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Is buying a primary home and renting out a room tax free a no lose situation?

  • 09-01-2022 7:10pm
    Registered Users Posts: 8,239 ✭✭✭

    I've been thinking of buying for a number of years. It would not be a forever home, probably a 2 bed apartment in a Dublin suburb.

    I'm house sharing now, single so sharing isn't a massive deal for me. Property could cost maybe 240k and rent from a single room I think would get at least 6k a year which would be tax free.

    I'm paying 4k a year on rent, which if paying a mortgage would be 4k a year equity rather than "dead money".

    I've done loan amortization with 3% interest rate and I think by my calculations, that if I kept the 6k per year rental income, then sold the house for 200k (40k lower than a potential 240k purchase price), I'd be left with the same deposit as I started with by year 7.

    I've talked myself out of it so far but it just feel like it makes sense financially.


  • Registered Users Posts: 1,162 ✭✭✭LawBoy2018

    Why bother if your rent is so cheap? Also, you don't need to own the property to avail of rent a room relief.

  • Registered Users Posts: 24,138 ✭✭✭✭lawred2

    4k a year on rent?



    Sheep's Head?

    edit... Sorry I see you're in a house share... still that's the rent I was paying 15 years in a house share in Cork..

  • Registered Users Posts: 24,138 ✭✭✭✭lawred2

    I've always been a bit confused about availing of rent a room relief while not being the owner...

  • Registered Users Posts: 1,162 ✭✭✭LawBoy2018

    AFAIK, it would entail an individual leasing a property and then subletting a spare room.

  • Registered Users Posts: 4,028 ✭✭✭standardg60

    I'd sit tight for that rent too, 4k is nothing in the grand scheme of things, and wouldn't be far off the interest you'd pay annually on the mortgage anyway, which is also dead money. Add in the fact you'd be paying at least twice that on the mortgage payments, including the rent a room income, or 3/4 times without, plus the initial outlay on legal fees, furnishing etc., you end up relying on the property inflating in price to realise any gain, which is a gamble.

    If you're still young, it's not a forever home, and you're goal is to meet a partner and set up home eventually, i would stay where i am.

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  • Registered Users Posts: 8,239 ✭✭✭Pussyhands

    Because every year I run the risk of a landlord saying I need to leave.

    And one day I will buy and prices are going up and up. My cash is losing value.

  • Registered Users Posts: 8,239 ✭✭✭Pussyhands

    Mortgage would be 900. I would have increased bills as they'd be divided by 2 rather than 4 and I would have management fees. But I'd have more control over the house in terms of painting etc.

    I'm also looking after things like bins and garden where I rent which I have no interest in doing. And I am looking after things breaking down (not paying but coordinating) which is a pain in the arse. I'd nearly rather have the freedom to go out and buy a new dishwasher if I needed to.

  • Registered Users Posts: 4,028 ✭✭✭standardg60

    That's a lengthy mortgage so, therefore amount borrowed versus total amount paid should come into your calculations too, regardless of how long you plan to stay there. Interest makes up a good majority of the initial payments for the first few years.

    Sounds like it's not necessarily just a financial aspect from your reply though, in which case you should do whatever you feel would make you happiest, money should never be the be all and end all.

  • Registered Users Posts: 8,239 ✭✭✭Pussyhands

  • Registered Users Posts: 1,857 ✭✭✭Atlas_IRL

    Just get on the ladder if you can, if you don't mind renting a room it's nearly covering the mortgage it's a no brainer. No worry about having to move as you say if the landlord wants it back. Plus side is your rent is really cheap if you need to try wait out the market but i think its only going to get worse.

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  • Registered Users Posts: 607 ✭✭✭MakersMark

    Why not do both.

    At 4k a year rent, sub let your current room, and buy your own too.

  • Registered Users Posts: 8,239 ✭✭✭Pussyhands

    Anyone with any further thoughts on this?

    Am I right in saying that if I paid a mortgage and after say 5 years, prices dropped and I ended up with the same amount as my initial deposit, it would be the same as if I rented during that period? Apart from having 5 years paid off the mortgage.

  • Moderators, Entertainment Moderators, Politics Moderators Posts: 14,455 Mod ✭✭✭✭johnnyskeleton

    5 years rent, lets say the rent is the same at 4k is 20k


    1. Mortgage intererest of say 6k (3% of 200k) pa = 30k

    2. Mgmt fees of say 2k pa = 10k

    3. Life insurance and property tax 600 pa = 3k

    4. Solicitors fees and stamp duty = 4k

    5. Maintenance and repairs to the apartment 5k

    6. House prices stay the same so you sell for the same price as you buy

    7. Less rent a room at 6k a year =30k

    Based on those rough figures, its break even as to whethet you buy or rent

    If prices go down, you struggle to rent the room, interest rates go up etc then it would tilt things in favour of renting. If rent goes up and prices go up while interest rates stay low buying is the better option

    Only you can decide which risk to take

  • Registered Users Posts: 8,239 ✭✭✭Pussyhands

    Thanks. I put it into a table. My head is melted trying to work it out. If I bought 3 or 4 years ago I'd have about 30 or 40k in capital gains at this stage. Instead I have to pay that 30/40k extra when paying so that's like an 80k swing.

    I totted it up. And the overall extra spend across 5 years due to management fees, increase in bills as sharing between 2 not 4, solicitors is 38k. If I take the rent I'd have been paying anyways off that (20k) I'd be left with an increased spend of 18k. If I sold the house at breakeven (245k to take into account 5k solicitors for selling) I'd be basically break even.

    But how do I calculate the value of having 5 years of a mortgage paid off?

  • Moderators, Entertainment Moderators, Politics Moderators Posts: 14,455 Mod ✭✭✭✭johnnyskeleton

    Maybe it would be easier to just work out the mortgage interest per year and that is your expense. I wouldn't worry about being too precise, and instead do a rough calculation e.g. if it is fixed at 2.15%, then it's a bit less than €2,150 per year per 100k, or c €4k odd a year for 200k (very roughly, in reality over 5 years it will be a good bit less than this). A more accurate figure can be obtained if you use this mortgage calculator (or any other mortgage calculator):

    I put in your figures and for 200k for 25 years at 2.15%, I get monthly repayments of €862.39. Based on this, you would have paid €19,844.70 in mortgage interest (€3,968 interest per year on average) and €31,898.69 from the principal leaving €168,101.31 principal left to repay.

    So your remaining principal would be 168k odd after 5 years, if that answers your question