Selling rental property to pay off mortgage?

halia

Hi all,
new to posting on the forums but have a query I'd like to get some opinions on.

We have 2 houses, we both bought at very low prices and after we met moved into larger house. Other one is now rented out and has been for 5 years to a very good tenant.

We think house prices are about the level that we could sell the rental property and clear both mortgages so we would be living mortgage free. As we would own our house outright we dont' lose out on exisitng equity and we do retain that stake in the market.

Pro's
we'd be £300 a month better off
We dont' have to pay bank interest
If we move at any time we can get a new mortgage much more easily
We have more flexibility

Cons
Hassle
Scared tenant will get wind via valuation and leave, then I have no rent coming in while property is on the market
house might not sell
I'll miss my lovely little house! (it was my first house and its a darling little 2bed victorian terrace with a pocket sized suntrap courtyard garden)
Can anyone think of others?

I really don't want to scare my tenant of, I'd happily sell to her or sell the house as an investment property with sitting tenant but..... I don't think she wants to buy and at the moment she is paying slightly below the market rental.

Has anyone expereince of selling privately? (we're up north and not in a fashionable town btw)

franklee

halia wrote: »

Scared tenant will get wind via valuation and leave, then I have no rent coming in while property is on the market

Eh? Of course the tenant will find out, how can you possibly expect to market a house for sale without the tenant knowing You can't do the viewings without them knowing. What's more while they are living there it is their home for which they have the right of quiet enjoyment. As such many contracts only allow for viewing in the last month of the tenancy. In order for there to be a last month presumably you will need to serve notice... Even then the tenant can refuse access if it isn't convenient. From when I sold I recall viewings are hard work and involve tidying up etc. So there is every chance that selling with the tenant in-situ will be awkward or that the tenant will leave.

lynzpower

I agree, of course your tenant will find out. But if you have a good relationship with them they might not bolt- maybe you could give them reduced rent until the property is sold to help keep things smooth.

If you have no rent coming in, unfortunately you'll have to bear this out. If you are going to be mortgage free in any case borrowing a few k in the short term cover the overheads until you sell isnt going to be too big a deal to you is it?

halia

Well yes of course they will find out and there is no way I'd put the house on the market without telling them!

What I meant was the first stage is to get the property valued, if its below a certain amount we won't be selling (the sums are quite tight) so I am concerned that tenant would see valuation and leave but I might not end up putting house on market!

Good idea about reduced rent though. Sorry, I know it might sound like I'm rolling in it to have 2 houses but I can assure you that borrowing a 'few k' isn't something I can do easily.

Anyway thats just one of the things to think about - I'd really like some input into what people think about mortgage free v property investment; costs of esate agents, hassle of viewings etc.

franklee

halia wrote: »

What I meant was the first stage is to get the property valued, if its below a certain amount we won't be selling (the sums are quite tight) so I am concerned that tenant would see valuation and leave but I might not end up putting house on market!

Well the tenant would still need to know as the valuer will presumably need access to the property and you MUST get the tenant's agreement for the visit. What were you thinking of, pretending the valuer is doing something else than a valuation? In my view estate agents stand out like a sore thumb. Any case I always chat to visitors to my home and ask how things are going... You could ask for a drive by valuation to start with I suppose.

halia wrote: »

Anyway thats just one of the things to think about - I'd really like some input into what people think about mortgage free v property investment; costs of esate agents, hassle of viewings etc.

mortgage free v property investment: mortgage free

costs of estate agents: I paid 1% of the sale price.

hassle of viewings: Hard work and quite stressful. That's doing it for myself. Doing it for a landlord would be a right pain IMO.

HTH!

epz_2

surely an estate agent can give you a ballpark figure just from a photo, rough description of room sizes/condition and its location, after that you could make the decicion to sell or not.

to me its a no brainer to sell, interest rates are going up, rents are static/falling in most areas and the capital growth in the housing market has probably peaked.

the best case if you hold on to it is it becomes worth more money, always nice but weigh that against the worst which is interst rates go up, your tenant moves out and house prices drop meaning even if you do sell it woulnt pay off your other house.

life is all about risks but frankly i would rather know my morgage is paid off now than chance getting a nice holiday etc in a year or two, odds are if you stuck your morgage payments into an isa you would get close to the same return.

thesaint

Keep it for another year, house prices are still rising. Use the extra equity to buy yourself that little cabriolet you've always wanted.

The banks will be lending multiples of 7 by then.:D

Tiger_greeneyes

I was in this situation last year.

Something else to bear in mind is that viewers may well be put off knowing that there's a tenant in situ. They've got no guarantee that the tenant will a) move out on time or b) move out without wrecking the place. People's imaginations run riot when it comes down to two things - money and health.

If you can offer the house to the market as vacant, then you'll have a much better chance of selling quickly. My house took months to sell - it was only when the tenants moved out that I actually got an offer on it.

halia

thesaint wrote: »

Keep it for another year, house prices are still rising. Use the extra equity to buy yourself that little cabriolet you've always wanted.

Don't think house prices will rise by THAT much! anyway can't imagine squandering any extra cash we raise on a car - 'friad it would be something boring like training.

Tigergreeneyes, thanks for that input. I got the valuation today and the figures are fine from our point of view, however the rental wouldn't cover a mortgage for someone if they were to buy unless they had a heftyy deposit so I think it woudl market better as vacant.

I'd like to offer my tenant first refusal on the property as a private sale - if she wanted to buy it I can offer her a 5-10% discount on the estate agents valuation as I won't have to pay estate agent fees for marketing.

epz_2

i think thesaint was kidding, a 7x multiple on say 20k a year would leave someone £300 a month to pay for food, maintenance, council tax, travel and generally living a seriously doubt its doable even if you lived on noddles

Sumostar

Just a couple of points:

Have you taken Capital Gains Tax into account when doing your calculations?

If your house is in good condition and has a sitting tenant then why not sell as a going concern? I recently bought a 5 letting HMO with 4 of the 5 lettings occupied. I certainly wouldn't have bought it empty. As it is it's a "ready made business".