First time buyer for rent out

chamtem

Hello Friends,

I am thinking to buy a house as a First Time Buyer (FTB) aiming to rent out later. After 2 or 3 years I will be moving out Ireland and renting this house and this would be my only income in Ireland.

1. Initial loan interest would be 3%. Will the rate go higher if the house rented later?

2. My monthly installment would be e.1400 and 1800 is my target by renting this. Would I be able to cover loan installment by rent?

Here is my tax calculation. Not sure is that correct
Gross income 22,000 (1800*12)
Tax payable 22,000 @ 20%
Total tax liability 4,400
Less: Personal tax credits (4,950)
PRSI 872
Universal social charge 332
Local Property Tax 497
Total deductions 1,701


Really appreciate your advice on this.

Thanks

whatnext

chamtem wrote: »

Hello Friends,

I am thinking to buy a house as a First Time Buyer (FTB) aiming to rent out later. After 2 or 3 years I will be moving out Ireland and renting this house and this would be my only income in Ireland.

1. Initial loan interest would be 3%. Will the rate go higher if the house rented later?

2. My monthly installment would be e.1400 and 1800 is my target by renting this. Would I be able to cover loan installment by rent?

Here is my tax calculation. Not sure is that correct
Gross income 22,000 (1800*12)
Tax payable 22,000 @ 20%
Total tax liability 4,400
Less: Personal tax credits (4,950)
PRSI 872
Universal social charge 332
Local Property Tax 497
Total deductions 1,701


Really appreciate your advice on this.

Thanks

Talk to an accountant and be honest with them.

There is a lot missing from the above, insurance for starters. Your tax credits seem high to me, and they will change if you are not in the PAYE system. There are too many personal variables for someone to comment.

I’ve said this many times before on here, cash flow is what gets most people. It’s very difficult to keep a positive cash flow, even if you are making a paper profit and everything is going according to plan with the best tenants on the planet.

chamtem

Hi Whatnext,

Thanks for the reply. Yes you are correct. No personal tax credit if you are not PAYE.

Here is new calculation

Rent (1800 *12) 22000

Mortgage 15600
Tax (22,000 @ 20%) 4400
Home Insurance 600
Life 600
PRSI 872
USC 332
Local Propery Tax 500
Management Comp 1800

Diff 22000 24704 -2704
Diff Monthly -225.3333333

Anything else?

Mrs OBumble

Will you be earning overseas? Depending on the rules where you are living , you may need to pay tax there on income you earn in Ireland.

Also:

Maintenance.

Paying someone to manage the tenancy for you (select new tenants, move in and out inspections, follow up if the rent is late, organise maintenance etc)

Vacancy periods. Its rare to have a tenant in the place for thr full 12 months.

chamtem

Thanks Mrs OBumble


Corrected

Rent per Month (Best) 1800

Rent (1800 * 11) 19800
Mortgage 15600
Tax (22,000 @ 20%) 3960
Home Insurence 600
Life 600
PRSI 872
USC 332
Local Propery Tax 500
Administation Fee 500
Management Comp 1800
Diff 19800 24764 -4964
-413.67

chamtem

Thansk again Mrs OBumble pointing out earings in Ireland after move, but that wouldn't be a problem to me.

Samuel T. Cogley

You shouldn't really be using a standard variable rate on a BTL property, plenty do. Doesn't look like you're deducting the mortgage interest (currently at 80%) from the tax.

Have you considered what you're going to do if the tenant decides not to pay rent and destroys the place?

VonBeanie

Have you considered other investments that might make a better return? Have you sufficient funds to cope if you get a rogue tenant who stops paying rent or does serious damage to your property?

Samuel T. Cogley

VonBeanie wrote: »

Have you considered other investments that might make a better return? Have you sufficient funds to cope if you get a rogue tenant who stops paying rent or does serious damage to your property?

In fairness to this one I think he's hedging with buying somewhere for himself but isn't aware of the significant risks by the looks of things.

chamtem

Hi Samuel,

Thanks. Can you please suggest a rough value for this. I have no idea how that would be calculated.

Samuel T. Cogley

chamtem wrote: »

Hi Samuel,

Thanks. Can you please suggest a rough value for this. I have no idea how that would be calculated.

Not sure but most of the mortgage repayment is interest so you can safely look at around 50% relived against tax.

chamtem

;(

James 007

I think you are mad buying a house if you plan to leave ireland in the next 2-3 years. Who will look after the property rent, bills if not paid on time, plumbing, electrical issues etc. Would it not be more sensible to keep saving and buy at the next crash.

chamtem

Samuel T. Cogley wrote: »

Not sure but most of the mortgage repayment is interest so you can safely look at around 50% relived against tax.

So can I say

Tax payable (22,000 @ 20%) 3960 /2 = 1980

chamtem

James 007 wrote: »

I think you are mad buying a house if you plan to leave ireland in the next 2-3 years. Who will look after the property rent, bills if not paid on time, plumbing, electrical issues etc. Would it not be more sensible to keep saving and buy at the next crash.

You are right james, i am really mad on this. on my pre pre calculation (that wouldnt be my finals anyway). I saw a good potential. as per that i have enough saving from this to fly every year

But now its clear that it is not the real situation.

Samuel T. Cogley

The calculation is more complicated

Income 1000 * 12 = 12000
Tax @ 20% = 2400

2400
less mortgage interest say 2000
Less X expenses
=400-X tax liability

12000
Less 400
Less Mortgage etc.
= Net profit

At a 20% tax rate it's unlikely you'd pay much tax on a mortgaged property, especially at the beginning of the mortgage (where you're mainly paying interest)

chamtem

Thanks all.

Can someone please confirm following taxes are applicable for rental earning?

PRSI
USC

Thanks

VonBeanie

chamtem wrote: »

Thanks all.

Can someone please confirm following taxes are applicable for rental earning?

PRSI
USC

Thanks

Yes. Both are applicable.

You also need to consider that the income may be taxable in the country you are living, as well as Ireland, if you are non-resident.

chamtem

Thanks everyone.

Most of you guys opinion is buying a house for rent is not financially rewarding... Am I correct?



Thanks

Samuel T. Cogley

chamtem wrote: »

Thanks everyone.

Most of you guys opinion is buying a house for rent is not financially rewarding... Am I correct?



Thanks

If you don't get any bad tenants you should be able to break even but remember we're definitely in a rental bubble, arguably a housing bubble and the legislative environment is stacked against LLs.