Buying new home, renting out existing one

road_high

Hi all,

Basically I’m throwing out some ideas here. Currently I’ve a reasonable starter home Type in Kilkenny (a good rental town) with not a massive mortgage. This place is fine but I would like to upgrade to something better and maybe a better area too with a bigger garden. I’m Currently under zero pressure paying this and my salary could stand a higher re-Payment.
I’m aware being a small time landlord is a nightmare these days between upkeep, fees, tax on rental income...just throwing it out there would I be nuts to considering keep hold of this property, buying another better place to live in (have some savings) but the bulk would have to be a new mortgage.
I’m only scoping ideas in my head so would like to hear all comments and feedback.

Bass Reeves

It really down to return on investment. What is the value of the house and what is the projected rental return. Would you be mad no if the yield is good. As a investment property you will have no legal/auctioneer fees. Just research what way CGT operates if you sell 3-5 years time.

Caranica

Absolutely nuts. Wouldn't recommend it to my worst enemy. Only today I shredded the last of the paperwork from when we did just that. Damage reports, notices of rental arrears, repair bills, solicitors' letters... An absolute nightmare. And we thought we had excellent tenants and our letting agent assured us they were doing regular inspections. Would never ever ever do it again.

road_high

Bass Reeves wrote: »

It really down to return on investment. What is the value of the house and what is the projected rental return. Would you be mad no if the yield is good. As a investment property you will have no legal/auctioneer fees. Just research what way CGT operates if you sell 3-5 years time.

It’s probably worth circa €180k, rents are in the region of €1k per month for similar properties nearby. There’s a massive shortage in fact.
I do need to get proper advice on this as I don’t know enough

road_high

Caranica wrote: »

Absolutely nuts. Wouldn't recommend it to my worst enemy. Only today I shredded the last of the paperwork from when we did just that. Damage reports, notices of rental arrears, repair bills, solicitors' letters... An absolute nightmare. And we thought we had excellent tenants and our letting agent assured us they were doing regular inspections. Would never ever ever do it again.

Yes I could imagine the problems if rent stopped being paid...the mortgage wouldn’t!! Though the mortgage is about half per month of gross rents in the area. So after tax should cover it

Caranica

road_high wrote: »

Yes I could imagine the problems if rent stopped being paid...the mortgage wouldn’t!! Though the mortgage is about half per month of gross rents in the area. So after tax should cover it

The rent not being paid isn't the worst part. It's the damage to what was your home. Friends had 40k worth of damage done to their house. All the fixtures and fittings stripped, copper taken, human waste on the carpets and furniture and more.

Bass Reeves

road_high wrote: »

It’s probably worth circa €180k, rents are in the region of €1k per month for similar properties nearby. There’s a massive shortage in fact.
I do need to get proper advice on this as I don’t know enough

Taking vacancy rate into account return on investment is about 6%. I would not buy an investment property at that return. However you have to factor in how hard easy it may be to sell now Vis a Via to rent now. However selling to buy is not an option either as you are looking at 10-12k gone in buying selling costs. I presume it will wash its own face re the mortgage

road_high

Bass Reeves wrote: »

Taking vacancy rate into account return on investment is about 6%. I would not buy an investment property at that return. However you have to factor in how hard easy it may be to sell now Vis a Via to rent now. However selling to buy is not an option either as you are looking at 10-12k gone in buying selling costs. I presume it will wash its own face re the mortgage

Would be very easy to sell (well, until Covid 19 anyhow) as it’s at the lower end of the market and would be a great little modern property for starter or small family. Area isn’t bad either, decent mix of neighbours here to be fair.
Rent would cover the mortgage but that’s all going well and tenants paying etc

Mike3287

How are you gonna buy the new house with the existing mortgage on your current house?

A second mortgage?

20% deposit?

You'll be taxed at 40% on that €1000 a month rental?

Less property charges, insurance, repairs etc would you even clear €350 a month long term on it?

On that €180,000 asset that's about 2-3% yearly yield if your lucky and get tenants that pay and don't destroy the place.

You can get 1.5% yearly yield on a 10 year states savings bond with 7 days money access notice.

€350 a month for a lot of work ( landlord ) vs €225 a month for no work paid by the state

https://www.statesavings.ie/

Layne

road_high wrote: »

Rent would cover the mortgage but that’s all going well and tenants paying etc

Would you consider renting to the County Council??
I know lots of people have reservations but the Social Housing Leasing Initiative works well for those that do not want the hassle of the day to day landlord duties.
No dealing with tenants, time and money on internal repairs, no stress about monthly rent as it is guaranteed. It is a 10-25 year agreement between you and the County Council. Once agreement is over the property is returned to you in the original condition as I understand it. Only catch is that you get 80% of the area's market rent value with a rent review every 3 years.
I'm sure others on here will have first hand experience of this scheme and how they found it. Apart from Internet research I have no experience of the scheme but might be something to consider.

Gumbo

road_high wrote: »

Yes I could imagine the problems if rent stopped being paid...the mortgage wouldn’t!! Though the mortgage is about half per month of gross rents in the area. So after tax should cover it

Don’t forget tax is not a simple rent received minus mortgage = taxable income. The full amount is taxable minus a portion of the interest element of the loan only.

road_high

Gumbo wrote: »

Don’t forget tax is not a simple rent received minus mortgage = taxable income. The full amount is taxable minus a portion of the interest element of the loan only.

Yes I was aware of that thanks- would be great if it wasn’t the case! Am I right in thinking during the crazy years that wasn’t the case?

road_high

Gumbo wrote: »

Don’t forget tax is not a simple rent received minus mortgage = taxable income. The full amount is taxable minus a portion of the interest element of the loan only.

Yes I was aware of that thanks- would be great if it wasn’t the case! Am I right in thinking during the crazy years that wasn’t the case?
I’d be paying circa 50% tax on it as already in the “high” bracket

GetWithIt

The tax efficient way to go about this is to sell your current property and buy 2 new properties - a PPR and a rental. Ensure the profits goes into the new PPR.

You then get all profit tax free and maximise the mortgage interest that can be offset against income.

Otherwise the old PPR starts attracting CGT after a year and the rent may go largely to Revenue.

Of course that ignores stamp duty, assumes you are in profit, and any advantage in terms of your existing mortgage rate. Realistically, you’d need to run all those numbers.

Another thing to consider. If you were to buy a rental property, seeking to maximise capital growth and rental return, would your existing property be that property?

road_high

GetWithIt wrote: »

The tax efficient way to go about this is to sell your current property and buy 2 new properties - a PPR and a rental. Ensure the profits goes into the new PPR.

You then get all profit tax free and maximise the mortgage interest that can be offset against income.

Otherwise the old PPR starts attracting CGT after a year and the rent may go largely to Revenue.

Of course that ignores stamp duty, assumes you are in profit, and any advantage in terms of your existing mortgage rate. Realistically, you’d need to run all those numbers.

Another thing to consider. If you were to buy a rental property, seeking to maximise capital growth and rental return, would your existing property be that property?

Thank you- the bad news continues!
So I’d end up CGT on existing newly let property after a year despite not even selling it?! How could this be if I’m not selling it?

Who2

road_high wrote: »

Thank you- the bad news continues!
So I’d end up CGT on existing newly let property after a year despite not even selling it?! How could this be if I’m not selling it?

If it’s your ppr then the cgt is only calculated when you sell it from the years it was no longer your ppr.

GetWithIt

road_high wrote: »

Thank you- the bad news continues!
So I’d end up CGT on existing newly let property after a year despite not even selling it?! How could this be if I’m not selling it?

I didn’t say that

road_high

Who2 wrote: »

If it’s your ppr then the cgt is only calculated when you sell it from the years it was no longer your ppr.

Ah right thanks- so it’s when you sell it down the road. Makes sense to be fair and did know that it’s be liable if sold

Bass Reeves

road_high wrote: »

Thank you- the bad news continues!
So I’d end up CGT on existing newly let property after a year despite not even selling it?! How could this be if I’m not selling it?

You pay CGT on sale only. When you sell they calculate CGT on a fractional basis. Say you owned the house 15 years it was your PPR for 10 and a rental for 5. Then any gain is charged for 1/3 of the time.

The risk would be that all the gain pre existed to the rental period. However the one year not given as change over and the buying selling costs more than counteract any risk

Mike3287

Layne wrote: »

Would you consider renting to the County Council??
I know lots of people have reservations but the Social Housing Leasing Initiative works well for those that do not want the hassle of the day to day landlord duties.
No dealing with tenants, time and money on internal repairs, no stress about monthly rent as it is guaranteed. It is a 10-25 year agreement between you and the County Council. Once agreement is over the property is returned to you in the original condition as I understand it. Only catch is that you get 80% of the area's market rent value with a rent review every 3 years.
I'm sure others on here will have first hand experience of this scheme and how they found it. Apart from Internet research I have no experience of the scheme but might be something to consider.

If you respect your neighbours don't do this

I would never do that my neighbours