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Rental Incomes too good to be true?

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  • 22-02-2020 7:03pm
    #1
    SwordofLight
    Registered Users Posts: 336 ✭✭


    Was a toss up between Accom & Property section or here!

    Looking for a bit of advice on rental properties these days -

    was considering buying a 5 bed house beside NUIG with my first time buyer's mortgage, then doing a rent-a-room scheme for a year or two. AFAIK I can earn €14k before being taxed on rent-a-room earnings?
    Is that aside from my day job salary?

    The idea would be to rent it room-by-room when I move out in a few years. That could potentially mean €500 x 5 bedrooms - €30k per year.
    I'd probably need to spend a few thousand maintaining it every year, but in regards tax, wondering what the story is - everyone tells me there's no money in letting property anymore - am I missing something? An extra €10 or 20k a year would be life-changing!


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    #2
    Sleeper12
    Registered Users Posts: 16,908 ✭✭✭✭Sleeper12


    Rent a room scheme is up to 14k per year assuming that you live there too. Happy to be corrected here but as far as I remember once you go over 14k it all becomes taxable. Earn 1399 tax free. Earn 1401 & pay tax on the lot. That's my recollection. You must declare the income under the rent a room scheme as you go. You can't tell revenue oh by the way I did rent a room 3 years ago.


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    #3
    StupidLikeAFox
    Registered Users Posts: 7,699 ✭✭✭StupidLikeAFox


    For the rent a room relief you can earn €14k tax free which will go into your back pocket. I don't think you can deduct costs out of that (but not 100% sure on that). If you go over €14k then full amount is taxable: https://www.revenue.ie/en/personal-tax-credits-reliefs-and-exemptions/land-and-property/rent-a-room-relief/index.aspx

    If you are renting out a second house but not living there then the rent (minus allowable expenses) is considered additional income. So as a very basic example if you were getting €30k in rent and €40k in your job then you are taxed based on an income of €70k.

    Bear in mind that your mortgage is not considered an allowable expense. This is a very back of the envelope, simplified example but if you are getting €2500 in rent, you could potentially be losing ~50% of that in tax, then have to pay the mortgage out of the remaining €1250. If the mortgage payment is €1k this will leave you with €250 which would be wiped out if some students trashed the place or stopped paying for a couple of months.


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    #4
    SwordofLight
    Registered Users Posts: 336 ✭✭SwordofLight


    Yep looks like it is too good to be true, the mortgage payments would wipe out anything left over, even with tax credits I don't think it would be worth the hassle.
    If doing the rent-a-room scheme it might be worth it up to the 14k mark untaxed probably making a profit of 2-3k after mortgage payments etc. but maybe a lot of people don't want the hassle.

    Do people make money out of the bigger properties with units in them, for example if I had a 4 storey building with say 6 x 2 bed flats, taking in 1300 per flat that's 46800 a year, paying tax of 40% leaves 28080, and then mortgage repayments on a property like that which is probably worth at least 500k, would be in the region of 2000 plus a month which leaves you with 4080 and probably spending that to maintain the place year-round. You could apply for mortgage interest relief and other reliefs but I can't see it making it worthwhile. Makes me feel sorry for those out there who are working hard to maintain a comfortable and fair tenancy for people - it's not as passive as a lot of people think.

    The government must be making a billion euro out of rental income in this country. If Sinn Fein want to probably introduce more misery on rental income it will become untenable and I'm sure landlords will start to sell off properties fast, freeing up housing for the government to buy or other first time buyers, but let's face it most first time buyers can't afford these properties, and the government would only make landlords much richer if they were to buy their properties for social housing.


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    #5
    davindub
    Registered Users Posts: 1,447 ✭✭✭davindub


    If renting the entire house, if the after tax rent covers your mortgage repayments that is good. Technically you are making money when the rent repays the mortgage for you and your loan decreases.

    In 10 years rent will more than likely increase while you mortgage repayment amounts stay static. So property rental income streams using finance is attractive for long term investment and not so much in the short term.


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    #6
    Fireball81
    Registered Users Posts: 412 ✭✭Fireball81


    Just be careful on the tax, even if you are not covering your costs or indeed are... 50% of the income goes to the taxman (less eligible expenses).

    It's never as good as it seems when you take that into account.


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    #7
    worded
    Registered Users Posts: 4,537 ✭✭✭worded


    Presuming property prices keep going up and with capital appreciation over time it’s a good idea medium / long term.

    Also your mortgage may decrease over time with better LYV

    Speak to a broker

    Do a case study on what if you had of done this 5years ago 10 years ago etc

    If you buy at the right tine and can get good tenants.

    Students? Why about summer time?


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    #8
    mrcheez
    Registered Users Posts: 13,633 ✭✭✭✭mrcheez


    With rent a room bear in mind you'll be living with strangers who might cause a bit more hassle than if you were living alone or with family, so I guess you'd need to account for whether you want a chilled relaxed life or the extra 14k with accompanying stress :)


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    #9
    893bet
    Registered Users Posts: 8,768 ✭✭✭893bet


    On a room by room basis near a college it makes sense.

    More management but little chance of overholding.


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    #10
    Sleeper12
    Registered Users Posts: 16,908 ✭✭✭✭Sleeper12


    worded wrote:
    Students? Why about summer time?


    Students during winter and Airbnb during the summer months will give highest return.

    I wonder can you receive 13999 tax free under the rent a room scheme & then rent Airbnb during the summer & pay tax on this part. They are two totally different things. I'm guessing revenue will consider both the same and tax the lot


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    #11
    marizpan
    Registered Users Posts: 443 ✭✭marizpan


    Sleeper12 wrote: »
    Students during winter and Airbnb during the summer months will give highest return.

    I wonder can you receive 13999 tax free under the rent a room scheme & then rent Airbnb during the summer & pay tax on this part. They are two totally different things. I'm guessing revenue will consider both the same and tax the lot

    AirBnB doesn’t qualify under rent a room so in theory you can declare as Case I if frequent and carried out with the intention to make profit.
    Just to note that any and all money received from rent a room is used to calculate the €14,000 threshold. So if they chip in to pay food/utilities etc then that is money received also.


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