Buy to Let - Net cost , and expenses to consider

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figrolls

Registered User
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Hello,

I am looking at figures to purchase a Buy to Let property.
Background - property is in north Dublin, decent area, 3 bed terrace. V rentable . Worth about €430K. Considering a mortgage of €165K over 10 years and trying to work out the figures.

I would appreciate advice on whether the figures below are correct ?

And some questions ?
Are you allowed deduct 10% of rent as tax free expenses?
Do you need receipts for expenses?
What other costs should we consider... property tax? House insurance? Repairs etc ? Mortgage protection ? Any others?



Assumptions

Buy to let mortgage interest rate of 5.5% . LTV of < 70%.
Monthly Mortgage repayments of €1790
No significant periods where house is not rented
We pay the higher rate of tax on rent
Rental income of 2500 a month
Rental income will not decrease
Mortgage term of 10 years
Mortgage
€165,000.00​
Monthly rent
€2,500.00​
annual rent (monthly x 12)
€30,000.00​
Allowed tax free rent - Expenses @ 10%
€3,000.00​
Monthly mortgage repayments
€1,790.00​
Annual Mortgage (monthly * 12)
€21,480.00​
Year1
Allowed tax free interest on mortgage year 1
€8,757.00​
Taxable rent (Annual Rent - 10% - mortgage interest )
€18,243.00​
Tax on rent
€8,756.64​
Tax free rent (annual reant - tax on rent)
€21,243.36​
Annual Cost to us (mortgage repayments - tax free rent)
€236.64​
Year2
Allowed tax free interest on mortgage year 2
€8,039.00​
Taxable rent (Annual Rent - 10% - mortgage interest )
€18,961.00​
Tax on rent
€9,101.28​
Tax free rent (annual rent - tax on rent)
€20,898.72​
Annual Cost to us (mortgage repayments - tax free rent)
€344.64​
Year3
Allowed tax free interest on mortgage year 3
€7,280.00​
Taxable rent (Annual Rent - 10% - mortgage interest )
€19,720.00​
Tax on rent
€9,465.60​
Tax free rent (annual rent - tax on rent)
€20,534.40​
Annual Cost to us (mortgage repayments - tax free rent)
€364.32​
etc etc for each subsequent year





I got interest and capital costs on the mortgage from Mortgages.ie

Below is a summary of interest payments on a typical 10-year mortgage of €165,000 at 5.5%.
Monthly payment: €1,790.68.

Year Opening Balance Annual Interest Charged Capital Repayment
1 €165,000 €8,757 €12,731
2 €152,269 €8,039 €13,449
3 €138,820 €7,280 €14,208
4 €124,612 €6,479 €15,009
5 €109,603 €5,632 €15,856
6 €93,747 €4,738 €16,750
7 €76,997 €3,793 €17,695
8 €59,302 €2,795 €18,693
9 €40,609 €1,741 €19,748
10 €20,861 €627 €20,862
 
Last edited:
The 10% tax free is not a thing.

Yes you need receipts for expenses.

I have included €500 per month expenses, you can chase the detail, but you are just guessing. €500 per month is a fair estimate.

Do your sums monthly or annually mixing them together is just confusing. You need to look at cash flow, then profit.

Cashflow

Rent 2500
Tax. 1000
Repayments 1790

Cashflow negative €290 per month. Is that acceptable.

Profit

Rent 2500
Tax. 1000
Interest 756

Profit €744 per month

Which is €8,928 per annum on €265k invested or 3.3%. That's a poor investment.

The property is far too expensive for the rent. If you look you could probably find something for half the price with a similar rent.
 
Thanks , much apreciated. Where do you get your figure of €265K invested?.. Ah ok, it's our own funds , you dont count the mortgage as invested

Sorry - new to this! :rolleyes:
 
figrolls said:
Sorry - new to this! :rolleyes:
Click to expand...
Why do you think that property investment is the right and most appropriate option for you?

Maybe you should do a Money Makeover post to get better and more targeted feedback?

Key Post - Basic information required for the "Money Makeover" forum

It can be difficult, but please try to use a meaningful title in your thread For example "27 year old with mortgage arrears". You will get a much better and much more coherent answer if you give as much information as possible in your first post. For example, if you give your mortgage rate, it...
www.askaboutmoney.com
 
You mentioned no significant period when the property will not be rented. Yes, finding a renter is easy at the moment. However there is often work to be done between rentals, meeting with prospective tenants... Of course, according to how you organise, you might be able to minimise these. But it's not always feasible to avoid them. Renters don't always leave when you are available to manage a changeover. In terms of expenses, annual service, annual rtb charge, advertising cost (if applicable). It might also depend what you decide to do yourself. Will you use an accountant? Will you use an agent to manage your rental?
In North Dublin, you are in a rpz zone. So rents follow inflation only up to 2 per cent. Any period when the inflation is above 2 per cent diminish your relative income and you are never able to rebalance. They are temporary for nearly 9 years. It has a real 'negative impact that you should not underestimate.
 
ClubMan said:
Why do you think that property investment is the right and most appropriate option for you?

Maybe you should do a Money Makeover post to get better and more targeted feedback?

Key Post - Basic information required for the "Money Makeover" forum

It can be difficult, but please try to use a meaningful title in your thread For example "27 year old with mortgage arrears". You will get a much better and much more coherent answer if you give as much information as possible in your first post. For example, if you give your mortgage rate, it...
www.askaboutmoney.com
Click to expand...
The reason we are looking at this is because it's a (part-inherited) family home we could buy out . We have 2 kids age 18 and 22, and the way things are in Ireland with the housing situation, I cannot see how they will ever be in a position to buy their own homes in Dublin. So at least at some stage in the future they would own half a house , and it would give them/us options... We haven't investigated any other investment options, I wouldn't know where to start tbh. Appreciate the suggestion of the Money Makeover thank you
 
Why such a short mortgage? A longer one should mean lower repayments and if you envisage giving it to your kids in a few years they can take over any remaining loans. So in the meantime you need it to wash its face perhaps?
 
Annieindublin said:
Why such a short mortgage? A longer one should mean lower repayments and if you envisage giving it to your kids in a few years they can take over any remaining loans. So in the meantime you need it to wash its face perhaps?
Click to expand...
I'm 56, husband is 62 . But good point, if I can get it on my earnings alone (which should be feasible) then maybe a 14 year mortgage ? Can we push it out any further? Husband is retired with a DB pension , I'm still working
 
figrolls said:
I'm 56, husband is 62 . But good point, if I can get it on my earnings alone (which should be feasible) then maybe a 14 year mortgage ? Can we push it out any further? Husband is retired with a DB pension , I'm still working
Click to expand...
AIB gave me a mortgage out to 68. Not sure if other lenders are offering mortgages out to 70.
 
figrolls said:
I wouldn't know where to start tbh.
Click to expand...
Just trying to be helpful, so don't read this the wrong way....but it sounds like you're not too familiar with the burden and risks associated with being a landlord either. You're doing the right thing asking lots of questions, but you could also take a similar approach and ask questions to learn about other investment opportunities that might offer lower risk and less effort from yourself in terms of vetting & choosing tenants, maintenance, tax compliance, etc..
 
Leo said:
Just trying to be helpful, so don't read this the wrong way....but it sounds like you're not too familiar with the burden and risks associated with being a landlord either. You're doing the right thing asking lots of questions, but you could also take a similar approach and ask questions to learn about other investment opportunities that might offer lower risk and less effort from yourself in terms of vetting & choosing tenants, maintenance, tax compliance, etc..
Click to expand...
Appreciate the help @Leo , and don't worry I'm not taking it the wrong way. You are right - we have no experince and our only 'knowledge' is hearsay, and what I have read on this forum. And as you can tell I have a bit of a bricks and mortor mentality about it at the moment, plus a fear of the property situation for our kids in the future as I cant see it improving much
 
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So if the inherited house is sold and you take your share, it will be about half of the 430k?

Someone above has worked out the yield and it does not seem good for an investment. Would it make sense to review alternatives to this house to invest in or other investment vehicles? Appreciate your intention is to assist your children with their housing needs but think of it this way, if you had 215 cash right now, would you buy this house or any house at all as an investment property?
 
misemoi said:
So if the inherited house is sold and you take your share, it will be about half of the 430k?

Someone above has worked out the yield and it does not seem good for an investment. Would it make sense to review alternatives to this house to invest in or other investment vehicles? Appreciate your intention is to assist your children with their housing needs but think of it this way, if you had 215 cash right now, would you buy this house or any house at all as an investment property?
Click to expand...
That's correct - would get approx 215K

Yes , absolutely makes sense to look at other options. What alternatives are there other than shares? We have no experience of shares and feeling reluctant due to the risk in those. Open to suggestions !

As of now, if I had 215K in cash, I would still consider buying this (or another house) due to reasons stated earlier .
 
So it sounds like you have 265k to invest (215k from your share of the inherited house and 50k of your own cash presumably). And your main aim is to provide for the future housing needs of your 2 kids.

I am not a landlord but from the responses on this thread, buying the house, renting it for a while and then passing it on to your kids is not a risk free option.

Also, owning half a house with a sibling can be a real pain. Do they both live there, or does one of them pay rent to the other? What happens when one of them wants to get married and wants the equity from the house but the other does not want to sell up and can't afford to buy the first one out? I have come across some real life examples of this and it can lead to a falling out in the family.

Investing in shares or an ETF is less hassle, is more diversified which reduces risk, is easier to turn back into cash when needed, may have some advantages around inheritance tax, and on average has better expected returns. I suspect that most people only prefer property as an investment vehicle as it is familiar and therefore feels safer than it actually is.

Remember that house prices in Ireland have increased 87.2% between 2015 and Sept 2024. Link
An investment in the World Index over the same time period would have gained 151.7% Link

The best thing you can do to maximise the future financial security for both your kids is to choose the best investment option. I know that will require some research to learn about investing but it's not that hard and it will be worth it. There are plenty of threads here on AAM on how to start investing if you decide to go that way.

Best of luck with your decision.
 
figrolls said:
Yes , absolutely makes sense to look at other options. What alternatives are there other than shares? We have no experience of shares and feeling reluctant due to the risk in those. Open to suggestions !
Click to expand...
There are lots of existing threads on other types of investment options. And, as I suggested before, your best way to get targeted feedback here is to do a Money Makeover post.
 
3CC said:
Remember that house prices in Ireland have increased 87.2% between 2015 and Sept 2024. Link
Click to expand...
That is capital return only. It doesn't include the rent.

3CC said:
An investment in the World Index over the same time period would have gained 151.7% Link
Click to expand...
This is capital and dividend income. And possibly on a dividend reinvested basis (I couldn't see from the link).

So apples and watermelons really.
 
cremeegg said:
That is capital return only. It doesn't include the rent.
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Fair point @cremeegg . I was aiming to compare capital appreciation only without rental income or dividends but I accept that is not the best approach.

So for property, the capital gain will be 87% or 7.2% annualised. The nett rental yield mentioned above is 3.3% to give a total of 10.5% per annum.

cremeegg said:
This is capital and dividend income. And possibly on a dividend reinvested basis (I couldn't see from the link).
Click to expand...
Ok, this one is an accumulating ETF and it rose from ~€35 to ~€95 over the period which is ~170% increase or 11.7% annualised.

Thar 1.2% disadvantage will have a big negative impact over time. Even if you could increase the yield to match that of the ETF, there is still no incentive to choose property given the many disadvantages I mentioned.

3CC said:
Investing in shares or an ETF is less hassle, is more diversified which reduces risk, is easier to turn back into cash when needed, may have some advantages around inheritance tax, and on average has better expected returns. I suspect that most people only prefer property as an investment vehicle as it is familiar and therefore feels safer than it actually is
Click to expand...

But for full disclosure, I have never been a landlord - so better to take the advice of others who have already responded to this thread on that front.
 
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