Letting a property inherited

Bigphil1474

I have family who are single property landlords. One has an apartment that was bought years ago as an investment property. They've never actually seen the apartment, and have very little involvement with it other than receiving some money each month and an annual report. Another has a house they used to live in rented out. That's managed by an agent and the only involvement they have with that is authorising trades to do repair work when the tenancy changes. They mostly just get some money every month which pays their mortgage. It's also still their primary residence as they are in the armed forces.

I wouldn't recommend buying a house to be a single property landlord, but as you've been given one and it's costing you money and isn't selling, the economics will be a bit different. Personally, I'd be asking the agent to let it out for me, at least for a year and see how it goes.

When you sell the house, you could be liable for Capital Gains Tax - CGT - which is basically the difference between the selling price and the property value for probate. You do get an allowance of £3k I believe, plus a reduction in liability for any time you lived in the house since it became yours. As a lower rate tax payer you would normally pay 18% on the gain. So if it was valued at £200k for probate when you inherited it, and you sold it for £250k, you'd pay tax on the £50k, minus your allowance and some costs can also be included. If you sold it for £200k, you wouldn't pay any CGT. It's a bit more complicated but that's the gist.

chrisw

People on here are very negative. I was left a property in a similar situation about 20 years ago and it provides me with a handy source of income. I've had three lots of tenants, the latest ones for the last 10 years and despite managing it myself, it really isn't much hassle and my expenses are around £500 a year. The biggest impact will be when I come to sell it and have to pay capital gains on the increase in value since I inherited it as it's trebled in value since then.

Albermarle

I wouldn't recommend buying a house to be a single property landlord, but as you've been given one and it's costing you money and isn't selling, the economics will be a bit different. Personally, I'd be asking the agent to let it out for me, at least for a year and see how it goes.

Although all the previous comments about the potential pitfalls of being a landlord are valid, I can see some sense in this proposal. Some areas that are OK for renters, are not seen as that desirable by homeowners, and this may be the case here. Plus as you say the OP already has the property and it is costing money.

OP - If you do go ahead be careful with the letting agents. They are not very well regulated, and if they make mistakes or forget to check items, in the end you remain responsible. Plus do a lot of reading about the regulations and responsibilities  about being a landlord .

saajan_12

Seekingfinancialhelp said:

Keep_pedalling said:

My tip would be to sell now unless you have previous experience of being a landlord. 

Ive had the property on the market for several months now, and reduced the asking price by £40k from what two estate agents valued it at. Its becoming a financial burden as I pay full council tax. The agent has advised that the property in this particular area isn't selling well and hasn't been for some months. I dont really want to have another winter without someone living in it, so was considering letting it until maybe the market picked up.

This is usually a poor reason to rent
- Once you have tenants in, you can't just evict when you want as court processes can take months, so timing when its vacated and when you sell is unlikely to work, meaning you'll still have a significant void. 
- Maybe the value is just 40k lower, agents often exaggerate valuations to attract your business. What makes you think it will perform better than other investments in the next year (the comparison is you could sell now and invest in something else which could appreciate more than the property). 
- Tax wise you'll face income tax on rental income plus capital gains if you sell higher than the probate value, while other investments can be more tax efficient. 

Not to be too negative - some areas and properties do make an above average yield especially when you can leverage cheaply. The question is whether this is that or whether you'd be better off selling 

user1977

The other way to look at it is, if you had inherited £xK in cash, would you choose to invest it by buying a property and starting up a lettings business?

I would just sell. It's a windfall whatever price it goes for, and takes the burden off you.

Seekingfinancialhelp

saajan_12 said:

Seekingfinancialhelp said:

Keep_pedalling said:

My tip would be to sell now unless you have previous experience of being a landlord. 

Ive had the property on the market for several months now, and reduced the asking price by £40k from what two estate agents valued it at. Its becoming a financial burden as I pay full council tax. The agent has advised that the property in this particular area isn't selling well and hasn't been for some months. I dont really want to have another winter without someone living in it, so was considering letting it until maybe the market picked up.

This is usually a poor reason to rent
- Once you have tenants in, you can't just evict when you want as court processes can take months, so timing when its vacated and when you sell is unlikely to work, meaning you'll still have a significant void. 
- Maybe the value is just 40k lower, agents often exaggerate valuations to attract your business. What makes you think it will perform better than other investments in the next year (the comparison is you could sell now and invest in something else which could appreciate more than the property). 
- Tax wise you'll face income tax on rental income plus capital gains if you sell higher than the probate value, while other investments can be more tax efficient. 

Not to be too negative - some areas and properties do make an above average yield especially when you can leverage cheaply. The question is whether this is that or whether you'd be better off selling 

Hi.

Thank you for your comments.

Ive not had a lot of money to invest before but I will be a nervous investor, so ultimately if I sold the house, id put the money in the bank or possibly invest in another flat or house. 

If i found a Tennant that looked after the property and wanted to stay there, id be happy with that. Im someone that will want to do things by the book as in having a legally compliant home and good place to live in.

Thanks

user1977

If you're a nervous investor then having it all in a single property is quite high risk. 

theartfullodger

user1977 said:

If you're a nervous investor then having it all in a single property is quite high risk. 

Very true. My approach is spread between at least 3 categories, e.g. in my case savings, shares, property. All eggs in one basket risky when things get bumpy.  Getting bumpy is guaranteed.  Good luck!

Albermarle

Ive not had a lot of money to invest before but I will be a nervous investor, so ultimately if I sold the house, id put the money in the bank or possibly invest in another flat or house. 

It is not directly related to your original question, but for the future you need to be more rational in your analysis of financial risk. It is a very common problem for people to perceive risk incorrectly. For example many people are scared of flying, but not scared of driving, which if you look at the statistics is completely illogical. 
Same with financial risk. For example;

Keeping money in a current account with zero interest- every year the real value will reduce significantly every year - so that is a risky strategy.
Keeping money in a savings account, or Premium Bonds, where typically the interest rate is a bit less than inflation ( most years anyway) Still a risk of a small real reduction due to inflation and a risk of missing out on real growth.
Buying BTL property - Can be lucrative if done properly, house prices rise and you are lucky. Can also be a disaster area, so quite risky.
Investing in high risk investments and/or trading  eg individual company shares, crypto etc . Can be lucrative or you could lose the lot . Very High risk
Investing long term in diversified global funds linked to stock markets etc - Good rewards historically and  low risk if held for the long term ( >10 years)