I'm buying a house. Should I keep and let out my flat?

AdrianC

itwasntme001 wrote: »

This would also need to consider the taxes, transaction costs etc that were paid and that will have to be paid if he decided to sell the flat.

Sure. They would be a short-term factor, in that they'll wipe out at least the first year's return.

But basing a long-term investment on short-term costs is bad business. And this IS a business decision, no more, no less.

MEM62

Lokolo wrote: »

Depends on the tax rate, but interest will eventually only be allowed to be reliefed by 20% (so if you are 40%, you will still pay on the difference).

That is where I was going with that. The comment by foxy-stoat may imply that it is being withdrawn completely - which, of course, it is not.

andy230uk

AnotherJoe wrote: »

To answer your question "no" .
Its an expensive hassle with lowish return for the risk involved and the profits mostly dependent upon house price inflation.
When doing the maths dont forget to factor in the increased mortgage (due to going to BTL) and the increased mortgage on your residence due to smaller deposit than otherwise plus a bigger loan.

Thanks for the reply. I've spoken to my lender. They add 1% to the interest rate but since I'm fully offset, this won't make a difference for me. The money lost due to a smaller deposit for the next house and likelihood of falling into a different LTV bracket, will matter though.

andy230uk

itwasntme001 wrote: »

Where is the property located? At a minimum it is a 5.6% gross yield which depending on the location looks quite attractive.


I would also consider the following points:


- what are the capital gains on the property? If this is significant enough maybe worth cashing out now assuming don't have to pay any/much capital gains tax? Unless you think the property may appreciate in value enough for the risks and effort you are taking?


- Can you get good tenants in the area you are in? Makes a big difference IMO. So much so that even though yields can be high, i would never buy in a bad location that attracts bad tenants - not worth the hassle. You will find actual/realized yields in such areas to be lower as you factor in voids, non payment of rents, more costs then assumed etc.


- Maybe worth selling the property into a ltd company to reduce income tax given you are in the 40% bracket. May not cost that much if capital gains are low. Alternatively contribute more into pension to bring yourself into lower tax bracket with room for the income from the btl to also be taxed at 20%. But contributing income taxed at 20% may not be worth it or even possible (to maintain living standards).

Thanks for this.
- In terms of CGT, my understanding is, that if I were to sell it now, there's none (as it's my primary residence). If I'm selling it as a second home later down the line, it'd be 18% for basic rate or 28% for higher rate. Which basically means I'm selling it now or in it for the long term.

- The tenants I think would be good. It's a development that attracts young professionals working in the city (Leeds) with Some big employers (Channel 4, Goverment hub) moving in almost next door within the next year. Obviously that doesn't guarantee against anything but hopefully will help to attract better tennants.

- One for the accountant on your final point.

Thanks again for the feedback.

wine_night

One of our rental properties is a flat in Leeds city centre! It’s probably similar in value for sales/rental to your flat. This has been my experience:

Had a mixed bag in terms of tenancy length- one tenancy was about 2 years, others been shorter. Professionals seem to pay fine but move on quickly. Changing tenancies costs money due to tenant find fee/inventories etc. Setting up a new tenancy can easily swallow up most of your first months’ rent.

Agent charges are + VAT. Leeds is expensive compared to the other areas where we have property.

It’s not our best performing property due to ground rent/service charges. Taking into account mortgage interest income after expenses before tax around £150 - £250 pm. Better return than cash but not a get rich quick scheme. We are fully managed.

Market is slow at the moment, our tenants are moving out shortly and no agreed new ones as of yet. However in the past it’s let very quickly and the property forecasts for Leeds are all positive. We’ve seen some capital gains in the four or so years we’ve had it and are planning to ride out the current poor market to see what happens in the next 12-18 months.

You need to consider the extra stamp you’ll have to pay if you purchase an additional property and consider your circumstances when the time comes.

If you decide to go ahead and want to ask any questions re Leeds agents etc please pm me.

Thrugelmir

antilles wrote: »

I think as long as you won't be losing money

Owning a single property, is akin to investing your money in a single blue chip share. Everything is ok until it isn't. By then it's too late. For a secure passive income diversify across asset classes. (Income can be taken by cashing in capital gains as well).