Key Post Is profitable property possible at the moment?

ronaldo

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Quick question ......I bought my previous home in 2002 (250,000 approx.), moved out and rented it in 2007 (at the peak of the market value 400,000). In terms of "when" it became a rental property (at its peak value) does this have any bearing on maximising the Capital Gains Loss? (value now 200,000 approx.)
As far as I know, the following is the case:

The final 12 months is always included as a period of personal ownership if you have ever used it as a PPR and is not included for the purposes of CGT - whether that's a gain or loss.

If you bought on January 2002 and lived in it until December 2007 and went to sell it on December 2014, I believe the calculation would be as follows:

Purchase Price: 250,000
Sale Price: 200,000
Loss: 50,000

Total Period of Ownership: 13 years
Period not applicable for CGT purposes: 7 years (6 years as PPR and final year)

Total loss available to offset against future CGT gains: 6/13ths of total loss

Loss Carried forward: (50,000/13*6) = 23,077

The value of the property when it became a rental property has no bearing on the calculations.
 

landlord

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As far as I'm aware, you can just write off the acquisition costs and selling costs as well as the cost of any capital outlay, such as fitting a new kitchen.

You can also carry forward past losses. For this reason, if you have multiple investment properties, one or more of which is in negative equity, you may be better selling the property in negative equity instead.

This would crystalise a loss for Capital Gains Tax purposes which can be carried forward indefinately (under current rules) and wrote off against the potential profit when you sell other, more profitable, properties.
Sounded like a great idea initially....until I remembered about the mortgages on the other investment properties...I would have to pay off the shortfall in the mortgage on completion due to negative equity. Also I would be loosing a valuable ECB tracker mortgage. (ECB+.75 interest only 25 years). I guess this would work if someone was mortgage free on the investment property they were selling.
 

Bronte

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I didn't say I expected prices to rise in 6 months I said. that I hoped prices would pick up some what in the summer when I potentially might sell it.
I am confused when you say "I don't get how you think you can buy now for 122K if one sold recently for 153K?"
I have already bought this property.....3 months ago, from a very distressed and heavily indebted seller.
I misunderstood you because you said:

I am closing the purchase on the following rental property (Swords) in a few days time. This will probably be flipped in the summer, but I might consider holding on to it.
 

Bronte

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Sounded like a great idea initially....until I remembered about the mortgages on the other investment properties...I would have to pay off the shortfall in the mortgage on completion due to negative equity. Also I would be loosing a valuable ECB tracker mortgage. (ECB+.75 interest only 25 years). I guess this would work if someone was mortgage free on the investment property they were selling.
It would still be interesting to run the numbers though, to see if it makes sense. I wonder would you be able to transfer the mortgage to another property, and whether that might make it doable.
 

Bronte

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The gross rental yield on the property is just over 8.5% if you dont allow for voids, also this is a house with no management charges applicable. In short I think it would be difficult to find a better investment property.

It just does not stack up.
Have you run the numbers with borrowing, and would that increase the yield?
 

landlord

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Sorry for the confusion Bronte...Deposit paid 2-3 months ago....supposed to be completing today (although that seems unlikely from what I hear).

To save 6 grand of CGT I couldn't justify loosing 180,000 ECB+.75% tracker mortgage. AND HAVE TO PAY OFF THE NEGATIVE EQUITY TO GET THE SALE THROUGH!!
 

Bronte

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Ok so, doesn't make sense.

Don't you think flipping is a risky strategy. What if it doesn't work out? Does it make sense to have a house with zero mortgage if you've to pay a lot of tax on profit? Have you flipped before?
 

landlord

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Ok so, doesn't make sense.

Don't you think flipping is a risky strategy. What if it doesn't work out? Does it make sense to have a house with zero mortgage if you've to pay a lot of tax on profit? Have you flipped before?
Never flipped before....
Yes risky
and yes not a tax efficient prospect....probably far from it.

But no risk no reward...even after CGT there is currently a healthy profit now and come summer time who knows?
It could all blow up in my face, but I have and always will learn from my mistakes.
 

chillaxed

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If you ran the property through a limited company would you not just pay corporation tax @12.5% and avoid, for now, the 41% income tax, USC and PRSI etc.

Maybe tax will fall in years to come and you can extract it at a lower rate then?

Can't see tax going much higher than where it is now.

At least there would be more cash on hand if needed.
 

ronaldo

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This is an interesting thread and, based on its contents, I’ve been running some numbers for my local market in Donegal. Like the OP, it’s very difficult to justify an investment – and a definite no-go if you’d need to borrow to do so. The cost of the properties here are lower but, likewise, the achievable rents are lower. The end result is a very similar net yield of somewhere between 2.5% and 3%.

The taxes really are ridiculous. With 41% tax, 4% PRSI and 7% USC, adding 1% net yield would require charging an extra 2.08% of the property cost in rent. To put this another way, in order to increase the yield from 2.75% to a more acceptable 3.75%, you’d need to charge an extra €208 per month on a €120,000 property. In other words, rents would need to increase by 25%-30% before investing for income would be more acceptable. Of course, you’ll always have the investors that invest in the hope of capital appreciation (but we all know there are a lot less of these today than there were in years-gone-by).
 

irishguy

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I was doing the same for an apartment in limerick, it doesn't make any sense for the hassle. With all the extra charges, higher letting standards and increased taxs it just dozens make any sense to become a landlord. The only way it would is if there was a capital gain or rents go up, but your waiting a number of years for the investment to make sense.

It clearly shows that there is going to an even bigger problem for tenants in the future, as less and less landlords are going to be around.
 

ronaldo

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It clearly shows that there is going to an even bigger problem for tenants in the future, as less and less landlords are going to be around.
Another problem will be the quality of accommodation. If a landlord is making a pitiful sub-3% return on investment, they are only going to do the bare minimum from a maintenance point of view.

As an example, I know of landlords who are being requested to add a back boiler to their properties to reduce heating costs. Requests like this might be doable if the landlord was making a 5-6% net yield - but not in the current environment.
 

Bronte

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Good thread here with worked examples and lots of other info.

http://www.boards.ie/vbulletin/showthread.php?p=79604340
That's a brilliant thread Alex. Loads of food for thought and advice for would be landlords there. Reminds me of the posts from Oldtimer, who gave loads of great advice on here, particularly in relation to the Dublin market.

Ronaldo, I don't get why you think maintenance at the bare minimum is a good idea. I find that it's better to repair correctly as shoddy repairs makes unhappy tenants, voids and more repairs.
 

ronaldo

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Ronaldo, I don't get why you think maintenance at the bare minimum is a good idea. I find that it's better to repair correctly as shoddy repairs makes unhappy tenants, voids and more repairs.
I don't think that it's a good idea and, re-reading my initial post, I may have misled. I mean that a lot of landlords will only be able to afford to do the bare minimum maintenance - and improvements would be a no-go for a lot of landlords. This would be particularly the case for accidental landlords.

Personally, I have one rental property and the back boiler fitting is an example of something I done last year. I was able to do it because I'm on a tracker mortgage that started out at 50% LTV at the peak of the boom. Therefore, it's profitable enough to consider this.

My tenant had asked for a 20 euro monthly reduction in rent as well as the back boiler in the space of about 3 weeks. I offered to do either, but not both and he chose the back boiler.

Had I been on the average current BTL rates, I couldn't have done this so easily.
 
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