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Buying 1 bed apt as investment..

  • 05-11-2013 3:37am
    #1
    Closed Accounts Posts: 586 ✭✭✭


    Ok Ok.... just let me say my piece before the abuse begins....

    So lets just say.... I have a spare €90k earning sweet FA in an deposit account.

    I buy a one bed apt on the north side of Dublin for approx €80k. I put €5k into it to get it liveable in. Monthly rental income is around €800pm. I live and own my own apt (no mortgage) in this area so know the market well. I have checked and these prices are pretty accurate.

    So the gross yield would be 12% and net would be 9%. I calculate rental expenses as follows:

    Mgmt fee: €1000
    Insurance:€100
    NPPR: €200
    Property tax:€150
    various exp: €1500
    Total Rental Expenses: €2950

    Total rental Income: €9600

    Gross Profit: €6650
    Tax(@20%): €1330
    Net Profit: €5320

    Return on investment (€85k) apres tax: 6.2%

    This looks like there is value there to me.

    These are not life savings and this amount will be earned and saved again in a couple of years so I am prepared to take a risk.

    I understand the gov is talking about reducing the rental allowance which may push rents down in the city but as things are the rental market is pretty strong.

    What have I missed? Why am I a complete bloody idiot for even considering this?

    (Edit: I realise I have calculated the taxation incorrectly but please just use the above as a rough guide)


«1

Comments

  • Registered Users, Registered Users 2 Posts: 266 ✭✭size5


    Ok Ok.... just let me say my piece before the abuse begins....

    So lets just say.... I have a spare €90k earning sweet FA in an deposit account.

    I buy a one bed apt on the north side of Dublin for approx €80k. I put €5k into it to get it liveable in. Monthly rental income is around €800pm. I live and own my own apt (no mortgage) in this area so know the market well. I have checked and these prices are pretty accurate.

    So the gross yield would be 12% and net would be 9%. I calculate rental expenses as follows:

    Mgmt fee: €1000
    Insurance:€100
    NPPR: €200
    Property tax:€150
    various exp: €1500
    Total Rental Expenses: €2950

    Total rental Income: €9600

    Gross Profit: €6650
    Tax(@20%): €1330
    Net Profit: €5320

    Return on investment (€85k) apres tax: 6.2%

    This looks like there is value there to me.

    These are not life savings and this amount will be earned and saved again in a couple of years so I am prepared to take a risk.

    I understand the gov is talking about reducing the rental allowance which may push rents down in the city but as things are the rental market is pretty strong.

    What have I missed? Why am I a complete bloody idiot for even considering this?

    Stand corrected BUT iam sure tax is way more than 20% double I think:-( if it was only 20% it would be happy days. But some one will post up exact amount.



    No NPPR just properly tax to pay:-).


  • Registered Users, Registered Users 2 Posts: 7,879 ✭✭✭D3PO


    NPPR is gone, PRTB fees need to be added in.

    Tax rate is based on what income tax band you fall into. I'm suspecting that's the 41% bracket as most people who have 90k to spend on an investment that isn't their life savings and already own their own home mortgage free would be in this bracket.

    100 yoyo for insurance seems low for an estimate although Im sure you have checked this out.

    If your not going to manage yourself take into account EA fees, also need to account for advertising for rental so daft fee etc.

    Finally when calculating yield the agreed formula is to calculate off 11 months occupancy per calendar year and not 12 to allow for vacant periods.

    That aside seems like theres potential for it to be a solid investment

    Oh and PSRI is due too.


  • Registered Users, Registered Users 2 Posts: 2,648 ✭✭✭desertcircus


    Are apartments with a price of 80k really getting 800 a month? That seems way out of whack: I'd be very wary of anything that sounds that good.


  • Registered Users, Registered Users 2 Posts: 2,648 ✭✭✭desertcircus


    If you make just two adjustments (calculate rental income as 700*11 rather than 800*12 to allow for a drop in the market, and assume taxation at 41%), the yield drops to under 3.5%. If it lies unoccupied for one extra month, it goes below 3%. I'd be inclined to look at other potential investments that don't carry so much risk and potential for ongoing costs.


  • Registered Users, Registered Users 2 Posts: 7,879 ✭✭✭D3PO


    If you make just two adjustments (calculate rental income as 700*11 rather than 800*12 to allow for a drop in the market, and assume taxation at 41%), the yield drops to under 3.5%. If it lies unoccupied for one extra month, it goes below 3%. I'd be inclined to look at other potential investments that don't carry so much risk and potential for ongoing costs.


    I don't think calculating for 10 months occupancy has any relevance. Yield calculations for property rentals should be done off 11 months (if you get 12 that's a bonus)

    however you do raise some valid points regarding the taxation rate and 11 months occupancy and the impacts that will have to the yield.

    the OP says he lives in the area and knows the market well so calculating off what he believes is an achievable rental rate of 800 a month has to be taken as a given when providing feedback to the initial post TBH.


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  • Registered Users, Registered Users 2 Posts: 2,648 ✭✭✭desertcircus


    D3PO wrote: »
    I don't think calculating for 10 months occupancy has any relevance. Yield calculations for property rentals should be done off 11 months (if you get 12 that's a bonus)

    however you do raise some valid points regarding the taxation rate and 11 months occupancy and the impacts that will have to the yield.

    the OP says he lives in the area and knows the market well so calculating off what he believes is an achievable rental rate of 800 a month has to be taken as a given when providing feedback to the initial post TBH.

    I agree that calculations should be done on an 11-month basis, and that if achievable rent is 800 a month then that's what should be used - but principally for comparing to other property investments. When discussing other investments, the potential for falling rents or fallow periods really should be taken into account. A savings bond that offers 2.5% over one year isn't particularly attractive as an investment option when you're comparing to a starting rental figure of 800*11, but if there's any possibility of either of those numbers falling, then that savings bond starts looking a lot better.


  • Registered Users, Registered Users 2 Posts: 1,296 ✭✭✭Geomy


    Don't get caught in that trap, that's what the ruination of people during the celtic tiger.

    There's house's in Liscannor Co Clare going for sfa....

    I could afford one but ill enjoy my money rather than try to make more....


  • Banned (with Prison Access) Posts: 3,126 ✭✭✭Santa Cruz


    I would go for it. You seem like a person who knows what they are on about. As a medium to long term investment it is fine. The obvious advice as in any business is to manage costs such as refurbishment, decorations and any other cost which you can control and get competitive rates for the others. And of course apartments are like taxis, not making money unless there is someone in it. A good choice of tenant who may be there long term is also important.


  • Registered Users, Registered Users 2 Posts: 7,879 ✭✭✭D3PO


    Geomy wrote: »
    Don't get caught in that trap, that's what the ruination of people during the celtic tiger.

    There's house's in Liscannor Co Clare going for sfa....

    I could afford one but ill enjoy my money rather than try to make more....

    Comparing a house in Liscannor in Clare to an investment property in the largest population centre in the country is a nonsense.

    This post doesn't even warrant any more discussion than the above.


  • Registered Users, Registered Users 2 Posts: 7,879 ✭✭✭D3PO


    I agree that calculations should be done on an 11-month basis, and that if achievable rent is 800 a month then that's what should be used - but principally for comparing to other property investments. When discussing other investments, the potential for falling rents or fallow periods really should be taken into account. A savings bond that offers 2.5% over one year isn't particularly attractive as an investment option when you're comparing to a starting rental figure of 800*11, but if there's any possibility of either of those numbers falling, then that savings bond starts looking a lot better.


    I hear ya. Personally Id be investing the 90k in the Twitter IPO if you can get the shares at $16 a pop they are grossly undervalued and have a realistic market value of $28 a share although with the hysteria these kind of IPO's garner you will see them probably spike to $40 plus before they settle back to a realistic valuation.

    Significant profit to be made with a short sell if you get in early. But I digress ...... :D


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  • Registered Users, Registered Users 2 Posts: 13,237 ✭✭✭✭djimi


    Are apartments with a price of 80k really getting 800 a month? That seems way out of whack: I'd be very wary of anything that sounds that good.

    I wondered the same, but have a look on Daft and there seems to be plenty of €80k-€90k 1 bed apartments on the northside for sale in complexes where the rent of similar properties is €800 and above.

    Personally I wouldnt be getting into property as an investment as I believe that there are easier ways to make your money work for you than becoming a professional landlord and all the potential heartache that comes with the job, but if you know what you are getting into (ie make sure you know exactly what it means to be a landlord and dont just be blinded by figures on the page) and are sure that you can afford it and it yields the return that you want them power ahead I guess.


  • Registered Users, Registered Users 2 Posts: 1,296 ✭✭✭Geomy


    D3PO wrote: »
    Comparing a house in Liscannor in Clare to an investment property in the largest population centre in the country is a nonsense.

    This post doesn't even warrant any more discussion than the above.

    Yeah you're right, your post doesn't warrant any more discussion than the above....


  • Closed Accounts Posts: 1,869 ✭✭✭odds_on


    Originally posted by djimi. Personally I wouldnt be getting into property as an investment as I believe that there are easier ways to make your money work for you than becoming a professional landlord and all the potential heartache that comes with the job, but if you know what you are getting into (ie make sure you know exactly what it means to be a landlord and dont just be blinded by figures on the page) and are sure that you can afford it and it yields the return that you want them power ahead I guess.

    I agree with djimi. The OP seems to have forgotten what happens if the rental goes haywire etc. There can be a lot of heartache as a landlord, even if you have good tenants - you have to be available for emergency calls more or less 24x7x365


  • Registered Users, Registered Users 2 Posts: 4,946 ✭✭✭Bigus


    It's a no brainer go for it,

    In the TC days we'd be telling you to buy 10 apartments with 9k deposits for your 90 k and borrow an extra 800k.

    On the plus side Your not accounting for any benefit of a rise in the market which will happen, especially when it's cheaper to buy than today'sbuild cost,even excluding site and development costs and inflation.


  • Registered Users, Registered Users 2 Posts: 12,089 ✭✭✭✭P. Breathnach


    You should bear in mind that you might some day want to liquidate your investment. That means taking a view on the future re-sale value of the property.

    I wouldn't like to be making that judgement.


  • Registered Users, Registered Users 2 Posts: 7,879 ✭✭✭D3PO


    odds_on wrote: »
    I agree with djimi. The OP seems to have forgotten what happens if the rental goes haywire etc. There can be a lot of heartache as a landlord, even if you have good tenants - you have to be available for emergency calls more or less 24x7x365


    Every investment has risks, its about weighing up the risks and then making a decision. Of course you need to go in with your eyes wide open and consider the pitfalls, but that's only part of the consideration as to weather a buy to let is a worthwhile investment.

    Just one further thing to add to the OP.

    If you do redo your maths and decide its the right thing to do. DO NOT buy the property with your cash.

    Get a BTL mortgage. Why do this when you have the money to buy outright you ask ? As it stands interest (or 75% of it) can be offset against your taxable liability.

    So for example if you got a BTL at say 8% interest (You will get a cheaper BTL rate but plan for a higher one) your essentially getting the money at 2% once you can make your savings work for you to return a better rate than that 2% its actually more financially beneficial to you (and there are savings products that would do just that)

    on top of this you have also reduced your taxable liability so you would be mad not to.

    you then still have that money for rainy days should you need it rather than liquidating your investment or should the government eventually drop the interest relief component of renting you can pay off the mortgage with the money you had on deposit.


  • Registered Users, Registered Users 2 Posts: 2,648 ✭✭✭desertcircus


    Honestly, if this is money you can afford to lose, why not look at investment funds? It's possibly riskier (although sinking 85k into the Irish property market isn't exactly playing it safe), but offers much higher potential returns. Alternative energy funds, for example, could produce huge returns, and probably aren't much riskier than a one-bed in Ireland.


  • Registered Users, Registered Users 2 Posts: 7,879 ✭✭✭D3PO


    Honestly, if this is money you can afford to lose, why not look at investment funds? It's possibly riskier (although sinking 85k into the Irish property market isn't exactly playing it safe), but offers much higher potential returns. Alternative energy funds, for example, could produce huge returns, and probably aren't much riskier than a one-bed in Ireland.


    This is true or of course you could invest in one of the 60 crypto currencies currently floating around. Find the one with the biggest bubble and make a killing.

    Bitcoins have spiked in value 25% in the past few weeks :P:D

    Disclaimer I seriously wouldn't do this post meant as tongue in cheek !!!


  • Registered Users, Registered Users 2 Posts: 13,237 ✭✭✭✭djimi


    D3PO wrote: »
    Every investment has risks, its about weighing up the risks and then making a decision. Of course you need to go in with your eyes wide open and consider the pitfalls, but that's only part of the consideration as to weather a buy to let is a worthwhile investment.

    Its not just about risk though. Its not just an investment; you are effectively starting a business. You have obligations towards your tenants and when issues arise its your responsibility to deal with them in a timely fashion. Even if it means shelling out hundreds to replace a boiler or whatever.

    If the OP is aware of what becoming a landlord entails then more power to them. But too many landlords in this country bought only as a way to make a few quid, and seem to see dealing with their tenants as an inconvenience and expense that they cant be bothered with. Its not an easy way to make a few quid from an investment, and its important that people understand this when considering investing in a rental property.


  • Registered Users, Registered Users 2 Posts: 7,879 ✭✭✭D3PO


    djimi wrote: »
    Its not just about risk though. Its not just an investment; you are effectively starting a business. You have obligations towards your tenants and when issues arise its your responsibility to deal with them in a timely fashion. Even if it means shelling out hundreds to replace a boiler or whatever.

    If the OP is aware of what becoming a landlord entails then more power to them. But too many landlords in this country bought only as a way to make a few quid, and seem to see dealing with their tenants as an inconvenience and expense that they cant be bothered with. Its not an easy way to make a few quid from an investment, and its important that people understand this when considering investing in a rental property.

    I did say go in with your eyes wide open implying you need to know your rights and your tenants rights and knowing that it isn't a case of just collecting 800 quid every month.

    I agree with you many landlords are amateurs and many quite frankly are accidental landlords, doesn't absolve them from their ignorance but unfortunately its how things are.

    That's a whole different discussion mind you. OP wanted feedback on weather its a reasonable investment and for feedback as to what they have missed.

    Its important to point out that the work involved in being a LL, but its equally importnant not to let that derail the thread completely.


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  • Closed Accounts Posts: 18,966 ✭✭✭✭syklops


    800 a month for a flat on the northside seems a bit high. Im currently looking for a flat on the southside and there are several for 800.

    Sussex Road, D4, 2 minute walk to Luas
    = 800.

    I used to live about 5 doors down from that particular one and its a lovely area. If its still there after payday I'll probably take it(which it probably won't).


  • Registered Users, Registered Users 2 Posts: 7,879 ✭✭✭D3PO


    syklops wrote: »
    800 a month for a flat on the northside seems a bit high. Im currently looking for a flat on the southside and there are several for 800.

    Sussex Road, D4, 2 minute walk to Luas
    = 800.

    I used to live about 5 doors down from that particular one and its a lovely area. If its still there after payday I'll probably take it(which it probably won't).

    Sorry what has that flat on the southside got to do with anything ? Its already been determined that 800 doesn't seem a bit high both on checks from daft and also by the fact the OP lives and knows the area hes talking about well.

    You also seem to be implying that the southside is better/more expensive weather you intended to or not. Which is of course a nonsense and extremely condescending and snobbish.

    Its a ridiculous attitude and that's coming from a southsider who has lived that all my life.

    Just to add comparing a flat with an apartment isn't a reasonably comparison. Futhermore that flat you have linked is shabby at best have you actually looked at the photos, the grime on the tiles in the bathroom is revolting, the state of the walls in that bedroom is also disgusting.


  • Registered Users, Registered Users 2 Posts: 13,237 ✭✭✭✭djimi


    syklops wrote: »
    800 a month for a flat on the northside seems a bit high. Im currently looking for a flat on the southside and there are several for 800.

    Go onto Daft and look for apartments for sale on the northside for around €80k. Then look at the rental price of properties in the same areas. I was surprised but there definitely seems to be €80k apartments renting for €800 and in some cases more.


  • Registered Users, Registered Users 2 Posts: 13,237 ✭✭✭✭djimi


    D3PO wrote: »
    Its important to point out that the work involved in being a LL, but its equally importnant not to let that derail the thread completely.

    Im not trying to derail the thread; just hoping that the OP knows what they are getting into, and understands that there is a lot more to property rental than just an investment.

    Also financial obligations need to be taken into account when calculating returns. The OP has €1500 down for "other expenses" which could be to cover this, but if they arent taking this into account then they have to bear in mind that replacing something like a boiler or even a washing machine will dramatically eat into the rent gained for that particular month.


  • Closed Accounts Posts: 18,966 ✭✭✭✭syklops


    djimi wrote: »
    Go onto Daft and look for apartments for sale on the northside for around €80k. Then look at the rental price of properties in the same areas. I was surprised but there definitely seems to be €80k apartments renting for €800 and in some cases more.

    I'll take your word for it. I was simply giving my input that 800 for the northside seems high when flats 10 minutes walk from the city centre on the southside can be had for the same amount, and nice flats in nice areas at that.


  • Registered Users, Registered Users 2 Posts: 7,879 ✭✭✭D3PO


    djimi wrote: »
    Im not trying to derail the thread; just hoping that the OP knows what they are getting into, and understands that there is a lot more to property rental than just an investment.

    Also financial obligations need to be taken into account when calculating returns. The OP has €1500 down for "other expenses" which could be to cover this, but if they arent taking this into account then they have to bear in mind that replacing something like a boiler or even a washing machine will dramatically eat into the rent gained for that particular month.

    True but it will also eat into their taxable liability, this is part of the reason you would look at a yield of higher than other investment in general to offset these kind of things.


  • Registered Users, Registered Users 2 Posts: 12,089 ✭✭✭✭P. Breathnach


    D3PO wrote: »
    ...

    If you do redo your maths and decide its the right thing to do. DO NOT buy the property with your cash.

    Get a BTL mortgage. Why do this when you have the money to buy outright you ask ? As it stands interest (or 75% of it) can be offset against your taxable liability.

    So for example if you got a BTL at say 8% interest (You will get a cheaper BTL rate but plan for a higher one) your essentially getting the money at 2%....
    Oh dear!

    Interest can not be set off against tax liability; it is set off against taxable income.

    Back of envelope: if you borrow at 8% the effective tax relief will be about 2.7%, so you would need to achieve an income of 5.3% on your savings to make it a good option to borrow.


  • Registered Users, Registered Users 2 Posts: 7,879 ✭✭✭D3PO


    syklops wrote: »
    I'll take your word for it. I was simply giving my input that 800 for the northside seems high when flats 10 minutes walk from the city centre on the southside can be had for the same amount, and nice flats in nice areas at that.

    So basically you don't know what your talking about. Perhaps you should educate your snobbish attitude on the northside rental market before passing comment ?


  • Registered Users, Registered Users 2 Posts: 7,879 ✭✭✭D3PO


    Oh dear!

    Interest can not be set off against tax liability; it is set off against taxable income.

    .


    Oh dear reducing your taxably income reduces your taxably liability.

    Offset : something that counterbalances, counteracts, or compensates for something else; compensating equivalent.

    Perhaps learn what the word offset means before being a smart arse :rolleyes:


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  • Closed Accounts Posts: 18,966 ✭✭✭✭syklops


    Actually you know what, forget I said anything.


  • Registered Users, Registered Users 2 Posts: 12,089 ✭✭✭✭P. Breathnach


    D3PO wrote: »
    Oh dear reducing your taxably income reduces your taxably liability.

    Offset : something that counterbalances, counteracts, or compensates for something else; compensating equivalent.

    Perhaps learn what the word offset means before being a smart arse :rolleyes:
    Rather than deem me a smart arse, check the claim
    ... So for example if you got a BTL at say 8% interest (You will get a cheaper BTL rate but plan for a higher one) your essentially getting the money at 2% ...
    That is seriously erroneous.


  • Closed Accounts Posts: 12,449 ✭✭✭✭pwurple


    I'd split the money OP.

    Put half into the property, mortgage rate <50% LTV will be lower than full mortgage. 75% of the interest can be offset... (ie you will pay less tax)

    Put the other half into a higher yield interest earning account. KBC had the best return for our lump sum the last time I compared the offerings (last year).

    This way if interest rates rise, your deposit return will rise... and if they fall, your mortgage repayments will fall. Should soften the risk.


  • Registered Users, Registered Users 2 Posts: 7,879 ✭✭✭D3PO


    Oh dear!

    Interest can not be set off against tax liability; it is set off against taxable income.

    Back of envelope: if you borrow at 8% the effective tax relief will be about 2.7%, so you would need to achieve an income of 5.3% on your savings to make it a good option to borrow.

    Not correct you need to do your maths again.


  • Registered Users, Registered Users 2 Posts: 7,879 ✭✭✭D3PO


    Rather than deem me a smart arse, check the claim

    That is seriously erroneous.

    ok it was high level comment and not specific I accept I should have made this clear.


  • Registered Users, Registered Users 2 Posts: 1,772 ✭✭✭byronbay2


    Go for it, OP - sounds like a good long-term investment! If you have cash in the bank then I would use that for the purchase, rather than get a BTL loan. Also, an apt is a much easier-to-manage investment than a house. If you can get a good long-term tenant in (easier said than done, obviously), there may be very little work involved for you.


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  • Registered Users, Registered Users 2 Posts: 2,598 ✭✭✭emeldc


    I don't think anyone else said it but USC is also due on rental income after expenses. This landlord business sucks, doesn't it :rolleyes:


  • Registered Users, Registered Users 2 Posts: 18,061 ✭✭✭✭Thargor


    So with property tax and everything else if I ran out today and bought a BTL apartment for cash with £1000 per month yield how much of that £1000 would be mine every month after taxes and charges etc? Surprisingly difficult to get an answer to this question!


  • Closed Accounts Posts: 12,449 ✭✭✭✭pwurple


    Thargor wrote: »
    So with property tax and everything else if I ran out today and bought a BTL apartment for cash with £1000 per month yield how much of that £1000 would be mine every month after taxes and charges etc? Surprisingly difficult to get an answer to this question!

    That's because everyone's circumstances are different.

    Do you have another income... one that puts you in the higher tax band, or not?

    What are your expenses?

    What are your tax credits?


  • Registered Users, Registered Users 2 Posts: 12,089 ✭✭✭✭P. Breathnach


    D3PO wrote: »
    Not correct you need to do your maths again.
    Here's the back of my envelope:
    For every €10000 borrowed at 8%:
    - gross annual interest: €800
    - deductible from rental income: €600
    - effective income tax relief at marginal rate of 41%: €246
    - add USC saving at 4%: €24
    - total tax savings €270
    - post-tax cost of borrowing €530 (= 5.3% p.a.)


  • Closed Accounts Posts: 12,449 ✭✭✭✭pwurple


    AIB BTL rates, today.

    15p1ffq.gif


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  • Registered Users, Registered Users 2 Posts: 7,879 ✭✭✭D3PO


    Here's the back of my envelope:
    For every €10000 borrowed at 8%:
    - gross annual interest: €800
    - deductible from rental income: €600
    - effective income tax relief at marginal rate of 41%: €246
    - add USC saving at 4%: €24
    - total tax savings €270
    - post-tax cost of borrowing €530 (= 5.3% p.a.)


    If the below is wrong I'm ready to stand corrected although I do acknowledge where your figure comes from.

    lets remove all the noise re other expense etc and just work on the interest and income component

    So rental income as the OP notes €9,600
    70k mortgage @ 8% annual interest is €4,200
    Therefore tax due €2430 (USC & Income tax combined)

    Buy for cash

    Rental income €9600
    Therefore tax due €4320 (USC & Income tax combined)

    Tax Savings from getting the mortgage €4320 - €2430 = €1890 per annum
    Effective cost of borrowing €4200 - tax savings €1890 = €2310

    €2310 a % of the 70k borrowing = 3.3%
    Therefore effective post tax cost of borrowing 3.3%

    So if you can get a better return than 3.3% (which you should do) then better to get the mgage


  • Registered Users, Registered Users 2 Posts: 7,879 ✭✭✭D3PO


    pwurple wrote: »
    AIB BTL rates, today.

    15p1ffq.gif

    aware of this but re this discussion you need to note that for taxable benefit calculations you should be working off a fixed rate so that you can ensure the benefits work as calculated.


  • Closed Accounts Posts: 12,449 ✭✭✭✭pwurple


    D3PO wrote: »
    aware of this but re this discussion you need to note that for taxable benefit calculations you should be working off a fixed rate so that you can ensure the benefits work as calculated.

    Fixed rate with AIB is 5.4% 1 year.... up to 5.6% 5 year fixed.

    Nothing wrong with erring on the side of caution, but 8% is extremely high.

    Also, not to quibble, but OP is unlikely to get a 70k investment mortgage on an 80k property. That's 87.5 LTV. 80% would be about the max on annuity basis, 70% interest only.


  • Registered Users, Registered Users 2 Posts: 3,642 ✭✭✭dubrov


    D3PO wrote: »
    If the below is wrong I'm ready to stand corrected although I do acknowledge where your figure comes from.

    lets remove all the noise re other expense etc and just work on the interest and income component

    So rental income as the OP notes €9,600
    70k mortgage @ 8% annual interest is €4,200
    Therefore tax due €2430 (USC & Income tax combined)

    Buy for cash

    Rental income €9600
    Therefore tax due €4320 (USC & Income tax combined)

    Tax Savings from getting the mortgage €4320 - €2430 = €1890 per annum
    Effective cost of borrowing €4200 - tax savings €1890 = €2310

    €2310 a % of the 70k borrowing = 3.3%
    Therefore effective post tax cost of borrowing 3.3%

    So if you can get a better return than 3.3% (which you should do) then better to get the mgage

    D3PO, you are correct up until the effective cost of borrowing.
    The interest is €5600 (not 4200).
    Effective cost of borrowing €5600 - tax savings €1890 = €3710=> 5.3%


  • Registered Users, Registered Users 2 Posts: 3,642 ✭✭✭dubrov


    Just to add, with DIRT at 41% that means if you were to place the 70k in a deposit account instead of buying the house, you would have to get an interest rate of 8.98% to break even.

    Shows how crazy the DIRT tax has gone.

    Of course 8% is probably a high cost of borrowing but even at 5%, the equivalent deposit rate would be 5.61%.

    Better to buy with cash in the current climate I think.

    Here are the calcs for anyone interested

    Option A(100% Mortgage) Option B (Buy with Cash)
    Mortgage 70000 0
    Interest Rate 5% 5%
    Annual Mortgage Interest 3500 0
    Tax Relief % on Interest 75% 75%

    Rental Income 9600 9600
    Effective Tax Rate 45% 45%
    Interest Relief 2625 0
    Taxable Income 6975 9600

    Tax Due 3138.75 4320

    Savings 70000 0
    Savings Rate 5.61% 5.61%
    DIRT Tax 41% 41%
    Effective Savings Rate 3.31% 3.31%
    Interest after DIRT 2318.75 0

    Net Return 5280 5280


  • Registered Users, Registered Users 2 Posts: 7,879 ✭✭✭D3PO


    dubrov wrote: »
    D3PO, you are correct up until the effective cost of borrowing.
    The interest is €5600 (not 4200).
    Effective cost of borrowing €5600 - tax savings €1890 = €3710=> 5.3%

    My bad I had a brain fart doing the maths in my head. Appologies to P Breathnach you were right.

    Either way a calculation by the OP as to what cost they could get a 5 year fixed rate at to find the effective cost of borrowing versus what they could return with their cash in savings is a worthwhile exercise.


  • Registered Users, Registered Users 2 Posts: 12,089 ✭✭✭✭P. Breathnach


    D3PO wrote: »
    My bad I had a brain fart doing the maths in my head....
    We have all done that at one time or another. That's why we are not all millionaires (nor, I hope, bankrupt).


  • Registered Users, Registered Users 2 Posts: 2,072 ✭✭✭sunnysoutheast


    NPPR (and household charge) are not, and never will be, allowable deductions for tax purposes. The status of LPT as an allowable expense is still not confirmed as far as I am aware.

    I can't really add anything to the excellent analysis of breakeven in the thread, except to say that I went through a similar exercise a few months ago, but decided to invest in the equity markets rather then BtL.

    There is a thread on here about a guy who was building a BtL portfolio - think it's Darren's Diary or something.


  • Registered Users, Registered Users 2 Posts: 19,717 ✭✭✭✭Muahahaha


    One factor that hasn't been mentioned about investing in property right now vis a vis other investments is the exit strategy of the investment and the liability to capital gains tax on exit.

    Revenue have extended their exemption to capital gains tax for investment properties bought between now and the end of 2014, provided the property is held onto for a minimum of 7 years. So assuming that the OP is in this for a minimum of 10 years and won't sell until 2024 then any capital appreciation would be exempt from capital gains tax. Given that CGT is 33% on all other asset classes the exemption on property could prove attractive to some! especially if you are of the belief that prices will rise by at least 30% of the next decade.

    I should add that the exemption applies not only to Irish property but to any property within the EU. Given that prices in definitely rising In the UK if I were in theOPs position I'd be looking at a city like Manchester where you can get a three bed house less than 7 tram stops from the city center for under £90k. Id have far more confidence in the UK government to achieve economic growth over the next decade than I would in our own government. There are still way too many unknowns in the Irish economy right now, we could yet need a second bail out and we could yet see stacks of repossessions where the UK has been way ahead of us at sorting those problems out so at a minimum they are priced into the market thus creating a more favourabe investment climate.


  • Registered Users, Registered Users 2 Posts: 7,879 ✭✭✭D3PO


    Muahahaha wrote: »
    One factor that hasn't been mentioned about investing in property right now vis a vis other investments is the exit strategy of the investment and the liability to capital gains tax on exit.

    Revenue have extended their exemption to capital gains tax for investment properties bought between now and the end of 2014, provided the property is held onto for a minimum of 7 years. So assuming that the OP is in this for a minimum of 10 years and won't sell until 2024 then any capital appreciation would be exempt from capital gains tax. Given that CGT is 33% on all other asset classes the exemption on property could prove attractive to some! especially if you are of the belief that prices will rise by at least 30% of the next decade.

    I should add that the exemption applies not only to Irish property but to any property within the EU. Given that prices in definitely rising In the UK if I were in theOPs position I'd be looking at a city like Manchester where you can get a three bed house less than 7 tram stops from the city center for under £90k. Id have far more confidence in the UK government to achieve economic growth over the next decade than I would in our own government. There are still way too many unknowns in the Irish economy right now, we could yet need a second bail out and we could yet see stacks of repossessions where the UK has been way ahead of us at sorting those problems out so at a minimum they are priced into the market thus creating a more favourabe investment climate.

    excellent post above it should be added though that a UK property investment isn't without its own difficulties and incurring additional management costs of such property would have to be considered as you would need to look at the overhead of having it managed on your behalf amongst other things.

    Investing long term in property in an area you know well has many pros even if it means the ceiling for ROI may be lower.


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