Renting out a house on mortgage

Snowflake17

Morning guys.I was hoping for some advice regarding buying a house on mortgage .Since the crazy rise in rents my husband and I are thinking of buying a house on mortgage that can be a potential source of investment as well.We have the deposit money saved up and have a mortgage approvals well .The only issue is that we might have to move Bec of our jobs in a couple of years and we planned on renting out the house.So if we rent out our mortgaged house will the rent be enough to cover the mortgage repayments every month?or would it be a bad idea??

bluedex

Snowflake17 wrote: »

Morning guys.I was hoping for some advice regarding buying a house on mortgage .Since the crazy rise in rents my husband and I are thinking of buying a house on mortgage that can be a potential source of investment as well.We have the deposit money saved up and have a mortgage approvals well .The only issue is that we might have to move Bec of our jobs in a couple of years and we planned on renting out the house.So if we rent out our mortgaged house will the rent be enough to cover the mortgage repayments every month?or would it be a bad idea??

In my experience you need to be very careful if considering renting out a mortgaged property. It's probably the least attractive option.
To summarise to a huge extent, the rental income would need to exceed the mortgage repayments by enough to pay the associated taxation plus other regulatory costs etc. These costs and taxation are very high; the tax is at marginal rate, so very likely to be 51% depending on your circumstances (income tax + USC + PRSI). The full rental income is taxable, but only 75% of the interest element of the repayments is allowable as a cost - this normally causes cash flow problems for small scale landlords with a mortgage - which can be quite significant. It would be advisable to lay out all the income and outgoings, on a cash basis.
These are just some of the financial considerations, obviously other aspects need to be considered too. Best of luck!

Colonel Claptrap

Lots to consider here.

Do you mean a Buy-to-Let mortgage where you buy the house and let it out? Or do you plan on living in it now, and renting it out when you move in a few years?

Most landlords are exiting the market. Rent pressure zones, and increased regulations are turning landlords away, and to be honest – I can’t blame them.

How much are the repayments on the mortgage you have approval for? How much are similar properties being rented for in the area? What is the difference between these two amounts?

Being a landlord can be costly. Between furnishings, repairs, dodgy tenants withholding rent, tenants damaging the property above the value of the security deposit, insurance etc.
It’s quite difficult to remove a troublesome tenant. The RTB rules are stack in favour of tenants. The key is to get a good honest tenant. But you run the risk of getting a dishonest or nightmare tenant.

Keep in mind that rents are currently high due to low supply, and mortgage repayments are low due to ECB interest rates.
This could be turned on its head in 5 years. Can you afford to make repayments to the mortgage if the rent only covers half of it?
What if a tenant stays put for 6-12 months without paying rent while you try to get them kicked out. Do you have a nest egg you can dip into to repay the mortgage?

Lots to consider.

Snowflake17

Colonel Claptrap wrote: »

Lots to consider here.

Do you mean a Buy-to-Let mortgage where you buy the house and let it out? Or do you plan on living in it now, and renting it out when you move in a few years?

Most landlords are exiting the market. Rent pressure zones, and increased regulations are turning landlords away, and to be honest – I can’t blame them.

How much are the repayments on the mortgage you have approval for? How much are similar properties being rented for in the area? What is the difference between these two amounts?

Being a landlord can be costly. Between furnishings, repairs, dodgy tenants withholding rent, tenants damaging the property above the value of the security deposit, insurance etc.
It’s quite difficult to remove a troublesome tenant. The RTB rules are stack in favour of tenants. The key is to get a good honest tenant. But you run the risk of getting a dishonest or nightmare tenant.

Keep in mind that rents are currently high due to low supply, and mortgage repayments are low due to ECB interest rates.
This could be turned on its head in 5 years. Can you afford to make repayments to the mortgage if the rent only covers half of it?
What if a tenant stays put for 6-12 months without paying rent while you try to get them kicked out. Do you have a nest egg you can dip into to repay the mortgage?

Lots to consider.

Thanks for the info.we want to buy a house to live in ourselves for atleast next 5 -6yrs.Currently in area where we are renting the average rent is 1000-1100 per month and our mortgage repayments that we have discussed with the bank would be around 950 per month.we will have monthly 400-500 extra cash every month even if we rent the property out as both of us are working full time.we just want help with the mortgage repayment in form of rent if we are renting in another city so that we don't have to pay 1000 euros in 3 places separately.I hope what I am saying makes sense.

Bandana boy

Snowflake17 wrote: »

Thanks for the info.we want to buy a house to live in ourselves for atleast next 5 -6yrs.Currently in area where we are renting the average rent is 1000-1100 per month and our mortgage repayments that we have discussed with the bank would be around 950 per month.we will have monthly 400-500 extra cash every month even if we rent the property out as both of us are working full time.we just want help with the mortgage repayment in form of rent if we are renting in another city so that we don't have to pay 1000 euros in 3 places separately.I hope what I am saying makes sense.

If we make some assumptions to get a rough guess at the cost.
mortgage of 950
800 capital 150 interest

rent of 1100
Tax relief of 110
Leaves 990 taxable so a tax bill of 420

You would need 420 for tax man each month plus 950 for mortgage.
So you have a bill of 1370 and 1100 coming in. you would need to still pay 270 a month while renting it out . This will though give you an asset at the end of the mortgage .

from_atozinc

bluedex wrote: »

In my experience you need to be very careful if considering renting out a mortgaged property. It's probably the least attractive option.
To summarise to a huge extent, the rental income would need to exceed the mortgage repayments by enough to pay the associated taxation plus other regulatory costs etc. These costs and taxation are very high; the tax is at marginal rate, so very likely to be 51% depending on your circumstances (income tax + USC + PRSI). The full rental income is taxable, but only 75% of the interest element of the repayments is allowable as a cost - this normally causes cash flow problems for small scale landlords with a mortgage - which can be quite significant. It would be advisable to lay out all the income and outgoings, on a cash basis.
These are just some of the financial considerations, obviously other aspects need to be considered too. Best of luck!

I am just looking for ball park figures here, nothing to accurate or over complicated.

If the mortgage repayments were 1000 euro a month, how much would one need to charge in rent to just simply break even.

bmwguy

from_atozinc wrote: »

I am just looking for ball park figures here, nothing to accurate or over complicated.

If the mortgage repayments were 1000 euro a month, how much would one need to charge in rent to just simply break even.

Depends on how much of that 1000 is interest repayment but realistically you would probably need rent income of 1800 as a ballpark to cover that

from_atozinc

bmwguy wrote: »

Depends on how much of that 1000 is interest repayment but realistically you would probably need rent income of 1800 as a ballpark to cover that

Thanks.

I know it's a ball park figure but it really is eye opening how much more you need in rent just to even break even !!

Now that the ball park has been given, can anyone explain in very simple terms about "interest repayment" versus whatever rest of repayment is called.

ted1

If your living outside Ireland , asfaik your tax bill will be 20% and should be retained by the tenant to pay directly to revenue.

https://www.taxback.com/blog/non-resident-landlords-and-tax

The money you pay every month is partly a repayment of the money you borrowed (capital repayment) and partly paying interest on the money you have borrowed.

There are calculators out there that will tell you how much of each you would pay in different scenarios. The longer the term the less capital you are paying.

Interest only loans are available in the UK as an example where you are not paying the capital amount back - they depend on ever rising house prices.

Snowflake17

Bandana boy wrote: »

If we make some assumptions to get a rough guess at the cost.
mortgage of 950
800 capital 150 interest

rent of 1100
Tax relief of 110
Leaves 990 taxable so a tax bill of 420

You would need 420 for tax man each month plus 950 for mortgage.
So you have a bill of 1370 and 1100 coming in. you would need to still pay 270 a month while renting it out . This will though give you an asset at the end of the mortgage .

Thanks for the breakdown of calculations.I must admit I am not well informed about the mortgage scenario.
So in theory it will be a lesser amount roughly 300 to pay every month rather then the 950 euro in mortgage??if so why are ppl not going down this route of renting out properties or am I missing something here

Snowflake17

Folks any suggestions who would be the right person to talk to about the property tax and mortgage thing??