Buying second house

mickman

Hi guys

Currently have a mirtgage of about 215k

Buying a new house that will act as primary residence

I get interest relief on the first mirtgage , will this disappear if I rent the first house ?

Also lets say my mortgafe on first house is 12000 a year, made up of 8000 interest. If I rent this house then for 10000 a year will this 10k be tax free ?
Thanks

Mike

NIMAN

You owe 215,000 and you wanna take on more debt! You're a braver man than me.

As for your question about tax free rental income, no it won't be. It will be added on to your income and taxed at your tax rate. You can get deductions of course as a landlord but you will need to fulfill a lot of criteria to qualify.

Head over to www.irishlandlord.com for more info.

Brave man.

ted1

NIMAN wrote: »

You owe 215,000 and you wanna take on more debt! You're a braver man than me.

As for your question about tax free rental income, no it won't be. It will be added on to your income and taxed at your tax rate. You can get deductions of course as a landlord but you will need to fulfill a lot of criteria to qualify.

Head over to www.irishlandlord.com for more info.

Brave man.

Very broad statement when you don't know some ones finances. 215 could be one years salary

shenanagans

Mortgage tax relief is on your principle primary residence. If you rent out the house you can't/shouldn't claim it anymore.

2Mad2BeMad

ted1 wrote: »

Very broad statement when you don't know some ones finances. 215 could be one years salary

lets be honest if his salary was 215k a year, he wouldn't have a mortage he'd pay up front :pac:

ted1

2Mad2BeMad wrote: »

lets be honest if his salary was 215k a year, he wouldn't have a mortage he'd pay up front :pac:

Really ? It's the cheapest loan you can get and you can put your money to work

viper006

ted1 wrote: »

Really ? It's the cheapest loan you can get and you can put your money to work

Yep Really. Its this kind of thinking that landed so many in trouble in the last few years. It a cheap loan to take out a huge amount of money to invest in something with an uncertain return so find it very strange your questioning someone who is advising the OP to think very carefully getting another mortgage with 215k still o/s.

freelancerTax

ted1 wrote: »

Really ? It's the cheapest loan you can get and you can put your money to work

omg . ... seriously this statement is so stupid its hard to express
over its life time you will pay back about double the mortgage amount... if you have the cash better to pay upfront

not having a loan is cheaper than a loan with ANY interest except negative interest rates but I doubt you will ever see that

duffman13

freelancerTax wrote: »

omg . ... seriously this statement is so stupid its hard to express
over its life time you will pay back about double the mortgage amount... if you have the cash better to pay upfront

not having a loan is cheaper than a loan with ANY interest except negative interest rates but I doubt you will ever see that

In fairness to ted if someone is earning that salary it doesn't make sense to pay up front, that sum of money would most likely achieve a greater return on investment if your a little shrewd, than splashing cash to buy a house outright. Working in banking, I found very few high earners that owned property (own home) outright.Mortgage is usually the norm for everyone bar the mega rich

ted1

freelancerTax wrote: »

omg . ... seriously this statement is so stupid its hard to express
over its life time you will pay back about double the mortgage amount... if you have the cash better to pay upfront

not having a loan is cheaper than a loan with ANY interest except negative interest rates but I doubt you will ever see that

over the life of the loan you may pay back double but do you know what?

The tenants pay IT back, not the owner. So you with an investment of 40k you can get a. Yield of 6% and after 29 years a capital asset worth 220k+

Landlords don't pat mortgage or interest. Tenants do .

To get that return any other way you'd need to invest much more.

ted1

freelancerTax wrote: »

omg . ... seriously this statement is so stupid its hard to express

not having a loan is cheaper than a loan with ANY interest except negative interest rates but I doubt you will ever see that

O.K can you tell me another way of turning 40k into 200+ in 20 years while returning a yield of 6%

JJJJNR

Most rich people rent.

mickman

NIMAN wrote: »

You owe 215,000 and you wanna take on more debt! You're a braver man than me.

As for your question about tax free rental income, no it won't be. It will be added on to your income and taxed at your tax rate. You can get deductions of course as a landlord but you will need to fulfill a lot of criteria to qualify.

Head over to www.irishlandlord.com for more info.

Brave man.

Very broad statement indeed. Our finances are very healthy and we want to move to a bigger house and we can afford both mortgages fairly easily even with no renters

Anyway I have worked it out that the rented house will cost around 350 a month out of my pocket after the removal of tax relief and the 75% of interest paid being deductible from the rental so it's working out ok

Believe me I would prefer one mortgage but if I sold the first house then I would lose the 75k I put into it initially and still have to carry over 40k from the mortgage

And lastly the second house is a receiver sale where we are using 80k cash and getting this house 100k cheaper than it would normally be at this time

freelancerTax

ted1 wrote: »

over the life of the loan you may pay back double but do you know what?

The tenants pay IT back, not the owner. So you with an investment of 40k you can get a. Yield of 6% and after 29 years a capital asset worth 220k+

Landlords don't pat mortgage or interest. Tenants do .

To get that return any other way you'd need to invest much more.

so what happens when interest rates go up and rent controls come in?

ted1

freelancerTax wrote: »

so what happens when interest rates go up and rent controls come in?

Rent controls won't come in.
First banks will have to be regulated with regards offering low fixed interest rates. The government will have to remove the main charges they impose on lsndlords.

You can't restrict a free market and not do anything about the cists asdiciated with providing the product

NIMAN

ted1 wrote: »

Very broad statement when you don't know some ones finances. 215 could be one years salary

If I was earning 215k annually I would be employing a good financial advisor instead of asking unqualified punters on an internet forum.

NIMAN

ted1 wrote: »

Very broad statement when you don't know some ones finances. 215 could be one years salary

If I was earning 215k annually I would be employing a good financial advisor instead of asking unqualified punters on an internet forum.

The_Conductor

Mickman-

In brief:

The largest tax-deductible cost you can deduct from rental income, before determination of taxable income- is, the aforementioned 75% of mortgage interest.

In order to let property 1 and live in property 2- the mortgage on property one must be 60% or less than its open market value- and the mortgage on property 2 80% or less than its open market valuation.

You do not qualify for mortgage interest relief on the second property- its been phased out- so this is another cost you will need to account for in your calculations.

Rental income is taxable at your marginal rate of taxation- 41%- and you have to pay PRSI and USC on it now too....... The government is actively using taxation policy to discourage people from becoming landlords. If you can figure some way of bringing the tax on this down to the standard rate- legally- do it- if not- it really isn't worth the hassle.

Tenants believe they are paying a landlord's mortgage- as evidenced from this thread. The fact of the matter is however- that any profit from the transaction is more than likely to go to the taxman- and not the landlord. There also is no incentive to a landlord to pay down the mortgage anyway- because they would whittle away their one costbase that they can use to shield them from higher tax- the mortgage interest.

Mickman- you may be able to make the finances work- but I have to sincerely ask you- is it worth the trouble. Keeping a house in good repair and tenants happy- is time consuming and costly. The financial cost may be tax deductible- the hours of time spent in sorting every little thing that goes wrong- and a lot will go wrong- are not. Even if you do all the handiwork yourself- you are not allowed bill anything to the rental income for your own time- which is quite deliberate on the part of the Revenue Commissioners, I assure you.......

mickman

The_Conductor wrote: »

Mickman-

In brief:

The largest tax-deductible cost you can deduct from rental income, before determination of taxable income- is, the aforementioned 75% of mortgage interest.

In order to let property 1 and live in property 2- the mortgage on property one must be 60% or less than its open market value- and the mortgage on property 2 80% or less than its open market valuation.


Mickman- you may be able to make the finances work- but I have to sincerely ask you- is it worth the trouble. Keeping a house in good repair and tenants happy- is time consuming and costly. The financial cost may be tax deductible- the hours of time spent in sorting every little thing that goes wrong- and a lot will go wrong- are not. Even if you do all the handiwork yourself- you are not allowed bill anything to the rental income for your own time- which is quite deliberate on the part of the Revenue Commissioners, I assure you.......

Don't u first and your first point above - our house 1 is in negative equity . With both mortgages we are less than 3.5 X our incomes so that's what the bank is basing this on. They are not making any demands on house 1 bring a certain ltv

Point 2 - a letting agent would look after all the tenant issues and I have factored in the 7.5% they charge

mickman

freelancerTax wrote: »

so what happens when interest rates go up and rent controls come in?

I am well aware of how to stress test our payments

The_Conductor

Letting agents who fully manage tenant relationships- normally charge a flat 10%- don't go simply on getting the lowest cost agent- its not worth it- for the sake of both your sanity- and the sanity of your tenant- get a reputable agent.

Also- double check with your lender whether or not they are willing to extend you a second loan- when you are in negative equity on the first loan. Its highly risky for the lender- and is in breach of central bank lending rules. What you are suggesting sounds speculative in the extreme.

If you are below the investor threshold when both mortgages are taken into account- they could run with it- but as a separate stand-alone new mortgage and swap of the PPR mortgage for an investor status- it fails central bank rules.

mickman

The_Conductor wrote: »

Letting agents who fully manage tenant relationships- normally charge a flat 10%- don't go simply on getting the lowest cost agent- its not worth it- for the sake of both your sanity- and the sanity of your tenant- get a reputable agent.

Also- double check with your lender whether or not they are willing to extend you a second loan- when you are in negative equity on the first loan. Its highly risky for the lender- and is in breach of central bank lending rules. What you are suggesting sounds speculative in the extreme.

If you are below the investor threshold when both mortgages are taken into account- they could run with it- but as a separate stand-alone new mortgage and swap of the PPR mortgage for an investor status- it fails central bank rules.

Mortgage has been approved , house is bought. Keys next week

Still just shy of 3.5 times salary

The_Conductor

You got in before the cut-off obviously- well done- good timing (on the mortgage anyway). What I said about the letting agent holds- going for the cheapest is a false sense of economy- its a tax deductible cost anyway- so its not worth your while scrimping on it- get a good agent- it will save your sanity.

mickman

The_Conductor wrote: »

You got in before the cut-off obviously- well done- good timing (on the mortgage anyway). What I said about the letting agent holds- going for the cheapest is a false sense of economy- its a tax deductible cost anyway- so its not worth your while scrimping on it- get a good agent- it will save your sanity.

Ok, we didn't get before the cut off . We are under the 3.5 x cap and have the deposits

NIMAN

Good luck Mickman. Hope it works out for you.

um7y1h83ge06nx

The_Conductor wrote: »

Mickman-

In brief....

Top notch post there The_Conductor!

We'll be in a similar situation to the OP soon if our purchase hours through and your post pretty much sums up my research.

Thankfully I'm not in negative equity with the first house so if renting it becomes painful I'll consider selling but don't want to take that decision yet.

Such a good post I've added to my Evernote snippets regarding property.

mickman

Does the Trs get removed from house 1 automatically ?

The_Conductor

mickman wrote: »

Does the Trs get removed from house 1 automatically ?

You have to notify Revenue. The bank will assume you're still entitled to- until they're told otherwise. You have to notify Revenue. If you don't- netting at the end of the year will get you anyway- only you'll have the standard penalties too at that stage. Organise it- to avoid penalties.

mickman

The_Conductor wrote: »

You have to notify Revenue. The bank will assume you're still entitled to- until they're told otherwise. You have to notify Revenue. If you don't- netting at the end of the year will get you anyway- only you'll have the standard penalties too at that stage. Organise it- to avoid penalties.

Ok thanks

The letting fees are a bit crazy , 7.5% a month just to get tenants ? But crazy

The_Conductor

mickman wrote: »

Ok thanks

The letting fees are a bit crazy , 7.5% a month just to get tenants ? But crazy

If its just to get tenants- the standard is the first month's rent goes to the agent. If its full letting facilities- aka they take care of the letting relationship- then it tends to be 10%......... To be honest with you- its worth every penny. You have no idea how much work dealing properly with tenants entails- between the paperwork, being available anytime anything goes wrong etc etc.

Yes- the fees are high- but so too is the work load- and the learning curve. The amount of work in being a good landlord to a tenant is quite high. Conversely- once you're up to speed- having a second or subsequent properties- are easy enough- its a very steep and time consuming activity for 1 tenant- but the incremental cost in time and effort for subsequent tenants are only a fraction of that associated with the first...........

mickman

But where is this large workload ?