Need advice with buying a apartment with friend

apeking

Hey people,

i'd really appreciate your advice on this matter. I have a few questions that i hope some of u may be able to answer. Me am confused with this issue

Me and one of my good mates are intrested in buying a house together. We plan on renting it out for a few years or so and the selling it on in a few years and both of us buy a house each as such. We just want to get a foot on the property ladder, is this recommended?? or are we better off waiting a few years and when we can afford it buying seperate?? I think its difficult decesion especially if current house prices decrease over next year or so and intrest rates increse. Or other way around and house prices increase and we'll never be able to afford it

And if we buy what happens when one of us wants out? I now we need a good contract and everything but is there big penealties for paying off the morgage early or is the mortgae just kept and one of us pays it al inl??

We have been approved a mortgage for 340k and we have been looking at an appartment in swords for 300k.

If we dont live in it do we have to pay stamp duty on it still even though its under 317k??

I know we have to pay tax on the rent but how much would we be looking at?
currently the appartments close to them are being rented for €1100/month

Are we better off getting a letting agency to look after everything??

Sorry for all the questions, there is actually probably to much there but i hope someone can help me and give me advice, even with one or two of them.


Thanks for reading:D

The_Conductor

As you are buying the property for the purpose of letting it out (i.e. as a buy-to-let property) your purchase will not qualify for the stamp duty relief available to first time buyers. You will also forfeit your right to exercise preferential treatment as a first time buyer at a later stage. It is not worth lying about the status of the property to the Revenue Commissioners- they are currently in the process of expanding a team in Dublin Castle to 28 people to investigate bogus First Time Buyer declarations.

For properties between 254,001 and 317,500 Euro in price, stamp duty is 5% (317,501 euro - 381,000 euro 6%, 381,001 euro - 635,000 euro 7.5%, Over 635,000 euro 9%).

Regarding your mortgage- as you are buying the property together, should one party wish to terminate the agreement at a later stage it would be entirely at the discretion of your lending institution as to whether they would be willing to roll the mortgage over to the second party or not (as a single person would have a considerably lower capacity to make repayments than a partnership arrangement).

You have to register the property with the PTRB, and make a declaration of income to the Revenue Commissioners on an annual basis. Certain of your expenses are allowable as tax deductable expenses- i.e. furniture/fixtures/fittings may be depreciated against income in a flat line manner over 5 years, mortgage interest is deductable as are managment fees etc. Given the rise in interest rates, it is entirely possible that you may initially be in a situation where no additional tax may be due to the Revenue Commissioners in your annual return. Check this with a tax consultant (preferably one who specialises in property....)

Getting a letting agency to look after things for you is handy- but pricey. They may charge a set fee or a percentage of the rental income. They would however insulate you from having to deal with every little problem that your tenants might encounter- something that may be well worth the money you pay them.

Note: If apartments there are being rented at 1100 per month- what are your outgoings and how do they relate to your income. Mortgage rates can easily be expected to go up a full percent this year and possibly the same again next year- have you factored this into the equation. Your annual management charge for the Management company may eat up well over 1 months rent, possibly 2. Letting agent may knock 10% off the income prior to this. etc. You should not have to worry about other bills- they are the duty of the tenant. Note: you should set aside a small amount to cover unexpected difficulties other than normal wear and tear that are not structural in nature.

Etc. etc. etc.

Make sure to get a co-ownership agreement, no matter how well you get on with your friend...

The_Conductor

This will be of use to you:

http://www.oasis.gov.ie/housing/buying_a_house_or_flat/stamp_duty.html

Note: for the given example- you must use the "Investor" table.

Ditto to what Conor said- make sure you get a solicitor to draw up a co-ownership agreement. Make sure that the "get-out-clause" is detailed and acceptable to both parties (and to your mortgage providor!!!)

apeking

thanks people for your advise.

smccarrick that was an extremley helpful post, it created a few problems but i learnt what i needed to know. It doesnt look like any of this is going to be cheap, especially seeing as how the mortgage doesnt cover the stamp duty and we have to pay that ourselves, so we need an extra 15k

And also the tax situation seems compicated and will have to be sorted by a professional, which means more expenses.

Would i be right in saying that it will cost on a 300,000 2 bed appartment
Set-up costs:
15k stamp duty
2k solicitor fees
4k Furniture

These about right??

Monthly costs:

1200k monthly repayments
Monthly Tax: No idea how much this will cost me
100e /month Maintenace
25e month insurance

Income
1100 rent
Tax credits??


Do these sound right to you?

Thanks for replies.

dingding

Don't forget the PC Sums might not cover the full costs of the kitchen and santary ware also don't forget things like curtains and floor coverings which are also very expensive. Extra tiling might have to be done, I would recommend at a minimum Hall, Kitchen and all bathrooms also if you can tile the bathrooms to the roof, it will leave it easy during change over.

dingding

Just noticed about the insurance, the management fee covers the block insurance, check to be sure so you will just need to insure the contents about 150 euro per year. You will not be paying tax for the first few years because you are writing off the depriciation and other setup costs.

4K seems a bit small for furniture bit it depends on the market that you are going for.

Best of luck with your enterprise. It should be worth the effort. :cool:

apeking

dingding wrote:

Just noticed about the insurance, the management fee covers the block insurance, check to be sure so you will just need to insure the contents about 150 euro per year. You will not be paying tax for the first few years because you are writing off the depriciation and other setup costs.

4K seems a bit small for furniture bit it depends on the market that you are going for.

Best of luck with your enterprise. It should be worth the effort. :cool:

Thanks for the advise,

I'ts a second hand appartment with curtains and cooker being part of the sale, there is wooden floors and carpets in it too. So hoping to keep it simple.

Is the tax situation difficult to handle? or does it have to be done by a proffesional?

Thanks again:D

Victor

http://www.boards.ie/vbulletin/showthread.php?t=173124

The_Conductor

apeking wrote:

Thanks for the advise,

I'ts a second hand appartment with curtains and cooker being part of the sale, there is wooden floors and carpets in it too. So hoping to keep it simple.

Is the tax situation difficult to handle? or does it have to be done by a proffesional?

Thanks again:D

The tax situation does not have to be difficult- what may be a good idea is to get your returns done professionally in year 1, and then to follow the same template going forward. The most difficult part is keeping perfect records of income and outgoings and ascribing each to categories to work out your taxable income (it is possible that your taxable income may be nil).

Regardless of the curtains and cooker being part of the sale- do have a good think about whether its of a sufficient quality to attract people as you hope. E.g. carpets (depending on quality) are often replaced in BTL properties every 5 or 6 years, curtains (if they haven't been properly laundered etc) could be in a bad state, Cooker- should probably be ok, whats the story with a washing machine/drier, dish washer etc?

A good trick re: carpets is to get the best possible underlay for the carpet- you can put virtually any old carpet on top of it, and it makes it into a carpet that feels expensive and comfortable underfoot. It also saves on wearing.

Re: dishwasher- if it does not have one, you might consider getting one. They are reasonably cheap, but enhance rental income by about 75 Euro per month (according to a recent DAFT survey).

Re: contents insurance- With furniture and fittings of such a low value normally it might be a better idea to suggest to the tenant that they pay contents insurance for their possessions.

If the property has been lived in for a few years- whatever about getting new furniture, it would be a good idea to repaint it.

15k stamp duty
2k solicitor fees
4k Furniture

These about right??

Monthly costs:

1200k monthly repayments
Monthly Tax: No idea how much this will cost me
100e /month Maintenace
25e month insurance

Income
1100 rent
Tax credits??

Your setup costs (Stamp duty, solicitor fees, furniture) would be minimum possible outlays- solicitor's fees could well be a bit higher, ditto furniture.

Monthly costs- First of all insurance and maintenance are annual costs, not paid on a monthly basis. You will have to set money aside to cover those when they come up. It would not be normal to pay you management charge monthly.

Mortgage repayments- will vary, most probably upwards, as interest rates change. You are probably locked into a specific rate for an introductory time though?

Monthly tax, does not arise. Its an annual tax return. Once again you have to set funds aside to cover it. Your 4k budget for new furniture can be offset @ 20% p.a. against this tax liability.

Income- once again, is not guaranteed. A higher level of decoration and better presentation will achieve a better rental prospect. Keep in mind the property may be unoccuppied for periods of time, or that the rent may vary. Normally when people agree to take longer leases they are given a discount on their rent (to reflect your lower costs etc).

Tax credits- you mean your tenant's tax credits? They advise Revenue of their renting and their credits are adjusted accordingly. You have to register the property with the PRTB and supply them with a rent-book etc as prescribed in the legislation.

I would be slightly concerned that your rental income is insufficient to cover mortgage repayments (1200 versus 1100 at current levels), much less any other costs that may occur. It is not guaranteed that the property will be let 100% of the time- yet the mortgage must be paid (along with the other bills) the whole time. Are you prepared for periodic surprises? Also- contrary to popular beliefs, there is no guarantee that property prices will continue to rise- you cannot make an assumption that asset appreciation will cover your outgoings.

Be careful.