House Purchase Advice

Wbd1989

Long time lurker, first time poster.

If anyone could advise/share their thoughts on the below idea it would be appreciated (Will keep it as short as possible).

Currently toying with the idea of trying to purchase a house on the market that would need some renovations/upgrading (BER G, rewiring & re-plumbing would probably be needed within 4/5 years, new kitchen, floors, painting etc.). The house is priced close to the upper end of our budget so if we were successful the balance remaining wouldn't suffice to do the work that we would like to do to it.

My question is as we are in a lucky postion (lucky might be a stretch) that we are living at home with family our ability to save is very good, so if we were successful on purchasing the house we would plan to rent it for a year so that over this time we could build up our savings again to help down the line with the re-work that is needed. Is this a mad idea or something worth pursuing?

The house is currently being lived in so its not that we would be renting out a kip and it's in an area that we'd have no issue getting tenants. The rental income will of course be declared but with the ability to write off 80% of the mortgage interest against the income along with a few other expenses the overall tax liability will be significantly lower.

Am I missing anything glaring about this idea?

I posted something similar a number of months back, same kind of idea that you have now. Eventually decided against it after many people pointed out that if you are unlucky enough to get a bad tenant your house could get wrecked, you might not get the tenant to leave when you want them to, they might not pay you the rent, etc. The horror stories are probably in the very small minority but for us it just wasn't worth the risk. Also when we crunched the numbers it just didn't make sense to rent the house out, the tax on rental income is very punitive.
Another thing is once you get your keys you feel an attachment to the house, and although it is just bricks and mortar it would have been difficult to hand the keys over to another person to live in our home.
Hope this helps.

draiochtanois

This post has been deleted.

Wbd1989

downtheroad wrote: »

I posted something similar a number of months back, same kind of idea that you have now. Eventually decided against it after many people pointed out that if you are unlucky enough to get a bad tenant your house could get wrecked, you might not get the tenant to leave when you want them to, they might not pay you the rent, etc. The horror stories are probably in the very small minority but for us it just wasn't worth the risk. Also when we crunched the numbers it just didn't make sense to rent the house out, the tax on rental income is very punitive.
Another thing is once you get your keys you feel an attachment to the house, and although it is just bricks and mortar it would have been difficult to hand the keys over to another person to live in our home.
Hope this helps.

Fully agree with the fear of getting a bad tenant. I would be me more thinking the same vain as you but the other half is convinced they'd be checked out properly etc. I've read the horror stories on here about people overholding etc. which is putting a dampener on it for me. Never thought of the having the keys and handing them over attachment. This house is in an ideal situation and has the potential to be the ''forever home' so it's a strong fascination we have with it.

Wbd1989

draiochtanois wrote: »

This post has been deleted.

Rent out a room or rooms which is tax free up to 14,000 and you can kick them out at any time.[/quote]
The second room is very small so I dont think there'd be any interest in that regard. The house is very small all round but the potential to extend is near endless (budget permitting of course).

Agee with above on the rent a room idea, even if it is a small second room there is probably a high likelihood of renting it due to the demand out there for accommodation. Particularly if you are in a good area, as you say the property is.

While you might not get 14k a year for it, I would bet that the (tax free) rent you would receive will be at least equal to the net income you would receive for renting out the whole property and then paying the tax bill on that income. Similar income for far less risk is a no brainer to me.

Cheshire Cat

If you buy the house with the intention of letting it, you would (technically) need an investment mortgage. I.e. a higher deposit and higher rates.

Wbd1989

Just for argument sake.
Rent a room @ 500e = 6000e income
House Rental @1500e = 13,984 income (Income of 18K - 10,125 mortgage interest @3.5% * 80%. Balance taxed at 51%)
I understand the risk and rewards are different in each scenairo but this is still correct though isnt it?
Pretty sure certain expenses like home insurance, paint costs etc are deductible also.

Samuel T. Cogley

Wbd1989 wrote: »

Just for argument sake.
Rent a room @ 500e = 6000e income
House Rental @1500e = 13,984 income (Income of 18K - 10,125 mortgage interest @3.5% * 80%. Balance taxed at 51%)
I understand the risk and rewards are different in each scenairo but this is still correct though isnt it?
Pretty sure certain expenses like home insurance, paint costs etc are deductible also.

That calculation doesn't look right. You'll pay down the mortgage but you won't have much free cash. I'm not in positive cash flow with 1100 rent and a mortgage of around €600.

Bananaleaf

A lot of the improvement work you mention wanting to do to the house doesn't sound like it needs to be done immediately. If it's going to be your forever home, what's the rush?

Samuel T. Cogley

House Rental @1500e = 13,984 income (Income of 18K - 10,125 mortgage interest @3.5% * 80%. Balance taxed at 51%)

€1500 x 12 = 18,000

Tax, PRSI and USC = c.54% = 9,720
Less Mortgage interest (Are you sure this is 10125? Sounds like the entire Mortgage)
Less expenses
Say €5000 for the sake of argument
=
€4720 Tax Due, you feed this back in.

€18,000
Less 4720 (tax)
Less Mortgage
Less expenses
= Not a lot usually.

If you were going to do this long term you could write off things like a new boiler on tax over eight years but it doesn't sound like you plan on doing it that long.

catrionanic

Wouldn’t that be mortgage fraud? You’ve bought a house and let it straight away. You should have a BTL mortgage for that.

Wbd1989

Samuel T. Cogley wrote: »

House Rental @1500e = 13,984 income (Income of 18K - 10,125 mortgage interest @3.5% * 80%. Balance taxed at 51%)

€1500 x 12 = 18,000

Tax, PRSI and USC = c.54% = 9,720
Less Mortgage interest (Are you sure this is 10125? Sounds like the entire Mortgage)
Less expenses
Say €5000 for the sake of argument
=
€4720 Tax Due, you feed this back in.

€18,000
Less 4720 (tax)
Less Mortgage
Less expenses
= Not a lot usually.

If you were going to do this long term you could write off things like a new boiler on tax over eight years but it doesn't sound like you plan on doing it that long.

Mortgage is 1500e a month (€380k @ 3.5%). The main idea is for the mortgage to be mostly paid by the rental income which in turn allows us to re-build a savings pot for when we move in the following year. We wouldn't walk away with any money in hand but it just allows us to get the house we want and give us that bit of extra time to save.

Wbd1989

catrionanic wrote: »

Wouldn’t that be mortgage fraud? You’ve bought a house and let it straight away. You should have a BTL mortgage for that.

Didn't realise this would be an issue. Must look into it before going any further, thanks for that.

Samuel T. Cogley

Wbd1989 wrote: »

Didn't realise this would be an issue. Must look into it before going any further, thanks for that.

Most people get away with it, who's checking - but that said if it was going to get uncovered at anytime it's most likely right at the start when you'll be needing different insurance than normal and potentially redirecting your post.

catrionanic

Samuel T. Cogley wrote: »

Wbd1989 wrote: »

Didn't realise this would be an issue. Must look into it before going any further, thanks for that.

Most people get away with it, who's checking - but that said if it was going to get uncovered at anytime it's most likely right at the start when you'll be needing different insurance than normal and potentially redirecting your post.

The bank requests proof of your home insurance. I wouldn’t risk it.

Wbd1989

Just an update.
Our offer on the house was surpassed by other bidders so we are back to the drawing board unfortunately.

Dr_Kolossus

Don't give up hope, we searched for around a year many offers, outbid etc but house we ended up with was by far the best of the lot.