30k to invest is property the right route

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giolla

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my husband and I have our own home for last 5 years. it is worth ~320k. we took out a mortgage for 20 yrs for sum 170k (original value 190k).
We plan to build a new home but will do it over a long period of time.we would like to keep a property as an investment.I think it would be wise for us to sell our current principle residence when our new house is ready to move into. This way we will avoid paying CGT on a large amount of profit (320-190 = 130k). This can then be pumped back into our new ppr.
In the meantime we have about 30k which we would like to invest and our SSIAS will mature in 2007(full amount for both of us).
We are thinking of investing in a property cost 200k. which if we got 80% mortgage we would use our 30k around about with stamp duty etc.

If we had an interest only mortgage we could earn ~750 per month on rent which would not be taxed. Our mortgage repayments each month would be ~950 over 25 years. So It would mean an extra investment of say 200-300 per month. We would look to holding onto this property for the long term.
Do you think this is a wise investment or would we be better off putting our money elsewhere.Maybe holding onto it to put into the new home we will be building in the next few years? Or am I totally off trach here?
I am unsure of how to calculate investment value.
 
giolla said:
I think it would be wise for us to sell our current principle residence when our new house is ready to move into. This way we will avoid paying CGT on a large amount of profit (320-190 = 130k).
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CGT is not payable on gains made on your PPR while it is used as your principle residence. Should you decide to move to the new property, rent out your original PPR and decide to sell it at some stage in the future, the profit from the original PPR would be exempt from CGT up until the time it became a rental/investment property.

If we had an interest only mortgage we could earn ~750 per month on rent which would not be taxed
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Why would the E750 per month rent not be taxable?

It's hard to say whether property is a good investment or not - no-one really knows what will happen in the future.

Might be an idea to get some good independent advice from a professional who can look at all the investment options open to you.
 
delgirl said:
the profit from the original PPR would be exempt from CGT up until the time it became a rental/investment property.
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This isn't strictly accurate. If you come to sell a property which was PPR for some time and then rented, CGT will apply in proportion to the period of time for which it was rented. So for example, if the property was PPR for 4 years and rented for 6 years, then CGT would apply to 6/10ths of the gain in the value of the property (as 10 years was the total period of ownership).

The risk here is that if for example, property prices were to stagnate now, you could end up paying CGT on your sale, even though there was no growth in the value of the property over the time it was rented.
 
Your rental income would be taken into account with any other income you might have and this would be taxed at either the standard rate of 20% or the higher rate of 42% depending on your total income. You would also have to pay PRSI on this income.
You would also need to bear in mind that there would be upkeep on your property, ie insurance, also cleaning, painting, decorating etc. between lettings as people now expect a good standard of accommodation.
It can sometimes take up to 3 months to get a new tenant so you would need to bear this in mind also.
Finally, I think a rent of €450 per month on an investment of €200,000 might be a little high over time but I know this depends on the area.
 
I was not very clear when I mentiond that the rent would not be taxable.

Is it not true that if the property is for investment purposes that the interest paid on the mortgage interest is full tax and prsi relief (we are both on 42%).

So this would offset the tax on the rental income. especially if we go for a 100% interest only mortgage.Is it ture too that the amount paid in maintenace of the property also is deductable against profit.
 
I've never invested in property other than my ppr but Im not sure how good an investment the purchase would be if the rent cannot finance the mortgage repayments (i.e. you have to pay an extra 200 euro per month). If I get around to making an investment in a buy to let property Id hope to do it in a way that the repayments on an interest only mortage gave me extra cash each month which I could place in a equity investment the proceeds of which I could use to pay off the capital amount when the mortgage expires (on this site there is an article Brendan wrote explaining the benefits of interest only mortgages on investment propeties. If I find the link I'll post it) .Plus having to spend 200 euro of your own money each month may not be such a good idea as you never know when your circumstances might change and you'll need that money (e.g. you lose your job, get sick etc).

Just my uninformed opinion. Im sure someone will be able to correct me if any of this isnt on the right track.....
 
yes I agree with all your points. I haven't decided it is a good idea myself that is why I put the question up. Thanks for the advice.
Perhaps I would be better off putting the money into our new home and then I would have a smaller mortgage.
 
The one thing I would ensure is that your pensions are maxed, I have no idea of your circumstances, but bear in mind that pensions are an excellent investment for anyone who is a top rate taxpayer. Of course you may have adequate work pensions, or if you are state employees (even better), but if not, check this out. The deadline for tax year 2004 is next Monday, effectively Friday!
 
I have a large amount going into my pension each month. About 420 before tax.

But I really feel I am getting a poor return from this and was seriously thinking I would stop paying into it and invest in property instead.
I have an Irish Life PRSA.

But this could be too drastic. But honestly I do think when it comes to it I will have very little to live on when I'm old and grey.

Also with the property I would be able to release some of the investment to pay for my childern to go to college a long way down the line. With my pension I won't be able to do this.
 
I understand what you are saying re the pension rate of return. The one thing I will point out is that, as a top rate tax payer, every euro paid into the pension automatically becomes the equivalent of 1.72 euro invested.
For example, I have income of 10000 taxable at 42%
therefore tax of 4200, however if I pay 5000 into a pension, the tax liability becomes 2100. I will however have to pay 7100 (5k pension and 2.1k tax) in total. As previously I had to pay 4.2K, I have to pay an additional 2.9k to have a pension investment worth 5k. This equates to a return of 72%.
In addition any returns on this investment are tax free (during the life of the investment).
You can also select the type of investments you would like to become exposed to, be it property etc.
There are however taxes to pay on the income received from the pension on retirement.
I acknowledge that the restricted access to the asset is a nuisance, but there is some talk that some changes may occur to that in the future (may be comletely false).
Anyway, its just something to bear in mind, but obviously, other investments are more fun:)
 
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