I have been told by my bank manager that I can get a 100% interest only mortgage for an investment property ( using another investment and home as security) If the mortgage is 850 per month and the rent is 1000/ mnth how much tax am I liable for each month? Sorry if this is basic but I am a terrible at this kind of thing, always need advice.
Interest only mortgage/ tax liability?
- Thread starter larry1
- Start date
Have you read the Property Investment FAQ and the key posts (including one on interest only mortgages for investment properties) linked at the top of this forum? If you don't have any idea about how to calculate your rental property tax liabilities and are "terrible at this kind of thing" then (a) you should get independent, professional advice on this ideally from an accountant and (b) you should ask yourself if you are actually prepared for getting into the property management business or if some other sort of investment might suit you better.
Larry , quick guide if you earn 850E from rent and pay mortgage of 1000E then tax is on 150E at whatever tax bracket you are then u can take away expense's, good tip if u have old furniture use that in house first then when tentants have moved in then buy the stuff u wanted this way u can claim for them because u bought them after they moved in best of luck
It is not necessary to wait until tenants have moved in to 'buy the stuff you wanted'. A 12.5% per annum wear and tear allowance can be deducted over 8 years on furnishing and fittings regardless of when they were purchased.dodo said:
Keep all your receipts and if you are going to use furniture for which you don't have receipts, make a reasonable estimate of the value.
Couldn't agree more - don't just listen to what the bank says, get independent advice before you decide to invest in property.
Ok final clarrification for me!
Getting a 100% interest only mortgage so ...
Annual rental income... €12,000
Annual mortgage interest €12,000
Am I correct in assuming I will have no tax bill at year end because interest only mortgage will offset against rent??
Getting a 100% interest only mortgage so ...
Annual rental income... €12,000
Annual mortgage interest €12,000
Am I correct in assuming I will have no tax bill at year end because interest only mortgage will offset against rent??
And also - don't forget that the yield on the property would be 0% if the rent was €12K and the interest only mortgage repayments were €12K thus cancelling each other (and any income tax liability) out. In fact the yield may well be negative if, as is likely, additional expenses (e.g. maintenance, insurance etc.) are incurred. If this is the case then you are banking on capital appreciation (less CGT) to cover these losses and yield your target return when you eventually sell up.
You really should apprise yourself of all the issues involved, crunch the numbers and get independent, professional advice before getting in out of your depth.
Post crossed with budapest's but same train of thought...
You really should apprise yourself of all the issues involved, crunch the numbers and get independent, professional advice before getting in out of your depth.
Post crossed with budapest's but same train of thought...
Based on the figures above the proposed 100% mortgage would be about €400K. 30% gross capital appreciation in 5 years time would yield €120K gross or €96K net (after CGT and ignoring other deductions/expenses). Let's assume that the ancillary costs of managing the property over those 5 years come to €6K. So €90K on €400K over 5 years is c. 4.1% CAR according to this calculator. I'm ignoring inflation for simplicity so the real return may be even lower. You'd nearly get that on deposit without any of the associated risks. Hardly a great return all things considered. Once again I suspect that people are missing the point and not crunching the numbers to get a realistic, objective and prudent assessment of the investment opportunity and how viable it is...dodo said:
He does make more money this way and might make more rather than less he can also release money from this investment if he chooses to buy another place in a few years,this he could not do if he left in a bank making less money, and he is also giving a home to somebody lets not forget that,
He could earn 4.875% gross CAR/EAR with AIB over the same 5 years with none of the hassle or risks. An investment with additional risks and hassle should really yield a significantly higher return than deposits.dodo said:
Yes - but the 4.875% above is guaranteed (once the relevant terms & conditions are adhered to). The 30% figure you mentioned is not guaranteed. It could well be higher but it could also be lower due to less capital appreciation or higher expenses. Note that the analysis above did not take into account vacancy periods etc. as somebody else pointed out.
How is he "giving" a home to somebody?
Some of the investment property analysis and advice posted here on AAM is really simplistic and possibly dangerous in the hands of those who are "terrible at this sort of thing" in my opinion...
You say he can get nearly 5% in AIB, so where does he get the 1000E a month to put in there, so over 5 yrs he must pay 60K, people can get mortgages so they buy an investment, 12K a year he must pay out but could get same paid into his bank by tenants, If u mean he where to get the same 400K and put into a bank then he still would have to pay for that mortgage where with house let out over 10 mths he would get at least 10K, so even doing that way he would still be better of I think with a house, it is not rocket science
If he has a 100% mortgage hasn't he not put up any capital himself thus any profit he makes is from a base of almost zero capital (except maybe whatever expenses he incurs over the 5 years).
To earn the 4.875% CAR with AIB he would need Eur 400,000 capital to start with.
I do think however that this is still a risky proposition.
Edit: crossed with Dodo
To earn the 4.875% CAR with AIB he would need Eur 400,000 capital to start with.
I do think however that this is still a risky proposition.
Edit: crossed with Dodo
Thanks you made my point people forget that they still need the money in the first place, if the person kept his earnings from tenants for 5 yrs he could have more than 60K if he had a good accountant to avail of everything that there is , so house was 400k now 520K plus 60Ksavings = 580K , 96K Profit, 60K savings could be used to pay mortgage for that 5 yrs , bank even at 5 % 40K Profit net 32K, but you still have to pay back the 60K repayments for the 5 yrs so loss 20K , so yes house does sound a good deal better