# I have an investment property but rent myself! Help!



## neasaw (6 Jun 2008)

Hi everyone, I’m new to this site but from reading the threads there are some ppl giving great advice here and I’d really appreciate any input you could give me



  I came into e20,000 a couple of years ago and was advised to invest in property, as I was not sure where I was going to live/ work I bought a property for E210,000 near my parents house. 

  My mortgage is 35 years (33 left) and I pay E911 a month as a first time buyer. The rental income in the area is approx E750 if I rented the whole house out as a landlord  (so I would be paying approx e250 towards it each month) It’s a new house, my parents look after it ( I currently rent out two rooms under the rent a room scheme) and it has caused me no problems.


  I take home approx  E2,500 a month and have no major outgoings except for renting(e600) where I have lived for the last 4 years.  I like the area a lot and a one bed apt is between e230,000 and e250,000.  I’m 28 and really want to move out on my own but have no idea how to go about this. The mortgage repayments on an apt where I am living would be about e1200.    

  My problem is I don’t know where to start! 


Would      it be possible to hold onto my property as an investor and try to get      another mortgage as an owner occupier? (I would have the deposit for a new      apt and my dad would go as guarantor or is also willing go in on the      mortgage (in name as an investor) if needs be).


If      I got the original property valued I’m pretty sure it would be e220,00-      e225,000 and my loan at that point would be in and around 85% of the      value.  However the investor      mortgage terms are 20/25 years, is there any way around this? It would be      a good investment to keep if I could keep the mortgage term i.e. its      currently at 33 years and I would be only putting e250 towards it …a      shorter term would make my contribution much higher.


Or      should I just sell the house and keep it simple.   I have only had it for two years but purchased it below the      property value at the time (owner was bankrupt).  So I don’t think I would loose money on it but would      probably just get my investment back on it. I would then have to pay stamp      duty of about e8000 on the new apt but I pay this renting myself each year      anyway, having said that I don’t know how long it would take to sell the      house, I doubt it would sell fast, I could possibly be looking at 1-2      years
    I’d really appreciate any advice/suggestions


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## MugsGame (6 Jun 2008)

Are you currently living in the mortgaged property?


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## neasaw (6 Jun 2008)

No, it's in a different county to where I live.  I'm renting a room in an apartment.


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## MugsGame (6 Jun 2008)

OK, that's what I thought, but I wanted to confirm. Sorry to be the bearer of bad news, but as a non-occupier you may have a number of tax issues to sort out first. 

You should have paid investor stamp duty rates on the property purchase (assuming stamp duty applied).
You are not eligible for owner-occupier mortgage interest relief.
You are not eligible for the rent-a-room allowance.
You can offset mortgage interest against rental income.
You may have to pay Capital Gains Tax on any gain made on sale of property.


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## neasaw (7 Jun 2008)

Hi thanks for your help.  

I probably need to explain a bit more first. I am technically an owner occupier on the house I own (house A)  I am renting two rooms in a three roomed house to my brother and his partner.  There is one room left in the house (techincally mine).  All bills are in my name, all my correspondances go there (wages/bank statements etc) and I have registered the income for renting the rooms.

If I sell the house now I should not have to pay capital gains if I buy a house within two years? But if I hold onto house A and buy a house B I will then have to pay capital gaines on house A when I sell it?

My brother and his partner are thinking of moving, so I would like to rent the whole house out.  I think there was a change re stamp duty and I can rent out without having to pay the duty. (i think ive read it right)  "For instruments executed *before* 5 December 2007, to the extent that a dwelling house or apartment is rented out on or after 5 December 2007, it will not involve a clawback of the relief where this occurs in the third, fourth or fifth year of ownership."http://www.revenue.ie/index.htm?/revguide/stampduty/clawback.htm

I want to keep the tax man happy and would register the house as an investment.  I would get an income of e750 from the house and then only have to pay e250 towards it myself and most of the income woudl be offset against mortgage interest. However this is calcuated on my current mortgage term  33 years.  If I change the status of the mortgage ie from home owner to investor....I will also have to change the mortgage agreement i have with the bank? ie to an investor mortgage, the terms are 25 years?...this would make my contribution up to e700 which i could not afford if i intend to buy a house B to live in.

Is there any way around this, is it possible to get two mortgages around 30 years ie continue with mortage for house A which is 33 years and get a new mortgage for house B around 30-35 years?  

Thanks again, appreciate any help


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## extopia (7 Jun 2008)

neasaw said:


> I am technically an owner occupier on the house I own (house A)  I am renting two rooms in a three roomed house to my brother and his partner.  There is one room left in the house (techincally mine).  All bills are in my name, all my correspondances go there (wages/bank statements etc) and I have registered the income for renting the rooms.



However, you are not actually living there.

There's nothing technical about it - the house is not your PPR.


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## Steve D (7 Jun 2008)

I cannot really see how you can call property A a good "investment" when your mortgage is €911 per month (and may go higher next month as the ECB hinted on Thursday) and the rental income in the area is $750 per month. This means that if you rented it out for €750 per month you would be subsidising your tenants to the tune of €161 per month (i.e. effectively loosing €161 per month). Add to this the fact that property prices are plummeting so your "equity" is reducing by the day too! How can you call this a good investment?


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## neasaw (7 Jun 2008)

As my finances stand now, I pay E600 to rent a room in an apt I don't own and E161 to top up my mortgage for the house I do own....

My question is why am I throwing away E600 on renting a room.  Would I not be better to buy another place for E1200 (when prices are plummeting) that I can call my own (and keep paying the E200 towards house I can rent and maybe sell in ten years?)

I'm earning 2500 a month, I don't drink, I don't drive....I have no major bills.  Am I crazy to spend E1200 on a house I'd live in and E200 on one I wouldnt? Most of my friends have two beds and rent out a room, I dont want to live with anyone!

I'm just looking for advice on what would be the smartest thing to do, I'm 28 I want to move out on my own into a nice little one bed.  Is it better to sell up the house and to have made/lost nothing on it and buy a place i'm going to live in... or to keep it and put e200 towards it a month for at least the next ten years and sell it, i'd be putting about e2400 a year towards it for ten years...am I silly to think I wouldn't get that back, that I would be throwing it away?  Thanks, appreciate your advice  Should i sell the house and just be investing the e200 into something else for ten years?


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## Steve D (7 Jun 2008)

neasaw said:


> My question is why am I throwing away E600 on renting a room. Would I not be better to buy another place for E1200 (when prices are plummeting) that I can call my own (and keep paying the E200 towards house I can rent and maybe sell in ten years?)


 
Are you saying that you would rather throw away €1,200 than €600? You are better off renting when property prices are falling. If you buy a property not only are you paying €1,200 (most of which is interest to the bank) but you are loosing your capital (i.e. as the property price falls your deposit is dwindling away!) and you are risking negative equity. Also you are likely to be able to buy the same property cheaper as some time in the future.

When you are buying in a falling market you are taking on a huge liability (the mortgage) that may at some time in the future be more than the value of the asset (the house). Rather than thinking that you are investing in an asset (the property) you should turn the idea around in your head to the fact that you are actually taking on a huge liability and that your monthly payments are actually interest to the bank because in the first few years of a mortgage most of what you pay is interest and you pay off very little of the loan.


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## neasaw (7 Jun 2008)

Hi Steve, thanks for all your advice, plenty of food for thought there


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## ClubMan (7 Jun 2008)

neasaw said:


> My question is why am I throwing away E600 on renting a room.


You are not throwing this money away. You are using it for pay for a service (rented accommodation) rendered. Why you are doing this when you own a property which you could probably live in is another question. Note that as mentioned above you also now have outstanding tax liabilities on the rental (*not *owner occupied _PPR _- technically or otherwise) property.


> I'm just looking for advice on what would be the smartest thing to do


First thing would be to clarify your outstanding tax liabilities and sort these out. Second might be compromising on your ideals and sharing with others the property that you are buying right now (i.e. become an owner occupier and maybe avail of the rent a room scheme if applicable).

By the way who precisely "advised" you to invest in property and did they suggest doing it this way - i.e. as an ostensible but not actual owner occupoer in some attempt to minimise taxes?


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## Treehouse (10 Jun 2008)

Sorry, maybe I am reading all this wrong, but is OP looking for advice on how to proceed with his tax evasion scheme?


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## peteb (10 Jun 2008)

No. The OP is looking for people to let him know whether it would make more sense to regularise the situation and retain property number one and treat it as in investment or just sell up and buy somewhere else.

Just because he lives elsewhere doesnt mean he doesnt also live in the property classified as his PPR! Might be a strech but hey, benefit of the doubt people! He's saying that if he was going to keep the place it would be rented out in its entirety, PRTB registered and tax declared so what the beef?!


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## sapmanie (10 Jun 2008)

> Just because he lives elsewhere doesnt mean he doesnt also live in the property classified as his PPR


 It does because it's in another county - a bit hard to explain that away as your PPR unless you have a <> load of petrol receipts (since he rents elsewhere).
mugsgame gave the perfect answer of the situation IMHO. Anything else is advice on tax evasion.


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## Treehouse (10 Jun 2008)

peteb said:


> No. The OP is looking for people to let him know whether it would make more sense to regularise the situation and retain property number one and treat it as in investment or just sell up and buy somewhere else.


 
"Regularise" the situation? You mean actually living in or selling his PPR as opposed to renting it out and passing it off as his PPR? I suppose "regularise" is one way of putting it. "Legalise" is another way of putting it.



peteb said:


> Just because he lives elsewhere doesnt mean he doesnt also live in the property classified as his PPR!



Erm, yes it does. Otherwise, every landlord in the country would nominally live in each of their properties and thus avoid tax responsibilities. Whatever way you cut it, at present OP is renting out a home he has nominated his PPR. This is a big no-no, which in fairness OP seems to recognise.


But I'll admit I was wrong in my original question: OP is not seeking advice on how to avoid tax, he is seeking advice on how to get himself out of his current tax avoidance arrangement. Which is moving in the right direction.


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## Bronte (11 Jun 2008)

You may not have to inform your bank that the house has changed from owner occupied to rented.  Check the terms and conditions of your mortgage.   In any case even if you do inform them they may not decide to change your mortgage to investment mortgage.  You seem to have created a bit of a mess for yourself tax wise.  Best advice is to clean this up now and take it from there before you get in a bigger mess by buying a new property. You also may find that it's more beneficial to be a landlord and get interest relief than to be in the rent a room scheme.  You need to do the sums.


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## ClubMan (11 Jun 2008)

peteb said:


> Just because he lives elsewhere doesnt mean he doesnt also live in the property classified as his PPR!


Based on the information posted the property is almost certainly not his _PPR_.


> Might be a strech but hey, benefit of the doubt people! He's saying that if he was going to keep the place it would be rented out in its entirety, PRTB registered and tax declared so what the beef?!


Based on the information posted he has an _SD _clawback liability outstanding and may have fraudulently claimed owner occupier mortgage interest relief.


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## jambo.ie (11 Jun 2008)

Is this the pertinent section from the revenue website:

*3. What is a sole or main residence?* 

A sole or main residence is the residence which is your home for the greater part of the time. It does not have to be owned by you, e.g. your parents’ residence may also be your sole or main residence, if you normally live there.

[broken link removed]


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## murphaph (11 Jun 2008)

This PPR definition can be tricky. If the OP had done as above (ie, rent out two of the three rooms in his house) and then say, gone travelling for a year, the property would still be his PPR, even if he had stayed for longish periods in rented houses in Melbourne, would it not?

The point at which a property ceases to be your PPR is not necessarilly the same as when you stop living in it anyway as far as I know. Can someone clarify for me please. I'd also like to know this.


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## ClubMan (11 Jun 2008)

murphaph said:


> This PPR definition can be tricky. If the OP had done as above (ie, rent out two of the three rooms in his house) and then say, gone travelling for a year, the property would still be his PPR, even if he had stayed for longish periods in rented houses in Melbourne, would it not?


Maybe. It's difficult to say other than on a case by case basis possibly with professional advice.


> The point at which a property ceases to be your PPR is not necessarilly the same as when you stop living in it anyway as far as I know. Can someone clarify for me please. I'd also like to know this.


The original poster has said that they have rented elsewhere for 4 years. Almost certainly this means that the property in question is not their _PPR_.


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## mickpyrmont (11 Jul 2008)

Just regarding everyones advise to pay back the tax/ SD, how does one pay it back is it simply ring the revenue and tell them your situation, 'hey i think i owe you guys 30k'?


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## ClubMan (11 Jul 2008)

You should really get professional advice on how to approach _Revenue _about (outstanding/late?) tax liabilities.


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