Inheriting a property, should I sell it or rent out?

vonsworld

I have inherited a house which is worth around £170K, it is in nice condition and in a desirable residential part of town, and so I believe there would be no problem in either selling or renting out this property.

My question is which of the 2 options should I take, rent or sell and invest the capital? I am on a low income and therefore want to make the right decision to maximise my income over time.

I appreciate that there is probably no clear cut answer to this question given the current economic times. We don’t know for sure what will happen to house prices or interest rates in the next few years, although I expect property rentals will remain popular.

However if you could please suggest some pointers which I should consider when making this decision that would be very helpful.

Thanks

Werdnal

If you choose to become a landlord, there is a lot to learn, laws and regulations to abide by and it is by no means easy money or 100% profit!

There is a good newbie thread here:

http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12

for those contemplating letting a property. Will give you a good insight into what is involved and maybe swap you against it it you don't have the commitment to take it on.

googler

Rentals may continue to be popular in your area, but do you want the ongoing commitment of being a landlord for years to come? Is this your career choice?

Sell it, and that's it done and dusted. You get the money, you invest it in something else.

Rent it, and you face the possibility of seeing what was a friend or family member's home deteriorating as a succession of poor tenants drift through it.

Read through that link provided by Werdnal. All of it. Read up outside this forum on what's involved in being a landlord. The legislation. The obligations. The pitfalls. The hazards.

£170k should give a good mixed portfolio. £50-100k in high-interest bank accounts. A few K in the maximum ISA allowance each year. £50k on stable shares and stocks. £10k or whatever you want to risk on speculative, high-risk shares etc etc. This does not constitute investment or financial advice.

AlexMac

As long as you feel you can handle being a landlord (organisationally and financially), I'd go for the rental option.

As regards your organisational and legal obligations: - it would be worthwhile using an estate agent, initially at least, to find and reference-check tenants, issue an Assured Shorthold Tenancy, sort the tenant deposit scheme and draw up an inventory, and ensure you have the obligatory gas safety certificate (without which, no responsible agent will take on a tenant for you). With experience or knowledge, you could handle all these yourself, but I've found that I get decent tenants this way, so in my view, it's worth paying a fee equivalent to the 1st month's rent or so. In my local experience, letting agents are happy for me to then manage the tenancy myself, which saves their ongoing fee; otherwise 10% plus of annual rent. Its helpful if the rental agreement is specific about minor maintenance (such as the tenant changing light-bulbs) and you make it clear that they should contact you immediately on major items such as leaks.

Financially, the only issue I've experienced is that you need to be able to pay to fix problems fast- a replacement boiler could be up to £2k - and cope without rent if there is a delay of a few months for any reason between tenants; less of a problem if there's no mortgage to pay. In 15 years as an amateur landlord I've never had a problem tenant although I did collude with one to issue a court and baliffs re-possession order as, bizarrely, the local Council required this as evidence that she was about to become homeless before giving her a Council House! But the Court process was simple and inexpensive, had it been for real (e.g had I been evicting a problem tenant at the end of their assured shorthold). Tax is fairly straightforward too, with lots of allowable expenses to offset income (although you won't be able to offset the major usual expense- mortgage interest).

If those are the some of the organisational and financial issues, the other Q is whether its worthwhile in terms of return on capital, compared with putting the cash into a savings account. Do the maths yourself. Assuming a safe account (or rather two accounts as you'll want to keep any one account within the FSA £85k deposit guarantee) you'll struggle to get more than 3% less tax at present on a cash savings account. I'm getting more than that, even after costs, with a rent of £875 pcm on a 3-year contract with a Housing Association on a rental property of value comparable to yours; over 6% gross, or almost 5% after tax and expenses. If you're able to get more than £10k pa rent - say £900 plus pcm - the figures could be better, but for a while we owned a place out of town where the ceiling rent for a 2-bedder was under £600; not so attractive.

You also used to get long-term benefit from house-price inflation, but while that's doubtful at present, in the very long term- who knows? If prices continue to fall however, and if you like being a landlord, you could even consider risking a buy-to-let mortgage to buy another rental place and start your own mini-property empire?

Selling on the other hand would be simple, and would free up the money (if it's in a property- you can't get hold of it in an emergency). You could even try some other, riskier, investment options. I have friends who, like me are far from rich, but who lost money on shares (especially in the hi-tech boom and bust 10 years ago) so I prefer to stick to property or cash accounts in UK banks or mutuals.

All very personal views- so good luck with your choices; nice to have the dilemma!

G_M

From an investment point of view, the general advice is not to put all your eggs in one basket.

You say you are on a low income. Do you have other savings/investments? If yes, then renting might be good for you (subject to all the warnings/advice above).

If no, and this is your total savings, don't put it all into property. If the property market crashes, or you get the tenant from hell......

drummer_666

you could always sell and buy a place for £100-120k

gives you a good bunch of money for investing in another way

trailingspouse

Here's another way of looking at it - if you'd inherited £170,000 in cash, what would you do with it? Would your first thought be to buy a place to rent out?

Fire_Fox

What are your living arrangements, do you already own your own home outright?

dimbo61

There is no easy answer to this question as we know nothing about you and your life/family/health/location etc.
You maybe 97 years old and unable to get out of a chair never mind sort a blocked drain at 2am on a saturday night.
£170K in savings and investments might provide a comfortable income for the rest of your life?
As others have said renting out a property has many responsibilities and if you do not live locally could involve a lot of travel.
Is the property ready to rent out and could you get a good regular income ?
You need to do your research yourself on local rental income and if you are better selling up
Good Luck