Buy vs. Rent and Rent-a-room

[ClubMan]

This has been split from the discussion on buying vs. renting as the general consensus is it's a side issue. -- MugsGame

What if I buy a home for €500,000, it then falls to €400,000 and interest rates rise to 8%? I might not be able to afford to keep my home

Rent a room income of €7,620 tax free would probably cover the additional interest bill in this case. Some lenders might also allow restructuring of the loan.

 

[MugsGame]

Re: Owning your home is the most important financial objective of everyone (Buy vs. Rent)

Rent a room income of €7,620 tax free would probably cover the additional interest bill in this case.

I don't think that's relevant. If I'm renting with a spare bedroom and run into difficulties, I can sublet or downsize. If I'm renting and don't have a spare room, I can save the difference in case I do run into difficulties later.

 

[whathome]

Re: Owning your home is the most important financial objective of everyone (Buy vs. R

Rent a room income of €7,620 tax free would probably cover the additional interest bill in this case. Some lenders might also allow restructuring of the loan.

Domestic situation may not allow rent a room or property could have been purchased with rent a room included from day one.

Restructuring the loan might delay the problem but I'm still not going to have that utopian sense of security. In fact I would be wishing I had rented and invested the savings of rent over mortgage in the stockmarket!

And another big advantage in favour of renting is that you can adjust your spend to suit your circumstances more easily. If my rent goes too high, I can downsize without taking a financial hit or I can upgrade without have to spend a fortune on stamp duty.

 

[ClubMan]

Re: Owning your home is the most important financial objective of everyone (Buy vs. Rent)

I don't think that's relevant. If I'm renting with a spare bedroom and run into difficulties, I can sublet or downsize. If I'm renting and don't have a spare room, I can save the difference in case I do run into difficulties later.

How is a potential additional income source not relevant to dealing with mortgage servicing difficulties that arise in the event of rates increasing?

 

[ClubMan]

Re: Owning your home is the most important financial objective of everyone (Buy vs. R

Domestic situation my not allow rent a room or property could have been purchased with rent a room included from day one.

Of course. Inevtiably some people will get into mortgage difficulties at some stage that requires them to cut their losses. But this doesn't mean that it will be a common situation.

If my rent goes too high, I can downsize

Only if you can find a place that matches your budget.

 

[MugsGame]

Re: Owning your home is the most important financial objective of everyone (Buy vs. Rent)

How is a potential additional income source not relevant to dealing with mortgage servicing difficulties that arise in the event of rates increasing?

Because we're trying to compare someone paying a mortgage with someone renting. Each of them can rent out a spare room if they have one, and the extra income will be the same. It doesn't give either a financial advantage, so it's not relevant to the comparison.

 

[ClubMan]

Re: Owning your home is the most important financial objective of everyone (Buy vs. R

Because we're trying to compare someone paying a mortgage with someone renting. Each of them can rent out a spare room if they have one, and the extra income will be the same.

Are you sure that tenants can avail of the rent a room schem? I thought that it was confined to owner occupiers so that a tenant sub-letting would be liable for income tax on the rental income.

 

[whathome]

Re: Owning your home is the most important financial objective of everyone (Buy vs. R

Not the same thing - and owner occupier availing of the rent a room scheme is getting up to €7,620 into his/her hand tax free. This is not the same as a tenant either sharing the rent or sub-letting.

You may not be able to attract the same level of rent with the rent-a-room scheme compared to rental sharing. Friends of mine that have used it on both sides of the deal and say that many tenants do not like to live with a landlord so the rent agreed is lower.

With the rent-a-room scheme, you can't go above the €7620 limit without possibly triggering a stamp duty clawback or affecting PPR CGT and mortgage interest relief. Rental sharing does not involve a €7620 limit.

These factors balance out any advantage that rent a room tax relief may provide in my opinion and so the end result for this debate is neutral.

 

[dam099]

Re: Owning your home is the most important financial objective of everyone (Buy vs. Rent)

As pointed out it is common in house share situations for one tenant to take out the lease while the rest of the housemates are not on the lease but contributing to the rent so the ancedotal evidence would seem to point to it not being taxable in a true house share situation (though of course sometimes the Revenue have a different view of things than the conventional wisdom might think).

There might be circumstances where it would be taxable though for example if one rents a house and sub-lets it at a profit without living there oneself. However in order for this to happen the sub-let rental income would have to exceed the rent being paid in the first place.

Similarly in house share situations the rent is normally split so the leaseholder is unlikely to be making a rental profit in any event unless they are particularly astute in negotiating the rents they are getting from their other housemates.

 

[conor_mc]

Re: Owning your home is the most important financial objective of everyone (Buy vs. Rent)

Isn't the rent-a-room vs house share sub-debate a moot point?

The main thrust of the debate is whether renting is currently a better option than buying.

 

[ClubMan]

Re: Owning your home is the most important financial objective of everyone (Buy vs. R

Isn't the rent-a-room vs house share sub-debate a moot point?

No - because in spite of what has been claimed above I don't see the two situations as being the same and it seems to me that an owner occupier may have recourse to tax free income that a tenant does not and this seems pertinent to the original discussion.

 

[MugsGame]

Re: Owning your home is the most important financial objective of everyone (Buy vs. Rent)

Even if the renter can't sublet or rent-share tax-free (which I highly doubt), they can downsize without significant transaction costs to achieve the same benefit. So again, I don't see how possibility of rent-a-room income improves the buyer's situation when compared with the renter.

 

[conor_mc]

Re: Owning your home is the most important financial objective of everyone (Buy vs. R

No - because in spite of what has been claimed above I don't see the two situations as being the same and it seems to me that an owner occupier may have recourse to tax free income that a tenant does not and this seems pertinent to the original discussion.

A renter has recourse to reducing their outgoings, the net result of which is the same i.e. two people sharing a roof over their heads.

The renter also has the flexibility of moving to a smaller property with relative ease and little cost when compared to stamp duty.

The renter is less open to unforeseen costs than the owner, due to the fact that responsibility for the maintenance of the property is the landlords.

Rent is immune to interest-rate rises.

The owners house may be located in an area which has little or no demand for rent-a-room. The availability of a €7,620 limit of tax-free income does not necesarily translate into €7,620 of actual tax-free income.

 

[Brendan Burgess]

Re: Owning your home is the most important financial objective of everyone (Buy vs. Rent)

There is no tax implications to house sharing on a rental basis.

If I have a lease with a landlord in my name and pay him €12,000 per annum and I sub-let/share the house or whatever for €7,000 - the €7,000 would not be taxable income. Even it was found to be taxable, then you could write off the rent paid against the rent received and so no tax would be due.

On this very minor side issue, the renter has a small advantage over the home owner in that he is not subject to the limit of the rent-a-room relief.

It does not affect the overall decision.

Brendan