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

Pussyhands · 09-01-2022 07:10PM #1

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.

LawBoy2018 · 09-01-2022 07:18PM

https://www.boards.ie/discussion/2058226899/is-buying-a-primary-home-and-renting-out-a-room-tax-free-a-no-lose-situation

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

lawred2 · 09-01-2022 07:21PM

https://www.boards.ie/discussion/2058226899/is-buying-a-primary-home-and-renting-out-a-room-tax-free-a-no-lose-situation

4k a year on rent?

wut?

where?

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..

lawred2 · 09-01-2022 07:24PM

https://www.boards.ie/discussion/comment/118445506#Comment_118445506

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

LawBoy2018 · 09-01-2022 07:27PM

https://www.boards.ie/discussion/comment/118445548#Comment_118445548

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

standardg60 · 09-01-2022 07:37PM

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.

Pussyhands · 09-01-2022 08:54PM

https://www.boards.ie/discussion/comment/118445506#Comment_118445506

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.

Pussyhands · 09-01-2022 08:57PM

https://www.boards.ie/discussion/comment/118445644#Comment_118445644

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.

standardg60 · 09-01-2022 09:59PM

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.

Pussyhands · 10-01-2022 03:39PM

https://www.boards.ie/discussion/comment/118446607#Comment_118446607

25 year mortgage.

Atlas_IRL · 10-01-2022 04:02PM

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.

MakersMark · 10-01-2022 11:18PM

Why not do both.

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

Pussyhands · 10-02-2022 08:49PM

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.

johnnyskeleton · 10-02-2022 09:04PM

https://www.boards.ie/discussion/comment/118612880#Comment_118612880

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

Vs

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

Pussyhands · 11-02-2022 09:44AM

https://www.boards.ie/discussion/comment/118612940#Comment_118612940

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?

johnnyskeleton · 11-02-2022 11:20AM

https://www.boards.ie/discussion/comment/118614609#Comment_118614609

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):

https://www.drcalculator.com/mortgage/

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

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

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