Sell or let

Badgio

Hi, I have recently put my house on the market but as yet we've had no interest. I have been keeping my eye on the market and unfortunately, no houses in my area are selling at the moment. My wife and I have decided to look into renting the property out if it hasn't sold by the end of the year as we are desperate to move. We have approximately 25% equity in the property so shouldn’t be a problem getting the lenders permission or changing lenders to acquire a BTL mortgage. If anyone else has done this, could you advise me on any hidden costs and any difficulties that I may have in the transition from home owner to landlord. I guess I'm also asking, is it worth the hassle or should I just wait it out? Thanks.

tbs624

Welcome as a newbie poster

You would need to be able to "let go" of the property as your home - it obviously would remain your property but if tenanted it becomes someone else's home and some reluctant LLs can struggle with this.

Be aware that continuing to [edit market] the property for sale, whilst also offering it up for rent will limit the number of Ts who will express interest in the property. Most Ts do not want the hassle of a LL wanting to bring potential buyers round to view. You would also need to bear in mind that should you sell the property it is not always straightforward to align a T's lawful exit from the property with your potential exchange date ( and lenders will require there to be vacant possession)

Can you afford a contingency fund for repairs/maintenance etc and also to cover the mortgage repayments in case you end up with non paying/late paying T in place?

For links and further info see G_M's post for newbie LLs here

AlexMac

In theory, it's a simple financial decision, in that agents and websites will give you a fairly realistic view of local rental values, and from that, you can forecast what % return you'll get after deducting expenses;
- the initial agent's fee (for finding & reference-checking a tenant and TDP (deposit protection) plus AST set-up) typically about 1 month's rent, and,
- if they manage the let for you thereafter, the 5-15% of rent which they'll keep,
- plus the average month or so 'void' period between tenants, assuming an average stay of 12-18 months; thus reducing your income by a further 5-8%

And factoring in tax relief; which can be substantial and helful in that you only pay tax - in my case 20% - on the balance of rent after deducting, costs, such as fees above, ground-rent or freeholder costs if any, maintenance, renewals of any furniture (at cost, or as an allowable 10% of rent), etc.

This will indicate whether renting is worthwhile in that you can forecast your % return on the house's value. For example if the gross rent ( before costs) is say, £750 pcm on a £200k house, that's a notional 4.5% gross which is acceptable, whereas £850 per month on a place worth £150k (which I'm getting on a 2-bed flat) is much better at almost 7% gross. Historically, landlords have also benefitted from very substantial long-term capital appreciation on their initial purchase cost, but as prices are now flat or declining gently in many areas, that's not happened since 2008. And unless you're prepared to sell at a massive reduction, you may have no choice.

If its any consolation, the hassle factor can be far less than you fear. I've been both an 'inadvertant landlord' of our home, (for a year while we tried to sell), and also have a small 'buy to let' flat. Both experiences have been entirely positive with far less trauma than I'd feared, partly because I've done things properly, as you clearly plan to do (advise the lender, use a reputable agent to set up and inventory the property - although I choose to manage the letting myself to save fees, fix leaks or replace fridges, boilers, etc the instant they break to keep tenants happy).

In consequence, I've never had problems of non-payment of rent and my tenants - who've tended to respect the place - have also stayed longer than average. So I'm all for letting.

Having said all that, because it's been your home, the much bigger issue than percentages and tax relief, is whether you can, as the helpful post above says, 'let go' of the emotional ties to a place which was your home and consider it as if it was a business asset? Harder than it sounds! Good luck

AlexMac

Oh and of course, I forgot to say the interest element of the mortgage is of course also tax-deductable as an expense to be knocked off the rent income (as I'm sure you already know). And the tax return is very easy to do online- just a few lines describing income and expenditure, so no need for an accountant or book-keeper's fees!

Although as the 1st post says, you do need the comfort of knowing you can cope with the mortgage if for any reason you struggle to get a tenant- which you won't do if you're not greedy about the rent. Better to have a month's void and get 11 months at £700 than deter tenants for half a year and only get 6 months at £900! (if that makes sense?)

tbs624

Check out the HMRC's PIM (property income manual) plus self assessment form SA105 and related help pages for full info on tax issues,

Gonzo33

If I had my time again I would have marketed the property for sale at a very competitive price instead of letting it out.

My letting was made more complicated by an overseas posting and an agent who were only interested in taking the money, not managing the property even though they were taking 20% of the monthly rental.

tbs624

Gonzo33 wrote: »

My letting was made more complicated by an overseas posting and an agent who were only interested in taking the money, not managing the property even though they were taking 20% of the monthly rental.

:eek: ...around double the usual rate.....were they the only LAs in the area? Presumaby they also tapped up the T for the usual admin fees/renewal fees/breathing our office air fees?

Post 'em up at https://www.allagents.co.uk so that other LLs can be warned of their shortcomings & high fees