What's the best financial act for an outright owned home that may not be needed sell/rent..etc?

me1000uk

user1977 said:

me1000uk said:

You probably know more than me so maybe I'm missing something? If I want to buy a property as my main dwelling in 7 years then I can surely choose to sell this superfluous one at that later date to avoid extra duty?

Yes, but you'd need to start planning that far in advance if you want to get vacant possession before you start marketing it. And as you see from countless threads here, it's hardly straightforward at the best of times for that to be achieved.

If you had £100k, wouldn't sticking it in your pension be a much more tax-efficient (and hassle-free) thing to do?

Thanks. Sure it's efficient and hassle free but planning for retirement doesn't always mean suffering until retirement!! Would only put a proportion into a pension if selling flat. 

AdrianC

me1000uk said:

Is it crazy to think that I can find someone to handle everything (don't know if the factoring people do it or a dedicated management company), and my only decision will be financial rather than a time investment. So I pay for repairs/empty flat, or I just receive income whilst the outsourced entity take their cut. 

Yes, you can hire a managing agent to do ALL the work.

It will, of course, cost you. 10-15% of gross rent, probably. And all the work they do will be at top-rate. And all the legal responsibility remains with you.

jcsc01

Hi, if I was in your position I would keep it.
My thinking is: Capital growth on property plus rental income.
CGT will only be an issue on the property from the date you rent it out until you sell, previous to that it was your home. As you say the CGT will be divided between you and your wife. Rent can also be divided if you are both on the title deeds.
If you rent it out via an agent then your costs are set against your income. (maintenance & agents fee.) A good agent will regularly check and advise you off the inspection result.
Remember if it doesn't work out you can sell at a later date..

me1000uk

Thanks for the responses. So in theory the agent can deal with finding/vetting tenants and they'll likely have contractors they use. If it's an agent that deals with multiple flats in my building then it's probably not a bad thing right? If they handle everything then I don't need to see the tenant and just pay bills out of the income?

So assume rent is 550/month, = 6600. Say to be super conservative the agent takes 20% all in, you have 5280. 
Is it then not safe to assume 4500 profit per year (taking into account surprise costs), plus increase in property value. 

Other than a super risky tenant, or lack of demand, what am I missing (are these the main massive issues)? I would take a guess if economy suffers then so will most other investments (diversity may mitigate but they all tend to go down during those times). 

I'm not biased to keeping the property even though it sounds like it. It's just that I like to understand whether risk mitigation like not having a mortgage on it, using an agent, and it being purchased under the value is a good indicator to keep.

Slithery

If you use the agencies contractors then be prepared to pay at least an extra 50% for every job that needs doing. I used to charge agencies double when I was doing work for them as they were terrible at paying invoices (always 6+ months after I'd done the work), they also double charged the VAT (as in I charged them for VAT and then they added it again on their invoice which they sent the client).

You should only budget for 10 months rent per year to allow for voids.

woodsford

AdrianC said:

me1000uk said:

What would be the best use of the old property to generate income

That's the wrong question. Don't think of it as "I have this flat", think of it as "I have £100k".

If you had £100k in the bank, would you be considering starting a residential lettings business? Would you buy THAT flat to do it with?

£100k asset, £6k raw rental yield... Sounds lovely...
...but...
Now subtract the costs from that.
Service charge and ground rent.
Allowance for maintenance, decoration, repairs.
Allowance for bad debts, voids, tenant-finding.
Will you be managing the let yourself, or will you be paying somebody else to do it?
Income tax on the profits. Do you already do self-assessment tax returns?
CGT on capital growth.

Worst case - what happens if your non-paying tenant finally does a runner on the eve of repossession, only for you to find they've trashed the place?

We have a rental flat - historically, it's been about 3-4% actual return to date over the 7yrs we've had it. We've been very lucky - very few repairs, just one tenant change.
This year, it's almost certainly going to be -ve.
Huge service charge for EWS/lift repairs/replacement fire alarms in the block, replacement smoke alarms in the flat, EICR, an expensive blown DG unit...
If the tenant handed his notice tomorrow, it'd be on the market, priced to sell - which may well be below the purchase price.
Of all the friends and relatives I know have rental flats, I think we're the only ones who haven't had a call from the police saying it's being used as a knocking shop...

This is interesting - thank you for your post.

My question is if it is 3-4% actual return per year and it can be a hard work then why are people doing it?

Apologies for the direct question but I swear people always think of being a landlord and I wonder if people do not realise how hard it can be.

Slithery

woodsford said:
My question is if it is 3-4% actual return per year and it can be a hard work then why are people doing it?

It used to be very lucrative when 100% interest only mortgages and tax deductable mortgage payments were allowed. I'm sure that a large percentage of LL's don't actually run their figures properly and just let things tick along believing that it's a good thing.

woodsford said:
Apologies for the direct question but I swear people always think of being a landlord and I wonder if people do not realise how hard it can be.

Correct. It's been ingrained into society for decades that being a LL equals easy money so people just go along with it. In the majority of cases investing into ISA's and your pension makes far more financial sense.

AnotherJoe

woodsford said:

AdrianC said:

me1000uk said:

What would be the best use of the old property to generate income

That's the wrong question. Don't think of it as "I have this flat", think of it as "I have £100k".

If you had £100k in the bank, would you be considering starting a residential lettings business? Would you buy THAT flat to do it with?

£100k asset, £6k raw rental yield... Sounds lovely...
...but...
Now subtract the costs from that.
Service charge and ground rent.
Allowance for maintenance, decoration, repairs.
Allowance for bad debts, voids, tenant-finding.
Will you be managing the let yourself, or will you be paying somebody else to do it?
Income tax on the profits. Do you already do self-assessment tax returns?
CGT on capital growth.

Worst case - what happens if your non-paying tenant finally does a runner on the eve of repossession, only for you to find they've trashed the place?

We have a rental flat - historically, it's been about 3-4% actual return to date over the 7yrs we've had it. We've been very lucky - very few repairs, just one tenant change.
This year, it's almost certainly going to be -ve.
Huge service charge for EWS/lift repairs/replacement fire alarms in the block, replacement smoke alarms in the flat, EICR, an expensive blown DG unit...
If the tenant handed his notice tomorrow, it'd be on the market, priced to sell - which may well be below the purchase price.
Of all the friends and relatives I know have rental flats, I think we're the only ones who haven't had a call from the police saying it's being used as a knocking shop...

This is interesting - thank you for your post.

My question is if it is 3-4% actual return per year and it can be a hard work then why are people doing it?

Apologies for the direct question but I swear people always think of being a landlord and I wonder if people do not realise how hard it can be.

... Because they dont do the numbers, just look at the raw figures,as it seems you did ?

... Because they underestimate the work involved,   the hassle and the risk

...Because "you cant go wrong with bricks and mortar"

...Because they are frightened of stock market investments (and probably dont appreciate that their pensions are invested in that)

...Because they have looked at it in isolation and not considered putting additional money in their pension, ISAs or other investment vehicles instead.

...Because "inertia" .. they have a  property so just consider letting it out and dont ask the Q, which someone else posed "if i had £X cash would I start a letting business".

me1000uk

AnotherJoe said:

woodsford said:

AdrianC said:

me1000uk said:

What would be the best use of the old property to generate income

That's the wrong question. Don't think of it as "I have this flat", think of it as "I have £100k".

If you had £100k in the bank, would you be considering starting a residential lettings business? Would you buy THAT flat to do it with?

£100k asset, £6k raw rental yield... Sounds lovely...
...but...
Now subtract the costs from that.
Service charge and ground rent.
Allowance for maintenance, decoration, repairs.
Allowance for bad debts, voids, tenant-finding.
Will you be managing the let yourself, or will you be paying somebody else to do it?
Income tax on the profits. Do you already do self-assessment tax returns?
CGT on capital growth.

Worst case - what happens if your non-paying tenant finally does a runner on the eve of repossession, only for you to find they've trashed the place?

We have a rental flat - historically, it's been about 3-4% actual return to date over the 7yrs we've had it. We've been very lucky - very few repairs, just one tenant change.
This year, it's almost certainly going to be -ve.
Huge service charge for EWS/lift repairs/replacement fire alarms in the block, replacement smoke alarms in the flat, EICR, an expensive blown DG unit...
If the tenant handed his notice tomorrow, it'd be on the market, priced to sell - which may well be below the purchase price.
Of all the friends and relatives I know have rental flats, I think we're the only ones who haven't had a call from the police saying it's being used as a knocking shop...

This is interesting - thank you for your post.

My question is if it is 3-4% actual return per year and it can be a hard work then why are people doing it?

Apologies for the direct question but I swear people always think of being a landlord and I wonder if people do not realise how hard it can be.

... Because they dont do the numbers, just look at the raw figures,as it seems you did ?

... Because they underestimate the work involved,   the hassle and the risk

...Because "you cant go wrong with bricks and mortar"

...Because they are frightened of stock market investments (and probably dont appreciate that their pensions are invested in that)

...Because they have looked at it in isolation and not considered putting additional money in their pension, ISAs or other investment vehicles instead.

...Because "inertia" .. they have a  property so just consider letting it out and dont ask the Q, which someone else posed "if i had £X cash would I start a letting business".

I realise you're being hypothetical but in my case, I am gathering information to understand the work/risk/hassle.
I am cautious that you can go wrong hence the thread.
I am not frightened of other investments and try to put things in various pots (pension, stocks and shares isa).
In my context I have a property that is potentially in a good area and should go up in value considering I bought it well below the prices paid for similar properties as well as done some improvement on it.

If it was a mortgaged property and I wanted to kick start a business then sure the generic list of negatives apply. If it's a property in isolation with no mortgage commitment and a willingness to subcontract then a chunk of the negatives may be mitigated. 

With pension, I can't lock away my cash and already contribute to one regularly. With stockmarket, I already try to save and the 'longer' you do it the better. If I'm looking at the next 5-10 years then a fully owned reasonable property may be worthwhile to rent and sell when things go up in value? 

From what I gather in my situation, the biggest risk is a dodgy tenant and lack of occupancy. Open to all suggestions for anything I miss and as always it's greatly appreciated. This isn't disposable money to me and not something I afford to lock away for 30 years. So just looking at the best action for the next few years.
Thanks again.

me1000uk

Slithery said:

If you use the agencies contractors then be prepared to pay at least an extra 50% for every job that needs doing. I used to charge agencies double when I was doing work for them as they were terrible at paying invoices (always 6+ months after I'd done the work), they also double charged the VAT (as in I charged them for VAT and then they added it again on their invoice which they sent the client).

You should only budget for 10 months rent per year to allow for voids.

Great point, noted and if I decide to use an agency will see what the situation is with that.