sell or buy to let?

jodiemac

My siblings and I have been left a flat in my father's will. It is worth £160,000 with a £30,000 mortgage left to pay. We decided to sell the flat and invest/save the money until we each reach 25 years of age. Our ages are 24, 21 and 17. The property has been under offer since August. We have just been informed from the estate agent that the buyers mortgage offer has expired and they are going to use a different building society instead. As they decided to buy the property back in August, this seems like a bit of a joke. We were expecting the sale to have been completed by now.
We are now considering taking the property off the market and renting it. I realise we would have to put the property into our names and pay off the mortgage which we can do.
The rental value for this property would be about £750 a month.
We have been given lots of conflicting advice about what to do and would really appreciate any thoughts members may have.
Thank you

Annisele

Do you know why the buyer is having problems with their mortgage? Is it because you/the executors accepted their offer before they'd sold their existing house? Is the issue with the flat itself (short lease, above a certain floor, above a shop, etc)? Some other reason? If you don't know, it's hard to make a judgement about whether to hang around for them.

I wouldn't let the flat in the situation you describe. The yield isn't great, the 17-year-old is too young for their name to be added, and the 24-year-old will presumably want their money out very soon. Plus, being a landlord isn't for the faint hearted - see G_M's mammoth post covering just a few of the many things you'd need to know.

Archi_Bald

jodiemac wrote: »

We are now considering taking the property off the market and renting it. I realise we would have to put the property into our names and pay off the mortgage which we can do.
The rental value for this property would be about £750 a month.
We have been given lots of conflicting advice about what to do and would really appreciate any thoughts members may have.
Thank you

What will your costs be? Who is going to manage them, and how are the costs being paid? Same question for the managing of the let, and interaction with tenants / letting agents.

What happens during periods of non-occupancy?

How well are the three of you getting on? Are your respective partners involved in this, if only on the sidelines? What if one or more of you wants to get their share in cash, e.g. because they are now 25?

By far the cleanest approach is if the executor is selling the flat so the money can become part of the distributable estate.

Thrugelmir

What has your solicitor said (who presumably is also executor of the estate)?

May not be the buyers fault for the delay.

jodiemac

The buyers wanted to buy the property as a buy to let so had to raise money on their house for the deposit and then get a 65% mortgage. I presume they had difficulty with one of these. We were persuaded by the agent to go with these buyers because they had no property to sell so it would go through quicker. We have been waiting for it to go through since November and only received the news this week with the monthly update from the agents. Unfortunately, because of the time of year I haven't been able to talk to the person who knows the background to this case or the buyers solicitors. I will have to wait until Monday to speak to anyone now. Thank you for your advice about renting the property. I hadn't thought about not being able to put a 17 year old on the title.

jodiemac

Thank you for your advice. We all get along fine and no partners are involved. I am the 24 year old and I would like to use my share for a deposit on a house of my own in about 3 years time when I have finished my studies and have a steady income. This is the dilemma I'm in because it wouldn't be for a long term. I have done some calculations where the rental income would be £7,500 a year based on renting for 10 months to cover gaps in occupation. The payments on £30,000 mortgage at 5% would be about £2,160 so this would give a profit of £5,340 a year. If I take into account the £2,000 or so it would cost to arrange this, I am looking at a return of £5,340 on a £32,000 investment which is a return of about 17% compared to 2% if I put it into a savings bond.
Of course there would be the hassles of renting it out and I would do this through an agent so would have to deduct their fees. I know it's impossible to know how much property values will go up but they have risen 8% over the last year in this area. So I'm also worried that if I put my share into savings it will not be worth the same in 3 years time when I'm ready to buy if property prices keep rising. Thank you once again for your thoughts.

Archergirl

Will you have to pay tax on your unearned income? What will happen if there are repairs to be done? what if you get the tenants from hell?
When you come to sell will you have to pay capital gains tax? I think I would sell and put the money somewhere safe...

joerugby

I can't understand your numbers.

£7,500 per year in rent on an investment valued at £160,000 is a gross yield of 4.7%. This is before any costs and before tax.

Thrugelmir

When it comes to selling the property. You'll need to give vacant possession so timing the sale with the departure of tenants may result in a lengthy void period.

jodiemac

It looks like everyone is of the same opinion that we should sell it. You can all see the problems which might arise. You have pointed out things which I hadn't thought of. I am grateful to all of you who have taken the time to reply to my question.

jodiemac

Thank you Joerugby. I was working it out on an investment of £32,000 which we will have to raise to buy the property. I hadn't looked at it as a return on an investment valued at £160,000. This is exactly the information I am grateful to receive and it has made me look at it in a different light.