How much after tax is a rental property worth to a landlord?

Pedroso

New Member
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2
Hi all,

I'm trying to get my head around this and maybe a landlord can clarify if they are in a similar position.

If I decide to buy a property (mortgaged or cash) and rent it out for €1400 per month, I know that I can claim depreciation on furniture and management fees, property advertising fees, some fire/third party insurance etc. to reduce my tax bill, but given that I work and it would push my income over the threshold in to the higher tax rate, what is the take home worth per month to a prospective landlord/existing landlord?

Thanks,

Pedroso
 

Sarenco

Frequent Poster
Messages
6,094
The sample rental accounts in this thread might help -
 

Vanessa

Frequent Poster
Messages
239
Hi all,

I'm trying to get my head around this and maybe a landlord can clarify if they are in a similar position.

If I decide to buy a property (mortgaged or cash) and rent it out for €1400 per month, I know that I can claim depreciation on furniture and management fees, property advertising fees, some fire/third party insurance etc. to reduce my tax bill, but given that I work and it would push my income over the threshold in to the higher tax rate, what is the take home worth per month to a prospective landlord/existing landlord?

Thanks,

Pedroso
A rough figure not knowing your costs I would reckon that you might come away with about 55 to 60 percent of the rental income.
Remember that for the first years tax liability you will have to pay preliminary tax for the following year so that is a big hit.
I certainly would recommend using an accountant. As you are new to the game you will find that you will cover his fee, which wont be extortionate, by tax saved
 

SBarrett

Frequent Poster
Messages
3,340
Hi all,

I'm trying to get my head around this and maybe a landlord can clarify if they are in a similar position.

If I decide to buy a property (mortgaged or cash) and rent it out for €1400 per month, I know that I can claim depreciation on furniture and management fees, property advertising fees, some fire/third party insurance etc. to reduce my tax bill, but given that I work and it would push my income over the threshold in to the higher tax rate, what is the take home worth per month to a prospective landlord/existing landlord?

Thanks,

Pedroso
Debt is hugely important too. Interest paid on the mortgage can be offset against rental income. Of course, you have a debt to repay too which would take up almost all of the rental income for the term of the mortgage.

Steven
www.bluewaterfp.ie
 

Zenith63

Frequent Poster
Messages
458
More like 30-40% for higher rate taxpayers.
Yep I rent out an apartment in Dublin (in an RPZ but luckily at a decent market rate) and get to 'keep' 36% of the rental income after all costs/tax are paid but excluding mortgage capital repayments. Mortgage is quite small at 30% LTV 3% interest, so that profit figure could be much worse.

While it's important to know how much money you get to 'keep' from a rental, a more important figure I think is the yield you're making on the investment, so you can compare it to putting the money in a bank account, an investment trust or shares for example. In my case the yield on my equity in the in the apartment is about 7.5% before tax. This is much better than a bank account, but only slightly better than shares and comes with all the hassleof being a landlord (broken appliances, management company troubles, non-paying tenants etc).

FWIW I kept this place after we moved out into a larger home. Even though we had great tenants I would not bother with it again for the sake of a couple of percent and am in the process of selling.
 

Zenith63

Frequent Poster
Messages
458
Does that work out at around 2.7% after all costs and taxes?
Slightly higher (about 3.3%) as costs are already taken out of that, it's basically Rental Income less all costs divided by my equity in the property. Not a terrible investment by any means, but even as somebody quite into DIY and living very nearby, I find going over to fix a fan or boiler or whatever on a cold winters night a bit tedious a few years in. I really would not recommend it to anybody unless you're planning on having it fully managed (in whichcase your yield will be very poor) or you're buying 5+ properties and will make a career out of it.
 
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Feemar5

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372
If the rent pushes you into the higher rate that is 40% gone straight away - you also have to pay USC on net rental income. For a new let you can't claim very much - pre letting expenses are not allowed and furniture etc., is taken at 12.5% over 8 years. 30 to 40% seems about right - nothing allowed for any work you do yourself on the property. Think seriously if it is worth the hassle.
 

Vanessa

Frequent Poster
Messages
239
More like 30-40% for higher rate taxpayers.
I said a rough figure for which I use my own experience of letting and a good accountant. There are of course useless landlords who dont keep proper accounts and people on here who havent a clue. If someone buys for cash and is only pulling 30 to 40 per cent after tax they are in the wrong game
 

Zenith63

Frequent Poster
Messages
458
I said a rough figure for which I use my own experience of letting and a good accountant. There are of course useless landlords who dont keep proper accounts and people on here who havent a clue. If someone buys for cash and is only pulling 30 to 40 per cent after tax they are in the wrong game
The original poster is clearly not an experienced landlord, so will be coming into this 'not having a clue' and will most likely fall into your 'useless landlord' category initially. It might be more helpful to provide advice based that assumption.

Notwithstanding that, I'd be curious to see some representative figures from one of your lettings if you'd be willing to share? With the top rate of tax being 55%, it is mathematically quite difficult to get returns much greater than 30-40%, assuming we're taking off-the-table inflation/massaging of your expenses.
 

fidelcastro

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111
Depends on the OP's effective tax rate on all income, rather than exclusively counting the letting income as being exclusively at the marginal rate.
 

Baby boomer

Registered User
Messages
205
It all depends on the gearing and the interest rate.

Example: Dublin apartment. Value 220k, mortgage 170k. Interest only tracker 1.25%

Gross Monthly rent 1500
Expenses (interest, management fee, agents fee) approx 500
Tax approx 500

Net monthly rent 500.

This is a return of approx 2.7% on the property value. Not attractive for a higher rate taxpayer. But my equity or investment in it is only 50k. The real rate of return on my equity is just over 12% pa. This is a fantastic return with the possibility of capital growth as well.

Obviously, this is a historical investment and that type of loan is no longer available. Sadly!
 

Bronte

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13,811
Slightly higher (about 3.3%) as costs are already taken out of that, it's basically Rental Income less all costs divided by my equity in the property. Not a terrible investment by any means, but even as somebody quite into DIY and living very nearby, I find going over to fix a fan or boiler or whatever on a cold winters night a bit tedious a few years in. I really would not recommend it to anybody unless you're planning on having it fully managed (in whichcase your yield will be very poor) or you're buying 5+ properties and will make a career out of it.
How many times in the last six months did you have to go there to fix something? What will you do with the equity when you sell.
 
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