# Living overseas - letting a property here



## onekeano (12 Apr 2017)

One of my kids lives in the US and will be coming back in about 3 years if everything goes to plan. I was suggesting that they should look at buying a place and letting it until they return.

Just wondering what the tax liability would be on say a property let @ €1500 so €18k p.a. less I think 80% of the interest (c.€8k), less say €3k of other costs.

So I'm thinking that would be €18k - €9.4k @ what rate of tax (all taxes), would it be US tax or Irish tax?

Any advice much appreciated,

Roy


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## Brendan Burgess (12 Apr 2017)

Overall, it's just not a good idea. 

Plans change and they get stuck with the house.
They get a job somewhere different from where the house is.
If they are first time buyers, they are better off keeping that status. 

If they want exposure to the Irish property market they can invest in the I-Res Reit, although it has not been good at tracking house prices. 

Brendan


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## onekeano (13 Apr 2017)

Hi Brendan, while I agree that plans do change I don't agree with the overall thrust of your post.

If they have say 50k and are interested in buying an apartment for say 225k (borrowing 175k over 15 years) and letting @ 1500 per month then after 4 years they will have increased their equity by 35k.

If we assume that rent increases by 4% p.a. and costs (mgt fee, insurance, maintenance) increase by 4% and the value of the property goes up by 4% p.a. The I estimate that on top of the rent it would cost and extra 5k p.a. on top of the rental income. 

So, that would mean the total outlay over 4 years would be 70k, the mortgage would have dropped to 140k and the value of the property would be 263k. So the investment of 70k would return 123k (exclusive of CGT) which is 75% over 4 years.

I do understand that the property market can go up or down and that being landlord is not a walk in the park but this offers a way to leverage / get into the market. I'm not sure that with I Res they could a) leverage (like a mortgage) and b) get 75% over 4 years?

Roy


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## blured (13 Apr 2017)

Property prices and rent only ever go up! If a 75% return over four years was even close to a guarantee you would have an awful lot more people looking to get into the landlord game


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## onekeano (13 Apr 2017)

blured said:


> Property prices and rent only ever go up! If a 75% return over four years was even close to a guarantee you would have an awful lot more people looking to get into the landlord game



I think you misread my posting blured, what I said was "*I do understand that the property market can go up or down" *


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## blured (13 Apr 2017)

onekeano said:


> I think you misread my posting blured, what I said was "*I do understand that the property market can go up or down" *



I did read your post, but that comment appears to me to be just added as an after thought. The whole post and all of the figures quoted are based on very bullish assumptions. The question you ask is what I-Res Reit would return 75% over 4 years, meaning you assume that this will be the return if they buy a property.

As an aside, what if we reverse your assumptions, property prices and rent fall 4% per annum. Property would be worth €191k after the four years, assuming that costs fall with rent, we can continue to use your €5k in addition to rent as the cost per annum. So they have spent €70k, property is now worth €191k, mortgage is €140k, so they have essentially spent €20k


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## Brendan Burgess (13 Apr 2017)

We do not speculate about house prices on askaboutmoney. 

But the fact that you assume that house prices will go up by 4% a year and then add a caveat that you understand that the property market can go up or down, suggests to me that you think that the risk of a fall is minimal or theoretical. 

If you work out your figures assuming a house price increase of 4%, then you should also work out your figures based on a sustained long term fall in house prices.  

In any event, it seems that your son has a 3 year horizon before returning. He would be taking a lot of risk and incurring a lot of transaction costs and maybe losing his FTB status. 

But people are determined to own and invest property and nothing will deter them. 

Brendan


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## Thirsty (13 Apr 2017)

more efficient to let out a room or two in your house - you can earn 12k a year tax free on rent-a-room scheme & you have a lump sum for him when he returns!


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## onekeano (13 Apr 2017)

yes indeed Thirsty - but why would I give it to him?  and I might need you to explain to Mrs Keano who those 2 strangers are in the kitchen............

seriously though the rent a room scheme is great but not for me at this stage.... not while my son is swanning around the Big Apple enjoying himself!


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## SirMille (13 Apr 2017)

Does rent a room mean sharing the kitchen and living room?
Daft question probably?


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## Thirsty (14 Apr 2017)

Doesnt have to, granny flats are included in the scheme provided they are part of the main house


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## Bronte (19 Apr 2017)

Roy he would pay tax at the lower rate as he has no other income in Ireland. I have no idea if after that he would have an American tax liability.  The mortgage interest deduction is going to be back to 100% according to the minister, they're bringing it back in on a phased basis.  It's already 100% if you have social welfare tenants.

The borrowing costs are important, ie the interest rate.  We have currently historically the lowest rates.  But not sure if you can get good rates for investment properties, or if you need a higher interest rate.  Also your son might have a problem even getting a loan. We have had posters on here who live abroad and couldn't get them.

One other word of caution, are you getting your son on the ladder or is he at all interested.  What happens if he meets a significant other and never comes back.

I'd also like to see the full figures on tax/income etc.  Good exercise to do this to see the reality.


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## Leo (19 Apr 2017)

Thirsty said:


> Doesnt have to, granny flats are included in the scheme provided they are part of the main house



Just check letting the granny flat isn't a breach of planning.


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## Thirsty (19 Apr 2017)

You don't need planning to rent a room; having a separate bathroom/kitchen area is fine under the rent-a-room scheme as long as it's part of the main house.


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## Leo (19 Apr 2017)

It's not that you need planning to rent a room, but you do need planning to create a granny flat (explicitly excluded from exempt development) and the permission granted to most such development explicitly states that only direct family of the occupants of the main building may occupy the granny flat and that it is explicitly forbidden to rent them out.


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## TLO (19 Apr 2017)

The rental income will need to be declared on the son's U.S. Federal tax return, and possibly on the son's State (e.g. NY) tax return.  Local, professional advice regarding the U.S. tax implications should be obtained before making a decision on this venture.


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## Thirsty (19 Apr 2017)

> you do need planning to create a granny flat


ok, different story. 

Initial question was that with rent-a-room if you had to share facilities and that's not the case.


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## Leo (19 Apr 2017)

Thirsty said:


> ok, different story.
> 
> Initial question was that with rent-a-room if you had to share facilities and that's not the case.



Similar story, you said granny flats included under the rent-a-room scheme, I was just pointing out that in most cases you are not allowed to rent them out under any circumstances.


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## Thirsty (19 Apr 2017)

Not to be starting an argument, but I wonder if that's the case?

from Revenue's leaflet

"The room or rooms can comprise a self-contained unit within the residence such as a basement flat or a converted garage attached to the residence" _(which is what I would term a 'granny flat')_. 

and from Citizens information...
Generally you do not need planning for...
"Converting a garage attached to the rear or side of the house to domestic use provided it has a floor area of less than 40 square metres."

So it seems to me that as long as you are under the 40 sq m, you could design a garage conversion to have say a shower room/small kitchen and legitimately include that space under rent a room?


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## onekeano (19 Apr 2017)

Bronte said:


> The borrowing costs are important, ie the interest rate.  We have currently historically the lowest rates.  But not sure if you can get good rates for investment properties, or if you need a higher interest rate.  Also your son might have a problem even getting a loan. We have had posters on here who live abroad and couldn't get them.
> 
> One other word of caution, are you getting your son on the ladder or is he at all interested.  What happens if he meets a significant other and never comes back.



Thanks for that Bronte. I did check about the funding and it is possible - might depend on the LTV but I guess if you're putting up a half or thereabouts they should be interested. Had a call with these folks www.newmoney.ie and they were interested - rates vary from 4.5% to 5.25%, this company also does interest only (which is not the goal but just FYI).

I take your point on a possible significant other coming out of the woodwork   but at least he'd have the option to cash in and convert his equity to US$ and he'd be on the ladder over there.


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## Bronte (20 Apr 2017)

Thirsty I believe Leo is correct.  I have a granny flat.  Currently unused.  I went to get planning to convert the space into a two story extension to create a separate unit and I did not apply for it as such, just as an extension to the family home.  I did that precisely because I knew I wouldn't get permission as a separate unit.  It's what many people do.  Just so you know.  If you're selling you just don't sell it as a separated house.  (that's why you make sure you have an internal way to get into it (in my case I plastered up the door, neither the house nor the flat know it exists there behind the cooker !).  I've often seen houses being sold with granny flats but the majority of them have no planning.  As my flat is now there more than 20 years there is nothing the council can do to me about it. 

Others, like Leo, would not counsel people to go down this route.  You'll find it next on impossible to get permission though.  (Leo might confirm).

Rent a room

As long as the structure is part of the house, ie basement flat or converted attached garage it qualifies.  A chalet in the garden does not.


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## Bronte (20 Apr 2017)

onekeano said:


> Thanks for that Bronte. I did check about the funding and it is possible - might depend on the LTV but I guess if you're putting up a half or thereabouts they should be interested. Had a call with these folks www.newmoney.ie and they were interested - rates vary from 4.5% to 5.25%, this company also does interest only (which is not the goal but just FYI).
> 
> I take your point on a possible significant other coming out of the woodwork   but at least he'd have the option to cash in and convert his equity to US$ and he'd be on the ladder over there.



I would worry about such a lender.  As you know on AAM you get varying viewpoints.  Many posters are against the idea of investment properties.  As you also know, I am not.  It's all I know about and I can assure you that as I know knowthing about 'investing/shares' etc and it has been my experience that I made the right decisions for me.  I've seen the highs and the low, the bad tenants, the nightmare tenant and the mostly excellent tenants.  To me at the end of the day, if the property is giving a good return and is ticking away there in the back ground nearly paying for itself eventually you get to own it and you are then your own person.  Your son's money might as well be going somewhere he will have something to show for it as spending it on flippers in NY.  BUT you must do the sums.  When I stared out interest rates were in double digits for some people.  And property can indeed go up as well as down.


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## Thirsty (20 Apr 2017)

> As long as the structure is part of the house, ie basement flat or converted attached garage it qualifies


I believe we are saying the same thing.  You can add an extension/convert a garage or attic and achieve a 'granny flat' set up without planning as long as its under 40 sq m; and that set up qualifies under rent a room.


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## Leo (20 Apr 2017)

Thirsty said:


> Not to be starting an argument, but I wonder if that's the case?
> 
> from Revenue's leaflet
> 
> ...



So Revenue don't exclude it from the scheme as older self-contained until would not be subject to the planning issues, and planning compliance isn't in their remit. Since at least 2001 (and probably earlier versions of the acts), it has been illegal to sub-divide a property to create a granny-flat without full planning permission being obtained. Any planning I have seen granted for granny-flat type units includes as a condition that it never be let or occupied by non-family members. In Dublin, you must provide the Council with details of who will occupy the flat and justify their needs. The planning generally states that once the need for a granny-flat no longer exists, the unit must be merged back into the main house.

So in essence, if you have a granny-flat, you can avail of the rent-a-room scheme. The problem arises if you are reported for doing so without planning being in order. If that happens the council will send you an enforcement notice giving you a time frame in which to sort out the situation, detailing the costs that will be levied if you don't do so.


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