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Second home: Go for it or not!

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    #32
    The_Conductor
    Moderators, Society & Culture Moderators Posts: 32,285 Mod ✭✭✭✭The_Conductor


    matt-dublin wrote: »
    Being a landlord is only worthwhile if you're borrowing for the investment. Keep it for 7 years and then sell at a profit as I think capital gains is offset at that stage

    Not the case for the OP- his 'investment property' is his current PPR which he is proposing to let- and buy a new PPR with a fresh mortgage........

    So- he'd have a whole new mortgage to pay from his net income..........

    Its a complete non-runner from a tax perspective.


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    #33
    The_Conductor
    Moderators, Society & Culture Moderators Posts: 32,285 Mod ✭✭✭✭The_Conductor


    matt-dublin wrote: »
    He could remortgage the existing property to purchase the new one.

    Not anymore you can't- Revenue cracked down on this (believe you me- I tried......)
    The rules were all changed. Equity release on property 1 would only qualify for relief in specific circumstances (determined by what you use the equity for).


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    #34
    Michael D Not Higgins
    Registered Users Posts: 7,223 ✭✭✭Michael D Not Higgins


    Kaylin Raspy Snake wrote: »
    While I still stand by my opinions about these people being licencees etc I'm not referring to this in the above statement as I know people will argue with me over it.

    What I meant is having the rent coming from 3 sources (preferably strangers to each other) mitigates a lot of the risk of losing your months rent. There is a small chance one person might not pay but in this instance you still get 2/3 of the rent. Also people in shared houses very rarely see it as a long term thing so you are much less likely to have people seeing it as "home" and digging their heals in and not paying rent for what ever reason etc. People are much more likely to stay a while and move on to be replaced with a similar person who again stays a while and moves on (a while being 1-3 years sort of time scale).

    Young professionals starting out who will stay until their wages go up a bit, they buy, they move in with a partner etc would be the demographic I'd be going for. The people being fully fledged tenants doesn't change any of the above.

    I'd expect a lower yield from that situation then, with the revolving door of tenants. Standard calculations are 11 months of the year but you might have to do your sums for less than this in the above situation.
    Kaylin Raspy Snake wrote: »
    I disagree on that, I'd rather be profiting on the rent than after tax than be spending the profit on a mortgage.

    This only makes sense if the rental yield is high enough. If a 250k house makes a 7% yield of 1500/month, and you're paying the full 50% tax on it then you net is 3.5%. If you could sell the house and invest it into your pension or another fund which attracts lower tax, you're much more likely to outperform the return on the house.


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    #35
    [Deleted User]
    Posts: 24,714 ✭ [Deleted User]


    Michael D Not Higgins wrote: »
    I'd expect a lower yield from that situation then, with the revolving door of tenants. Standard calculations are 11 months of the year but you might have to do your sums for less than this in the above situation.

    In the current climate I'd be accounting for almost if not 100% occupancy for the full 12 months. Rooms in houseshares are snapped up at a crazy rate. As an example I'm 3 years in my current house and in that time both other bedrooms have changed person twice and its resulted in less than half a month of lost rent (well only half a month of 1/3 of the rent actually) for the LL in the 3 years and remember things were a lot quieter for a lot of that 3 years. Thing is the only reason he even lost half a month is I lined up someone for the room through work to save me the hassle of daft and he wasn't ready to move in for half a month and the LL agreed to not ask for rent for the period. Had it gone on daft it would have been filled in a day.


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    #36
    Michael D Not Higgins
    Registered Users Posts: 7,223 ✭✭✭Michael D Not Higgins


    Kaylin Raspy Snake wrote: »
    In the current climate I'd be accounting for almost if not 100% occupancy for the full 12 months. Rooms in houseshares are snapped up at a crazy rate. As an example I'm 3 years in my current house and in that time both other bedrooms have changed person twice and its resulted in less than half a month of lost rent for the LL in the 3 years and remember things were a lot quieter for a lot of that 3 years. Thing is the only reason he even lost half a month is I lined up someone for the room through work to save me the hassle of daft and he wasn't ready to move in for half a month and the LL agreed to not ask for rent for the period. Had it gone on daft it would have been filled in a day.

    This still ignores the second part of my post. Even with 100% occupancy, a house is likely a bad investment for return. Apartments have a higher yield and other investments have a similar or better return with lower taxes.


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    #37
    [Deleted User]
    Posts: 24,714 ✭ [Deleted User]


    Michael D Not Higgins wrote: »
    This still ignores the second part of my post. Even with 100% occupancy, a house is likely a bad investment for return. Apartments have a higher yield and other investments have a similar or better return with lower taxes.

    If it was such a bad investment why do so many people invest in it? I'm not saying it's guaranteed profit by any means and you have to be smart and on top of everything but in this scenario where the op would have no mortgage on the property then after the tax is paid it's basically all profit and profit going into your account every month not waiting years for a return or having it tied up and unreachable if you need it.


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    #38
    Michael D Not Higgins
    Registered Users Posts: 7,223 ✭✭✭Michael D Not Higgins


    Kaylin Raspy Snake wrote: »
    If it was such a bad investment why do so many people invest in it? I'm not saying it's guaranteed profit by any means and you have to be smart and on top of everything but in this scenario where the op would have no mortgage on the property then after the tax is paid it's basically all profit and profit going into your account every month not waiting years for a return or having it tied up and unreachable if you need it.

    If it was such a good investment why are so many landlords selling up? The stock on daft for instance has dropped over 75% since 2010, with the inflow of properties at roughly half the level of 2010.

    Sure the supply side has hit sales too, the stock for sale is down 60% from its highest point. But inflow is up from previous years, it's just the demand is so high it's stripping the available houses from the market.


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    #39
    Pawwed Rig
    Moderators, Category Moderators, Home & Garden Moderators, Recreation & Hobbies Moderators Posts: 22,384 CMod ✭✭✭✭Pawwed Rig


    Personally I think pension funds are better investments than property for many people but property investments are easier to understand.


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    #40
    [Deleted User]
    Posts: 24,714 ✭ [Deleted User]


    Pawwed Rig wrote: »
    Personally I think pension funds are better investments than property for many people but property investments are easier to understand.

    It's a very very long term investment though, you can't get the money until you retire. Not much good if you want access to your money in the short or medium term.


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    #41
    ted1
    Registered Users Posts: 23,535 ✭✭✭✭ted1


    Kaylin Raspy Snake wrote: »
    I think people are being overly discouraging, a trend that appears to be running through this forum a lot recently when people talk about renting out their property.

    With the place being mortgage free and even if he pays 50% tax on the entire rent at say 1200 per month that's still over 7000 a year profit into his pocket. To out that into perspective you would need over 600000 euro on deposit in a saving account to make that sort of money and you would then lose 33% in dirt. The rental income is basically guaranteed for the foreseeable future, you can't say that about other investments and I'd imagine you would have to go into a somewhat risky investment to be clearing over 7k a year after capital gains tax.

    Then there is the fact you are getting the rental income profit instantly every month not waiting years for it (if at all). The money from rent can be instantly invested to make more money on that or just put into the highest interest savings account available if you don't want to risk it in an investment.

    Wow you are way off. Profit is after all costs , the property isn't free and can devalue , it's not maintenance free either


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    #42
    Pawwed Rig
    Moderators, Category Moderators, Home & Garden Moderators, Recreation & Hobbies Moderators Posts: 22,384 CMod ✭✭✭✭Pawwed Rig


    Kaylin Raspy Snake wrote: »
    It's a very very long term investment though, you can't get the money until you retire. Not much good if you want access to your money in the short or medium term.

    Agreed but many ime see the rental property as a retirement income and they are happy to just meet ( or even top up) their costs until the mortgage is paid down. So 20-30 years before you see a decent income stream. IMO if you are not getting some sort of return from day 1 it is a bad investment.


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    #43
    The_Conductor
    Moderators, Society & Culture Moderators Posts: 32,285 Mod ✭✭✭✭The_Conductor


    Its very hard to justify borrowing money at not insignificant risk- when you have outstanding debts that you could pay down- at no risk whatsoever. I.e. say the OP is paying 4% on his current mortgage (not improbable)- the opportunity cost of not paying this down- is an immediate 4%- before any risk cost is added into the equation.

    Looking at this purely from a financial perspective- as an investment- it only makes sense if a reasonable return on investment can be achieved (by whatever means- however, in an Irish context- the only avenue open to landlords- is via the tax system).

    If the entire series of transactions could be managed in a tax efficient manner- the details of which he/she would have to discuss both with an accountant and a solicitor- then by all means go ahead and do your best to use the tax system to your best advantage. If- on the other hand- you're going to be treated in a penal manner by Revenue- forget it........

    It really does boil down to this simple question. Can the OP make it work from a tax perspective- yay or nay. He/she needs to get proper advice from competent professionals before they sit down and make a decision.

    Proper planning now- to legitimately and legally avoid tax later- is key.


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    #44
    suave.4u
    Registered Users Posts: 977 ✭✭✭suave.4u


    The_Conductor wrote: »
    Its very hard to justify borrowing money at not insignificant risk- when you have outstanding debts that you could pay down- at no risk whatsoever. I.e. say the OP is paying 4% on his current mortgage (not improbable)- the opportunity cost of not paying this down- is an immediate 4%- before any risk cost is added into the equation.

    Looking at this purely from a financial perspective- as an investment- it only makes sense if a reasonable return on investment can be achieved (by whatever means- however, in an Irish context- the only avenue open to landlords- is via the tax system).

    If the entire series of transactions could be managed in a tax efficient manner- the details of which he/she would have to discuss both with an accountant and a solicitor- then by all means go ahead and do your best to use the tax system to your best advantage. If- on the other hand- you're going to be treated in a penal manner by Revenue- forget it........

    It really does boil down to this simple question. Can the OP make it work from a tax perspective- yay or nay. He/she needs to get proper advice from competent professionals before they sit down and make a decision.

    Proper planning now- to legitimately and legally avoid tax later- is key.

    Thanks a lot for your detailed replies (some are real eye openers). Yes i will have a chat with an advisor..


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    #45
    pc7
    Moderators, Entertainment Moderators, Society & Culture Moderators Posts: 14,121 Mod ✭✭✭✭pc7


    suave.4u wrote: »
    Thanks a lot for your detailed replies (some are real eye openers). Yes i will have a chat with an advisor..

    Would be great if you came back and update us with their thoughts afterwards, be interesting to see.


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    #46
    ted1
    Registered Users Posts: 23,535 ✭✭✭✭ted1


    suave.4u wrote: »
    Thanks a lot for your detailed replies (some are real eye openers). Yes i will have a chat with an advisor..

    You need to take a look at future legislative restrictions as there's talk about changing the law with regards selling property and tenants in situ as it may reduce the selling price


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    #47
    Lux23
    Registered Users Posts: 7,134 ✭✭✭Lux23


    Kaylin Raspy Snake wrote: »
    If it was such a bad investment why do so many people invest in it? I'm not saying it's guaranteed profit by any means and you have to be smart and on top of everything but in this scenario where the op would have no mortgage on the property then after the tax is paid it's basically all profit and profit going into your account every month not waiting years for a return or having it tied up and unreachable if you need it.

    Because Irish people have an obsession with property. That is the only reason why so many opt for it over other methods of investing.


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