Efficient way to purchase apt. in Dublin?

H

Harrassed

Guest
Hi there,

Being something of a novice in these matters, I'm hoping that people here might be able to offer some advice as to how I might best go about financing the purchase of an apartment in Dublin for the use of my kids, given the following situation? I'm a little befuddled trying to weigh up the pros & cons of tax relief, FTB status, stamp duty considerations, etc., etc.

In a nutshell — eldest daughter is off to Dublin next year to study medicine (touch wood), so will need somewhere to live for 6-7 years, preferably central. Sibling dearest is likely to follow in another couple of years and, Lord help us, there are three more coming up behind her (but not for a few years). It seemed to me that, even in the current inflated market, it would make better sense to purchase a 2-bed apt. as an investment and let her/them rent out a room, rather than simply fork out (multiple) rents to someone else for the next 7-15 years...

Some new apartment developments in D8, on or near the Luas line, have caught my eye lately. Prices are around €350 and upwards for a nice spacious two-bed. Up-and-coming area, creeping gentrification, rising rents, yada, yada, yada...

Our own situation:
We bought our family home in Limerick about 13 years ago and, despite various top-ups over the years, currently have the mortgage balance down to about €80K (house is probably worth about €500K+). I'm on a NIB three-year fixed rate (until Feb. 2008, which is about when the Dublin apartments are likely to be completed) at only 3.45%. At the moment I'm using post-SSIA money (and other funds) to accelerate the repayments, and was originally planning to clear the loan entirely, once the three-year term was up and there was no redemption penalty.

I'm a single earner on about €87K gross (permanent public sector, DB pension); my wife hasn't been earning an income for some years but is likely to return to work in the next year or so (both in early forties, so looking at a 20-year mortgage term). We have other investments into which we could dip to come up with maybe €75K or €80K towards the purchase of the apartment, after clearing the existing mortgage, so should be eligible for a LTV of <80%.

Questions:
Can/should we explore the possibility of purchasing the apartment in our daughter's/daughters' name(s)? (i.e. would the benefit of their FTB owner-occupier status outweigh the tax relief advantage to me, higher-rate PAYE Homeowner Joe, of an interest-only investment mortgage?) Indeed, can the 18-year-old 'buy/own' the apartment, and I pay the mortgage? I know it would have implications further down the line in terms of eating into her/their tax-free-gift-from-parents threshold, but tbh I reckon that by the time I've reared the five of them there probably won't be too much left over to tax at the end...! :D

If that's not a runner, then am I right in assuming that my best bet is to go for an interest-only mortgage now, so as to avail of the maximum tax reliefs, keep repayments manageable relative to my present income (let's assume the existing €85K mortgage is first cleared) and hope for (a) capital appreciation and a steady rent-a-roomer, and (b) longer-term, the undying gratitude of a high-earning consultant daughter?

I'd be grateful for any comments/suggestions/clarification of points I've missed (or misunderstood) in all of this!

Harrassed Dad
 
I think the first thing you should realise is that the interest on the mortgage is not tax deductible against PAYE. The interest on the mortgage is deductible from rental income only. Five of them....God help you.
 
Yup. Hope they don't all want to study medicine; it should carry a bloody health warning.

I should have been clearer. I know the mortgage interest only qualifies for relief on the rental income, but I'd thought/hoped maybe she'd/we'd get a couple of non-students in to share full-time, and so take in a little more than the €7,620 p.a. exempted under the rent-a-room scheme...(?)
 
The first thing to decide is whether or not you should buy an apartment. I see lots of student blocks in Belfield - who is living in them? It must be great to live in rooms in Trinity. So how many years free or cheap accommodation would your daughter get?

Your kids may go to 5 different colleges. The advantage of renting is that they can rent near the college of their choice. If one chooses to go to Cork, then an apartment in Dublin is not much use to you.

You don't want to be putting undue pressure on the three later kids to go to college in Dublin, because that's where the apartment is.

What does "next year" mean? Do you mean October 2007 or October 2008? If it's 2008, then there is no hurry to make a decision.

If you buy a new apartment for your kids, I presume that it is treated as an investment property and subject to Stamp Duty. I would check this out. There might be some clause.

The 100% interest only mortgage won't be that much use to you assuming that you don't charge the kids rent. The advantage of the interest only mortgage is that you can write the interest off against taxable income. This won't be of any use to you and you would be better off paying off the "investment" mortgage first as you get some small relief on your own home mortgage.

You could write the interest off against any rental income from third parties.

I don't like the idea of buying it in your daughter's name. What if she goes odd and claims that it is her apartment and she doesn't want any of her siblings moving in? If it's in your name, you control it.

She will lose her first time buyer's status which will probably be more valuable to her later when she has taxable income.

However if she owns the apartment, the rent a room income would be tax free. Probably not an issue, if you are paying a mortgage and can write the interest paid off against the income.

I wouldn't buy it in daughters' names either as I think that they would both later lose the tax benefits of being first time buyers.

A small tax planning point. If an occupier receives a house as a gift or inheritance they get it free of CAT as long as they lived in it for 3 years.

Are you any less harrassed? It is complicated.
 
My brother, being a student, going into 2nd year ( 2 years ago ) was able to get a 92% mortgage with no income with me acting as guarantor.

As a potentialli high worth future client the banks seem to do this for these professions.

basically the tenant rental and my guarntee was enough. he has no reportable income.

this was in the UK thro Ulster bank. There are brokers who specialise in dealing with medical students and then they sniff around after they qualify!


Well worth putting in one of the kids names as an=bove if possible.

brendans point about the kid going iffy is valid, I know close people who have been burned by their children, I would trust no one more than my brother so Im ok with the "risk".
 
Brendan said:
Are you any less harrassed?
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Only a little... :D But thanks for the insights!

It is for next September. She had a change of mind; was originally going to stay local, but now looking at TCD. Still, I suppose I shouldn't be counting tax relief on the chickens until the 600 points have hatched...
 
Brendan said:
The first thing to decide is whether or not you should buy an apartment. I see lots of student blocks in Belfield - who is living in them? It must be great to live in rooms in Trinity.
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Campus accomodation can be quite hard to get-first years tend to get preference, but it is oversubscribed.
 
as far as i can see i would advise you to buy the apartment and get rent from your kids/other renters. you then get the tax relief on interest on rental payments and can also right off any furniture etc etc in the apartment. When your kids decide to buy their own house they will then still be FTB and the benifits that go with it. You will have a rentable pension property in dublin which will always be valuable.

Look at it another way if the total time spent in dublin by your children is ten years (all of your children it may be even longer) at at least an average of €1400 a month thats at least €168,000 you would end up paying someone else over the period!!!!!!! Speaks volumes for me
 
kkelliher said:
Look at it another way if the total time spent in dublin by your children is ten years (all of your children it may be even longer) at at least an average of €1400 a month thats at least €168,000 you would end up paying someone else over the period!!!!!!! Speaks volumes for me
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I don't think this is the right way to look at it at all. Renting is a service like any other and may be in the best interest of everyone in this case. As Brendan quite rightly pointed out, some of the OPs kids may have no interest in going to Dublin to study. What if some of them decide to do an Erasmus or decide that the course they want to do is better somewhere else?

Also, your calculations on the actual cost are not so high in reality. The college year is usually very short (only 8 months long). You could find a very decent room in a shared house for about EUR 500 p/m. Multiplying that by 8 months means that it would cost about EUR 4000 per year for each child. Sending 5 children to college and presuming that they do an average of 5 years studies would amount to a grand total of 100,000 in rent and would not force any silly restrictions on their options.

Also, if the apartment is going to cost 350k, after 6 or 7 years you will have already paid about 100k in interest to the bank anyway.

Not really a great investment option to be honest. Although, it maybe a big help to some of your children so it needs to be weighed up in that context I guess.
 
if you have ever rented in dublin and gone to college you will know that in order to have accommodation for the following year most people rent the apartment for the full year and not just for the school year. Most also over a period of time get jobs etc etc for the other periods of the year.

The standard or "Room Rentals" in Dublin is on average very poor, talk to 90% of those living in them.

100k in interest but you still own the bricks and mortar. If you pay 100k in rent it goes in the bin.
 
kkelliher said:
100k in interest but you still own the bricks and mortar. If you pay 100k in rent it goes in the bin.
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Paying an interest only mortgage doesn't get you any closer to owning the bricks and mortar though. It's just an other form of rent (expect this time it goes directly to the bank).
 
If you consider 100k in rent as going in the bin then you should also consider 100k in interest as the same.

Ultimately it boils down to an investment in property vs rental costs. Have a look of the rents of similar properties in the area. I am guessing that rents would be a lot less than 1400 pm for a property worth 350k.

If you think the rental income + increase in property price will be greater than the interest you will pay on the mortgage + maintenance then your investment is a winner.
Also remember when you buy the place it will lose a slight bit of value instantly as it is no longer exempt from stamp duty. If you buy the apartment as an investor you will pay capital gains on any capital appreciation.
 
I completely disagree with kkelliher's financial analysis.

But he does make one very good overriding point - by buying the apartment, you will have access to a good standard of accommodation and you will not have to worry about the scramble for accommodation at the start of each term.

If you give the money to your daughter and she buys it, it will be her principal private residence and so any capital gain will be exempt from CGT. She will get the first time buyer's stamp duty rates, but will not be able to avail of the tax reliefs on interest payments.

Brendan
 
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