc etc etc We can only really tell you what is taxable rather than how much tax you pay.
If you are going to go ahead with this I would recomend you get someone who knows what they are at to sit down with you for a hour or so and thrash out all the relevant issues

ElKavo

Pawwed Rig wrote: »

whatnext is right. Tax is a very individual thing. Were I to give you proper advice on this I would need to meet you and get a whole pile of info from you such as whether your wife works, what salaries you both have, medical expenses, education expenses etc etc etc We can only really tell you what is taxable rather than how much tax you pay.
If you are going to go ahead with this I would recomend you get someone who knows what they are at to sit down with you for a hour or so and thrash out all the relevant issues

Thanks Pawwed Rig, I believe I will. My OH trained as an accountant for IATI but is currently not working and wont be back to work for about 2 years. She would know a few accountants and my boss in work is a landlord of 2 properties. I don't think my liability for tax will actually be all that high if I can claim the 12.5% on the F + F in the house as we fitted it out as our own home and have quality goods in there too.

Not moving isn't an option for us and we will have to rent it. I can only imagine that there are tens of thousands of young couples in the exact same situation who bought in the boom and now are stuck with massive negative equity and properties that do not suit their needs. Perhaps some day we will be in a position to buy again but I cant see it anytime in the future....

There's always the lotto though! :rolleyes:

camphor

ElKavo wrote: »

There's always the lotto though! :rolleyes:

Yes, but you have to buy tickets which are a waste of money!

ElKavo

camphor wrote: »

Yes, but you have to buy tickets which are a waste of money!

LOL ... Yeah but we are currently on a run and have it up to €21.