Tax advice for first time landlord

Macmillan150

We have to move to other end of the country but our apartment still has some negative equity so I don’t want to sell straight away.
We have been saving for a deposit on s new house but a good bit to go there too so we will be renting too.
I was going to put in new flooring and revamp the kitchen before I rented it out but I’m still trying to work out tax rules. Is it true that I cannot claim tax relief on any improvements I make BEFORE I rent it out? Is it a catch 22? I won’t make great rent on it now as it’s a bit worn and shabby, so if I rent it at a lower amount I’ll be tied to the rent increases of 4% even if I improve apartment later? I’m trying to decide what’s the best financial way to go about it. Without squandering the money we are trying to save for our new home. Any advice?

Macmillan150

Also I’m hoping to sell in maybe 2 years so I do want it looking good too. Not just ok.

handlemaster

Where is it ? Put it on for the max rent for the area. Get an accountant, get an agent. Forget the penny pinching. Do the work that has to be done you will have less hassle.

beauf

Renting at the lowest amount is far more likely to attract worse tenants. Have you considered look at the renting a room option or AirBnB. Because if you could get stuck with a tenant if you are planning to sell shortly.

Macmillan150

good points. I don’t want to penny pinch but I don’t want to spend all the money we have and not ever buy our own home. So I want to be wise with the money I spend ( of which I don’t have a lot).
AirBnB would work as I’m too far away.
One of us needs to be in Dublin once a week for a night or 2 but that wouldn’t qualify for a Rent a Room.
A good point about good tenants. I think I will replace all floors and hope I can get decent rent. And then in a year replace the kitchen so at least I can claim some tax relief on that. Doing both together would wipe out any rental income until Christmas and I’d have to use savings to pay the mortgage.
This is a rich persons game I fear.
You can still give tenants notice if you intend to sell? Is this not the case?

ouxbbkqtswdfaw

Why rent it if you hope to sell in two years? You certainly won't make much by way of profit. Do it up to get ready for sale, I would say sell as soon as possible. If you rent it out, you lose all the freedom you have at present. What if the tenant damages your property, refuses to pay, or refuses to leave? The landlord has few rights. Basically, I think renting is a mugs game. Over 60% of rent going to Revenue.

beauf

Macmillan150 wrote: »

...
You can still give tenants notice if you intend to sell? Is this not the case?

The probably if if they decide to over stay. LL are powerless to get them out.

I think you'll make so little after two years it won't be worth it.

Mrs OBumble

Macmillan150 wrote: »

One of us needs to be in Dublin once a week for a night or 2 but that wouldn’t qualify for a Rent a Room.

It won't qualify for the tax relief.

But if you let the rooms separately and keep one for yourselves to use that once or twice a week, you will have licensees not tenants, so they will have no tenancy rights.

Macmillan150

Well that’s depressing. If I have to pay rent and mortgage until I’m out of negative equity we won’t be able to save at all. It’s so frustrating.
Although I’ve a good job lined up, my spouse could stay here for work during week and rent out a room. It would mean I’d have full time work and children full time for maybe 2years!!!! Desperate times though. We do need to move because although apartment is fine it’s not near any decent schools and I’ve daughters name down for any schools either. The plan was always to move home

beauf

At this point you have to be ruthless and see what makes the most money for the least risk. A regular rental isn't it.

Maybe it will appreciate on its own, out of the neg equity.

Macmillan150

I’ll sit down and do the maths. I think it will come out of negative equity in maybe 2 years at current trends but anything could happen. Leaving it empty seems all kinds of wrong but yeah I’m not in the position to gamble anything.

beauf

The alternative is to squeeze every value out of it as is. To help with cash flow. But it's requires your time and resources to do that. Being a LL It's a business after all.

Claw Hammer

The better strategy is to do nothing as regards spending money on your current property. Advertise it for rent at about 80% of the going rate. Given the current demand, you will be able to pick very good tenants. After the tenants move in and you have some rent and the deposit, do some upgrading. The real trick is to make sure you get tenants who have skin in the game. You need the type of person who can't have themselves appear on the RTB website as having defaulted in the payment of rent.

Pkiernan

Your tenants will be able to stay for 6 years, go forget about selling it in 2 if you rent it out.

You will also pay more capital gains tax on the sale if you rent it out.

Not worth renting it out as you'll pay approx 50% tax on the rent you charge.

Claw Hammer

Pkiernan wrote: »

Your tenants will be able to stay for 6 years, go forget about selling it in 2 if you rent it out.

You will also pay more capital gains tax on the sale if you rent it out.

Not worth renting it out as you'll pay approx 50% tax on the rent you charge.

The part 4 can be terminated on the grounds of an intended sale. As the property is in negative equity, there clearly has been no capital gain so there be no capital gains tax. Even at that it has been a PPR for some years and will be considered a PPR when sold. Even if there had been a substantial capital gain would only affect a fraction of the sale proceeds. 80% of the interest paid on the mortgage is deductible, as well as the cost of repairs and other outlay.

Macmillan150

“But if you let the rooms separately and keep one for yourselves to use that once or twice a week, you will have licensees not tenants, so they will have no tenancy rights.”

That might be an option too, thanks for that.

What kind of tenant would be trying to avoid getting on the RTB website?

handlemaster

OP. This is dream land . Let the whole property or sell. Use an agent and accountant if your serious. Your on about wanting to save money but you havent a clue what your getting into. Its a mine field. Money well spent will save you money and pain

Macmillan150

If I rent I will get an agent. We would be too far away to manage property. Since I am living in dream land , in all honesty I haven’t a clue. I just don’t want to waste money before I even start.

ouxbbkqtswdfaw

Macmillan150 wrote:

If I rent I will get an agent. We would be too far away to manage property. Since I am living in dream land , in all honesty I haven’t a clue. I just don’t want to waste money before I even start.

My advice? Don't rent. Nothing in it. You'd need a solicitor to interpret all the new rules and regulations, and they are not in the landlord's favour.

ouxbbkqtswdfaw

I didn't know that tenants who default are listed in RTB website.

Macmillan150

God no wonder the country’s in the state it is. I’ll talk to an accountant but I’m sure ye have been there and done that so I should take heed. It looks like the best bet would be sell now, use our savings to pay off negative equity. And start from zero.
2 years paying rent AND mortgage would prevent us from saving anymore anyway. So we wouldn’t be in a better off position in 2 years.

4ensic15

xksygrwlh8fej7 wrote: »

I didn't know that tenants who default are listed in RTB website.

If there is a complaint to the RTB by a landlord the decision is on the RTB website. the names of the parties are on it.

ouxbbkqtswdfaw

Thank you.

davindub

Macmillan150 wrote: »

God no wonder the country’s in the state it is. I’ll talk to an accountant but I’m sure ye have been there and done that so I should take heed. It looks like the best bet would be sell now, use our savings to pay off negative equity. And start from zero.
2 years paying rent AND mortgage would prevent us from saving anymore anyway. So we wouldn’t be in a better off position in 2 years.

Financial advisor not accountant.

Just a few points,

1. You are basing your decision on the risks highlighted here, but they are risks not certainties, and they are not enough of a risk to say "I would be better definitely losing money by selling than to rent out the property and risk losing money if I am unlucky or didn't manage the situation correctly"..

2. Repaying the mortgage is saving in a way, so your savings will now equal the capital repayments part of the mortgage repayments. You can deduct 85% of the interest repayment portion as a deduction from taxable income along with any allowed expenses and capital allowances for fixtures and furnishings. So if you can service the mortgage repayments from the rental income - income tax it is likely you will be increasing your wealth, whether this exceeds what you will lose if you sell now and can save afterwards is the decision. Also allow for capital appreciation depending on the area.

3. The relevant legislation is predominantly contained in the RTB act, it is not difficult to understand, but a solicitor should draw up your tenancy agreement and advise on the process to terminate if you want to sell, but you don't need ongoing support from a solicitor. There is a risk of the issues other posters describe, but its risk rather than certainty and a low risk at that (worth repeating). By all means take precautions to manage the risk, but don't rely on internet advice for this, ask your solicitor to give you guidelines as part of the rental agreement.

4. Once the property can be rented as is and is in reasonable condition, you would be surprised how little the standard affects the rent you can achieve, you are not limited by any previous rental agreement so you can get the market rent. Also this may increase the selling price you can expect on the current market if an investor would be interested in it.

5. An agent is not required for one property if someone is local once a week. The most common issues are expenses you will not be able to avoid using an agent anyway, plumbing, electrical, etc. Just make sure you have numbers handy, if you know someone that can call around in a emergency to prevent spurious call outs, even better. There are few emergency issues with well maintained apartments, just make sure there are no items that can cause damage to water pipes if they get moved, a prime example being washing machines, make sure water pipes are protected if the machine is pushed in further etc.

Not an easy decision to make so good luck.

quadrifoglio verde

Using an agent is fully tax deductible though and for a first time landlord on the other side of the country would be a no brainer.

Macmillan150

Thanks for all view points. It’s not that straight forward so. I will see if I can find a local financial advisor and this evening I’ll do my own sums to see what seems most feasible.
I really appreciate input especially on points I hadn’t considered.

Macmillan150

Macmillan150 wrote: »

I think I will replace all floors and hope I can get decent rent. And then in a year replace the kitchen so at least I can claim some tax relief on that.

I think this kind of work would be classed as capital rather than repair so you would only be able to get tax relief for 12.5% of the costs a year for 8 years. Something to consider if you only plan to rent for only 2 years.

bobbyss

xksygrwlh8fej7 wrote:

Why rent it if you hope to sell in two years? You certainly won't make much by way of profit. Do it up to get ready for sale, I would say sell as soon as possible. If you rent it out, you lose all the freedom you have at present. What if the tenant damages your property, refuses to pay, or refuses to leave? The landlord has few rights. Basically, I think renting is a mugs game. Over 60% of rent going to Revenue.

This makes a lot of sense. And what IF they damage your property? You're on a loser. Remember accountant and agent hzvecto be paid. You are passing control really tenants hoing they out well. You won't make money out of it.
If you sold soon you are clear of it. No worries.

quadrifoglio verde

quadrifoglio verde wrote: »

Using an agent is fully tax deductible though and for a first time landlord on the other side of the country would be a no brainer.

They said they will be in the area once a week, I’d avoid agents like the plague much better to look after it yourself.

tvjunki

Do the rent a room and use one room yourself. Or you can lease for less than 6months. Give the tenant notice to leave the day they move in so they know they have to be gone.

If you have to be up in Dublin once a week then you have to have somewhere to stay.

People that dont want their names on rtb are those working and in good jobs. Some professions you can loose your job for working outside the rules.Non payment of rent, anti social behaviour etc. Take good references.

Dont change the kitchen as it i not worth it. Only do this when you sell.
People do not respect it as if its their own. Do what little maintenance you need to do. If the floor is good enough then leave.



Go to the upper end of the price for rental otherwise you will have trouble.
You pay capital gains (33%)on the time the property is rent out fully as a unit. Make sure you keep records of the value of the property before you rent it out. The difference between the final price and move out is the amount you work out the tax is due less costs.

DrPhilG

xksygrwlh8fej7 wrote: »

Over 60% of rent going to Revenue.

Sorry to interrupt the OP, but how is this true?