Buying to rent- considerations

Hi
I am getting around to finally buying a place it looks like! Its quite a hefty mortgage but is balanced out by the number of rooms in the house which I'd hope to rent. Having done the mortgage to rent balancing I probably would only come out the other side with a gain of €200-300 -this dosen't include tax, bills and other things that would still have to be paid out etc.

So, I'm trying to figure everything else that I need to include to see what my 'true' shortfall is going to be at the end of all this as I'm terrified I'm going to end up in debt. Can anyone give me some pointers on what and how I calculate this?

Thanks in advance!

Moved from Mortgages and Buying and Selling Homes since this is essentially a Property Investment query.

Check the Property Investment forum FAQ and key posts.

Bear in mind that, in spite of what many people think, your rental income tax is not assessed on rental income minus mortgage (and other allowable costs) but rental income minus mortgage interest only (and other allowable costs). Some people assume that if rent is less than mortgage (capital plus interest) then they don't have any tax liability!

Do you have the cashflow to cope with the possibility of some or all of the rooms not being let out at various points in time?

Apologies re wrong forum!

Re. having a cash flow- I'd have some but then again it all depends on the other considerations. I'd really be hoping that due to the area rental would be positive as its city center and close to a number of hospitals?

Lara

You need to crunch the numbers adopting a "what-if" strategy considering everything from the best to worst case scenarios.

It really depends on how many rooms you are renting.
If it is 4 or 5 then based in my experience of sharing large houses you are probably going to miss at least 3 or 4 months of rent for 1 room.

Also depends on whether the bills are shared or if you are paying them all. If you are paying them all this would reduce your excess to 0.

Are you also going to live in the place? Have you bought as a First Time Buyer?

Howitzer said:

Are you also going to live in the place? Have you bought as a First Time Buyer?

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Apropos of this remember that the owner occupier rent a room scheme only applies of the total rental income is €7,620 or less p.a.

Yes just about to buy as a first timer- I just wanted to put my money into something that had as many cushions as possible rather than taking on the rent myself. This has 5 bedrooms so its interesting that you say that re not being able to keep them all let at once as this would be a big factor.

As I'd obviously be making over the rent allowance would I be taxed at 48% for the rest?

L

Have read the tax section at the top of the section. I was considering taking a room myself if that served the purpose better. Is this generally deemed a good idea?

Thanks

If you take more than €7620, e.g. €7620.01, you will be tax on the full amount and not the amount less €7620. Also, it will have impact on Stamp Duty, Mortgage Relief, CGT, ...

FYI, the current tax rate is not 48% (1998) but 41%.

I find it very hard to believe that you can come out with €200-300 profit after buying a 5-bed house and renting few rooms.
How did you come to this figure? Can you give us few figures?

You are taxed on the rental income less allowable expenses. This rental income is added to your other income and taxed accordingly.

See [broken link removed] for Guide to Rental Income incl what is allowed to be deducted against rental income. Remember it is the interest only on the loan that you can deduct.

Lara - you really need professional advice on the tax and investment aspects of this potential venture in my opinion.

The way I calculated things when I rented out property was to work out potential income and deduct 20% and then work out costs and add 20%. If you can pay the bills at that stage you should be OK.

ClubMan said:

Lara - you really need professional advice on the tax and investment aspects of this potential venture in my opinion.

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I agree. I'm not sure if you are an owner occupier or a landlord in this scenario.

Hi

Thanks for all the replys. You're right I do need some advice. I've trawled the web looking but all i can find are brokers offering advice. As i already have my mortgage and want to keep the one I have using one of these guys dosen't seem the relevant option. I don't suppose anyone could direct me to someone? Can I ask for this advice on the site if its sent to me as a PM?

Basically, its a 5 bed for 580k near the city centre (private sale)- I was interested in it because it seems a more sensible approach than investing 400 k in a 2 bed apartment and renting out one room? However, I'm now wondering if its all a bit crazy. I'm a FTB and just trying to do the right thing ie not having a mortgage around my neck which I pretty much would have to take the full hit for if I got a 2 bed. Thats why I seem a bit vague about the 5 bed as it wasnt what I originally planned. Any thoughts are really appreciated.

Lara