House bought with a view to renting out. Advice needed

Discussion in 'Property investment and tenants' rights' started by Mumha, Mar 1, 2017.

  1. Mumha

    Mumha Frequent Poster

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    Hi

    We bought a house with a view to renting it out, but it is in need of being modernised & re-configured. Once modernised we plan to hand it over to a letting agent.

    However, we have been informed that if we were to put money in to do it up, we could not write it off because it would still have been classed as a residential unit, so it needs to be rented out first. Is this correct ?

    If that is correct, what is the minimum time that we would have to rent it out for ?

    We have someone that we know, who is looking to come back from the UK, and it would be a perfect fit to rent it out to them (for low rent) until they find their feet. It also gives us time to come up with plans, find builder etc

    Also, what are the minimal things we need to do to satisfy the PRTB and Revenue ?

    Thanks
     
  2. Gordon Gekko

    Gordon Gekko Frequent Poster

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    You've been badly advised.

    The enhancements to the property will (in the main) be capital in nature and therefore (effectively) enhance the base cost of the property for CGT purposes. So if you ever sell the property, you'll be subtracting these enhancement costs and the cost price (amongst other things) from the sales price. That would be the case even if it remained vacant forever.

    The non-allowability of pre-letting expenses is something different.
     
  3. Setanta12

    Setanta12 Frequent Poster

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    You've been badly advised. +1

    You need to either sit down with an accountant, or do a lot of reading on this website. I recommend the former for exact advice pertaining to your circumstances.
     
    rob oyle likes this.
  4. Bronte

    Bronte Frequent Poster

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    Mumha there are two issues here. If you do Capital Expenditure, eg put in new windows, bathrooms, flooring, kitchens etc that is allowed later as a reduction on your CGT bill.

    If right now, you already had the place let, and then decided to do some renovations (painting the place, tiling a bathroom) that would be deductable from your rental income tax bill. But not if you do them prior to letting. As they can be considered repairs/replacement. Perhaps the accountants on here could clarify if you're not allowed those costs under rental income tax that they can instead be claimed later under CGT?

    Sometimes there can be confusion between a Capital Expenditure versus repair/replacement. It's a fine line sometimes but an accountant can guide you.

    As you mentioned 'plans' and 'builder' it seems to me you are doing major work. Enhancement as Geko said. So that's Capital in nature.

    Please be aware that the Minister brought in some scheme for allowing expenditure up to 15K I think it is, in order to get properties currently unlet, up to standard. And it is my udnerstanding that even if this is 'capital in nature' is is allowable against rental income tax. Prior to this there was another scheme called the 'Countrywide Enhancement Scheme'. I used that one myself. But it had no limits.
     
  5. Mumha

    Mumha Frequent Poster

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    Thanks for all your replies, I really appreciate it.

    It was actually my accountant brought it to my attention, from A Revenue Guide to Rental Income - lT 70 http://www.revenue.ie/en/tax/it/leaflets/it70.html

    I'll put all your responses to him and see where we are. Thanks again.
     
  6. Palerider

    Palerider Frequent Poster

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    You seem based on your initial post to have questions that should have been addressed prior to purchasing a property for rental, it can be a tough business and if you don't mind me saying you appear to have done little research, rental of property is not for every one and must be done professionally to stand any chance of getting a couple of percent yield, don't forget taxation is +50% assuming you make any money, choose tenants carefully, don't assume as you may be that the letting agent is some kind of guru that will keep you right.
     
  7. T McGibney

    T McGibney Frequent Poster

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    The effective tax rate in many buy-to-let cases is over 70% when the effect of non-deductible expenses (in respect of which you end up paying tax on non-existent profits) is counted.
     
  8. Seagull

    Seagull Frequent Poster

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    Bear in mind the new legislation capping the amount you can increase rent by. Bringing in someone paying a low rent would then lock you into a low rent even after you've done the renovations.
     
  9. Bronte

    Bronte Frequent Poster

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    OP needs to give us some figures. We are working on basically nothing here. Purchase price, rental, renovations. Tax bracket etc.
     
  10. Mumha

    Mumha Frequent Poster

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    Well the house is in an excellent area for renting out, so we're happy with that (we've done our research that whatever comes up for rental, doesn't stay vacant for long). The management agent we will be going through, has managed a property for a friend of ours for the last 15 years, and that is why we are going with that recommendation. We also have brought that agent through the house, and has advised us what we should and shouldn't be looking to do. Plus we have the tradesmen lined up to do the necessary works, and the finance is in place. All we need now is to make absolutely sure that the approach we are taking is the right one. As regards the taxation + rent capping, yes we know that, and that's fine as we won't have a mortgage on it, so any return is better than we would get from a bank.
     
  11. Bronte

    Bronte Frequent Poster

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    I'm not understanding your point about the rent cap - versus taxation and mortgage?
     
  12. Mumha

    Mumha Frequent Poster

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    Sure, the cost is about 230K and renovation cost will be about 40-50K. It's mostly internal work, Rewiring/Plumbing/Heating/Insulation/Kitchen/Bathrooms along with painting/decorating, and depending on the cost, a small porch at the front. We were advised against adding a 4th bedroom by the agent.
     
  13. Bronte

    Bronte Frequent Poster

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    What is the rent expected?
     
  14. Mumha

    Mumha Frequent Poster

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    I'm just saying that I'm not looking to get every last red cent out of the rental, as some obviously are for their own reasons. I'll pay the taxes and charges due, and whatever's left over we will still be doing better than putting into a bank or taking a chance with shares. For example, I have an Zurich investment that has lost money over the last year, and with the market so volatile, I'm happy to have bought into a property for the long term.
     
  15. Mumha

    Mumha Frequent Poster

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    14-1500 less 7% management fee.
     
  16. Bronte

    Bronte Frequent Poster

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    Not sure why you don't want to maximise your return. But anyway.

    Cost 230K (plus legals)
    Renovations 70 (I'm upping the 50 to this)

    200K

    Rent 18K - 1260 = 16740. Let's just take off another 1K in costs as it will be newly renovated. (house insurance, garden, repairs, possibly unfurnished) so you've 15740. Take off half in tax. Get about 8K into your pocket.
     
  17. Mumha

    Mumha Frequent Poster

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    I'd be very happy if I got 8K !

    Don't get me wrong, if I can maximise the profit I will, but my motivation is long term and to do better than risk taking in such a volatile market. We went through a long number of years where our investments at best stagnated, any positive return is welcome after that battering.
     
  18. Mumha

    Mumha Frequent Poster

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    Does anyone know what this scheme is ?