BTL Investment for wife

colourinkjet2

Hi all,

I'm a 30 year old married man earning 65K pa.
Wife earns 55K pa and will be going on maternity leave next year.
We hope to have a large family over the coming decade with her taking various stints of maternity leave both paid/unpaid and possibly also stopping work for a few years.

I was thinking of buying a property for her to rent out during this period so she could have some income for herself. I thought of this as over the next few years she will be intermittently not a higher rate tax payer so could net a larger percentage of the rental income. Also, it would save on rent in the future when kids are at college etc.

To finance the property we will need a mortgage.
We only have 20k in savings but this is rising fast every month as we are both quite frugal.
We also jointly own our own home which is worth approx 250k. We own this outright with no loans against it. I am looking at Dublin city center apartments in the 1-2 bed range for approx 120-180K.

1) The mortgage will be in our joint names but the house solely in hers. Will my income be used against her tax bill if in a certain year she is not working and her only income is from the rental property. (Either way I can't sign for the house due to future CAT 5 inheritance tax planning).
2) Should we apply for a standard BTL mortgage when we get our 30% deposit saved up?
3) Can we use the equity in our home to somehow get a better financing deal?
4) Could we simply borrow against the value of our house as we own it outright? If so would we then be unable to claim mortgage interest relief on our BTL income?
5) Any other opinions or thoughts on this?

Also, I have not made any decisions on any of this and am only in the discovery/background phase. I'm not interested in the stock market so please don't suggest it.

I'll post some other questions here as they come up but that is it for now. I'd really appreciate some other peoples opinions on this so please let fly.

Thanks a bunch,
Ink

MarkAnthony

Have you spoken to a qualified and, ideally, recommended financial advisor. It's a good idea to plan for the future but we're seeing more and more of these threads popping up here and the more cynical amongst us (or maybe it's just me) see history repeating itself.

You mentioned the stock market, I assume this is discounted due to risk? Make sure you've considered the risk and stress of being a LL. Is it feasible to spend a year and thousands of euro evicting a tenant just to find the kitchen and bathroom ripped out and black bags full human crap everywhere?

There are positives to being a LL - some people genuinely enjoy it. If I'm honest I kind of do but be aware of the pitfalls.

Sunny Dayz

OP if it is going to be a BTL for your wife to manage, please make sure it is near to where you live. You mention looking at apartments in Dublin city centre but if something goes wrong, a tenant has a problem or your wife needs to do a viewing, is she going to travel? Or would you employ a letting agent?

colourinkjet2

MarkAnthony wrote: »

Have you spoken to a qualified and, ideally, recommended financial advisor. It's a good idea to plan for the future but we're seeing more and more of these threads popping up here and the more cynical amongst us (or maybe it's just me) see history repeating itself.

You mentioned the stock market, I assume this is discounted due to risk? Make sure you've considered the risk and stress of being a LL. Is it feasible to spend a year and thousands of euro evicting a tenant just to find the kitchen and bathroom ripped out and black bags full human crap everywhere?

There are positives to being a LL - some people genuinely enjoy it. If I'm honest I kind of do but be aware of the pitfalls.

Hi MarkAnthony, thanks for the feedback.

Yes I have considered the risks of this. I have been reading the horror stories on boards for years. My parents also own several properties which they refuse to rent out due to the tax/hassle/not wanting people recking the places etc. Scenario you mention is of course terrible but I could suffer the loss without any real hardship as I am luckily in a good place financially.

I also think I would actually enjoy being a landlord as strange as that sounds.

Thanks,
Ink

colourinkjet2

Sunny Dayz wrote: »

OP if it is going to be a BTL for your wife to manage, please make sure it is near to where you live. You mention looking at apartments in Dublin city centre but if something goes wrong, a tenant has a problem or your wife needs to do a viewing, is she going to travel? Or would you employ a letting agent?

Hi Sunny,
I would manage the property myself (at least initially) and I work in the city.
Thanks,
Ink

MarkAnthony

Tax wise you'd need to speak to an accountant but BTL would be the way to go. The tax relief isn't going to be something that can be ported back to a second mortgage on the home AFAIK.

You want to limit the risk to your 'personal' assets as much as possible. If you can't do this without borrowing on the house I wouldn't personally.

colourinkjet2

MarkAnthony wrote: »

Tax wise you'd need to speak to an accountant but BTL would be the way to go. The tax relief isn't going to be something that can be ported back to a second mortgage on the home AFAIK.

Thanks I'll meet with an accountant before I make any final decisions.

MarkAnthony wrote: »

You want to limit the risk to your 'personal' assets as much as possible. If you can't do this without borrowing on the house I wouldn't personally.

Could you expand on what you mean by this a little more?
If we are both on the mortgage then the bank could come after us both?

Thanks,
Ink

Marcusm

MarkAnthony wrote: »

Tax wise you'd need to speak to an accountant but BTL would be the way to go. The tax relief isn't going to be something that can be ported back to a second mortgage on the home AFAIK.

You want to limit the risk to your 'personal' assets as much as possible. If you can't do this without borrowing on the house I wouldn't personally.

The fact that the loan is secured on the original family home is irrelevant, the test is whether the loan is taken out for the purchase or refurbishment of the BTL property.

MarkAnthony

colourinkjet2 wrote: »

Thanks I'll meet with an accountant before I make any final decisions.



Could you expand on what you mean by this a little more?
If we are both on the mortgage then the bank could come after us both?

Thanks,
Ink

I simply mean taking money out of your home to do this would be ill advised (IMO).

MarkAnthony

Marcusm wrote: »

The fact that the loan is secured on the original family home is irrelevant, the test is whether the loan is taken out for the purchase or refurbishment of the BTL property.

I stand corrected but ill-advised from a financial stand point IMHO.

ted1

I take it your not currently jointly assessed. That alone would be worth some money to you while she is out of work. Between taxes, insurance, mortgage, property tax, maintenance fee, Empty periods, bad tenants etc it really isn't a ring you'll be happy with.

jimd2

Interesting thread in that you are touching on something that I have been thinking of working towards. our earnings would be about 10k more gross but we have a child away at college and 2 other children and we would be a little older.

Our house would be worth circa 350k and we recently have finished the mortgage. i am hoping to put aside about 1k per month and it should be doable in spite of college. I am interested in how much you are able to put aside as you said you are quite frugal. We try to be sensible with money but want to live a good life also.

colourinkjet2

Marcusm wrote: »

The fact that the loan is secured on the original family home is irrelevant, the test is whether the loan is taken out for the purchase or refurbishment of the BTL property.

Hi Marcusm, thanks for letting me know. I could (or will be able to when I have the rest of my 30% saved up) hopefully get a btl mortgage on my income basis. I'm hoping however that if I borrowed against my house I would get a better rate due to the lower LTV ratio. Does anyone have any experience of this?

Thanks,
ink

colourinkjet2

ted1 wrote: »

I take it your not currently jointly assessed. That alone would be worth some money to you while she is out of work. Between taxes, insurance, mortgage, property tax, maintenance fee, Empty periods, bad tenants etc it really isn't a ring you'll be happy with.

Hi ted, we are currently joint assessed.
Yes I know there are many pitfalls but I don't like see my money atrophying in the bank.

I have investments in the markets and also work in that area but I don't personally just get the same sense of security and enjoyment out of them.

jimd2 wrote: »

Interesting thread in that you are touching on something that I have been thinking of working towards. our earnings would be about 10k more gross but we have a child away at college and 2 other children and we would be a little older.

Our house would be worth circa 350k and we recently have finished the mortgage. i am hoping to put aside about 1k per month and it should be doable in spite of college. I am interested in how much you are able to put aside as you said you are quite frugal. We try to be sensible with money but want to live a good life also.

Hi Jim,

Up until now we have been saving very little as everything has gone into paying back debts on the house and refurbishments etc.

However if you neglect repayments on the house between us we save about 1K per week. However, we have had no childcare costs/rental costs. We both don't drink/smoke and generally live quite cheaply. Our biggest non housing expense is probably fuel in our cars.

ink

jimd2

colourinkjet2 wrote: »

Hi ted, we are currently joint assessed.
Yes I know there are many pitfalls but I don't like see my money atrophying in the bank.

I have investments in the markets and also work in that area but I don't personally just get the same sense of security and enjoyment out of them.



Hi Jim,

Up until now we have been saving very little as everything has gone into paying back debts on the house and refurbishments etc.

However if you neglect repayments on the house between us we save about 1K per week. However, we have had no childcare costs/rental costs. We both don't drink/smoke and generally live quite cheaply. Our biggest non housing expense is probably fuel in our cars.

ink

Thanks for that, wow 1k per wek:eek: Just thinking of our earnings after tax, pension etc we would be spending almost nothing to put that amount aside. Far play to ye.

Desmonddoyle

colourinkjet2 wrote: »

Hi all,

I was thinking of buying a property for her to rent out during this period so she could have some income for herself. I thought of this as over the next few years she will be intermittently not a higher rate tax payer so could net a larger percentage of the rental income. Also, it would save on rent in the future when kids are at college etc.

Ink

I'm not sure I fully understand your logic. From all your numbers, you should have no problems getting by when your wife takes maternity leave or a sabbatical.
How much extra income do you think you will eek out from rent after you pay the mortgage, tax and whatever else ? It certainly won't be worth it for the extra risk you are taking on ?
You seem to be taking on extra risk and headache for marginal gains. Now if you were a cash buyer, I could see where you were coming from, but it doesn't stack up at all when its leveraged.

colourinkjet2

Desmonddoyle wrote: »

I'm not sure I fully understand your logic. From all your numbers, you should have no problems getting by when your wife takes maternity leave or a sabbatical.
How much extra income do you think you will eek out from rent after you pay the mortgage, tax and whatever else ? It certainly won't be worth it for the extra risk you are taking on ?
You seem to be taking on extra risk and headache for marginal gains. Now if you were a cash buyer, I could see where you were coming from, but it doesn't stack up at all when its leveraged.

Hi Desmond,

The repayments would be covered by the mortgage. I'd plan to put any surplus back into the property and maybe overpay (although then I'd get less tax relief) to gradually build up equity. I was hoping if my wife was in and out of work we would be paying the lower rate of tax as the property will be fully in her name.

I'm not too worried about losing the house or anything like that as I don't have a personal mortgage and can't envision a scenario where I can't make repayments on a 100k over 25 years.

Thanks,
Ink

Desmonddoyle

colourinkjet2 wrote: »

Hi Desmond,

The repayments would be covered by the mortgage. I'd plan to put any surplus back into the property and maybe overpay (although then I'd get less tax relief) to gradually build up equity. I was hoping if my wife was in and out of work we would be paying the lower rate of tax as the property will be fully in her name.

I'm not too worried about losing the house or anything like that as I don't have a personal mortgage and can't envision a scenario where I can't make repayments on a 100k over 25 years.

Thanks,
Ink

I assume you mean the repayment will be covered by the rent. Which is my point - where is the extra income.
If you're earning 65k, even assessed jointly, you will be paying around half back in tax. 160k mortgage will cost you around 950 over 20 years.

Property is a high risk asset class, which means many scenarios you may not have envisaged could potentially occur. Taking on debt like this could cause you issues if you want to move to a bigger home when you have your kids, will cause you problems if you want to move city/country to work, god forbid if your marriage breaks down. Your also talking about liquidating all your cash savings, which is never a good idea, especially when there could be kids on the way.

If I was you, I'd keep saving and investing, and the way you are going, it won't be too much longer until you can buy a property debt free. Taking on debt for an investment needs to be thought through - would you take out a loan of 160k and buy shares in AIB and Apple, or invest it in an income generating property fund ?

filbert the fox

colourinkjet2 wrote: »

Hi Desmond,

The repayments would be covered by the mortgage.

I'm afraid that it's not as simple as that.

Non earned income is taxed at your marginal rate. There are only a few ways to reduce your liability, - insurance , wear and tear, capital allowances, 3/4 of the interest on the loan etc.

Say you pay €1000 a month in Mortgage repayments.


And your rent is €1000 also.

You earn 12,000 per annum. Revenue considers this additional income and it's taxed accordingly. (less the above allowances)

this means you may end up paying €4000 p. a. in "Income tax " from rent alone.

I would take Desmond Doyle's advise and keep you options more open.

Good luck with all your plans.