This is the key, in my opinion. I think being a landlord still makes sense, particularly if one has a favourable tracker in place. If that's the case, then there's a strong case for keeping an existing property as a rental. You're getting the benefit of gearing your investment and putting the bank's money to work for you..... You'd also be limited in the amount of interest you can claim as a tax deduction - the equity release is for your personal home so wouldn't be tax deductible.
How far would the housing market have to drop before you find yourself in serious trouble with this highly leveraged investment scenario?This is the key, in my opinion. I think being a landlord still makes sense, particularly if one has a favourable tracker in place. If that's the case, then there's a strong case for keeping an existing property as a rental. You're getting the benefit of gearing your investment and putting the bank's money to work for you.
But in this case, the OP has a mortgage of approx 100k on a 450k property. That generates an interest charge of only one to three thousand per year to attract tax relief. Result: over 50% of your rent goes on taxes, PRSI, USC and LPT.
Furthermore, €2k pm is not a great return on a property worth €450k.
I'd suggest a slightly different approach. Sell your PPR, taking (probably) a nice tax free gain, exempt from CGT. Get a mortgage somewhat larger than your needs for your new property, leaving you with about 100k in cash. Use that to:
A) pay off the car loan.
B) put a deposit on a new BTL property
You should be able to get, for example, a property costing about 300k with a mortgage of 240k. You will easily get a property yielding 2k per month for that price and ALL your interest on the BTL mortgage is tax deductible.
Is it risk free? No. Then again, neither is getting out of bed in the morning. There's an appropriate level of risk which depends on both the individual's circumstances and the individual's appetite for risk and comfort level with it. In this case, the OP has a household income of 160k AND does not seem unduly afraid of risk.How far would the housing market have to drop before you find yourself in serious trouble with this highly leveraged investment scenario?
Just think it's important to point out the difference in risk between a highly leveraged investment and a partially leveraged investment. It isn't a pain free option to choose the highly leveraged option to maximise tax relief.Is it risk free? No. Then again, neither is getting out of bed in the morning. There's an appropriate level of risk which depends on both the individual's circumstances and the individual's appetite for risk and comfort level with it. In this case, the OP has a household income of 160k AND does not seem unduly afraid of risk.
Anyway, the real risk is not negative equity on the BTL. The BTL is best viewed as a BTK-BTL (buy-to-keep BTL) which will throw off an annual income sufficient to pay the interest and make inroads into the capital. At least in the short term, property prices are almost irrelevant - you're not going to be selling. Your sole concern is the level of rent and the interest rate. In the long term, you can view capital appreciation as a bonus, if you get it.
The real risk is the security of your future rental income. Will rents fall when (if?) cost rental comes on stream? Will Government regulation make the rental game impossible? Will you get the proverbial tenant from hell? All these things are possible and should be considered. But I keep coming back to that €160k pa household income. I am suggesting that the OP carry a total mortgage debt of about 200k on the PPR and 240k on the BTL. The OP can service that debt fairly comfortably. It's a prudent investment in a wealth generating strategy. Guaranteed winner? No. There's no such thing. But over time, it should deliver. Historically, it always has.
I wouldn't disagree. There's always risk in leverage. But in this case, I'd suggest the risk is low and manageable.Just think it's important to point out the difference in risk between a highly leveraged investment and a partially leveraged investment.
No, but any investment plan MUST take tax into account.It isn't a pain free option to choose the highly leveraged option to maximise tax relief.
Yes, my suggestion incorporates paying off the non-mortgage debt.Indeed, the OP might want to think about whether leveraging investments is a good idea at all. And maybe clear his debts before he starts investing.
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?