Just Mortgages Limited 110 Amiens Street, Dublin 1 t:/ f:/

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1 Just Mortgages Limited 110 Amiens Street, Dublin 1 t:/ f:/ info@justfinance.ie RESIDENTIAL INVESTMENT PROPERT Y

2 Residential investment property is a tax-efficient and The Irish Financial Services Regulator Authority low risk method of investing for the future. While ( Financial Regulator ), in accordance with the there are indications that the growth in property prices and rents is beginning to slow down, a carefully selected residential property is still likely to remain an investment which will provide real returns for investors. Growth in house prices can never be guaranteed but the demand for homes is still outstripping supply and as long as that situation remains, then there is likely to be capital growth from a well-planned and well- provisions of Section 116 of the Consumer Credit Act, 1995 and Section 33C of the Central Bank Act, 1942 hereby authorises Just Mortgages Limited to engage in the business of being a Mortgage Intermediary under the names of Just Mortgage on behalf of the following undertakings: AIB Bank; Bank of Ireland; Bank of Scotland; ICS Mortgages; KCB Bank; Irish Nationwide; NUA Homeloans; Permanent TSB; PIBA Mortgages; Senior Money; Start Mortgages. managed investment in residential property. Investors in residential property should, however be prepared to take a long-term view and have the resourced to be able to ride out any periodic slumps in house prices and/or rents.

3 Reasons for Investing in Property * There may be many reasons for you investing in property... * Poor return from bank deposit as interest rates have been at an all time low * Stocks, shares & pension funds have proven risky and unreliable * Property investment may offer a safer and wiser investment * A large range of property and property based investment opportunities are available in the * To assist your children get on the property ladder * Investing in an appreciating property market can allow you financial flexibility and the ability to provide for your family in future years * To supplement your income and/or your pension * To develop your investment portfolio * To establish a fund for the care of elderly parents * Self-financing investment property structures can still be created in certain circumstances. market place * You can combine your investment and overseas property as one

4 Main Benefits from investing in a residential property * Interest rates are currently at a 50- year historic low * Regular rental income to cover some or all of the mortgage taken out to buy the property * Security investing in a tangible asset in the form of bricks and mortar * Potential capital appreciation * Tax advantages which supplement the income from the investment

5 Some points to look out for * If you are in a hurry, it can be difficult and expensive to sell your property quickly * There are substantial up-front and ongoing costs: legal and surveying fees, fit-out costs, letting costs, possible management costs and day-to-day running cost such as maintenance, * Possible depreciation in property value over time * Possible fall in rent values * Time, effort and patience is required in dealing with tenants unless you use a Management Company repairs and insurance * A possible rent-free period the time one tenant vacates your property and another tenant is found. You need to be able to meet your mortgage repayments during such rent-free periods * Possible increase in mortgage repayments if interest rate rise

6 Where to buy? It pays to research the market well so check out house prices, rental income, potential capital appreciation and salability in the longer term in a number of areas. The rental income that you can expect to generate from your residential investment property will depend on a variety of factors: * Convenience to public transport * Convenience to major employment centers hospital, colleges/universities, industrial estates / business parks etc. * Convenience to shops, bars/restaurants, schools, churches * Competing rental accommodation in the area * The quality of the adjacent property, people may not wish to live beside a poorly maintained run-down property * The type of tenant you wish to attract students and professionals will probably have differing expectations of a rental property RESIDENTIAL INVESTMENT PROPERT Y

7 What to buy? The property you buy will also depend on the type of tenant you wish to attract. * Apartments will be smaller and easier t maintain but you usually have to pay a maintenance charge to a management company * Houses generally require a greater level of maintenance but may generate more income Renting out your property - what is involved? Managing the property yourself - Are you willing to: * Advertise the property? * Show prospective tenants around the premises? * Complete the letting agreement with the tenant? * Organise emergency repairs immediately? * Organise ongoing up-keep and maintenance of the property? * Deal with tenants issues and complaints? * Organise collection of rent and ensure that the rent is paid on time BE AWARE OF TENANTS RIGHTS see under Tenant s Rights New Legislation

8 Using a letting / management company * A letting agent will find a tenant and complete all the required documentation * A full service Management Company will find the tenant, complete the letting agreement and manage the property on your behalf. Fees will vary, so do your research before you decide The Letting agreement Whether the property is let privately or through a letting/management company, you will require the tenant to enter into a lease on the property. The lease will detail: * The weekly/monthly rent on the property * Any restrictions on the number of people who may live in the property * Who has responsibility for specific bills * Who has responsibility for up-keep of the garden * An itemized inventory of furnishings etc You will required a deposit in advance form the tenant usually one month s rent to cover damage or losses, non- payment of rent and non-payment of bills. Remember to ensure that the tenant puts the telephone, electricity and any other utility bills in his/her own name. Samples of standard letting agreements are available in shops such as Easons or can be drawn up by your solicitor if you choose not to use a Letting/Management Company.

9 Tenant s and landlords rights new legislation Residential Tenancies Act 2004 This Act introduces a measure of security of tenure Further Information The Act is available online at: for tenants, specifies minimum obligations applying to under Legislation landlords and tenants and provides for the establishment of a Private Residential Tenancies Information. Select Acts followed by 2004 and download 27 of (Residential Board to resolve disputes arising in the sector Tenancies Act 2004) operate a system of tenancy registration and provide information and policy advice. The Act also contains provisions relating to rent setting and reviews and procedures for the termination of tenancies, including gradated notice periods linked to the duration of a tenancy. Landlords should be familiar with the Act and their obligations arising form it. The Act also provides for the establishment of a Private Residential Tenancies Board and landlords are required to register with this board.

10 The cost? Before committing yourself to investing in residential property, you should consider the following: * What is the cost of the finance you need? * Will your rental income be sufficient to meet mortgage repayments? * Deposit Generally, lenders will lend up to 90% of the purchase price of your rental property, so you will need to raise the balance from your own resources. Stamp duty This is a Government charge at the full rate of residential investors and is calculated on a sliding scale related to the purchase price of the property.first time buyers are exempt from stamp duty on new and second-hand houses and apartments. Rates of stamp duty for second-hand houses and apartments for owner-occupiers (and investors buying new or second-hand houses and apartments) Once lending institution is satisfied that you can meet the financial commitment and any shortfall in rental income, a letter of offer will be sent to you followed Chargeable consideration Up to 125,000 Owner occupier Exempt by a cheque once all the conditions have been satisfied. 125,000-1million 7% 1million 9%

11 Legal Costs You should consult your solicitor with regard to the legal costs involved. You should be aware that VAT is also payable on solicitor s fees and that there will be additional Government charges such as registration and search fees included in your legal costs. Fitting-out costs If you are intending to let your property on a furnished basis, you need to consider the cost of furnishing and equipping the property. Insurance Costs You must insure the cost of rebuilding your property and we would strongly recommend that you take out mortgage protection. We can help you with both of these.

12 The tax advantages As an investor you have to pay tax on your rental income. This tax on rental income can be reduced by qualifying mortgage interest payments, i.e. interest on borrowed money used in the purchase, improvement or repair of the property. Some costs can be offset against your rental income, including Rates, ground rent, maintenance and repair, ongoing management/letting agent fees, professional fees, local authority charges and insurance. Any such expenses incurred before the properly is let would not be allowed as a deduction from your rental income for tax purposes. Capital costs such as Stamp Duty and legal fees are also not allowed as a deduction from your rental income for tax purposes. Capital allowances - may be allowed on items you buy to furnish the property. These allowances can be deducted from your income for tax purposes. Based on the Finance Act 2003, the current allowance each year is 12.5% of the cost over 8 years. So, if you spend 1,000 on furniture this year, capital allowances of 125 for the next eight years will be available. Capital Gains Tax - when you go to sell your property you will be charged Capital Gains Tax on the capital profit arising on the sale of the property, the current rate is 25%. Certain costs are allowable when calculating the gain on the sale of your property, such as enhancements to the property or incidental costs incurred in the purchase or sale e.g. valuation fees, structural survey, auctioneer s fees or advertising and legal fees. These will be deductible from the sale proceeds before the tax is calculated. Other tax relief - Certain other relief may be available but are subject to meeting a number of conditions, for example, relief for qualifying cost incurred on third level student rented residential accommodation and expenditure in certain designated areas.

13 Arranging your mortgage When you have a found a property and chosen the mortgage you want, here is a checklist of the main things you have to do. Checklist what you have to do STEP 1: The very first step is to find out how much you can borrow. To work out how much you can afford each month to repay, use the budget planner at the back of this guide. STEP 2: Fill in your mortgage application form and enclose the necessary information STEP 3: Approval In Principle (AIP) many lenders offer approval in principle. This means that your lender approves you for a mortgage of a set amount, based on your income and other details from your application form. So, you know how much you can borrow subject to certain conditions, before you start looking at properties. Your lender will check all your details, including your credit history. This is a record of your repayments on any loans you have had in the past five years. STEP 4: Find a property and make an offer and pay the necessary deposit. STEP 5: Pay booking deposit once you have decided to proceed with the purchase of the house. RESIDENTIAL INVESTMENT PROPERT Y

14 STEP 6: Arrange a valuation date with your lender (and your own structural survey, if necessary) STEP 7: Get your letter of offer form your lender this sets out the amount and term of your mortgage and list any extra items your lenders asks for. STEP 8: Arrange mortgage protection and home insurance. Shop around with your lender, broker or insurance company the policies should start the same date as your loan cheque is sent. STEP 9: You and your solicitor sign the letter of offer and return it, along with any other items needed, to your lender. Your solicitor completes the legal work. STEP 10: Your solicitor receives your mortgage cheque and arranges for you to sign the mortgage deed document so that you can complete the sale.

15 BUDGET PLANNER INCOME (1) Net monthly take home pay MONTHLY EXPENSES Household Expenses Home Insurance Electricity and gas bills Phone (rental, costs, land & mobile) TV (Rental, licence, cable) Other household expenses SUBTOTAL Personal expenses Food Clothing Life insurance Health insurance Other personal expenses SUBTOTAL Existing loans Car loan repayments Other personal loan Credit-card payments SUBTOTAL Work-related expenses Childcare Car (tax,insurance and servicing) Bus, train and taxi fares Meals and other expenses SUBTOTAL Entertainment Holidays Birthdays and Christmas Membership of clubs Going out / Socialising SUBTOTAL (2) Total monthly expenses SAVINGS AND PENSION Monthly savings Pension contribution (3) Total monthly savings and pensions To work out the maximum you can afford to pay, add your total monthly expenses and your savings and pensions (2 + 3). Then take away this from your total income [1 (2 + 3)].