Sell flat or continue to rent?

iwilson16

I cant decide if the flat I am renting is a good investment or not.

Should I continue to rent it, or should I sell the flat and put the released equity into my residential mortgage?

The flat is worth approx £300-310k.

Rent is £1100pm, of which I get £830 after fees (letting agent, gas inspection, insurance, factor etc.).

Mortgage payments are currently £825.

There are two mortgages with the Nationwide on the property:

1. £143k at 2.5% (split 100k interest only and 42k repayement), of which £137k remains. Term has 14 years left. Mortgage payment for this is £564 pm, of which I *think* approx £200 is capital repayment.

2. £83k at 3.24% rising to 3.74% on 1/1/2013. Mortgage payment for this is £261 pm.

i.e. total owed on property is £220k

The Nationwide allow you to keep an existing mortgage for up to 3 years on a rented property after you have moved out, so I expect I would need to switch to a buy-to-let mortgage in dec 2013 if I continued to rent the property. From what I can see, the best I could expect would be something in the 4-4.5% range, albeit with a hefty application fee.

The property prices in Edinburgh for this type of flat are a bit stagnant at the moment, so there has been no expected capital gain for years.

So as it stands it seems like I am making approx £100 pm on the property (rent less interest, fees, and 10% wear and tear), of which I'll likely pay half in tax and NI.

If I realized £80k from the sale (less fees), then I could reduce my residential mortgage (£200k interest-only at 4%). I think this would save me approx £270 pm.

Of course there are a lot of unknowns here. Its impossible to tell if I will get my asking price in the spring? Or I may miss out on a jump in property prices in a few years time. Or the flat could need expensive repairs.

I sort of think I've convinced myself to sell, but I'd be interested to hear other peoples thoughts.

Thanks
Ian

DannyboyMidlands

£1100 rental income on a property worth £300k is an appalling return. Really terrible. Not worth the hassle.

For a £300k investment I'd want at least 2 three bed properties, each renting for just under £1k.

iwilson16

Thats the Edinburgh rental market for you!

I am a reluctant landord. I only started renting it in jan 2011 because I had bought another property before selling.

I tried to sell the flat in sept-nov 2010, but it didnt sell so I had to decide to either rent it out for a while or take a bridging loan and continue to try and sell.

Ian

martinsurrey

4% gross yield... sell sell sell!

Voyager2002

DannyboyMidlands wrote: »

£1100 rental income on a property worth £300k is an appalling return. Really terrible. Not worth the hassle.

For a £300k investment I'd want at least 2 three bed properties, each renting for just under £1k.

Alternatively, it is not really worth £300K. After all, the OP has previously tried to sell it, without success.

A reality check: work out what it would achieve if you absolutely HAD to sell within a month. That figure would be a good deal less than £300K. Anyway, once you have a more realistic valuation (based on prices achieved by similar properties within the last three months) you might find out that the present yield is quite reasonable.

Fire_Fox

If the flat did not sell then it was overpriced, what is it really worth based on recent land registry sold prices? I'd sell, you are risking tenants trashing your flat or not paying rent for no real benefit.

iwilson16

Its a relatively modern (circa 2002) block of 6 flats in a desirable part of Edinburgh (Bruntsfield).

I originally had it on the market in autumn 2010 for offer around £325k, which was reduced to £315k fixed price.

One other property in the block sold in Aug 2011 for £298.

The properties are almost identical. Differences are that the other property is 1st floor and has a small living room and small 3rd bedroom, whereas mine has no 3rd bedroom but has a large livingroom/dining room. Also mine is ground floor and has a private south facing patio and garden.

My expectations are for a sale in the £290 - £310k range.

Ian

dimbo61

If you do not sell within 3 years of moving out you may end up paying Capital gains Tax
You only have 3 years with nationwide before you need to move onto an expensive BTL mortgage.
I would sell now and pay any profit off your home or pay into ISA,s

iwilson16

dimbo61 wrote: »

If you do not sell within 3 years of moving out you may end up paying Capital gains Tax
You only have 3 years with nationwide before you need to move onto an expensive BTL mortgage.
I would sell now and pay any profit off your home or pay into ISA,s

Yes, thats partly what prompted by initial post. My 3 years with the Nationwide expires in dec 2013, so if I'm going to sell then I'd best get it on the market in feb/mar 2013, and the tenants need 2 months notice.

Changing to a BTL mortgage is going to make this an even worse investment.

Ian

LittleMax

It is my understanding that nationwide grant permission for 3 years at a time, but you should be able to renew.

http://www.nationwide.co.uk/mortgages/usefulinformation/letting.htm