Sell or rent out?

nick1977

Hi all

Looking for a bit of advice from anyone who is willing!

Current Situation

Me:
21 1/2 years left on repayment mortgage
£115k + £20k owing to Grandparents left to pay.

Partner:
Rents 2 bed flat, living with her daughter.

I live in a 1 bed maisonette in Croxley Green.
Although probably the worst time to consider it, I am really wanting to move out next May to live with my new Partner and her daughter. We have been together for 12 months now and really want to try living together. The question is what is the best way to go about this?
We have both agreed that we want to rent together to start with. Having both come from marriages that didn't work, we want to take things carefully to start with, not wanting to make any long term serious financial commitments.

Here are the options as far as I can see them:

1) Try to sell my place and rent together.
Potential scenario: I would be walking away with very little (if any) equity on my home and would basically have to start form scratch when we decide to buy a place together.

2) Rent my place out and then sell it to to buy a place together in 12 months.
Potential scenario: Value drops further (more than likely) and I'm left with negative equity and have to wait longer before we can buy our family home. This is probably the least sensible of my options. However, it does give me my maisonette to fall back on if my new relationship doesn't work out. I can't see that happening, but then I couldn't last time either!

3) Rent out my place long term, and keep it as a long term investment. Save up for deposit for new house.
I have to admit that this one appeals to me most at the moment.
Although rates can (and will) change, my repayment mortgage is currently £630pcm, and rents for IMHO less desireable 1 bed places in my area are marketing at about £675pcm. Even if I could get £625 I'd be happy. It would easily cover the interest payments on the mortgage.
I would thenhope to change from a consent to lease to a BTL mortgage later down the line, when buying our family home, porting my Lifetime tracker to that.

What does everyone think?
Is there an option 4?!

Sorry for the long post but this is going round and round in my head and in property terms May isn't far away!

Many thanks
Nick

P.S. Sorry just to add, if I am not buying / owning any other property, would I still have to pay tax on the rental income over and above the interest payments? I would hope not given I would be paying rent to live where I was, but since when has tax been fair?!

Errata

Option 4 is leave it a bit longer than next May before you live together. Spend an odd week here and there at hers, and then a month, go on holiday together etc and make sure you are definitely what each other wants for the rest of your lives.

If your're right for each other you have another 60 years of living with each other to look forward to. What's the rush?

nick1977

Thanks for the response Errata
I was waiting for someone to say that!
My financial head is telling me what you say is right.
However, the situation is naturally not that straightforward!

Couple of things that make next May the time we want it is:
1. My Partner is mid-30's and we would really like to have a family together, and the clock is ticking! Need to live together for a while before taking that step.
2. I work late shifts, which mean that we only really get weekends together. It isn't practical for either of us for me to be there some nights and not others. It is very important to both of us that we provide a stable consistent home environment for her daughter. Me being there one day and not the next is not the way to do this.
3. The heart bit...we really want to live together! We are finding it harder and harder not seeing each other for days on end! We have both come to realise, through various ways, that life is too short and if you want something that much to make you happy you should do whatever you can to make it happen.

On top of that, living in someone elses house for days on end still doesn't prepare you for what it is like living in a place you share together, IMHO.

So please, any further posts, please make suggestions based on next May needing to happen rather than questioning my personal life (no offense intended)

Thanks
Nick

Errata

I really don't want to rain on your parade, but if you're thinking about starting a family together in the not too distant future you're going to need 3 bedroom accommodation 'cos sod's law says you'll have a boy.

If you rent together are you both confident you can live with the uncertainty of a shorthold tenancy ? Hoping the landlord will renew the contract every six months ? Just now, and perhaps for some time in the future, landlords are going bankrupt left right and centre and if that happens to your landlord you could easily be out in the street.

nick1977

Errata wrote: »

I really don't want to rain on your parade, but if you're thinking about starting a family together in the not too distant future you're going to need 3 bedroom accommodation 'cos sod's law says you'll have a boy.

If you rent together are you both confident you can live with the uncertainty of a shorthold tenancy ? Hoping the landlord will renew the contract every six months ? Just now, and perhaps for some time in the future, landlords are going bankrupt left right and centre and if that happens to your landlord you could easily be out in the street.

Thanks Errata
Well the actual "plan" was to live together for say, 12 months, then if all is good look to buy a place between us, and then look to start a family.
However things rarely go to plan in this world, but even so, if we did end up renting a 3 bed house and the landlord went bankrupt then surely we could just move on to another one?
Don't get me wrong I'm not pro-renting regardless, but I think you are looking at it from a somewhat extreme viewpoint! Plus given my OH is renting now, surely that possibility already exists?


Nick

Errata

Good luck Nick, and my best wishes for your future. Sometimes it's useful to think about the worst case scenario.

LisaLou1982

Hi Nick

Just a couple of other sides of the coin for you to consider:

Youve already mentioned the sell vs rent thing - obviously the sell factor being that you wont have anything to fall back on if the worst happens, but if u sell at a later date then u might be in negative equity -

Do you want to become a landlord? It really isnt as easy as ppl think - if your tenant's boiler breaks down, roof caves in, hot water/heating goes, house gets damp etc etc you will be liable to fix all of that, not least because any problems that go on for a long time end up costing.

What if your tenant doesnt pay the rent? Can you afford the mortgage and the rent on another property? From beginning to end, getting a tenant out of a property can take in excess of a year - could you afford that cost?

Do what your heart says and whatever will cause the least amount of stress to you. Noone can make the decision for you - you have to do whats best for you!

All the best with it

nick1977

Thanks LisaLou

You raise some good points.
I do realise that I would be responsible for upkeep of property and the other pitfalls that can occur through being a landlord. Property was built in 1980 as a purpose built maisonette, so is *relatively* new. Newish bathroom and new kitchen fitted in summer. Agree completely though that things can go wrong without warning, and I need to be prepared for this.

Worst case scenario on my current wage I could cope paying my mortgage and half the rent of a 2-bed property, although some of the luxuries would have to stop if it went on like that for a while!

Can anyone help with the tax question?

Nick

LisaLou1982

No problem
Not too sure on the tax bit im afraid but i think it will still be applicable unfortunately. Maybe try google?

monkeymaster

Option 1.

Option 2 is financial suicide and seems like you've already ruled it out.

Option 3 doesn't make any sense because you'd be able to buy cheaper in a couple of years if you want an investment.

In times like these you're better with as little debt and as much cash in the bank as possible. The worst case scenario is holding something iliquid like property which down the line you decide you need to sell quickly (eg losing your job) and have to sell at a very big discount. Option 1 every time.

Errata

Can anyone help with the tax question?

Full info in the link http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_4017814.