Inherited a property: advice

Redo22

Hi

Myself and my wife have inherited a property in a very good rental location valued at approx €150000. It has not had a vacant period in over 10 years. Currently it is renting at €900pm but the rent has not been increased in years. Other properties in the area are advertised at €1100/€1200pm.

We have a mortgage with a very good variable rate (3.35% based on a LTV of 75%) We have approx €210000 remaining on our mortgage and our house is valued at approx €400000 today.

We need €40000 to cover medical treatment abroad so we do not know whether to take a mortgage top up for €40000 as we have so much positive equity - would this be worth it as it might change our rate?

Or should we sell up the apartment and pay for the medical treatment and a lump sum off our own mortgage instead?

Tax wise we should be ok at 20% as my wife will not be working for a year or two after the medical treatment so would not be getting an income. Even after that when she returns to work, with joint tax credits we don't think we would hit the threshold for 41% if we were to take in approx €1000 a month from the apartment rental.

It is very hard to decide what to do. Would appreciate any advice anyone has in this regard. Concerning being landlords, we would likely hire a letting agency to do this for us.

Thanks

Borderfox

For me I would sell the apartment, pay the medical fees and the put some off the mortgage to ease any pressure on your partner to get back to work.

I had a rental property and couldn't wait to sell it when prices had risen sufficiently, there were too many costs associated with the rental

jonnybravo

Also make sure you've paid any taxes due on inheritance which can be up to 33%.

jeamimus

Agreed. You should only bank on around 50% of the gross rent ending up in your pocket. The best solution for you financially, and as I also imagine you will have enough hassle to deal with because of your medical issues, would be to cash in the apartment, get the medical treatment and reduce your overall mortgage bills. At times like these youre better being as financially solvent as possible.

The_Conductor

I'd approach a lender about mortgaging the property you have inherited- with a view to mortgaging it to the max (possibly 100k should be doable).
I'd ringfence 40k for medical expenses- and use the other 60k to pay down a lump off the mortgage on my PPR (if this made sense- aka it doesn't make sense if I'm borrowing against one property at 4.5% to pay back a loan at 2% on the other property).

75% of any mortgage interest is allowable as an expense for tax purpose on rental property (the mortgage is only supposed to be at the outset- and for the purpose of purchasing the property- but Revenue don't seem to mind people taking out subsequent mortgages on property and offsetting them against income).

Also- the 40k your spending on medical treatment abroad- is probably tax deductible @ 20% (aka its probably worth a rebate of 8k to you)- check this out with an accountant/Revenue.

April 73

The_Conductor wrote: »

I'd approach a lender about mortgaging the property you have inherited- with a view to mortgaging it to the max (possibly 100k should be doable).
I'd ringfence 40k for medical expenses- and use the other 60k to pay down a lump off the mortgage on my PPR (if this made sense- aka it doesn't make sense if I'm borrowing against one property at 4.5% to pay back a loan at 2% on the other property).

75% of any mortgage interest is allowable as an expense for tax purpose on rental property (the mortgage is only supposed to be at the outset- and for the purpose of purchasing the property- but Revenue don't seem to mind people taking out subsequent mortgages on property and offsetting them against income).

Also- the 40k your spending on medical treatment abroad- is probably tax deductible @ 20% (aka its probably worth a rebate of 8k to you)- check this out with an accountant/Revenue.

So with your comment Conductor, could I remortgage a mortgage-free rental property & pay the amount borrowed off my own PPR mortgage & then claim tax relief on the interest on the mortgage on the investment property. That seems too good to be true. Why isn't everyone doing that?

The_Conductor

April 73 wrote: »

So with your comment Conductor, could I remortgage a mortgage-free rental property & pay the amount borrowed off my own PPR mortgage & then claim tax relief on the interest on the mortgage on the investment property. That seems too good to be true. Why isn't everyone doing that?

It is *not* supposed to be allowed- however, I am personally aware of several people doing just that.

The issue is- there is no imperative to repay debts on rental properties- sure why would you- when you'd loose your major allowable deductible cost? Its a perverse incentive to load up rental properties with as much debt as possible.

Its not supposed to be allowed- but Revenue do not police it- and indeed, depending on who you talk to in Revenue- some of the inspectors even suggest it as a manner of sheltering income- precisely because its not policed.

dreamerb

April 73 wrote: »

So with your comment Conductor, could I remortgage a mortgage-free rental property & pay the amount borrowed off my own PPR mortgage & then claim tax relief on the interest on the mortgage on the investment property. That seems too good to be true. Why isn't everyone doing that?

Because you're right that it's too good to be true!

See here: http://www.revenue.ie/en/tax/it/leaflets/it70.html#section4

The very first thing it says is that "Subject to some exceptions, interest on money borrowed to purchase, improve or repair let property is deductible in computing your rental income for tax purposes." [emphasis added.]

Therefore, while the interest element of a "subsequent" mortgage on a rental property may be tax deductible as Conductor suggested, it is only if the money is borrowed in order to improve or repair that property.

dreamerb

The_Conductor wrote: »

It is *not* supposed to be allowed- however, I am personally aware of several people doing just that.

The issue is- there is no imperative to repay debts on rental properties- sure why would you- when you'd loose your major allowable deductible cost? Its a perverse incentive to load up rental properties with as much debt as possible.

Its not supposed to be allowed- but Revenue do not police it- and indeed, depending on who you talk to in Revenue- some of the inspectors even suggest it as a manner of sheltering income- precisely because its not policed.

Some people may do it, and it may not be "policed" - but Revenue do carry out audits from time to time, and I wouldn't like to be at the receiving end of the subsequent assessment / settlement figure.

Bigus

It might be prudent to have the 1100 a month coming in , in case your wife doesn't get back to work for longer than anticipated. Good luck with the treatment.

Marcusm

The_Conductor wrote: »

I'd approach a lender about mortgaging the property you have inherited- with a view to mortgaging it to the max (possibly 100k should be doable).
I'd ringfence 40k for medical expenses- and use the other 60k to pay down a lump off the mortgage on my PPR (if this made sense- aka it doesn't make sense if I'm borrowing against one property at 4.5% to pay back a loan at 2% on the other property).

75% of any mortgage interest is allowable as an expense for tax purpose on rental property (the mortgage is only supposed to be at the outset- and for the purpose of purchasing the property- but Revenue don't seem to mind people taking out subsequent mortgages on property and offsetting them against income).

Also- the 40k your spending on medical treatment abroad- is probably tax deductible @ 20% (aka its probably worth a rebate of 8k to you)- check this out with an accountant/Revenue.

This is poor advice which is not only wrong but contrary to the Boards charters on providing tax advice on property matters. Simply mortgaging a rental property will not attract any tax relief. The money must be expended on the purchase, repair or maintenance of the property which will patently not be the case here. While tax relief can be claimed on a replacement loan, no tax relief can be claimed on a loan for an entirely different purpose which is what is proposed here.

Marcusm

HAve reported post instead of arguing on thread.

Gumbo

Marcusm wrote: »

This is poor advice which is not only wrong but contrary to the Boards charters on providing tax advice on property matters. Simply mortgaging a rental property will not attract any tax relief. The money must be expended on the purchase, repair or maintenance of the property which will patently not be the case here. While tax relief can be claimed on a replacement loan, no tax relief can be claimed on a loan for an entirely different purpose which is what is proposed here.

Marcusm wrote: »

HAve reported post instead of arguing on thread.

Either report it or argue it.
No point telling the whole world that you have reported it and argued it at the same time.

Marcusm

kceire wrote: »

Either report it or argue it.
No point telling the whole world that you have reported it and argued it at the same time.

Twas a different post I reported; initially I responded to it then realised it made more sense to delete my criticism (Before being carded) and reported it instead. Apologies for confusion.

newacc2015

I would keep the property. It is a decent pension to have in a few years. As it stands if you sell it and put the proceeds in a bank account, you will basically earn zero interest. You cant really stick the money in a pension fund. If you put it on shares, you will have to pay high CGT of 33%. EFTs arent an option in Ireland. So you dont have much choice.

I would get a loan for the medical treatment and repay it with the rental income over a few years. Most people are against having rental properties, as if you have a non-paying tenant. You can fall behind on your mortgage, as you have no rent to pay the mortgage. This wont be an issue for you