To rent or sell - advice please!

Naetha

I wonder if I could get a bit of financial advice…

Myself and my husband currently own (fully paid off) a 4 bed Victorian terraced house – we are intending to renovate and rent this out. We anticipate that we will be able to get a rental income of £350/month after tax and agent fees on this property, renovations will cost about £12k. The house as it is, is worth about £105k, we anticipate with renovations will be worth about £125k.

We have just bought (subject to contract etc) a family home for £205k with a £152k mortgage at 5.59% (husband has a CCJ so couldn’t get the best rate) with a 3 year lock-in period.

What’s the best way of managing this? Is it better to sell as soon as we have renovated, save the cash for 3 years then remortgage and pay the bulk of it off? Is it better to rent it out for 3 years, *then* sell and remortgage to pay it off? Should we keep it indefinitely as a regular income?

Generali

Personally, I'd sell. At a rate of interest of 5.75%, you can get an income of just shy of £600 p/m, gross.

No void periods, no calling plumbers in the middle of the night, no having to evict people who don't pay the rent. Just a nice steady 'guaranteed' income stream. You're already well exposed to rising house prices by dint of the places that you own. Don't put all your eggs in one basket!

anniecave

Yeah. I would go for selling. This goes to show how the buy to let market has changed. Returns are better selling and investing elsewhere.
Plus you never know, house prices may go down.

Naetha

Thanks for the info - one question about capital gains tax...

If we sell, would we pay capital gains tax when we sell our property? If so, would we pay it on all the money we'd made from it, even though it would only have been our second home for a couple of months?

Also what would be the best way to invest the cash?

Generali

I'm no expert but from what I can tell from this, CGT would be payable at a pro rata rate for the length of time it was not your primary residence. E.g. if you had the house for 60 months and it was your second home for 2 months you would be liable for CGT on 1/30th of your gain.

If you want the cash to pay off your mortgage in a fixed period of time, I'd keep the cash in a deposit account. Use your ISA allowances and all that stuff, see here for far better advice than I can give!