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Buy one expensive house or purchase cheaper house and buy to let apartment

Jellybean73 · 2015-03-23 10:32:53

Option A: If you have a mortgage offer from a bank for example €500,000 and you also have savings of €200,000, would you put all of the savings into purchasing a house of €700,000 (In Dublin) OR Option B: Would you buy a house for example €500,000 with a mortgage of €400,000 and then also buy an apartment for €200,000 in…

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#32 26-03-2015 6:37pm
MarkAnthony

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bubblypop wrote: »

But, if you bought a place for cash, then the monthly income would be just that, right? Minus whatever taxes etc you have to pay. Then its still monthly income.
I wouldn't have a mortgage to pay.

I just can't think of anything else that I could put 200,000 euro into and get an income from every month?

It's actually detrimental in someways not to have a mortgage as you're not getting tax relief on it. That aside, the effective tax rate is likely to be 53% unless you're income is quite low. So lets say you get a great deal and a €200,000 apartment is generating a 9% yield.

200,000 @ 9% = 18000 income
You might have €3000 worth of deducible expenses.
Giving you a taxable gross profit of €15,000 that's a tax liability of €7950.

Cashflow:

€18000, less €3000, = €15000, less €7950 = 7050 or 587.50 per month. Worth the hassle? You decide.

The above is making the assumption of a 100% occupancy rate and that the tenant always pays. It's less risky for you as if you have no income/a loss you can carry that forward but are you willing to walk into your investment after a year of having no money coming in to find a five figure sum in damage?

I'm focusing on the negatives as many seem to be focusing solely on the positives.

€7050 return per year on €200,000 is 3.5% roughly? (Although that's net but optimistic). I'm not a FA but I'd be surprised if a higher return wasn't possible.

Please feel free to correct the calculations - as I say most of my time in tax law was spent day dreaming.

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