Should I Rent or Should I Sell?

lumencreative

AdrianC said:

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...

Thanks for your post. Our mortgage repayments are £600, of which £210 is interest. Looking at comparable properties, they seem to be going for £1000 a month so we had tried to be conservative with a £900 a month expectation, so the income tax would be around £140 a month, but yes, I see your point about renting not being ideal  and we are heavily leaning towards selling rather than renting. 

Now it's just a question of how much work we put into the house before selling vs how much work is too much / will not make a difference to selling.

AdrianC

lumencreative said:

AdrianC said:

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.

Thanks for your post. Our mortgage repayments are £600, of which £210 is interest.

Like I said, assumption...

At just £390/mo repayment, you're going to take 270 months - 22.5 years - to repay that mortgage. Those figures also suggest 4% interest...

saajan_12

lumencreative said:

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. 

Don't get this - if you're not staying because work needs doing, then just do the work.. the cost & hassle of an extra move, tax ineffiency of letting & renting or the risk from being out of the market, would outweigh any difficulty in selling from older windows. 

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? - if they were falling apart then maybe, but if they are in normal 5 year old condition, it would make zero difference. So no harm in just doing the work now and letting them be lived in for 5 years when selling. 

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? - well the risk is really they want £4k off the price to fix it. Some people might prefer a move-in ready place, but others will prefer a project, so you're not necessarily making it easier to sell (price adjusted)

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. - so you're planning on doing the work now then letting? Then it'll still be 5 years old when you sell, similar to if you lived there. 

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. 

Selling now:
The point is you're not necessarily making the house faster to sell (once you adjust the sale price by the cost of the repairs). Some people will prefer a move in ready house, others will prefer a project which they can do their taste, so the size of the market is probably the same. If it flags on a survey, you can immediately agree to a reduction, so no real time difference there. You're actually spending more time doing the work for no difference in time to sell. 

Selling later: 
Then just do the work now - shiny new windows etc really aren't unique selling points. These sorts of works are supposed to last years, so there's really no difference between new and 5 year old windows. If you'd do the work for a tenant, then it'll be 5 years old by the time you sell anyway. Also letting and renting yourself is very inefficient - taxed on income but pay full rent, hassle of dealing with your landlord / tenant when either home needs repairs, etc. 

lumencreative

saajan_12 said:

Don't get this - if you're not staying because work needs doing, then just do the work.. the cost & hassle of an extra move, tax ineffiency of letting & renting or the risk from being out of the market, would outweigh any difficulty in selling from older windows. 

You've clearly not read the thread or the context in which the paragraph you've quoted applies. The fact is we need to move. With my comment about work needing to be done, I was getting at the fact that if we do the work now and then move in 4 or 5 years time, some of that work will need doing again, so additional expense (ie carpets and decorating, etc), the 'new windows' if we have them done will lose any appeal as they won't be 'new windows' anymore.