Should I let or sell - kind advice, please.

PadreM

Happy New Year.

Having inherited a house I have to decide whether to be an 'accidental landlord' or sell.  I'm unattracted by the responsibility of the former (although I'd have to use an agent as living 150m from property) but want to do a 'scratch' estimate of relative financial benefit.

Could you please advise whether the following is roughly correct/no significant omission(s):

On a low income I'm not currently a taxpayer; rental income is of course taxable and would put me well into the basic tax bracket.
                                                          £
Rent:                                                 12000 pa

Fallow month (£1000)                       11000      (I understand 1 month's non-occupancy is generally advised per annum when budgeting)                                                                   
12.5% agent fee (£1400)                    9600      (Would need 'full' management)

Maintenance (£500)                            9100       (House built 2010)

Llord insurance (£400)                        8700

Gas safety cert (£100)                        8600

Income tax 20% (£1700)                    6900   

Allowing for odds and sods too of, say £900, it looks to me as a basic rate taxpayer (would be) that I would net c half the rent (£6000).  Does that seem about right?  The house might net c £280k sold, and while I haven't the faintest idea about investment, let's say I got 1.5% return on that = £4000.

For letting in this situation (no mortgage; basic-rate t/payer), is net income c 50-60% of gross rent considered typical?

It's not a great difference for the responsibility I think I'd have as a 'good' llord (albeit it's being managed by an agent).  However, I understand that in letting I have the  income AND the likely growth of an asset appreciating better than bank interest etc, which is, I guess, why people do it.  But in this scenario the figures don't make letting esp attractive...

Thanks for your thoughs...


                   
                       





                                                               

Doozergirl

I've had a tenant not pay for 6 months.   They're still paying me back at £10 a month after a CCJ about five years ago.  

I've also had tenants trash a house.  The dog scratched all the doors and ate the window blinds.  That cost plenty but houses cost more than £500 a year in maintenance.  When there is a bill, it's usually a fat one - a new boiler costs at least a couple of thousand.   It also costs money just to redecorate and spruce things up between tenants.  

Can you afford that?   Personally, those figures look like a bit of a risk and it's always more expensive when you live far away.    It's a stress as well - your agent does almost nothing for that full management fee, a lot of them just seem to charge for calling you to tell you there's a problem, and you'll pay doubly through the nose to use their repair people.  If you're already not that keen, just wait until it becomes reality.  It is a job and it will happily give you sleepless nights.  

What could you do with the proceeds from a sale? 

Snookie12cat

I shouldn't think you need to pay tax on anything under the threshold. So as long as this and your other earnings are under the limit you wouldn't pay tax on it. You would only then pay tax on anything earned over the threshold. Landlord insurance should be a little less.

I do not recommend you go into it without reading fully into your responsibilities as a landlord and into all the things that can and do go wrong, eg tenants trashing the house, not leaving, arrears etc.

If you are happy with the risk then returns on rentals are generally very good, esp in terms of property growth if you plan to keep it for a decade or more.

Grumpy_chap

PadreM said:

Happy New Year.

Having inherited a house I have to decide whether to be an 'accidental landlord' or sell.  I'm unattracted by the responsibility of the former (although I'd have to use an agent as living 150m from property) but want to do a 'scratch' estimate of relative financial benefit.

Could you please advise whether the following is roughly correct/no significant omission(s):

On a low income I'm not currently a taxpayer; rental income is of course taxable and would put me well into the basic tax bracket.
                                                          £
Rent:                                                 12000 pa

Fallow month (£1000)                       11000      (I understand 1 month's non-occupancy is generally advised per annum when budgeting)                                                                   
12.5% agent fee (£1400)                    9600      (Would need 'full' management)

Maintenance (£500)                            9100       (House built 2010)

Llord insurance (£400)                        8700

Gas safety cert (£100)                        8600

Income tax 20% (£1700)                    6900   

Allowing for odds and sods too of, say £900, it looks to me as a basic rate taxpayer (would be) that I would net c half the rent (£6000).  Does that seem about right?  The house might net c £280k sold, and while I haven't the faintest idea about investment, let's say I got 1.5% return on that = £4000.

For letting in this situation (no mortgage; basic-rate t/payer), is net income c 50-60% of gross rent considered typical?

It's not a great difference for the responsibility I think I'd have as a 'good' llord (albeit it's being managed by an agent).  However, I understand that in letting I have the  income AND the likely growth of an asset appreciating better than bank interest etc, which is, I guess, why people do it.  But in this scenario the figures don't make letting esp attractive...

Thanks for your thoughs...
      

Your figures are probably not far off.  Agent fee will be +VAT.  You also need to allow for unexpected costs such as a broken boiler or whatever.

But the figures are not that important compared to your opening gambit "decide whether to be an 'accidental landlord' or sell.  I'm unattracted by the responsibility of the former".  Being a LL is basically a form of running a business - if your heart is not in it then you need to do something else.

It might be worth assessing the LL options versus what you'd get by way of return and growth if you invest in alternative options.  Maybe ask in the Savings & Investments board?

Have you got your pension sorted?

PadreM

Doozergirl said:

I've had a tenant not pay for 6 months.   They're still paying me back at £10 a month after a CCJ about five years ago.  

I've also had tenants trash a house.  The dog scratched all the doors and ate the window blinds.  That cost plenty but houses cost more than £500 a year in maintenance.  When there is a bill, it's usually a fat one - a new boiler costs at least a couple of thousand.   It also costs money just to redecorate and spruce things up between tenants.  

Can you afford that?   Personally, those figures look like a bit of a risk and it's always more expensive when you live far away.    It's a stress as well - your agent does almost nothing for that full management fee, a lot of them just seem to charge for calling you to tell you there's a problem, and you'll pay doubly through the nose to use their repair people.  If you're already not that keen, just wait until it becomes reality.  It is a job and it will happily give you sleepless nights.  

What could you do with the proceeds from a sale? 

Thanks - these are the sorts of considerations that put me off.  'Hard cases make bad law', though: you were unfortunate, and I think I shouldn't base the decision on worst-case scenario.  Certainly one does hear of property being trashed, rent unpaid/ midnight flits, and its taking months to remove non-payers.  Llord insurance surely mitigates this?

I don't NEED the sale proceeds: I'm neutral as to whether I have the capital or income (I own my own house, for example).

Slithery

If you had inherited cash instead of the property would you be looking to use it to start your own residential lettings business or invest somewhere else?

Brie

Do estimates take account of capital gains tax?  Would that be an issue if you sold this immediately?  Hoping one of the experts will know as that might make a difference if it was me.

Also - how's your health and support network?  Do you think you could use the money to do something for your own wellbeing soon?  In 5 years?  What about improve your current home?  Or sell the inherited place for something nearer to where you are??

PadreM

Slithery said:

If you had inherited cash instead of the property would you be looking to use it to start your own residential lettings business or invest somewhere else?

Absolutely not - it's only 'cos it's landed in my lap.

PadreM

Snookie12cat said:

I shouldn't think you need to pay tax on anything under the threshold. So as long as this and your other earnings are under the limit you wouldn't pay tax on it. You would only then pay tax on anything earned over the threshold. Landlord insurance should be a little less.

I do not recommend you go into it without reading fully into your responsibilities as a landlord and into all the things that can and do go wrong, eg tenants trashing the house, not leaving, arrears etc.

If you are happy with the risk then returns on rentals are generally very good, esp in terms of property growth if you plan to keep it for a decade or more.

I'm only just under the tax threshold now - so my tax payable appears correct.  Yep, it's the risk issue and having to be 'business-like' that put me off somewhat. 

3card

PadreM said:

Doozergirl said:

I've had a tenant not pay for 6 months.   They're still paying me back at £10 a month after a CCJ about five years ago.  

I've also had tenants trash a house.  The dog scratched all the doors and ate the window blinds.  That cost plenty but houses cost more than £500 a year in maintenance.  When there is a bill, it's usually a fat one - a new boiler costs at least a couple of thousand.   It also costs money just to redecorate and spruce things up between tenants.  

Can you afford that?   Personally, those figures look like a bit of a risk and it's always more expensive when you live far away.    It's a stress as well - your agent does almost nothing for that full management fee, a lot of them just seem to charge for calling you to tell you there's a problem, and you'll pay doubly through the nose to use their repair people.  If you're already not that keen, just wait until it becomes reality.  It is a job and it will happily give you sleepless nights.  

What could you do with the proceeds from a sale? 

Thanks - these are the sorts of considerations that put me off.  'Hard cases make bad law', though: you were unfortunate, and I think I shouldn't base the decision on worst-case scenario.  Certainly one does hear of property being trashed, rent unpaid/ midnight flits, and its taking months to remove non-payers.  Llord insurance surely mitigates this?

I don't NEED the sale proceeds: I'm neutral as to whether I have the capital or income (I own my own house, for example).

Landlord insurance doesnt necessary mitigate losses caused by tenant damage or not paying rent.
I know you can buy policies that will cover for non payment of rent but the small print needs to be looked at very closely
If you are thinking of having a fully managed tenancy then speak to the management company and ask them about any policies they can offer to cover both of these problems 
I have a friend that used a local agent for manage their rental and the tenant caused quite a lot of damage & didnt pay their rent. The agent had sold my friend a complete management package and this meant they were covered for all the costs but i do know they paid a hefty percentage for this option

canaldumidi

Slithery said:

If you had inherited cash instead of the property would you be looking to use it to start your own residential lettings business or invest somewhere else?

PadreM said:

Slithery said:

If you had inherited cash instead of the property would you be looking to use it to start your own residential lettings business or invest somewhere else?

Absolutely not - it's only 'cos it's landed in my lap.

Then that is the answer to your question!

But you should certianly be looking at the alternatives for your inheritance: pensions are very tax advantageous (as opposed to property being tax disadvantageous); ISAs of course though limited amounts; and various investment options best discussed on the savings and investments board here.

For more on letting:

Post 7: New landlords (1):advice & information :see links in next post

Post 8: New landlords (2): Essential links for further information

Post 9: Letting agents: how should a landlord select or sack?