Should we rent out our current home - what would you do?

lg13mza

We are in the process of refurbing a house to move into. When it is complete, we can't decide whether to sell our current property or keep it and rent it out. We are complete newbies when it comes to rental, tax etc. Currently we have a mortgage on both properties. I reckon we should be able to re-mortgage the new property once complete to be able to repay the mortgage on the old property. This means we don't have to pay the inflated rate of a buy-to-let mortgage. Is it right that you can no longer offset the interest payments of a buy-to-let mortgage against tax for a rental anyway?


Question is, if the rental is only just covering the extra mortgage payment, is it really worth it? Especially if we do eventually sell the rental would we have to pay capital gains tax?

Guest101

Those numbers are for you to work out, because we don't know where the property is, the size, the rentability, the market in your area.


Since you don't know it either, amongst other things, perhaps investing in other aspects would be best?


LLs who don't do their research on the basics end up being burned - it's not free money afterall.

HappyMJ

lg13mza wrote: »

We are in the process of refurbing a house to move into. When it is complete, we can't decide whether to sell our current property or keep it and rent it out. We are complete newbies when it comes to rental, tax etc. Currently we have a mortgage on both properties. I reckon we should be able to re-mortgage the new property once complete to be able to repay the mortgage on the old property. This means we don't have to pay the inflated rate of a buy-to-let mortgage. Is it right that you can no longer offset the interest payments of a buy-to-let mortgage against tax for a rental anyway?


Question is, if the rental is only just covering the extra mortgage payment, is it really worth it? Especially if we do eventually sell the rental would we have to pay capital gains tax?

As Guest has said you need to plug the numbers into a spreadsheet.

My opinion...there's very little profit to be had in property. £1,000 a year can be earned tax free by each of you just simply by selling and putting the money into a savings account. If you could raise £60,000 by selling you could easily earn £2,000 a year. Can the rent you get beat that taking into account tax, maintenance, insurance etc?

Assuming it's worth £120,000 and you have a 50% mortgage at 5% interest and the gross return is 5% rented out at £500 per month you would as a 20% basic rate taxpayer have £50 of tax to pay every month netting you £200 per month. A 40% taxpayer would (eventually once mortgage interest deduction is reduced to 20%) have £150 of tax to pay each month. Assuming you're a basic rate tax payer is £2,400 a year a good return when you've still got to pay for insurance and maintenance? Or you could just sell, put the £60,000 in the bank and get an easy £2,000 a year with minimal effort and no risk.

You need to figure it out for yourself.

lg13mza

I've got a rough idea of the income we could generate and I will research a bit further. To be honest the return on other investments that wouldn't take up as much time are appealing and not that far behind. The deciding factor may well be the capital gains issue. If we sell now, we'd be ok. If we rent it out and sell in the future I'm not sure what the situation will be.

Cakeguts

Some very successful rental properties are not the same kind as ones that you would buy to live in yourself. Also if you retain an emotional attachment to a house do not let it.

booksurr

lg13mza wrote: »

I've got a rough idea of the income we could generate and I will research a bit further. To be honest the return on other investments that wouldn't take up as much time are appealing and not that far behind. The deciding factor may well be the capital gains issue. If we sell now, we'd be ok. If we rent it out and sell in the future I'm not sure what the situation will be.

NEVER base an investment decision on tax

tax rules change - its called "allowing the tax tail to wag the dog"

CGT is a tax on gain. If there is no gain you won't pay it. If there is a gain you will pay only a minor part of the gain as tax. For a property which was previously your main home there are very significant amounts of tax relief available against CGT meaning the gain would have to be substantial (£100ks+) or the overall ratio of the period you lived there v the period it was let very low (let much longer than lived in) before you would ever have to PAY CGT. This is one of the more common questions on here - read this as an example.
http://forums.moneysavingexpert.com/showpost.php?p=69071134&postcount=6

also read GM's guide to letting including every link therein, yes it is a daunting list because letting is a business you must undertake professionally as you are liable for all sorts of things you must know about. An agent is not liable, you are!
https://forums.moneysavingexpert.com/discussion/5180214

cashbackproblems

I would sell find a 3/4% bond and stress free. if you rent it you have tax returns, capital gains, agency fees, problem tenants, issues with repairs.

scottishblondie

As someone who made the decision to rent out their former home instead of selling it - I wouldn't recommend it. When it works out it is great. My husband's flat is currently rented out and we have had minimal problems and expenses for it. It's been almost 2 years and we've had one tenant who plans on staying long term. We aren't making lots of money but it is ticking over nicely and paying for itself.

I've had my flat rented out for 3.5 years, and I'm on my second tenant. In terms of money it is paying for itself on a monthly basis. However, I did have to put in money initially for things like a new boiler and decorating, and I had to replace the washer/dryer 2 years ago. I have not yet seen any of that money back, although I am approaching the point where I thought I might. I was about to take some money out of the flat account to "pay back" myself for the washer/dryer but on Friday I was hit with notice that the building needs an expensive repair, so I can't so that now.

Money aside, it is a personal hassle. I initially used a full service letting agent but the tenant ended up contacting me directly about everything that wasn't an emergency because the agent was useless. When it was an "emergency" (and I use this term loosely as she once called the emergency plumber number at 1am because the boiler was dripping) the call out fees that resulted would wipe out any surplus cash for the month. I ended up binning them after a year. This means that every time something goes wrong I need to get down there and sort it, including in the middle of the night.

I also lost a large chunk of money from a 6 week void between tenants last year. The previous tenant left the place in a state so I had to do a lot of repairs, redecorate and deep clean, and then there was a problem with the referencing of the new tenants that delayed things. I got money from the deposit for the repairs etc., but this didn't make up for the lost rent or my personal time. And just to be clear, I was visiting the property regularly but she was apparently good at hiding things. My new tenants are keeping the place beautifully, but they're always late paying their rent!

I did do my research before I went into this. I was fully aware of all the pitfalls and problems, and I was ready to absorb the financial costs that I knew would come along with renting the flat out. I'm in this long term and I know that it will eventually be worth it. What I perhaps didn't fully appreciate what it would be like to see my tenant's name come up on my phone and experience a feeling of dread, wondering what was broken now and how much time, effort and money I would have to put into fixing it.

Marvel1

These links may help as you are new to renting:
https://forums.moneysavingexpert.com/discussion/937335

https://forums.moneysavingexpert.com/discussion/1377883

https://forums.moneysavingexpert.com/discussion/comment/41155280#Comment_41155280

lg13mza

Great thanks, everyone. Some good advice and info!