Should I Rent or Should I Sell?

lumencreative

Looking for some (hopefully good) advice. 

My wife and I have a house that we have a mortgage on. The LTV is about 43% so we have a fair amount of equity in the house. 

For various reasons, we would like to move (upsize) and as we are not in a position to get a mortgage on the kind of house we want, we are considering renting until we can buy our ‘forever home’. 

So, the question then comes, what do we do with our current house? We are open to the idea of becoming landlords and renting it out (having rented out our previous house before we sold that), but we are also wondering whether to just sell it. 

If we were to rent the house, we have been told by our mortgage lender that we can get consent to let quite easily and they won’t object, although we would have to apply for this each year. The rental income appears to be somewhere between £300-350 more than our mortgage payments, which we will add to a pot to cover emergencies/repairs (allowing for taxes and gas certs, etc), etc but even then our only worry is the risk of bigger unforeseen repairs and while we are in the process of getting the house up to scratch now, who knows whether the house will need a new roof in two years, etc.

If we sold the house, I’m worried that in a few years time when we want to buy, we would find it hard to get back on the property ladder and may have even had the need to dip into the equity from the sale to fund things that crop up in the next few years. There is also hope that property prices may continue to increase a bit so selling in 5 years may be a better plan than selling now. 

So I’d just like to ask what you would do in our situation. Should renting the house even be a consideration? Should we just sell it instead?

MovingForwards

Why won't you keep living in your current home until you're in a financial position to upsize. You build up more equity to go towards the new place, while also saving up, potentially having a larger income and hopefully everything will come together in time for buying in 5 years.

It also means you don't need to pay CGT going from this property to the next one, if you were to rent it out in the interim period.

yksi

You don't say what your repayment is, but assuming you get an agent to fully manage it, you will lose half the rent in expenses and taxes. This is a figure that most people don't believe until they actually become landlords and realise there is virtually no money in buy-to-let; the only money is in capital gains later on when you sell. If you're willing to self-manage, you'll keep more of the income, but it isn't easy like you might think and it will be a considerable time drain, energy drain and a headache. As a property manager I've witnessed owners tearing their hair out at the toilet which develops a leak right before a bank holiday weekend; good luck finding an emergency plumber, and have fun paying the bill for him to attend on a Sunday night when he has to cancel the barbecue he had planned to attend. The window which won't lock and needs replacing because the rain is getting in. The black mould caused by the tenant who never ventilates the flat. The door ripped to shreds by a dog which wasn't even supposed to be in the home. The oven which fails on the 23rd of December. The heating which packs it in on New Years' Eve, in the home where there's a newborn baby. The front door kicked in and needing replacement the same day, because the tenant isn't safe. I have seen it all and even as property managers we would often spend half a day just making phone calls to chase quotes and get an urgent repair arranged. Will you be able to drop everything and spend that time to do it, when it's something urgent that needs addressing right now?

I think you might attract the higher stamp duty rate when you sell - have you factored this in? (I could be wrong but I'm sure others will know.) Have you also noticed that the rental situation is very, erm, unpredictable right now? Landlords have to give long notice periods and with an enormous court backlog, actually removing tenants is incredibly difficult. You run the risk of them owing you thousands, or refusing to move when you want to sell, or causing considerable damage which will cost money you'll never recover.

I think most people will believe it's a bad idea to become an accidental landlord. In your case is sort of feels that you would fit the bill, because this wasn't a home that you bought with the intention of doing so. Either sell it, or live in what you have, or move to a less desirable home/area so that you can get the space you need, or see whether a conservatory or extension would work in your current home.

lumencreative

yksi said:

You don't say what your repayment is, but assuming you get an agent to fully manage it, you will lose half the rent in expenses and taxes. This is a figure that most people don't believe until they actually become landlords and realise there is virtually no money in buy-to-let; the only money is in capital gains later on when you sell. If you're willing to self-manage, you'll keep more of the income, but it isn't easy like you might think and it will be a considerable time drain, energy drain and a headache. As a property manager I've witnessed owners tearing their hair out at the toilet which develops a leak right before a bank holiday weekend; good luck finding an emergency plumber, and have fun paying the bill for him to attend on a Sunday night when he has to cancel the barbecue he had planned to attend. The window which won't lock and needs replacing because the rain is getting in. The black mould caused by the tenant who never ventilates the flat. The door ripped to shreds by a dog which wasn't even supposed to be in the home. The oven which fails on the 23rd of December. The heating which packs it in on New Years' Eve, in the home where there's a newborn baby. The front door kicked in and needing replacement the same day, because the tenant isn't safe. I have seen it all and even as property managers we would often spend half a day just making phone calls to chase quotes and get an urgent repair arranged. Will you be able to drop everything and spend that time to do it, when it's something urgent that needs addressing right now?

I think you might attract the higher stamp duty rate when you sell - have you factored this in? (I could be wrong but I'm sure others will know.) Have you also noticed that the rental situation is very, erm, unpredictable right now? Landlords have to give long notice periods and with an enormous court backlog, actually removing tenants is incredibly difficult. You run the risk of them owing you thousands, or refusing to move when you want to sell, or causing considerable damage which will cost money you'll never recover.

I think most people will believe it's a bad idea to become an accidental landlord. In your case is sort of feels that you would fit the bill, because this wasn't a home that you bought with the intention of doing so. Either sell it, or live in what you have, or move to a less desirable home/area so that you can get the space you need, or see whether a conservatory or extension would work in your current home.

Thanks for your post. As I said, we have rented out property before. We have friends who are in the trades who can do any maintenance/emergency jobs as required but obviously do need to take in to account the odd occasion they may not be available.

In terms of management, I’d never let a letting agent manage my property (no offence). When I’ve rented as a tenant in the past, and have reported issues, it has ALWAYS been the letting agent causing the delay. On the odd occasion, the letting agent hadn’t even notified the landlord of any issue. I’d be much happier managing a property myself. As you say, more money in my pocket, more control over what gets done and when it gets done.

The only thing I’d get help with from a letting agent is the initial finding a tenant and from the conversations with local agents, that will cost the first months rent. 

We are actually leaning towards selling. If we get a buyer before the end of September they would pay no stamp duty (our house is valued at around £245,000), so feel it should sell fairly quickly in order to avoid stamp duty, but I can’t shake the feeling that it’d be silly getting off the property ladder. 

In terms of staying put, we already have a large conservatory but it’s more the outside space for the kids and work space for two people that we are struggling with. Our garden isn’t big enough to house a garden office, and there’s no real space for a play area for the kids so moving is the only real option. 

lumencreative

MovingForwards said:

Why won't you keep living in your current home until you're in a financial position to upsize. You build up more equity to go towards the new place, while also saving up, potentially having a larger income and hopefully everything will come together in time for buying in 5 years.

It also means you don't need to pay CGT going from this property to the next one, if you were to rent it out in the interim period.

Thank you, the CGT is something I hadn’t even considered. When I rented my last house there was a rule that meant I didn’t have to pay CGT. I can’t remember if it was because it was once my main home or whether the ‘profit’ was minimal, but I’d be on the hook for about £11k CGT if I rented then sold my current house.

We have thought about staying put but there’s a lot of work that needs doing (that we are in the process of having done) that I feel would increase the chances of selling, such as new windows throughout, new internal doors throughout, plastering, new carpets, etc. If we live with these things for another 4 to 5 years, they lose their position as unique selling points I guess. 

yksi

More, if it increases in value. CGT is based on the profit, which will depend on the market, which (no guarantees) does seem to still be rising. Some of it can be absorbed in a personal allowance which sounds like it might have been the case for you in the past. And you would only pay it based on the time it was rented out. It might be worth doing the sums on what your net position will be month-to-month once you're paying out both rent and a mortgage, with the income from your current home plus your expected expenses to maintain it. I'm sure you can afford to do it, but you might see that the risks in keeping it don't really hand you very much cash in profit as a reward.

[Deleted User]

lumencreative said:

MovingForwards said:

Why won't you keep living in your current home until you're in a financial position to upsize. You build up more equity to go towards the new place, while also saving up, potentially having a larger income and hopefully everything will come together in time for buying in 5 years.

It also means you don't need to pay CGT going from this property to the next one, if you were to rent it out in the interim period.

Thank you, the CGT is something I hadn’t even considered. When I rented my last house there was a rule that meant I didn’t have to pay CGT. I can’t remember if it was because it was once my main home or whether the ‘profit’ was minimal, but I’d be on the hook for about £11k CGT if I rented then sold my current house.

We have thought about staying put but there’s a lot of work that needs doing (that we are in the process of having done) that I feel would increase the chances of selling, such as new windows throughout, new internal doors throughout, plastering, new carpets, etc. If we live with these things for another 4 to 5 years, they lose their position as unique selling points I guess. 

I don’t think new windows and carpets are unique selling points. They might make a property easier to sell but the work you’re doing won’t increase the value of the property.

 Seems a bit bonkers to me to spend all that money doing up the house just to sell it as you won’t see the money spent back or to let it to a tenant to enjoy whilst you live/rent elsewhere. Sell it as is or do it up and live in it. 

lumencreative

Lover_of_Lycra said:

lumencreative said:

MovingForwards said:

Why won't you keep living in your current home until you're in a financial position to upsize. You build up more equity to go towards the new place, while also saving up, potentially having a larger income and hopefully everything will come together in time for buying in 5 years.

It also means you don't need to pay CGT going from this property to the next one, if you were to rent it out in the interim period.

Thank you, the CGT is something I hadn’t even considered. When I rented my last house there was a rule that meant I didn’t have to pay CGT. I can’t remember if it was because it was once my main home or whether the ‘profit’ was minimal, but I’d be on the hook for about £11k CGT if I rented then sold my current house.

We have thought about staying put but there’s a lot of work that needs doing (that we are in the process of having done) that I feel would increase the chances of selling, such as new windows throughout, new internal doors throughout, plastering, new carpets, etc. If we live with these things for another 4 to 5 years, they lose their position as unique selling points I guess. 

I don’t think new windows and carpets are unique selling points. They might make a property easier to sell but the work you’re doing won’t increase the value of the property.

 Seems a bit bonkers to me to spend all that money doing up the house just to sell it as you won’t see the money spent back or to let it to a tenant to enjoy whilst you live/rent elsewhere. Sell it as is or do it up and live in it. 

Thanks. When I said a ‘unique selling point’ I meant that if there were two houses on sale at a similar price, one has brand new windows and one doesn’t, which would you likely buy all else being similar?

I understand what you’re saying but the windows in need of repair at the least. The hinges are broken on some of them and the upvc looks worn (they are around 20 years old). We had the quote today and I actually asked if we could get by having them fixed instead and the guy said they weren’t worth repairing...maybe he was just thinking of his pockets but we will never know but for the sake of £4K is it worth risking it coming up as an issue on the buyers survey?

If we rent the house out, is it really a bad thing wanting the house to be nice and well maintained for any incoming tenant? Again, it wouldn’t be long before the tenant would be in touch wanting the windows repaired as they are. 

Would I rather not spend £4K on windows? Would I rather not have to fork out for new carpet? Of course, but to say ‘it’s bonkers’ without knowing the condition of the windows or carpets at present is a bit unfair in my view. 

I might actually start another thread detailing the work we are looking to have done to see what people’s views are but if I can do something to sell the house faster then in my view that’s a good thing. 

[Deleted User]

lumencreative said:

Lover_of_Lycra said:

lumencreative said:

MovingForwards said:

Why won't you keep living in your current home until you're in a financial position to upsize. You build up more equity to go towards the new place, while also saving up, potentially having a larger income and hopefully everything will come together in time for buying in 5 years.

It also means you don't need to pay CGT going from this property to the next one, if you were to rent it out in the interim period.

Thank you, the CGT is something I hadn’t even considered. When I rented my last house there was a rule that meant I didn’t have to pay CGT. I can’t remember if it was because it was once my main home or whether the ‘profit’ was minimal, but I’d be on the hook for about £11k CGT if I rented then sold my current house.

We have thought about staying put but there’s a lot of work that needs doing (that we are in the process of having done) that I feel would increase the chances of selling, such as new windows throughout, new internal doors throughout, plastering, new carpets, etc. If we live with these things for another 4 to 5 years, they lose their position as unique selling points I guess. 

I don’t think new windows and carpets are unique selling points. They might make a property easier to sell but the work you’re doing won’t increase the value of the property.

 Seems a bit bonkers to me to spend all that money doing up the house just to sell it as you won’t see the money spent back or to let it to a tenant to enjoy whilst you live/rent elsewhere. Sell it as is or do it up and live in it. 

Thanks. When I said a ‘unique selling point’ I meant that if there were two houses on sale at a similar price, one has brand new windows and one doesn’t, which would you likely buy all else being similar?

I understand what you’re saying but the windows in need of repair at the least. The hinges are broken on some of them and the upvc looks worn (they are around 20 years old). We had the quote today and I actually asked if we could get by having them fixed instead and the guy said they weren’t worth repairing...maybe he was just thinking of his pockets but we will never know but for the sake of £4K is it worth risking it coming up as an issue on the buyers survey?

If we rent the house out, is it really a bad thing wanting the house to be nice and well maintained for any incoming tenant? Again, it wouldn’t be long before the tenant would be in touch wanting the windows repaired as they are. 

Would I rather not spend £4K on windows? Would I rather not have to fork out for new carpet? Of course, but to say ‘it’s bonkers’ without knowing the condition of the windows or carpets at present is a bit unfair in my view. 

I might actually start another thread detailing the work we are looking to have done to see what people’s views are but if I can do something to sell the house faster then in my view that’s a good thing. 

I’m not saying a tenant shouldn’t have a nice place to live. I’m saying I wouldn’t spend money on new windows, carpets and whatever else your spending money to let out my house to go and rent something a bit bigger in the same, or very close to, area. I’d make my home nice for me to live in and make do with the space available. 

As for which house I would buy it depends on price and how much of a project I was up for at a time. 

lumencreative

Lover_of_Lycra said:

lumencreative said:

Lover_of_Lycra said:

lumencreative said:

MovingForwards said:

Why won't you keep living in your current home until you're in a financial position to upsize. You build up more equity to go towards the new place, while also saving up, potentially having a larger income and hopefully everything will come together in time for buying in 5 years.

It also means you don't need to pay CGT going from this property to the next one, if you were to rent it out in the interim period.

Thank you, the CGT is something I hadn’t even considered. When I rented my last house there was a rule that meant I didn’t have to pay CGT. I can’t remember if it was because it was once my main home or whether the ‘profit’ was minimal, but I’d be on the hook for about £11k CGT if I rented then sold my current house.

We have thought about staying put but there’s a lot of work that needs doing (that we are in the process of having done) that I feel would increase the chances of selling, such as new windows throughout, new internal doors throughout, plastering, new carpets, etc. If we live with these things for another 4 to 5 years, they lose their position as unique selling points I guess. 

I don’t think new windows and carpets are unique selling points. They might make a property easier to sell but the work you’re doing won’t increase the value of the property.

 Seems a bit bonkers to me to spend all that money doing up the house just to sell it as you won’t see the money spent back or to let it to a tenant to enjoy whilst you live/rent elsewhere. Sell it as is or do it up and live in it. 

Thanks. When I said a ‘unique selling point’ I meant that if there were two houses on sale at a similar price, one has brand new windows and one doesn’t, which would you likely buy all else being similar?

I understand what you’re saying but the windows in need of repair at the least. The hinges are broken on some of them and the upvc looks worn (they are around 20 years old). We had the quote today and I actually asked if we could get by having them fixed instead and the guy said they weren’t worth repairing...maybe he was just thinking of his pockets but we will never know but for the sake of £4K is it worth risking it coming up as an issue on the buyers survey?

If we rent the house out, is it really a bad thing wanting the house to be nice and well maintained for any incoming tenant? Again, it wouldn’t be long before the tenant would be in touch wanting the windows repaired as they are. 

Would I rather not spend £4K on windows? Would I rather not have to fork out for new carpet? Of course, but to say ‘it’s bonkers’ without knowing the condition of the windows or carpets at present is a bit unfair in my view. 

I might actually start another thread detailing the work we are looking to have done to see what people’s views are but if I can do something to sell the house faster then in my view that’s a good thing. 

I’m not saying a tenant shouldn’t have a nice place to live. I’m saying I wouldn’t spend money on new windows, carpets and whatever else your spending money to let out my house to go and rent something a bit bigger in the same, or very close to, area. I’d make my home nice for me to live in and make do with the space available. 

As for which house I would buy it depends on price and how much of a project I was up for at a time. 

I have to say, you have given me food for thought. For example, can we get away with doing less if we intend to sell the house vs rent the house out? Can we get away with fitting new hinges to the windows and having the foam replaced rather than buying new windows? Can we get away with painting door frames where we had intended to replace them? Things like that.

Would definitely save us a few thousand. Just would like to give us the best possible chance of selling quickly if we decide to sell.

AdrianC

So it's £245k-worth, and your mortgage is 43% LTV, which means £105k.

You don't say how much your monthly repayments are, but assuming there's ten years to go and 2.5%, they're about a grand - , of which about £125 is interest - so you're looking at £1,300 rent.

Don't forget you pay income tax not just on the £300 above the mortgage, but on the £875 capital repayment, too - that is not an allowable expense.
So - ignoring expenses - at 20% basic rate, you're paying £235/mo in income tax.
That's almost all your margin, STRAIGHT off.
You need to amortise the tenant-finding fee over 18 months before you have a single penny left of the remainder, even before you consider any actual expenditure on the property itself.

You're going to be subsidising your tenants.

And that's before you get to the sheer hassle factor.

Worst case... Your situation changes to the point you can start to look for a property to buy. Except you have your £140k equity tied up in your lettings business. Your tenants are still half-way through a 12mo fixed period. You give them notice... They decide to play silly sods, and stay put without paying rent... You eventually get to the front of the long possession hearing queue. Your s21 is thrown out because of a minor technicality - assuming s21 still exists. You didn't issue s8g8, or they pay the arrears down to just under the threshold at the last minute. Finally, you get possession, and the bailiffs arrive to find they've done a runner leaving the place trashed...