Buying investment property for rental purpose while living with parents rent free? Too risky?

D

Donrr123

Registered User
Messages
15
Hi I (30, single) am running into a situation where I am living with my parents rent free and considering buying a €275k investment property for rental purpose. We are happy out living in the family home and I have €170k saved up, they can loan(or gift) me €100k-€120k if I do so, they don't really care about the loan and I can pay 0% interest with an indefinite period. They own two properties, one is €600k and second one is a rental property €200k. My parents really want me to own a house because there are lots of ppl struggling to get up the housing ladder and house prices going up rapidly.

My plan is buying the property to let it managed by property management company charging at about 9-10% fees, which assuming it will generate €1800 per month before expenses and tax. However, I have the following consideration:

1. I have done lots of researches and ppl generally don't recommend getting into the landlord hassle and rather put money into stocks or EFTs etc.
2. I am already on higher tax bracket so that will be 40% tax plus PRSI and USC, which also makes me think the rental income is not that attractive.
3. Another consideration would be what if I am getting into marriage so there will be more legal problems.
4. Last consideration would be inheritance too because €800k property would have lots of CAT, also does not seems too tax effective. If I don't have a house which means the €600k will be tax exempted. If I buy the house I will have to eventually sell the €275k house which makes me does not own property again and be able to inherit everything tax free, since €600k house tax exempted and there is €400k tax credit from parents (Assumption again, not sure if it works like this because it makes it sound like everyone can just sell their house to avoid tax when inheriting expensive family home).

The whole purpose it seems that this rental property will generate about €12000 annual net income (Assumption, €1000 per month) and at least I will have my own house while still living with parents rent free.

I am now having a second thought, is buying this property make sense after all considerations?
 
It is usually a bad idea as you lose whatever First Time Buyer benefits there may be at the time you want to buy a house to live in.

It seems to me that you have plenty of resources yourself and access to other resources.

So when it does suit you to move home, buy the house you want to live in. Given the resources at your disposal, you should be well able to afford that.

In the meantime, invest your money in the stockmarket. Over the longer term, it should rise more than keeping it in a deposit account.
 
Donrr123 said:
4. Last consideration would be inheritance too because €800k property would have lots of CAT, also does not seems too tax effective. If I don't have a house which means the €600k will be tax exempted. If I buy the house I will have to eventually sell the €275k house which makes me does not own property again and be able to inherit everything tax free, since €600k house tax exempted and there is €400k tax credit from parents (Assumption again, not sure if it works like this because it makes it sound like everyone can just sell their house to avoid tax when inheriting expensive family home).
Click to expand...

I don't understand this.

If you are living in your parent's home when the last of them dies and you own no other home, then it will be free of CAT, if the current rules still apply.

But as they presumably could live another 20 or 30 years at least, you should not be basing any decision today on that.

If you get married or get involved in some other relationship, presumably you will move out at that stage.
 
Brendan so your opinion is don’t buy the house now and only do so when I want to move out from the family?

Meanwhile invest in stocks?
 
Donrr123 said:
Hi I (30, single) am running into a situation where I am living with my parents rent free and considering buying a €275k investment property for rental purpose. We are happy out living in the family home and I have €170k saved up, they can loan(or gift) me €100k-€120k if I do so, they don't really care about the loan and I can pay 0% interest with an indefinite period. They own two properties, one is €600k and second one is a rental property €200k. My parents really want me to own a house because there are lots of ppl struggling to get up the housing ladder and house prices going up rapidly.

My plan is buying the property to let it managed by property management company charging at about 9-10% fees, which assuming it will generate €1800 per month before expenses and tax. However, I have the following consideration:

1. I have done lots of researches and ppl generally don't recommend getting into the landlord hassle and rather put money into stocks or EFTs etc.
2. I am already on higher tax bracket so that will be 40% tax plus PRSI and USC, which also makes me think the rental income is not that attractive.
3. Another consideration would be what if I am getting into marriage so there will be more legal problems.
4. Last consideration would be inheritance too because €800k property would have lots of CAT, also does not seems too tax effective. If I don't have a house which means the €600k will be tax exempted. If I buy the house I will have to eventually sell the €275k house which makes me does not own property again and be able to inherit everything tax free, since €600k house tax exempted and there is €400k tax credit from parents (Assumption again, not sure if it works like this because it makes it sound like everyone can just sell their house to avoid tax when inheriting expensive family home).

The whole purpose it seems that this rental property will generate about €12000 annual net income (Assumption, €1000 per month) and at least I will have my own house while still living with parents rent free.

I am now having a second thought, is buying this property make sense after all considerations?
Click to expand...
With regard to the 600k house if that is the family home, you are the sole inheritor, and still living there as the family home, you would be exempt from CGT on inheriting it. Anything else would be liable for CGT at whatever the rate is at that time.

The problem with spending 275k on a rental property as Brendan says is that any subsequent purchase would not be as an FTB, so you cannot avail of help to buy, lower deposit if that is relevant, maximum multiple borrowings or any other incentive schemes. Now that said, a very large chunk of FTBs get no benefits other than higher borrowing limits of 4.5x rather than 3.5x. If your plan was to buy a home to live in that might be a problem.
Not to mention tax etc - assuming you are on the higher rate about half your rental income will end up going in tax. Then add other costs.

There's plenty of anecdotal evidence here about landlords experiences you can read at your leisure. Its not a passive income source. Brendan's suggestion to look at ETFs or index funds isn't a bad one, have a look at some of the brokers offering this or the big life companies who they sell.

You could also move into a house share to see how you feel about it, though even that is quite expensive nowadays compared to 10 or 20 years ago. 1k per month is an ok income that said, but it is a business and you will have related responsibilities to the tenants that are likely to increase over time.
 
Why not buy a house to live in yourself and utilise the Rent a Room scheme? Less tax to be paid, but you need to be comfortable in a house share scenario.
 
The Rent a Room scheme right now is great if you have the right property. It used to be that you would need a couple of room-mates to maximise it, but now with rents the way they are you would easily get close to the max for one person rent plus their share of bills.
 
You must log in or register to reply here.
Back
Top