In agony over selling or sticking with sole BTL

GDB2222

mrsmumbles wrote: »

The mortgage is £375 a month and rent is £1000 so yes it is a huge help to me as since heart surgery it is not going to be easy to remortgage.

It is bang on the average for the area...tenant has only had two rent rises since 2015.
For an utter newbie, i feel I have been a good landlord, but you never know...if he fought the notice to quit I would be in deep schtook. Might need to bribe him! He would get all the deposit back as he has been good. Not outstanding, but pretty darned good.

It takes a while to sell a property. You don’t want to be without rent for that period, as it could easily be 6 months from putting it on the market to exchanging contracts. And there’s no guarantee that you can find a buyer at all at the price you want.

So, you want to keep it tenanted whilst selling it. But you do need to have the tenant on side about presenting the place well for viewings and then moving out when you are ready to exchange. The way to do that is to offer him a pretty substantial reward for being helpful. Think in terms of three months rent, payable on exchange, so the tenant is almost as keen on your selling as you are.

mrsmumbles

Wow. That is good advice. Can’t afford three months but there is mileage in this and I am sure I can give it a good shot if he is on board...he might want to buy it. If it hasn't shifted by mid March he can stay anyway!

getmore4less

£1kpm rent, £300k 4% gross yield won't be of interest to many landlords.

Your gross yields on capital invested(realizable on selling) will be much better closer to 7%
What rate is your 122k mortgage.
Your net yield should still be OK even with interest and costs taken off.

GDB2222

mrsmumbles wrote: »

Wow. That is good advice. Can’t afford three months but there is mileage in this and I am sure I can give it a good shot if he is on board...he might want to buy it. If it hasn't shifted by mid March he can stay anyway!

If you’re selling through an agent be very careful to alter the standard agency agreement terms, so you are only responsible for commission if the sale completes. And obviously no commission if you sell to the tenant.

mrsmumbles

Aw you guys are amazing... I thought the yield was around 4% but couldn’t be sure I had done the sums right (E in Maths, me) It used to pay out much more and then again 4 is loads more than the high street savings accounts, but if other landlords are not likely to buy in (shame as it is really nice with zero voids since 2008)..that limits me to owner occupiers and help to buy is changing soon, isn’t it? getmoreforless, how did you calculate the yeild at sale as 7%?
Thanks for the shrewd tips on handling estate agents. I am quite lucky here as the lady opposite me sold her home in May. Nowhere near as much garden, land or in as good nic as mine, plus it was leasehold. She sold for £279k. Another flat recently went for £285. I would be over the moon to get 295-300, with me paying stamp duty as an incentive, as I put so much work into it and it essentially has a whole extra room now, parking, a loft and a mostly paved and landscaped garden. I plan to use the agent of the last seller as they shifted hers!

mrsmumbles

Sorry the mortgage is variable so although it is scary being unfixed, at present I am quids in on a low rate. I had planned to keep it a few more years and then pay it all off and leave it as a long ling term investment. But i assume that to offset 11 years of rental and it not being my main home would take many years. Short of bequeathing the flat to the cats, I am stuffed and will need to reinvest..Gawd knows what in. In the end, those flats will command £1,250 a month as we are in a good location and its a landscaped, pretty area with families. Quite unusual for London area and was very popular with btl.

AdrianC

Yield is very simple...

(Annual return) over (investment or value) = %age yield.

As you can see, using different figures for investment or value will make a big difference in what you're going to get as an answer...

If you're looking at the value, and you have a mortgage, then take account of the costs of leveraging - the mortgage payments.

If you're wanting to see whether to keep or jump ship, then look at your equity - the amount you'll get in your pocket once it's sold. And, yes, that takes account of CGT - because you'll be investing what you have left after paying that.

As for what's going to happen with tax changes, who knows? This government may be the same party as previously, but they're of a very different political stripe to previous budgets, and future external economic influences are... uncertain.

As for CGT - you seem to be thinking of it in terms of a big whack out of YOUR POCKET. It isn't really. it's a proportion of the free money you're receiving just for having your name on the property for a few years. Your rental income is the money your residential lettings business earns. Capital growth is a free side bonus, of which the tax man then takes a bit.

dimbo61

So mortgage costs of £375 a month.
Are you paying a lettings agent or managing the flat yourself ?
Landlord Insurance, maintenance, other costs ???
At a guess your making £6,000 a year which is far more than £100,000 or even £150,000 in the Bank will earn in interest PLUS the £9,000 a year the flat is increasing in value.
You will have to pay cgt when you come to sell but we all have to pay are share of tax
Except google, amazon, facebook !!!!
I don't think you can sell in 3/4 months to avoid the tax changes unless priced right and the local market where the flat is moved quickly.
Ask your tenant if he wants to buy first

silvercar

But now...Silvercar, I really appreciate your help! I need to give more numbers...the remaining debt on the mortgage is £122 k, so if it sold for around the £299k mark, that would be a whopping gain. The stamp duty back in 2004 was about 1500k and there was a land tax too. Also, in a loony stressed effort to have it all looking really good for a sale, i have..er...built a big garden office with certificated mains wiring. Wonder if I could claim on that with HMRC as a deduction off the CGT?

As others pointed out the size of the mortgage is irrelevant to the CGT calculation.

I allowed a few thousand for buying and selling costs, you would need to do all these calculations properly, but my rough calculation is a guide.

I'm not sure if a garden office counts as capital expenditure; bit of a grey area. I would have thought it might, but I'm happy to be corrected.

mrsmumbles

Me again..thanks so much. You guys are an amazing source of knowledge!

So yes, thanks, I manage the entire lot myself, get the tenant, very, do the AST...i used an agency once and they were useless. I live very near. Have rented to an office sales lady, a civil servant, lovely Polish couple, corporate tenant and this current chap who works in journalism and is self employed yet the most reliable rent payer and decent, mature person of them all. Avoided a lot of possible problem tenants..,actually, it is this freeholder who causes me the most concern. He really is the cliched cannae be bovvered landlord who does so little, others step in. End of rant.

My btl mortgage repayment is £375 per month. Rent is £1000 so the profit is £625 a month.
We have this odd bit of the btl mortgage where I repay £120 a month, so the original debt of 146k has slipped down to £120 since 2008.
Husband and I could pay it all off if things got hairy with interest rate rises in two years, but surely that is not the principle of buy to let?

Then I think: in two hears, you’d own this great flat!

Then I then think: but the values for your road are up and down like Sharon Mitchell’s knickers and there is no guarantee I could get a good price or within three months.

Also if you own the property outright and escape fate rise stress, wouldn’t you pay more tax when they bring in the flat 20% rate because your debts aren't ‘there’ and your profits are bigger? (I wish I had listened in Maths lessons instead of drawing noughts and crosses on my mate’s arms.)

Gut feeling is try to involve tenant and sell to him first.

I think, eventually, those flats will peak at a rental of £1250 pcm. One has relet at 1045, and another at 950. Where we are, they are rising the rents a lot, possibly to recoup extra costs and futureproof against more changes like rent caps (please no)