Buying a house and renting it??

Skyuser

Is it as simple to think that......I can go to the bank and ask for €350,000 and tell them its to buy a house. Tell them i'll be renting it out and the rent money will be paying the repayments. :cool:

Or.........do I have to have a huge salary and a house of my own and land and what have ya.... :rolleyes:

lomb

Skyuser wrote:

Is it as simple to think that......I can go to the bank and ask for €350,000 and tell them its to buy a house. Tell them i'll be renting it out and the rent money will be paying the repayments. :cool:

Or.........do I have to have a huge salary and a house of my own and land and what have ya.... :rolleyes:

even if u have a good credit history the bank will ask for additional security for the loan like another property etc. also u will need at least 20% and also a steady income to pay the mortgage when/if the house is vacant.

A Dub in Glasgo

Skyuser wrote:

Is it as simple to think that......I can go to the bank and ask for €350,000 and tell them its to buy a house. Tell them i'll be renting it out and the rent money will be paying the repayments. :cool:

Or.........do I have to have a huge salary and a house of my own and land and what have ya.... :rolleyes:

I always imagined that borrowing €350k requires a huge salary anyway. What is your idea of a huge salary?

Skyuser

I dunno, it just seems simple to borrow 350k and let the rent pay the mortage. If the repayments can't be met, the house is always there to be sold again anyway, the bank will know this.

lomb

Skyuser wrote:

I dunno, it just seems simple to borrow 350k and let the rent pay the mortage. If the repayments can't be met, the house is always there to be sold again anyway, the bank will know this.

the rent wont cover the mortgage. it may cover the interest but it wont cover the principal. anyway u will have to pay tax on the rent minus the interst/maintainece so rent-interest-tax-insurance-upkeep-vacant periods means u will need a source of income to pay whats left for the principle.

the principal isnt tax deductable

Skyuser

I'll b getting €1200 a month on rent, that will of course cover the mortgage

lomb

Skyuser wrote:

I'll b getting €1200 a month on rent, that will of course cover the mortgage

after u pay tax? do u even understand how tax works? my advice is go to your bank and tell them that and they will laugh at u. also do u have 70 grand in cash as a deposit?

Cyrus

if it was that easy everyone would do it, the location is obviously going to be very important for renting it, and this will push prices up, also unless you have a certain profession ie accountant solicitor you will need a hefty deposit,

finally dont understimate the service charge costs etc

Figment

Location will be very important. There is something like 2-3 houses for every one renter in this country at the moment. It will only work if the house is in a location where there is big demand.

wideband

Buying ahouse to rent it out is just not profitable now adays unless you intend building up a property portfolio, im not going to do the full details, but thats my advise

lomb

hey wideband,its diferent in the uk though (where u are i know) i was in the north yesterday and theirs a building for sale in some provencial town in antrim for 800000stg. now its divided into 5 rental units-retail/ offices etc. the current rent is 70 grand sterling, not a half bad investment id say. has some appreciation potential as is on main st. should track inflation anyway and has 9% coming in, way more than 5% interest rate. also ive spent time in hull and u can still get 10% buying crap houses and renting them on DSS. if u buildup say 20 of these u are laughing. they are only 20 grand or so each. lot of hjassle though thats true.
its investments like that u want imho.

Bluehair

Now, now don't be putting the lad off with unncessary nonsense about tax, yield, interest rates and all that malarky.

He clearly has copped on to a no-risk winner here that no-one else has thought of before. Well done that man.

I'm all for supporting your trip to the bank to tell them about your idea.

Do let us know how you get on

(On a more serious note this is right up there with my mate who reckoned he was off to Vegas to play Blackjack and make a fortune by doubling his bet every time he lost. :rolleyes: Believe me when it comes to making money it's never that simple/easy)

528i

If you've got a €70,000 deposit, my advice is to head to vegas and put it all on black, that way you can buy a house worth a cool 3/4mill when you return

The Corinthian

Skyuser wrote:

I'll b getting €1200 a month on rent, that will of course cover the mortgage

Only if you intend to pay it all off no earlier than 2050.

wideband

lomb wrote:

hey wideband,its diferent in the uk though (where u are i know)

Hi lomb,

we here in dublin got our independance a long time ago ,

but seriously, I've been looking into some options lately with the accountant and buying property on a small scale is not very profitable and and quite risky if you havn't good backing, particularily when the property is in excess of 220,000euro. On option though is to sell your own home, rent it out and release some equity to purchase your new home (some people may find it hard to consider their old home as a business though).

MartMax

Bluehair wrote:

Now, now don't be putting the lad off with unncessary nonsense about tax, yield, interest rates and all that malarky.

He clearly has copped on to a no-risk winner here that no-one else has thought of before. Well done that man.

I'm all for supporting your trip to the bank to tell them about your idea.

Do let us know how you get on

(On a more serious note this is right up there with my mate who reckoned he was off to Vegas to play Blackjack and make a fortune by doubling his bet every time he lost. :rolleyes: Believe me when it comes to making money it's never that simple/easy)

it's not putting him off. it is a good advice to plan and study anything before going into it. in this matter, should we call if financial planning? and more than financial elements to consider too.

rental income is certainly taxable unless it does not exceed threshold of €7,620 annual rental income. in general, €1,200 a month rent will generate you €14,400 gross. well the threshold is on gross, not net rental income!

even after deductions like capital allowance and other allowable expenses, i doubt the net income goes lower than threshold. if you have another cash resource to cover the tax, it is good then.

well, that's only about renting and tax obligations. more other stuff to think and consider. if the idea is feasible, go on with it. i wish you the best luck!

RainyDay

mart_max wrote:

rental income is certainly taxable unless it does not exceed threshold of €7,620 annual rental income. in general, €1,200 a month rent will generate you €14,400 gross. well the threshold is on gross, not net rental income!

The €7,620 threshold only applies to the Rent-A-Room scheme, where you are renting out room(s) in the house while you live there. And if you exceed this threshold, all rental income (including the income below the threshold) is taxable.

To go back to OP's question, your first problem is that banks are very reluctant to give investment loans to first-time-buyers. They will expect you to have 20% deposit available (often raised by remortgaging your own property) and to cross-charge both mortgages (so they can take your family home if the investment goes bad).

You also need to consider all the supplementary costs. How are you going to furnish the property (and tenants are growing increasingly fussy & selective about where they are going to live)? How are you going to pay the solicitor, the surveyor, the stamp duty (a 5-figure sum)? How are you going to maintain the property? What happens if property prices stop rising, or actually fall? Rental yields (the income generated as a percentage of the property value) have been dropping over recent years, to as low as 3% now (which is only marginally more that you'll get if you stick your money on deposit). How much of your own time will go into advertising, showing the property, vetting tenants, cutting the grass etc.

But you are still thinking of going down this road, you need to do your sums. Allow for 1-2 vacant months per year. Allow for cost of advertising the property. Allow for maintainance charges if the property is in a maintained estate. Allow for insurance costs if not. Check out the Investment Guide & FAQ's in the Property Investment forum over at Askaboutmoney.com

lomb

not to put the lad off,.
the main advantage of property is regardless of whether it rises or falls in the long run it is linked to inflation as it plays on the economy as a whole (land-what its built on , labour-what it costs to construct+ what people make generally and can afford), enterprise - people want to buy houses and always will, capital-u need to put ur money into something

so seeing that inflation is 99% in the plus direction then u are almost certainly going to see the property rise by 3% compounded for the remainder of your life. in real terms because its compounded they will probably be double what they are in 20 years, of this i am certain.
also capital increases arent subject to gains taxes as they allow u to subtract inflation from them so this is another HUGH bonus.so ur money is SAFE in the long term regardless of blips.

interest from money in a deposit account on the otehr hand is taxed so apart from a compound loss over 20 years the yield is again very low.

if u genuinely have 70000-100000 in cash i think the best thing is to still buy property

cormie

Bluehair wrote:

my mate who reckoned he was off to Vegas to play Blackjack and make a fortune by doubling his bet every time he lost. :rolleyes:

This is actually possible.

Well, the casinos obviously know this which is how they counter it. They have limits on the tables so you have to actually win before you reach the limit. This is on roulette anyway.

Staying on topic now, just say for example, somebody bought a house for you providing you paid them back with the rent. Would all the same problems apply for them as mentioned above?

MrPudding

528i wrote:

If you've got a €70,000 deposit, my advice is to head to vegas and put it all on black, that way you can buy a house worth a cool 3/4mill when you return

How? He would only have €140 000.

MrP

RainyDay

Skyuser wrote:

If the repayments can't be met, the house is always there to be sold again anyway, the bank will know this.

If you go into the bank with this attitude, you'll be quickly shown the door. Repossession is an absolute last resort - and they will lose a pile in legal fees going down this road. If they don't believe that you have done the necessary planning to be able to make a success of this investment, there is no way they will hand over their money to you.

lomb wrote:

so seeing that inflation is 99% in the plus direction then u are almost certainly going to see the property rise by 3% compounded for the remainder of your life.

Except of course if prices crash as happened in the UK from 1990-1993. The prospect of future gains will be of little consolation to an investor who is unable to keep up repayments and finds that his outstanding mortgage exceeds the market value of the property.

lomb wrote:

also capital increases arent subject to gains taxes as they allow u to subtract inflation from them so this is another HUGH bonus.so ur money is SAFE in the long term regardless of blips.

This is dangerously incorrect. Indexation relief for capital gains tax was removed in the 2003 budget - see here for more details. All gains in the value of the property will be subject to CGT. And there is a fair chance that a future left-leaning Government will increase CGT rates to bring them closer or up to income tax rates (currently 42%).

lomb wrote:

interest from money in a deposit account on the otehr hand is taxed

As is your rental income.

lomb wrote:

if u genuinely have 70000-100000 in cash i think the best thing is to still buy property

All the data that I've seen points to a diversified stock market portfolio as bringing in better returns than property investments in the long term (with none of the work involved in managing the property). For example, from Bank of Ireland's 'Investment Advice for Life' publication, they compared the annual returns from Irish assets classes (after taxes & charges) from 1970 to 2000. Over 10 year, 15 year, 20 year & 25 year periods, equities beat property by 2-3 percentage points. Over the previous 5 years, property had beaten equities.

Don't be fooled by the Irish obsession with property. Do the financial analysis for yourself.

fintan

quote Lomb "so seeing that inflation is 99% in the plus direction then u are almost certainly going to see the property rise by 3% compounded for the remainder of your life. in real terms because its compounded they will probably be double what they are in 20 years, of this i am certain".

Thanks for cheering up my day Lomb, funniest thing I have read in a long time

As Keynes said, in the long run we are all dead.

Cheers

Fintan

lomb

well u can think its funny all u like. even if property doesnt rise as it has above inflation (which it wont unless a supply demand imbalance remains or the economy really booms which is also unlikely) then it will double within 20 years but not in 'real' terms.

i dont know what u are talking about, stating we will all be dead anyway is stating the obvious.

fintan

Lomb, unfortunately I didnt express myself as well as RainyDay has. Did you read his reply to your post? Do you have any follow ups to the points he has made?

As for the Keynes quote, it was meant as a joke, its just any long term projections of property out preforms X, property will do whatever over the next 20 years, are usually said to me by someone trying to sell me something. When really all we are sure of is taxes and death.

I hope your tea leaves dont let you down.

Cheers

Fintan

rubadub

cormie wrote:

This is actually possible.

Well, the casinos obviously know this which is how they counter it. They have limits on the tables so you have to actually win before you reach the limit. This is on roulette anyway.

Check out this
http://www.bjmath.com/bjmath/progress/bootmm.htm

If there was a system the casios would know VERY quickly and simply not let you bet in that fashion.

anyways, my mate has an apartment bought 2-3 years back and is loosing money on it renting. Has got another house he is living in and has to hold on for a while before selling the apartment or he will be stung for tax big time.

lomb

fintan wrote:

Lomb, unfortunately I didnt express myself as well as RainyDay has. Did you read his reply to your post? Do you have any follow ups to the points he has made?

As for the Keynes quote, it was meant as a joke, its just any long term projections of property out preforms X, property will do whatever over the next 20 years, are usually said to me by someone trying to sell me something. When really all we are sure of is taxes and death.

I hope your tea leaves dont let you down.

Cheers

Fintan

yes i have read it and these are the realities.desirable property will always track inflation or deflation. now as inflation is a fundamental reality then this means property is going to go up.

as regards share investments the economy is shifting with price pressures due to lower cost economys and the information/tech age. margins are shrinking every day, i would think one is better in property however a basket of shares bought during a dip can also do very well. however the yield from dividends is very low but i suppose the hassle is low also. u do know u can still get 7 or 8% or higher yield from certain properties in the uk in less desirable areas, even these arent bad if u roll your rents back into more property.

hmmm

lomb wrote:

yes i have read it and these are the realities.desirable property will always track inflation or deflation. now as inflation is a fundamental reality then this means property is going to go up..

Ah ok, like in Germany where house prices have been dropping for 15 years?

http://www.economist.com/images/20020330/CSF597.gif

Not that this stops the hype merchants from plugging property investment in Germany.

lomb

hmmm wrote:

Ah ok, like in Germany where house prices have been dropping for 15 years?

http://www.economist.com/images/20020330/CSF597.gif

Not that this stops the hype merchants from plugging property investment in Germany.

caused by the economic disaster that was reunification......also they have still gone up just not in real terms so not a loss at all.......

fintan

lomb wrote:

caused by the economic disaster that was reunification......also they have still gone up just not in real terms so not a loss at all.......

The term 'real', when used in an economic context, means 'inflation adjusted'.

If prices have not gone up in real terms, this means a loss has been made.

lomb

fintan wrote:

The term 'real', when used in an economic context, means 'inflation adjusted'.

If prices have not gone up in real terms, this means a loss has been made.

and money on deposit is always a 'real' loss.

The Corinthian

lomb wrote:

and money on deposit is always a 'real' loss.

No one is disputing this from what I can see. What is being disputed is your assertion that you’ll always make money on property. This is simply not true and it has quite comprehensively been demonstrated why it is simply not true.

At this stage you appear to be responding with increasingly unlikely logic in a bid to avoid admitting that you’re just plain wrong.