Extend rental flat lease or sell and buy freehold?

Viking_warrior

I have a one bed flat with 5 years mortgage remaining. Tenant been in 8 years and never misses a payment, very stable at present. I don't make money on the rent but it does payment mortgage. Flat has 85 years lease remaining so I need to start thinking about lease extension. Most likely cost minimum 6k... Maybe more? So I'll have to either use the small savings I have or extend mortgage. 
I know if don't extend selling flat would be difficult. So, do I pay for lease extension now and stomach the cost, or sell it tenant in situ now and get myself a small freeholdhouse (with bigger mortgage) to rent out? Realise thighs own risks as will probably need investment to make good before renting plus the risk of a less stable tenant. 
I need to make right decision as I live with partner in his home without part in its value (explained in previous post). This is my only substantial asset avenue....and at 49 time is of the essence.
Thanks all!

eddddy

You'd need to do a lot of calculations to work out which strategy is best.

There would be a lot of costs associated with selling and buying - legal fees, survey fees, mortgage fees, SDLT, loss of rent, tenant finding fees, increased monthly mortgage payments.

It would be while before you broke even (rent vs costs you had to pay out).  Typically, it doesn't make financial sense to sell a letting property simply in order to buy another one. But you'd need to do all the calculations relating to your specific circumstances to check that.

Tiglet2

Viking_warrior said:

I have a one bed flat with 5 years mortgage remaining. Tenant been in 8 years and never misses a payment, very stable at present. I don't make money on the rent but it does payment mortgage. Flat has 85 years lease remaining so I need to start thinking about lease extension. Most likely cost minimum 6k... Maybe more? So I'll have to either use the small savings I have or extend mortgage. 
I know if don't extend selling flat would be difficult. So, do I pay for lease extension now and stomach the cost, or sell it tenant in situ now and get myself a small freeholdhouse (with bigger mortgage) to rent out? Realise thighs own risks as will probably need investment to make good before renting plus the risk of a less stable tenant. 
I need to make right decision as I live with partner in his home without part in its value (explained in previous post). This is my only substantial asset avenue....and at 49 time is of the essence.
Thanks all!

Does your tenant want to buy the flat?  If he does, he may well want you to start the process for the lease extension - best to go the formal route.  The cost of the extension could be negotiated between you, but obviously if you wanted him to pay for it, he may well reduce his offer to take it into account.  Once you have sold the flat to your tenant, you could then buy something else, but as you mention, there will probably be further costs involved in getting the house up to standard and the fees associated with finding another tenant.  You have acknowledged that the new tenant may not be as reliable as your current one. 

At 49, you can still obtain a mortgage for 20ish years, but is this what you want? You say that the flat is your only substantial asset, so you should perhaps be thinking about your future retirement plans and how you will manage financially when no longer working.

I remember your previous thread and right at the end, your decision to stay and help your partner through his problems and anxiety, but I definitely got the impression that you felt you had contributed towards the household running costs and bills and yet had no security as it was his house and that he was constantly reminding you of that.  Considering the amount of support you had on here for your situation, I'm left wondering why you are still together.

Schwarzwald

Viking_warrior said:

... Flat has 85 years lease remaining so I need to start thinking about lease extension. Most likely cost minimum 6k...  do I pay for lease extension now and stomach the cost, or sell it tenant in situ now and get myself a small freeholdhouse (with bigger mortgage) to rent out? ...

The associated transaction expenses of selling the existing asset and buying a new asset, which you would burn and which are not value accretive for the properties, are likely in excess of 6k, not even accounting for the implied value of your time doing all of that, including finding a new house and a similarly good tenant - and as you rightly say "time is of the essence".

Probably the avenue I would take is get a sense for the real costs of extending, ability to remortgage at next possible point in time to get the cash back, and ultimately get a sense for the ability to increase the sitting tenant's rent to partly offset the extension costs, say recoup the £6k over 4 years, £1,500 per annum, can the sitting tenant pay £125pcm more?

Viking_warrior

Tiglet2 said:

Viking_warrior said:

I have a one bed flat with 5 years mortgage remaining. Tenant been in 8 years and never misses a payment, very stable at present. I don't make money on the rent but it does payment mortgage. Flat has 85 years lease remaining so I need to start thinking about lease extension. Most likely cost minimum 6k... Maybe more? So I'll have to either use the small savings I have or extend mortgage. 
I know if don't extend selling flat would be difficult. So, do I pay for lease extension now and stomach the cost, or sell it tenant in situ now and get myself a small freeholdhouse (with bigger mortgage) to rent out? Realise thighs own risks as will probably need investment to make good before renting plus the risk of a less stable tenant. 
I need to make right decision as I live with partner in his home without part in its value (explained in previous post). This is my only substantial asset avenue....and at 49 time is of the essence.
Thanks all!

Does your tenant want to buy the flat?  If he does, he may well want you to start the process for the lease extension - best to go the formal route.  The cost of the extension could be negotiated between you, but obviously if you wanted him to pay for it, he may well reduce his offer to take it into account.  Once you have sold the flat to your tenant, you could then buy something else, but as you mention, there will probably be further costs involved in getting the house up to standard and the fees associated with finding another tenant.  You have acknowledged that the new tenant may not be as reliable as your current one. 

At 49, you can still obtain a mortgage for 20ish years, but is this what you want? You say that the flat is your only substantial asset, so you should perhaps be thinking about your future retirement plans and how you will manage financially when no longer working.

I remember your previous thread and right at the end, your decision to stay and help your partner through his problems and anxiety, but I definitely got the impression that you felt you had contributed towards the household running costs and bills and yet had no security as it was his house and that he was constantly reminding you of that.  Considering the amount of support you had on here for your situation, I'm left wondering why you are still together.

Exactly the question I asking myself. Currently embarking on therapy.... after 18 years my behaviour is well engrained and need help