Buying 1 bed apt as investment..

P. Breathnach

D3PO wrote: »

Oh dear reducing your taxably income reduces your taxably liability.

Offset : something that counterbalances, counteracts, or compensates for something else; compensating equivalent.

Perhaps learn what the word offset means before being a smart arse :rolleyes:

Rather than deem me a smart arse, check the claim

... So for example if you got a BTL at say 8% interest (You will get a cheaper BTL rate but plan for a higher one) your essentially getting the money at 2% ...

That is seriously erroneous.

pwurple

I'd split the money OP.

Put half into the property, mortgage rate <50% LTV will be lower than full mortgage. 75% of the interest can be offset... (ie you will pay less tax)

Put the other half into a higher yield interest earning account. KBC had the best return for our lump sum the last time I compared the offerings (last year).

This way if interest rates rise, your deposit return will rise... and if they fall, your mortgage repayments will fall. Should soften the risk.

D3PO

P. Breathnach wrote: »

Oh dear!

Interest can not be set off against tax liability; it is set off against taxable income.

Back of envelope: if you borrow at 8% the effective tax relief will be about 2.7%, so you would need to achieve an income of 5.3% on your savings to make it a good option to borrow.

Not correct you need to do your maths again.

D3PO

P. Breathnach wrote: »

Rather than deem me a smart arse, check the claim

That is seriously erroneous.

ok it was high level comment and not specific I accept I should have made this clear.

byronbay2

Go for it, OP - sounds like a good long-term investment! If you have cash in the bank then I would use that for the purchase, rather than get a BTL loan. Also, an apt is a much easier-to-manage investment than a house. If you can get a good long-term tenant in (easier said than done, obviously), there may be very little work involved for you.

emeldc

I don't think anyone else said it but USC is also due on rental income after expenses. This landlord business sucks, doesn't it :rolleyes:

Thargor

So with property tax and everything else if I ran out today and bought a BTL apartment for cash with £1000 per month yield how much of that £1000 would be mine every month after taxes and charges etc? Surprisingly difficult to get an answer to this question!

pwurple

Thargor wrote: »

So with property tax and everything else if I ran out today and bought a BTL apartment for cash with £1000 per month yield how much of that £1000 would be mine every month after taxes and charges etc? Surprisingly difficult to get an answer to this question!

That's because everyone's circumstances are different.

Do you have another income... one that puts you in the higher tax band, or not?

What are your expenses?

What are your tax credits?

P. Breathnach

D3PO wrote: »

Not correct you need to do your maths again.

Here's the back of my envelope:
For every €10000 borrowed at 8%:
- gross annual interest: €800
- deductible from rental income: €600
- effective income tax relief at marginal rate of 41%: €246
- add USC saving at 4%: €24
- total tax savings €270
- post-tax cost of borrowing €530 (= 5.3% p.a.)

pwurple

AIB BTL rates, today.

D3PO

P. Breathnach wrote: »

Here's the back of my envelope:
For every €10000 borrowed at 8%:
- gross annual interest: €800
- deductible from rental income: €600
- effective income tax relief at marginal rate of 41%: €246
- add USC saving at 4%: €24
- total tax savings €270
- post-tax cost of borrowing €530 (= 5.3% p.a.)

If the below is wrong I'm ready to stand corrected although I do acknowledge where your figure comes from.

lets remove all the noise re other expense etc and just work on the interest and income component

So rental income as the OP notes €9,600
70k mortgage @ 8% annual interest is €4,200
Therefore tax due €2430 (USC & Income tax combined)

Buy for cash

Rental income €9600
Therefore tax due €4320 (USC & Income tax combined)

Tax Savings from getting the mortgage €4320 - €2430 = €1890 per annum
Effective cost of borrowing €4200 - tax savings €1890 = €2310

€2310 a % of the 70k borrowing = 3.3%
Therefore effective post tax cost of borrowing 3.3%

So if you can get a better return than 3.3% (which you should do) then better to get the mgage

D3PO

pwurple wrote: »

AIB BTL rates, today.

aware of this but re this discussion you need to note that for taxable benefit calculations you should be working off a fixed rate so that you can ensure the benefits work as calculated.

pwurple

D3PO wrote: »

aware of this but re this discussion you need to note that for taxable benefit calculations you should be working off a fixed rate so that you can ensure the benefits work as calculated.

Fixed rate with AIB is 5.4% 1 year.... up to 5.6% 5 year fixed.

Nothing wrong with erring on the side of caution, but 8% is extremely high.

Also, not to quibble, but OP is unlikely to get a 70k investment mortgage on an 80k property. That's 87.5 LTV. 80% would be about the max on annuity basis, 70% interest only.

dubrov

D3PO wrote: »

If the below is wrong I'm ready to stand corrected although I do acknowledge where your figure comes from.

lets remove all the noise re other expense etc and just work on the interest and income component

So rental income as the OP notes €9,600
70k mortgage @ 8% annual interest is €4,200
Therefore tax due €2430 (USC & Income tax combined)

Buy for cash

Rental income €9600
Therefore tax due €4320 (USC & Income tax combined)

Tax Savings from getting the mortgage €4320 - €2430 = €1890 per annum
Effective cost of borrowing €4200 - tax savings €1890 = €2310

€2310 a % of the 70k borrowing = 3.3%
Therefore effective post tax cost of borrowing 3.3%

So if you can get a better return than 3.3% (which you should do) then better to get the mgage

D3PO, you are correct up until the effective cost of borrowing.
The interest is €5600 (not 4200).
Effective cost of borrowing €5600 - tax savings €1890 = €3710=> 5.3%

dubrov

Just to add, with DIRT at 41% that means if you were to place the 70k in a deposit account instead of buying the house, you would have to get an interest rate of 8.98% to break even.

Shows how crazy the DIRT tax has gone.

Of course 8% is probably a high cost of borrowing but even at 5%, the equivalent deposit rate would be 5.61%.

Better to buy with cash in the current climate I think.

Here are the calcs for anyone interested

Option A(100% Mortgage) Option B (Buy with Cash)
Mortgage 70000 0
Interest Rate 5% 5%
Annual Mortgage Interest 3500 0
Tax Relief % on Interest 75% 75%

Rental Income 9600 9600
Effective Tax Rate 45% 45%
Interest Relief 2625 0
Taxable Income 6975 9600

Tax Due 3138.75 4320

Savings 70000 0
Savings Rate 5.61% 5.61%
DIRT Tax 41% 41%
Effective Savings Rate 3.31% 3.31%
Interest after DIRT 2318.75 0

Net Return 5280 5280

D3PO

dubrov wrote: »

D3PO, you are correct up until the effective cost of borrowing.
The interest is €5600 (not 4200).
Effective cost of borrowing €5600 - tax savings €1890 = €3710=> 5.3%

My bad I had a brain fart doing the maths in my head. Appologies to P Breathnach you were right.

Either way a calculation by the OP as to what cost they could get a 5 year fixed rate at to find the effective cost of borrowing versus what they could return with their cash in savings is a worthwhile exercise.

P. Breathnach

D3PO wrote: »

My bad I had a brain fart doing the maths in my head....

We have all done that at one time or another. That's why we are not all millionaires (nor, I hope, bankrupt).

sunnysoutheast

NPPR (and household charge) are not, and never will be, allowable deductions for tax purposes. The status of LPT as an allowable expense is still not confirmed as far as I am aware.

I can't really add anything to the excellent analysis of breakeven in the thread, except to say that I went through a similar exercise a few months ago, but decided to invest in the equity markets rather then BtL.

There is a thread on here about a guy who was building a BtL portfolio - think it's Darren's Diary or something.

Muahahaha

One factor that hasn't been mentioned about investing in property right now vis a vis other investments is the exit strategy of the investment and the liability to capital gains tax on exit.

Revenue have extended their exemption to capital gains tax for investment properties bought between now and the end of 2014, provided the property is held onto for a minimum of 7 years. So assuming that the OP is in this for a minimum of 10 years and won't sell until 2024 then any capital appreciation would be exempt from capital gains tax. Given that CGT is 33% on all other asset classes the exemption on property could prove attractive to some! especially if you are of the belief that prices will rise by at least 30% of the next decade.

I should add that the exemption applies not only to Irish property but to any property within the EU. Given that prices in definitely rising In the UK if I were in theOPs position I'd be looking at a city like Manchester where you can get a three bed house less than 7 tram stops from the city center for under £90k. Id have far more confidence in the UK government to achieve economic growth over the next decade than I would in our own government. There are still way too many unknowns in the Irish economy right now, we could yet need a second bail out and we could yet see stacks of repossessions where the UK has been way ahead of us at sorting those problems out so at a minimum they are priced into the market thus creating a more favourabe investment climate.

D3PO

Muahahaha wrote: »

One factor that hasn't been mentioned about investing in property right now vis a vis other investments is the exit strategy of the investment and the liability to capital gains tax on exit.

Revenue have extended their exemption to capital gains tax for investment properties bought between now and the end of 2014, provided the property is held onto for a minimum of 7 years. So assuming that the OP is in this for a minimum of 10 years and won't sell until 2024 then any capital appreciation would be exempt from capital gains tax. Given that CGT is 33% on all other asset classes the exemption on property could prove attractive to some! especially if you are of the belief that prices will rise by at least 30% of the next decade.

I should add that the exemption applies not only to Irish property but to any property within the EU. Given that prices in definitely rising In the UK if I were in theOPs position I'd be looking at a city like Manchester where you can get a three bed house less than 7 tram stops from the city center for under £90k. Id have far more confidence in the UK government to achieve economic growth over the next decade than I would in our own government. There are still way too many unknowns in the Irish economy right now, we could yet need a second bail out and we could yet see stacks of repossessions where the UK has been way ahead of us at sorting those problems out so at a minimum they are priced into the market thus creating a more favourabe investment climate.

excellent post above it should be added though that a UK property investment isn't without its own difficulties and incurring additional management costs of such property would have to be considered as you would need to look at the overhead of having it managed on your behalf amongst other things.

Investing long term in property in an area you know well has many pros even if it means the ceiling for ROI may be lower.

Muahahaha

D3PO wrote: »

excellent post above it should be added though that a UK property investment isn't without its own difficulties and incurring additional management costs of such property would have to be considered as you would need to look at the overhead of having it managed on your behalf amongst other things.

Investing long term in property in an area you know well has many pros even if it means the ceiling for ROI may be lower.

For sure property investment in the UK isn't without its difficulties and there is a currency risk attached when you want to liquidate thei investment, a weaker sterling in 10 years time could eat into any capital appreciation. But all other things being equal if you were to ask which property market is most likely to achieve good capital appreciation over the next 10 years I'd pick Manchester over Dublin right now, we still have a disfunctioning market with state supports and very little credit. The UK aren't exactly roaring back but there are a lot more positive signals coming from there that a proper recovery is underway..As Manchester is the north of England's industrial and financial base they should stand to gain soon after London.

lima

Muahahaha wrote: »

For sure property investment in the UK isn't without its difficulties and there is a currency risk attached when you want to liquidate thei investment, a weaker sterling in 10 years time could eat into any capital appreciation. But all other things being equal if you were to ask which property market is most likely to achieve good capital appreciation over the next 10 years I'd pick Manchester over Dublin right now, we still have a disfunctioning market with state supports and very little credit. The UK aren't exactly roaring back but there are a lot more positive signals coming from there that a proper recovery is underway..As Manchester is the north of England's industrial and financial base they should stand to gain soon after London.

Do you have to pay CGT on your PPR if after two years you decide to emigrate and rent it out for say another two years before selling it?

P. Breathnach

lima wrote: »

Do you have to pay CGT on your PPR if after two years you decide to emigrate and rent it out for say another two years before selling it?

Yes. There is an apportionment made. Part of the gain is deemed exempt under the PPR exemption, and the other part is deemed to be subject to CGT.

In the simple case you outline, 50% of the gain is deemed to be taxable. There may be some scope for argument about details.

See: http://www.revenue.ie/en/tax/cgt/leaflets/cgt1.pdf, and look particularly at page 33.

stankovic84

Sorry Guys Totally off post but i cant seem to start a new one.I have savings both in an Irish account and an australian account roughly 75-80k euro...I want to invest it in some property.Im planning on staying away in australia/new zealand for at least the next two years.

I have a close relative in manchester staying there long term and was thinking of purchasing a 3 bed terraced house there getting my relative in and renting out the two extra rooms, im just wondering as an irish person living in oz would there be many barriers to property purchase in the uk.I have thought about purchasing property in the midlands were im from but i just cant see myself living there at the moment if i do decide to go back.The aussie dollar is relatively strong against the pound at the moment however i think ill lose a bit on the Euro.If any one can give any advice it would be greatly appreciated cheers!