Keep or sell HMO?

phingers

Hi all. I'm not sure of the best place to ask this but here goes. We own an HMO in a student city and it lets every year. We have an interest-only mortgage on it which runs until 2040. The accounts show our annual income from the HMO as around £20,000 after expenses however, the real 'take home' is less than this as the Inland Revenue rules on what counts as expenses is reducing each year and there is also zero mortgage relief from April this year, therefore our actual income is closer to £15,000 in a good year.
I realise this is still a lot of money and it is on top of our personal income so we are very fortunate. We are frugal with our perronal expenditure but our personal income is more than used up each month by a very large mortgage and two children in university - who knew that would cost US so much?! (kidding...)
In an ideal world, we would pay extra money into the mortgage each year (up to 10% of the outstanding balance is allowed), and the debt would reduce over the next 19 years so that by the time I retire at 67, the net income from the HMO is much higher and will provide me with a decent pension - I have very little in personal pensions, having chopped and changed careers over the years and not been at all good at saving. However, the reality is that each year we simply haven't got the extra income available to make the additional payments and I foresee a very large portion of the mortgage debt still being there when I retire.
So, to my question (finally I hear you cry). Should we sell the HMO and net around £140,000 and put this into a personal pension/ISA etc. and not have the ongoing hassle of maintaining the HMO every year or the very large debt still being there in 19 years? Or is it still better to hang onto it and - even if a large mortgage remains - continue to pay this into my retirement and accept a lower 'pension' from it?
I realise there is probably not enough information here for anyone with financial ability to offer anything other than a top down, light touch view on this, but we are rather muddled in our thinking and could just use a little clarity of thought from an outsider. 
I also realise that there is no obligation on anyone to reply to this, but it has helped me to put my thoughts into words at the very least!

dimbo61

As the owner of a student HMO in a university city we have been dealing with the joys of being a Landlord for some time.
We are basic rate tax payers !
Now you use the Royal WE so is your other half a higher rate tax payer ? Are you married ?
Joint tenants or tenants in common ?
Do you use an accountant ?
Are you on the best deals possible for both residential mortgage and BTL mortgage ?
I love Offset mortgages just so we have a good emergency savings pot in case we need a new kitchen, roof, boiler. Tax bill etc.
Owning a rental is part of our long term retirement savings

phingers

dimbo61 said:

As the owner of a student HMO in a university city we have been dealing with the joys of being a Landlord for some time.
We are basic rate tax payers !
Now you use the Royal WE so is your other half a higher rate tax payer ? Are you married ?
Joint tenants or tenants in common ?
Do you use an accountant ?
Are you on the best deals possible for both residential mortgage and BTL mortgage ?
I love Offset mortgages just so we have a good emergency savings pot in case we need a new kitchen, roof, boiler. Tax bill etc.
Owning a rental is part of our long term retirement savings

Thanks for your reply and to answer your questions:
We are married and both basic rate taxpayers.
Joint and several tenants.
We do not use an accountant.
We are on fixed rates for both the HMO and residential mortgages and in the throes of moving home - best rates for both.
It's the moving home that has prompted the question as we are thinking of all our finances.

dimbo61

" zero mortgage relief"
You get a 20% tax refund so the changes to way tax is calculated on mortgage interest does not effect you.
Many people go to work for 40 hours a week and don't earn £15,000 a year.
Pay off as much as you can each year and keep the property.
HMO licence, EICR GSC Pat testing and legionnaires checks. Fit for Habitation requirements and of course the student market.
We are always trying to improve our HMO and keep our tenants Happy.
So Netflix, Sky cinema and unlimited fibre broadband 

dimbo61

You need to look at the big picture.
Age, Income, plans, properties and condition, pensions, savings, Offset mortgages I love them. 
Kids, long term plans and LTV on both properties. Borrowing ability.

getmore4less

if you are netting £15k  on a £140k investment that's a return of 10.7%
(Is the £140k after CGT?).

Are you are happy with the workload for that return 

clueless_but_curious

Good points above.  However, have you considered growing your business?  If you are paying c.£5000 interest on rental income of c.£22,000 it appears on the face of it you have some room to leverage.  If you expanded in a similar area you may find it is not double the work at all

dimbo61

There are few lenders that do HMO mortgages ?
Even fewer who will lend on student HMO,s 
You will pay a higher rate of Interest and need a bigger deposit.
I won't even go into the ball ache of applying for HMO license and conditions required.
Being a LL is not a case of sitting back and the rent rolls in.
Being a HMO LL is 10X worse