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Fox

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I outlined this in another thread but I would like to make a separate thread on this.

So for this first post I am looking at Ireland...

To start with I need to share the personal income tax rates:

Screenshot 2021-06-07 at 13.31.21.png

So as a single person paying yourself 6k a month (72k a year) from your business...

- the first 34,550 euros is taxed at 20% = 6,910 euros tax
- the remaining 37,450 euros is taxed at 40% = 14,580

So $21,890 euros tax on 72,000 personal income.
And there are other taxes add in there also.

(And I am going to guess this goes up in October when the yearly budget comes out)

----

Why this is an issue is the central bank of Ireland limits property loans to 3.5 personal income.
So your 72k a year income, which is actually 50,110 after tax, gets you around 175,000 euros of a property loan. (50k x 3.5 limit)

----

So with 175,000 loan as a max figure what can you get...

Screenshot 2021-06-07 at 13.46.08.png

Something like this would be what you are looking for - a 3/4 bedroom house that rents for 1000-1100 a month most likely. At the best you could maybe pick one up for 100-120k that rents for 1000-1100.

(Other rental options...
- If you did short term rent in a high volume area you could do better but good luck buying at 175,000.
- Also one other approach is you could rent separate rooms but then you need again to be in much more in demand area like a major city centre for example)

So for a budget of 175k you are limited to more normal properties that rent long term.
If you wanted to buy higher than that you are going to have to pay for it with a LOT of tax upfront.

---

So to run some figures here:
- You buy at 150,000
- Since it is your first house its a 10% deposit ( anything else is 30% down)
- Loan is now 135,000
- Ill round the mortgage up to 600 a month...

Screenshot 2021-06-07 at 13.52.37.png

So after your loan you have 500 euros a month left to cover the cost of everything else.
There are a lot of other expenses of course but to keep it simple lets just say they are 350 euros a month.

So to sum that up:
Your monthly rental income per month is 1,100 euros
Your expenses are 600 loan and 350 other = 950
Cashflow = 150/m or 1,800 a year.

Also the loan pay down each year would be 600 x 12 = 7200.

So *maybe* a total of 9k a year being stacked up in wealth each year.
(I am being generous with low expenses and no issues)

---

Now lets say you wanted to buy 5 of these...

After the first buy its a 30% deposit with the same figures.
So 45k each time (plus fees to buy), let's say thats 50k.

- So if you paid yourself 6k a month from your business...
- Your left with 4k each month
- If you spent nothing you can buy 1 each year maybe

Fast forward 5 years...
- You have 5 rental properties
- On paper they are worth 750k
- You spent 195k in deposits to buy them
- You also paid 120k in tax to buy them in your personal name

Thats a total cost of 315k euros for:
- A monthly cash flow of 750 euros or 9,000 a year
- And a loan pay down of 3k a month or 36k a year
(assuming zero issues ha)

Note:
Why I have left out the BRRR method is it doesn't really work in Ireland.
You can't quickly add value and refinance your house like its done in the US.
You can only really take out what costs you directly put in which means you have to sell to show the extra value added.

----

Id love someone experience with property to tell me their thoughts but to me it just doesn't seem worth it.
I also have left out Irelands very risk landlord laws and other risks - but these are for sure a factor too.

I think to the states this is going to seek like a horrible ROI but let me know what you think.
 
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Fox

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I think the main issue here is tax. It just costs too much to pay myself to buy in the first place.

So in this case is the solution to buy (and rent) everything through your business and not hold any assets under your personal name?

Again if anyone is able to give general advice on how to best move business income into rental property while avoiding tax that would be great.
 

ZCP

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@Fox have you already done a sit down with a tax attorney / cpa team to buy a 'guide book custom for Fox'? having customized, professionally reviewed plans in different areas helps with the 'where to put my money' questions. ...... maybe you need an entity that soaks out the profit from your Ireland biz and then owns the company that owns the real estate? ...... can you do self directed IRA's or anything like that there?
 

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Fast forward 5 years...
- You have 5 rental properties
- On paper they are worth 750k
- You spent 195k in deposits to buy them
- You also paid 120k in tax to buy them in your personal name

Thats a total cost of 315k euros for:
- A monthly cash flow of 750 euros or 9,000 a year
- And a loan pay down of 3k a month or 36k a year
(assuming zero issues ha)
A few things:
-There could be some appreciation on the 750k
-The numbers would need to be updated to account for the 4 that had the 30% put down on them. This would lower the monthly payments if the amortization remained the same.
-Your cashflow and/or loan paydown could possibly be subject to the 40% personal tax rate. (I learned this the hard way as it is often not discussed and would depend on local tax laws)
 
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Fox

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@Fox have you already done a sit down with a tax attorney / cpa team to buy a 'guide book custom for Fox'? having customized, professionally reviewed plans in different areas helps with the 'where to put my money' questions. ...... maybe you need an entity that soaks out the profit from your Ireland biz and then owns the company that owns the real estate? ...... can you do self directed IRA's or anything like that there?

I am going to call today and have a big chat. Thanks @ZCP.

Thinking it over its probably best e to only pay myself 3k a month and stay in the lower tax bracket.
This would mean 36k paid to myself each year personally and I never touch that anyway - it just stacks up.
This would give me a loan max of 100-120k - which does make it still possible to get a decent rental in some areas.

Ill just keep the rest in my business and look for other opportunities there.
In general its super hard in Ireland to get money from your business to "you" without paying tons of tax.
 
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Fox

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A few things:
-There could be some appreciation on the 750k
-The numbers would need to be updated to account for the 4 that had the 30% put down on them. This would lower the monthly payments if the amortization remained the same.
-Your cashflow and/or loan paydown could possibly be subject to the 40% personal tax rate. (I learned this the hard way as it is often not discussed and would depend on local tax laws)

Ha ya the cashflow gets taxed at 40% also (if you are already in the higher bracket).

Ill talk to the accountant today but I have a feeling I got to be patient and start slow in the lower bracket.
 

biophase

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All of us use after tax money to buy things, even investments. I think what you are trying to figure out is, should you pay yourself more and pay more taxes in order to qualify for loans. We all have the same issue here also.

When purchasing a rental property. you are really starting a business. Think of the your renter as your customer. Their rent is your gross income for the year. So you are really starting a business that has a max gross income of $13,200. Then you have your expenses which is your loan and everything else.

So you start House 1 LLC and put in $15k, get a loan of $135k. It grosses $13k. cashflows around $2k a year with a loan paydown of let's say $7k. So that's plus $9k in your net worth a year on a $15k investment. Seems like a no brainer to me.

I don't know how your loan amount is calculated. It is based on last year's taxes or based on your income for the last 2 months. If it is based on income could you not blip up your income for a few months to get a bigger loan?

How do you think the appreciation is in Ireland, because this is where the big numbers come from.
 
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Fox

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All of us use after tax money to buy things, even investments.

Okay thanks cause I wasn't sure about that. I'd like to do this also as much as possible (rather than using a business).

I think what you are trying to figure out is, should you pay yourself more and pay more taxes in order to qualify for loans. We all have the same issue here also.

Ya this is where I can't see how to not shot myself in the foot.

Let's say each year I want to get 100k out of the business and into investments in my own name...
Screenshot 2021-06-08 at 19.34.13.png

Before I even start on anything that 100k is down to 61k euros.

Where this becomes an even bigger problem is Ireland's limit on credit - I can only leverage my income to a max of 3.5.

So I either pay myself 36k a year and stay in the 20% tax bracket or I go faster and get hit with 40%.

I don't know how your loan amount is calculated. It is based on last year's taxes or based on your income for the last 2 months. If it is based on income could you not blip up your income for a few months to get a bigger loan?

How do you think the appreciation is in Ireland, because this is where the big numbers come from.

As a self employed person they take your average wage over two years. I actually tried to game this with a 6 month "bump" but its not working - its looking like they are going to want to see a steady stream of stable (and highly taxed) income to get anything approved.


Maybe it is the same everywhere else and I just don't know that but to me I am just not seeing what a smart approach would look like here. If the tax was not there I would be buying several of these a year - but to do that with the tax is crazy, the profits are gone before you even get started.
 
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Fox

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When purchasing a rental property. you are really starting a business. Think of the your renter as your customer. Their rent is your gross income for the year. So you are really starting a business that has a max gross income of $13,200. Then you have your expenses which is your loan and everything else.

So you start House 1 LLC and put in $15k, get a loan of $135k. It grosses $13k. cashflows around $2k a year with a loan paydown of let's say $7k. So that's plus $9k in your net worth a year on a $15k investment. Seems like a no brainer to me.

Thanks and this is a great way to look at it.

For rentals after the first its 30% down through.

So its 45k down for a business that would do 9k a year...
 

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Maybe it is the same everywhere else and I just don't know that but to me I am just not seeing what a smart approach would look like here. If the tax was not there I would be buying several of these a year - but to do that with the tax is crazy, the profits are gone before you even get started.

It's like that in most high-tax countries around the world.

You'd need to have a company that isn't taxed (or pays very low taxes), your individual taxes would have to be non-existent or super low, or you'd need a sole proprietorship structure with low taxes (because then you're only taxed once as an individual and not as a business first, and then again as an individual because of your salary). Otherwise you get hit twice and there's no way to avoid it.
 

Bigguns50

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On the subject of taxes and wealth building. Anyone have a recommendation for someone to help guide me? I have a tax consultant but I'm not impressed so far. I need options.
 

Timmy C

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Considering that even to buy a unit now where I live costs close to half a million dollars, no, I do not think it's worth it.
You need at least a $100,000 deposit, and then they can not pay rent and still stay at the property due to new government laws.

I can't believe how cheap the properties you listed are, to be honest.
 
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Fox

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I will go ahead and buy - just waiting for loan approval.

When I get it I will switch back to the lower rate of tax which should mean I can buy one smaller house per year.

For a deposit it should be 10% down on the first purchase and then it will be 30% after that on each house.

Ill keep you all posted here when anything happens - thanks everyone for the feedback.
 

MJ DeMarco

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After I learned how to sell options and make solid returns with so much less capital and risk, I actually gave up on the idea of holding real estate for any type of investment.

Once I successfully traded through market corrections and downturns, flash crashes, the real estate asset class as an investment went out the window for me.
 

MTF

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After I learned how to sell options and make solid returns with so much less capital and risk, I actually gave up on the idea of holding real estate for any type of investment.

Once I successfully traded through market corrections and downturns, flash crashes, the real estate asset class as an investment went out the window for me.

Do you have any concerns that your strategy isn't as "real" and tangible as real estate? Real estate is well, real, feels like an actual visible investment and not some numbers on a screen and may hold value for decades.

I'm not arguing that everyone should invest in real estate. I, for one, only invest in RE through crowdfunding so that I don't have to deal with the headaches of managing one. I'm curious if you're taking into account that it's a separate asset class with a very different feel to it, returns aside.
 

MJ DeMarco

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Do you have any concerns that your strategy isn't as "real" and tangible as real estate? Real estate is well, real, feels like an actual visible investment and not some numbers on a screen and may hold value for decades.

No, because I own real estate in my personal holdings, both physically and via REIT investments.

I know in this inflationary environment, my position isn't as reasonable as it were perhaps 5 years ago. But I don't care. I'm not interested in spending $300K to earn $300 a month in cash flow and perhaps an 8% yearly return.

I can put half the risk to work and earn 10X the cash flow, and have instant liquidity.
 

Timmy C

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No, because I own real estate in my personal holdings, both physically and via REIT investments.

I know in this inflationary environment, my position isn't as reasonable as it were perhaps 5 years ago. But I don't care. I'm not interested in spending $300K to earn $300 a month in cash flow and perhaps an 8% yearly return.

I can put half the risk to work and earn 10X the cash flow, and have instant liquidity.
It's such a terrible return on investment if your putting down $300,000 to get a cashflow of $300.

You can get $300 in cashflow from a mediocre online income stream.

I'll keep the $300,000 lol.
 

YanC

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After I learned how to sell options and make solid returns with so much less capital and risk, I actually gave up on the idea of holding real estate for any type of investment.

Once I successfully traded through market corrections and downturns, flash crashes, the real estate asset class as an investment went out the window for me.
I do both (real estate is my main biz) and totally get your point. It's hard not to enjoy selling options once you start getting a grasp of it. The main advantage of real estate to me is that it is a relatively safe way to use leverage through a loan (it's also my main inflation play). Otherwise, when thinking about where to put my own cash, I would chose options over real estate a million times without a doubt.
 

MJ DeMarco

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It's such a terrible return on investment if your putting down $300,000 to get a cashflow of $300.

Yea, that was just an arbitrary # I threw out there - and it also doesn't assume the appreciation and mortgage paydown.

I'm not suggesting RE a bad investment, I just feel I have a so much better use of time and money, and with 95% less effort.

People who bought RE 3, 5, or 10 years ago right now are laughing to the bank, so I fully understand that my opinion is not likely to be shared.
 

biophase

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I like to own real estate. For some reason it’s something I just gravitate too. It doesn’t feel like work to me.

With that said it’s hard not to try to invest in the markets and crypto with the type of returns that they’ve had.

I’m also having a hard time getting excited about e-commerce when all other asset classes are just increasing with seemingly little work in comparison.
 

Andy Black

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Okay thanks cause I wasn't sure about that. I'd like to do this also as much as possible (rather than using a business).



Ya this is where I can't see how to not shot myself in the foot.

Let's say each year I want to get 100k out of the business and into investments in my own name...
View attachment 38348

Before I even start on anything that 100k is down to 61k euros.

Where this becomes an even bigger problem is Ireland's limit on credit - I can only leverage my income to a max of 3.5.

So I either pay myself 36k a year and stay in the 20% tax bracket or I go faster and get hit with 40%.



As a self employed person they take your average wage over two years. I actually tried to game this with a 6 month "bump" but its not working - its looking like they are going to want to see a steady stream of stable (and highly taxed) income to get anything approved.


Maybe it is the same everywhere else and I just don't know that but to me I am just not seeing what a smart approach would look like here. If the tax was not there I would be buying several of these a year - but to do that with the tax is crazy, the profits are gone before you even get started.
I’ve not read all this thread @Fox. Just be aware also that in Ireland only a percentage of the mortgage interest is tax deductible.
 

MJ DeMarco

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Stuff like this affirms why I'd rather avoid RE, although I understand this tends to be an outlier, not a norm.


Tenant leaves landlord with a slice of hell... rotting meat, graffiti, sledgehammers to surfaces, what a wondrous way to leave your home.

But still receives multiple offers for the property over asking.

JFC.
 

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