Property dilemma - advice needed

Wesser

Ok that's fine. Graham was making me think.it was way worse than that!!

Graham

Wesser wrote: »

1800 - 561 (tax) = 1239 - 588 (interest paid) = 651 - 200 (expenses) = leaving 451

Ok so that 451 pays off the principle right?
And the 588 pays the interest right?
You're not paying the whole mortgage out of 451?

Correct, the 451 is off the principle but it's often not enough without a contribution from the landlord.


Sorry if I confused things wesser, most people mistakenly assume €1800 rent and €1200 mortgage leaves them €600 taxable profit. You obviously get that this isn't the case.

Graham

Graham wrote: »

Ok so that 451 pays off the principle right?
And the 588 pays the interest right?
You're not paying the whole mortgage out of 451?

Correct, the 451 is off the principle but it's often not enough without a contribution from the landlord.


Sorry if I confused things wesser, most people mistakenly assume €1800 rent and €1200 mortgage leaves them €600 taxable profit. You obviously get that this isn't the case.

Wesser

No.need to apologise!
Everyday is a school.day!!

lcwill

Or to look another way the 451 is his net return on the 100k in equity which works out about 5% clean per year, plus any further capital gain on the whole 400k value of the property.

The only catch is that he is forced to keep investing back into his equity on the property as it is not an interest only mortgage

Not such a terrible deal as long as he doesn't need any free cash flow

davindub

Graham wrote: »

Graham wrote: »

Ok so that 451 pays off the principle right?
And the 588 pays the interest right?
You're not paying the whole mortgage out of 451?

Correct, the 451 is off the principle but it's often not enough without a contribution from the landlord.


Sorry if I confused things wesser, most people mistakenly assume €1800 rent and €1200 mortgage leaves them €600 taxable profit. You obviously get that this isn't the case.

Obviously worth noting as more of the principal is paid the more profitable it becomes. Also inflation increases return.

Steptoe1970

I am in a similar situation , here are my thoughts on it;

If I was renting my house out in dublin at about €1500 per month and paying rent nearer to home at €900 per month ( a bigger house) , it would cost much the same when I pay tax on the rental income.

Even if the mortgage was covered by renting out the property, I'd be happy. I'm going to meet a tax consultant to discuss the in's and out's.

If my tenants decided not to pay rent for 1 or 2 months, I could definitely not pay out €3000 a month to cover rents & mortgage, that worries me.

Understandable worry and definitely something I'd have to account for - put aside a pot of money to cover things like this.

You can move your tracker with most banks ( mine is AIB) at a rate of 1% or do added into your tracker.

Bank will allow us to keep tracker +1% for five years, then we have to choose variable or fixed with higher % rate.

If you have a house in neg equity and a good tracker, you are better holding on to it as long as possible as you are paying a lot off the mortgage each year, not just interest.

We're literally just out of neg equity. If we didn't have a tracker I wouldn't even consider keeping the house to rent it out. I'd cut my losses, sell it and walk away.

It would be good to have house in Dublin in the future when kids are going to college/ university!

You will still need a 20% deposit to buy new house.

Deposit not an issue, literally saved every penny for the last few years and lived on bread and water. Crazy yes but a necessary sacrifice.

I don't know about you, but In my case I would have to move jobs, therefore may not get mortgage for a few years after moving.

We'd be moving to a different part of Dublin, where we grew up. Home is where the heart is. We've never felt at home where we are now. No need to leave jobs.

Also in my case , moving home would mean more travel time to work, so more money on car/ petrol etc.. ( but also cheaper childcare) .

See above. My commute would be better with the move though.

Fian

Wesser wrote: »

1800 - 561 (tax) = 1239 - 588 (interest paid) = 651 - 200 (expenses) = leaving 451

Ok so that 451 pays off the principle right?
And the 588 pays the interest right?
You're not paying the whole mortgage out of 451?[/QUOTE]

You delete the interest (actually 85% of the interest) and expenses from gross rent before tax - you don't take it off the net rent. So you are left with €539 "profit after tax" which you put towards paying the principal portion of the mortqage + the remaining 15% interest + management fees etc.

That is fair enough - you should not expect to be able to pay the entire principal from the rent, at least not for years when the principal becomes a lower proportion of the total value. Landlords routinely use other income to pay off the mortgage, otherwise they would essentially be getting tenants to buy the property for them.

As it is some would argue they are getting the tenants to subsidise the mortgage payments anyway. Which makes about as much sense as arguing that since the landlords are paying more out than the rent they are subsidising the tenants accommodation costs.

steamsey

You can only deduct 80% mortgage interest, not 85% and this goes up to 100% if you accept HAP tenants

http://www.revenue.ie/en/property/rental-income/irish-rental-income/what-expenses-are-allowed.aspx

Graham

steamsey wrote: »

You can only deduct 80% mortgage interest, not 85% and this goes up to 100% if you accept HAP tenants

http://www.revenue.ie/en/property/rental-income/irish-rental-income/what-expenses-are-allowed.aspx

You're absolutely right. I think it's Jan 1st when it goes up to 85% and 5% more each year for the following 3 years.