Should we buy another investment property?

Shazzaqwe

Registered User
Messages
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Hello Everyone. Any advice at all will be welcome.

PERSONAL:
Age: 50
Spouse Age: 50

EMPLOYMENT:
Annual Gross (me): 75K - Private Sector
Annual Gross (spouse): 71K Public Sector


SAVINGS
Savings :
125K between cash and ETFs.


Pensions:
Self : AVCs of about €500K - Contribute the max for my age monthly.
Spouse : AVCs of about €130K plus will get a public sector pension after 40 years service - Until recently contributed €400PM AVCs but stopped as they would be in the high tax bracket on retirement, so a bit of a waste.

Other income:
Monthly Child Benefit -€140PM child benefit
1 Investment property - See below

OUTGOINGS:
Credit card - paid in full each month.
Life insurance - €200 per month life insurance. €800k on death.


PROPERTY:
PPR - Value €350K, €110K left to pay. €1010PM at 0.75% tracker.

Rent from investment property : €12K - Worth €200k, Mortgage - 10 years left at 0.8% tracker (€55 remaining)


Query:
We are both planning to retire somewhere between 55 and 60. Lets say 57.
We have plenty of income and are net savers.
We have two very good tracker mortgages which are well under control.
But recently have decided that another investment property would be nice, with a view to retiring to it in the country eventually.
If we dont it stays as an investment property.
The rental income would be about €10000PY and the cost of the property would be about €200K.
We have been approved for a mortgage of €120K if we want it. But probably would want maybe €100K and use the savings for the rest.
There would also be management charges and site fees and we wouldnt live near it. If its empty we would use it as a holiday home for those periods.

What i really want to know is are we mad to go for this?
If we made a loss on this investment property for a few years, is this loss allowed against the profit on the other rental property?
Say worse case scenario it was empty for 10 months. If rent taken was €2000. Expenses was €6000 (€4000 interest + 1000 management + 1000 maintenance), so a loss of €4000.
How would that effect our total tax situation between the two properties.
Im not saying I envisage things being that bad, but you never know and id just like to figure out what happens in that scenario?

Any other input would be much appreciated. I love reading money makeovers here, so its time i did one :)
 
Under the assumption that you plan on entering into a long-term letting arrangement with both properties (A & B):

Any loss on property B can be used to offset a profit on property A in calculating your Case V assessment for the year.

Relief for interest paid is conditional on registration with the Residential Tenancies Board.

Expenses between lettings are allowed providing you don't occupy the property and that the property does again become subject to a new letting agreement so be careful if you wish to occupy the premises between lettings as this will restrict the expenses you can claim.
 
Rent from investment property : €12K - Worth €200k, Mortgage - 10 years left at 0.8% tracker (€55 remaining)

What are you actually coming out with after tax on this property? Are you carrying losses or have large expenditure? Is this actually a profitable investment or are you keeping it because of the tracker?
 
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The rental income would be about €10000PY and the cost of the property would be about €200K.
A 5% yield is not good for a rental property
There would also be management charges and site fees and we wouldnt live near it. If its empty we would use it as a holiday home for those periods.
Your net yield is going to be squeezed by these charges and you will pay 4-ish% if you get a BTL mortgage.

You are both higher rate tax payers. Approximately:

ItemAmount (€ 000)
Gross rent10
Charges1
Mortgage interest on €[email protected]%5
Net profit4
Profit after tax @50%2

So you make a €2k profit for €80k of your own capital, or a net return of 2.5%. This seems pretty low given the risk of dud tenants and depreciation. Also any capital appreciation is taxed at 33%.

I would just keep the funds in something pretty low risk in the meantime and re-assess at retirement.
 
Thanks for the help guys.
The current investment property is costing us about €50pm in interest and about €700pm in annual charges to the management company.
There are no other expenses. It is on the LTL scheme with the council for the next 9 years and they pay €1050pm.

For the new property it has planning as a holiday home. We were thinking of doing Airbnb (would that make a difference to the calculations).
Occupancy would vary with the season i guess, but it would be available all year round, though probably empty most of the time in autumn and winter, but available. We would need to pay a management company to run the airbnb for us. That would take about 20%. Then there would be maintenance, electricity, management company charge etc.
 
What i really want to know is are we mad to go for this?
If we made a loss on this investment property for a few years, is this loss allowed against the profit on the other rental property?
Say worse case scenario it was empty for 10 months. If rent taken was €2000. Expenses was €6000 (€4000 interest + 1000 management + 1000 maintenance), so a loss of €4000.
How would that effect our total tax situation between the two properties.
Im not saying I envisage things being that bad, but you never know and id just like to figure out what happens in that scenario?
For the new property it has planning as a holiday home. We were thinking of doing Airbnb (would that make a difference to the calculations).

The situation you have described does not sound like it will be possible. You should have a read of this revenue guidance document.

My very simple understanding is that if you let it for short periods (e.g. Airbnb) then you can only deduct reasonable costs during the letting period. In other words, you cannot deduct mortgage interest for the year. It would effectively be a profit in those 2 months and you would bear the full cost of all other associated expenses during the year.

As AAAContributor has already said, if it is a long-term letting arrangement it will be different
Under the assumption that you plan on entering into a long-term letting arrangement with both properties (A & B):

Any loss on property B can be used to offset a profit on property A in calculating your Case V assessment for the year
 
First off. I wouldnt invest in any investment property at all these days in Ireland.
But advice I was given recently on AirBnb income is that as long as the property is available on AirBnb for the full year, then the full years expenses are allowable, whether someone has taken it for each night or not. If its available for 6 months then half the expenses. Available to let being the key
You arent going to get full occupancy in an AirBnb. I would think you wont even get 6 months occupancy. IT will be empty, waiting for a taker for most of the year.
 
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with a view to retiring to it in the country eventually.
You mentioned that the property has planning permission as a holiday home. Is it part of a purpose built holiday 'village' type setup?
If it is, there are usually issues with occupying these properties full time.
 
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