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Sunday May 20 2012




BUY SELL RENT MORTGAGES LIFE, PENSIONS & INVESTMENTS My OBG CONTACT US ABOUT US


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Investors Guide

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Residential Investment Property
Purchasing a property as an investment can be a very cost effective way of investing for your future. When considering purchasing an investment property you will need to ensure that you have researched the market thoroughly – how much can you afford to spend, who is your target rental market, can you afford unexpected extra costs (management costs, advertising…), etc.

Where and what should I buy?
Research the market thoroughly before deciding on a property. Factors to consider are the following:
  • Location of property – public transport links, proximity to employment centres, shops, local amenities
  • Standard of other properties in the area – will a poorly maintained property next door have any impact on renting the property
  • Who is your rental market – students – is property close to University, public transport; professionals – is the area quiet, off street parking, etc.
  • Apartment or house – apartments are easier to maintain but may have Management Company costs involved. Houses are larger and should give a higher return but they could be more expensive to maintain
Advantages
  • Rental income which can cover all or part of your monthly mortgage repayment
  • Possible capital appreciation
  • Tax advantages
  • Costs incurred can be tax-deductible
  • Security
  • Finance available
Disadvantages
  • Higher interest rates
  • Rent-free months – mortgage repayments will need to be covered from your own funds
  • Could be difficult and/or expensive to sell property quickly
  • Interest rate increases
  • Possible capital depreciation
  • Hidden costs & extras – management company fees, kit-out fees, legal fees, maintenance of property, insurance
The Costs
Lenders will usually lend up to 80% of the purchase price for your first investment property so you will need to fund the remaining 20% from your own resources. You may also have to show that you can cover mortgage repayments if there was a shortfall in your rental income. Traditionally lenders would offer a maximum of a 25 year term but this has recently been increased to 30 years by some lenders.

You will be liable for Stamp Duty when purchasing a property as an investment. Refer to our Tax Guide for details.

As with the majority of mortgages, there will be legal costs involved – check with your solicitor for confirmation of their fees.

Your property will need to be adequately insured – it would be recommended that you also take the Tenant Liability option when insuring your property. Mortgage Protection is not required to be put in place when mortgaging an investment property, but we would strongly recommend that you put it in place.

The Tax Question
Will my rental income be subject to tax? The answer to this is yes, however you can offset expenses and mortgage interest against your rental income thus reducing your tax bill. Capital allowances could be allowed on items you purchase to furnish the property and these allowances can be deducted from your income for tax purposes.

When you sell your property, you will be liable for Capital Gains Tax (CGT) on the profit that you gain from the sale. Check with www.revenue.ie for the current rate of CGT.

Certain properties that are in tax designated areas, e.g. Section 23 properties, 3rd level student rented accommodation may also give tax relief on qualifying costs.

We strongly recommend that you discuss the Tax Question with your tax adviser or accountant.

Renting your Property
Consider the question – do I have the time and patience to manage the property myself or should I use a Letting Agency to do all the hard work for me? If you are prepared to look after the property yourself remember that you will need to do the following:

  • Advertise the property in local newspapers, on the internet, etc
  • Show interested parties around the property
  • Get proper references for tenants
  • Complete the Letting / Lease agreement with tenants
  • Ensure the property is properly maintained and deal with emergency repairs immediately
  • Deal with tenants complaints
  • Organise collection of rent and ensure that it is paid on time
If you use a Letting Agency they will deal with all of the above for a certain fee. Always remember to look after your tenants as there is a better chance that they will renew their lease.
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