Investment Predicament

P

portman

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Hi, i was hoping for some advice if possible. I am a FTB with an oppertunity to buy an investment property in Galway from a family member. 2 bed house converted to 5 bed with extension for rental purposes. Price in and around 320k. Rent per year roughly 13.5k per year leaving a shortage of 6-7k to cover repayments at current interest rates.

I am currently renting and def could afford shortfall in mort. repayments but considering the property will certainly not increase in value over the forseeable future and cold be affected by falling house prices, would it still represent a 'decent' investment at todays prices/situation?

Any advice would be very appreciated.
 
You would be liable to income tax on your rental income. There may also be a stamp duty issue if you rent the whole house out.
 
Thanks gordongekko for reply. Stamp duty is not a problem as the family member would gladly sell at the stamp duty threshold, to stop me having to pay stamp duty. Considering income tax liabilities, I could still afford to take the hit. But as many FTB, I am nervous about this because I percieve it as risky. I always was told a good property investment would ensure the rent nearly covered the mortgage and there would have to be a good chance of increased prices in the short to medium term. None of which is true in this case.
 
The main question is, where in Galway is the property located? If it's in an area that rents very well, close to town and colleges, it is probably worth looking at. Conversely, if its in the wrong place, it will still be in the wrong place when you buy it!

If you do something illegal with the stamp duty, i.e. underdeclaring the value, it may cause you problems when you sell. Always better to pay what is due; there is no point in going into any business deal that relies on an illegal element to make it profitable.

Also, be sure that the extension has all planning approvals before you get into anything.
 
Thanks Auto320. I take your point on the stamp duty. No the legality is not in question the value of the property was quoted just at the threshold for FTB ie 317,500k. I would never consider a business dealing which involved an element of illegality. The point was that if on the open market he may gets bids of 320k+ or may not, but in my case he will sell as a family member at the valuation given by the estate agents which happens to be at the stamp duty threshold. Obviously valued as such to make it attractive for all FTB.

The locality is good but the question remains in the current climate would this represent a good investment?
 
You don't say if you are planning to live there and rent the other rooms. It doesn't make sense to buy an "investment property" before you have somewhere to live.
 
Thanks for the reply mugsgame. I am not planning to live there. My partner and myself rent at present. If I was to occupy one of the rooms in the investment property it would equal what I am currently paying in rent. Therefore there is no financial incentive for me to occupy one of the rooms in the house, bar extra tax liability.
 
bar extra tax liability.
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Exactly. You will have to pay investor stamp duty rates if you don't live there. The rates are higher and the thresholds are much lower. Plus if you ever decide to sell it you will have to pay CGT.
 
It seems you really do need to do much more research before you make your decision. Buying from family can be a double edged sword. The question that you need to ask is whether or not this is the very best deal for you, taking into consideration that there is a very real risk that property prices may fall over the next few months. If you are not under any pressure why not wait and see what happens in the market. In six months time there may well be better opportunities for you.
 
Not only will you have to pay stamp duty at the investor rate for this property, but you will also lose your FTB status. So if you subsequently buy a property as your PPR, you will also have to pay the higher rate of stamp duty on this.

There may not be any income tax as the rent looks like it is about the same as the interest element of your mortgage.

Personally it doesn't sound like a great investment as you have to top up the rent by about 500 per month and get all the hassle of being a landlord, lose your FTB status, and are really depending on capital appreciation to make any sort of profit.
 
It is a repayment mortgage clubman. Obviously need to do more research on the extra costs involved. Will I have to pay stamp duty at the investor rate if I plan to occupy one of the rooms and rent the others out?
 
portman said:
Will I have to pay stamp duty at the investor rate if I plan to occupy one of the rooms and rent the others out?
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Not if you are genuinely living there as your PPR and you are collecting less than €7,620 p.a. in rental income thereby availing of the owner occupier rent a room scheme.
 
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