Questions about costs of becoming a Landlord

islander222

First of all, I've read all the helpful information on here and on IrishLandlords.ie. So I think I have a grasp of the costs associated with renting out a property. However, from the complex sums I've done (and I'm no genius) I think that the low interest rates we pay at the moment mean we will be left with a very large tax bill that would make any move prove costly. Any advice or maybe pointing out something I've missed would be appreciated.

My story is that we want to relocate to be closer to family, trading up to a 4 bed detached in the country (which would cost about the same as our old 3 bed semi would rent for). Initially renting before buying in the near future (3 years).

Our 3 bed semi is in a town but is in negative equity (approx 40k) so selling right now is not an option. The rental market is good at the moment which means we could get at least €150 more in rent than we pay on the mortgage. But I fear all the usual costs (insurance, PRTB cost, accountant, letting\mgmt agent, repairs, cleaning etc) in addition to the tax would make it too expensive for us to move.
I know we can write off a lot of costs against the tax but even at that I calculate we will make min 9600 in rent, pay 1600 in mortgage interest, incur about 2500 in costs that can be written off. All of which mean that we need to pay tax at top rate (plus PRSI and USC?) on approximately 5900 of the rent.
Am I on the right track here??

The_Conductor

Its a very bad idea to come at this from the idea of- I'll rent out my 3 bed semi in Dublin- and put it towards a nice 4-5 bed down the country- sure, one will cancel out the other.

A serious flaw in taxation of rental income in an Irish context- is you cannot offset the rent received from one property- against the rental outgoings on another.

If you rent out your current property- you can offset 75% of the mortgage interest against the rental income (before determination of the taxable income). This is your one big allowable cost. You will have to pay PRSI and USC on the rental income though- so you're going to have a net tax amount to pay the tax man (depending of course on your other income- which will also determine what your rate of marginal tax is).

You are probably looking at paying marginal tax, PRSI and USC on approx. 6k of the rental income- yes. Rounding figures- you'd probably end up owing in the region of 3k to the taxman on your rental income of 9,600 per annum (given the figures you've supplied- and this is very much back of envelope calculations.......)

If you're netting 6-7k from letting your property in location A- could you find the additional 3-4k needed to rent property in location B?

Also- what are the 2,500 of allowable costs that you're suggesting? If you're thinking of writing down furniture, fixtures and fittings- please note you can only do this for those items that you have the receipts for- and they are written down from todays date- not their purchase date- so if something is 4 years old- even if its in perfect condition- it is now 50% written down before you ever get to factor it into your allowable costs..........

In all honesty- unless you have another ongoing income stream that you can utilise to accompany your net rental income- you're going to have to rethink your big move to the countryside.........

The taxation regime of Irish landlords sucks. Most tenants have zero cognisance of the simple fact that its far from unusual for over half of their rent to go straight to the tax man (particularly if their landlord has been prudent and paid down their mortgage). There is a perverse incentive for landlords not to pay down their mortgages (which is why so many are advocating that interest only mortgages for BTL properties be reintroduced).

islander222

Thanks, I realise we're talking 'back of the envelope' numbers here. The 2500 I had was a rough estimate but it was letting agency\mgmt company, PRTB, Accountant fees, refuse, insurance, property tax, water charges etc.

So all-in-all the rent I get, would need to be clearing an additional 450 or so above the mortgage just to break even. %£**%^! We could afford to take the hit financially but it doesn't make sense because that would be most of our savings towards our next deposit...

Doesn't leave us with any option except sit tight and wait until the gap closes between the house value and mortagage owed... could be 3 years...

athtrasna

islander222 wrote: »

Thanks, I realise we're talking 'back of the envelope' numbers here. The 2500 I had was a rough estimate but it was letting agency\mgmt company, PRTB, Accountant fees, refuse, insurance, property tax, water charges etc

Property tax is not tax deductible and the tenants would be responsible for water charges. Refuse is also a tenant cost unless you build it into the rent.

cocoman

islander222 wrote: »

Thanks, I realise we're talking 'back of the envelope' numbers here. The 2500 I had was a rough estimate but it was letting agency\mgmt company, PRTB, Accountant fees, refuse, insurance, property tax, water charges etc.

Refuse, property tax and water charges aren't tax deductible. Costs of any repairs would be.
You need to make sure that you get good reliable tenants (references, etc) as a couple of months unoccupied or missed rent will eat into any spare cash you might have.

beauf

You also need to to factor in a reserve fund for long term repairs, and damages.

audi12

islander222 wrote: »

Thanks, I realise we're talking 'back of the envelope' numbers here. The 2500 I had was a rough estimate but it was letting agency\mgmt company, PRTB, Accountant fees, refuse, insurance, property tax, water charges etc.

So all-in-all the rent I get, would need to be clearing an additional 450 or so above the mortgage just to break even. %£**%^! We could afford to take the hit financially but it doesn't make sense because that would be most of our savings towards our next deposit...

Doesn't leave us with any option except sit tight and wait until the gap closes between the house value and mortagage owed... could be 3 years...

your assuming prices will continue to rise i dont believe they will

filbert the fox

beauf wrote: »

You also need to to factor in a reserve fund for long term repairs, and damages.

AAAAAAAAAAAnnnnnnnnnnnnddddddddddddddddddd - the potential unpredictability of your tenant. Are you willing to answer the phone on new year's eve with your tenants name coming up on your screen and a possible leaking roof/ boiler malfunction/ broken washing machine/ or worse - no rent?

Think long and hard about one of the least fair tax takes when you compare it to the over generous Rent a Room scheme which allows €12,000 rent to be free of tax.

islander222

Another question on this - is allowing someone to switch to an interest only mortgage something the banks would consider - or is that only an option if you prove you would have issues making the full repayments?

athtrasna

islander222 wrote: »

Another question on this - is allowing someone to switch to an interest only mortgage something the banks would consider - or is that only an option if you prove you would have issues making the full repayments?

It's not happening much if at all these days. Even when they offered it it was only short term.