Should I sell my 2nd home or keep it????

matthewse

Hi all, I am looking for some advice. I currently own a flat (in my name only) which I have rented out since my husband and I bought our current home 2 1/2 years ago. It was my main residence until then. I feel that I need to make decisions this year as after October I will be eligible to pay tax if I sell it. I have only kept on the flat as I have a good tenant and it has caused me no issues.... so far!!! I have always said once it causes problems I will sell it. I have been contacting IFAs to get advice on this and I am struggling, as they seem to only focus on what to do with the profit that I will make from selling my flat. I really need somebody to work out long term if I am better to keep on my flat or get rid of it and invest the profit. I have worked out pro's and con's and there are more con's in keepng the flat with paying tax, paying out for repairs etc, getting checks done every year, finding tenants, paying insurance etc. Is it time to sell? Can anybody give me advice or recommend whom I should talk to?

The details are as follows -

The flat could sell between £150,000 and £155,000 (one in my block is up for sale at a fixed price of £155,000. The outstanding mortgage is currently £57,000 (I bought it for £68,000) and I have 21 years left on the mortgage. I rent the property out for £550 pcm (I probably could get up to £650 but will not increase this until my current tenant leaves) and my mortgage is £380 pcm on a repayment mortgage (not a btl mortgage).

Zammo

Release the equity and buy another 4 flats. You could build a BTL empire and be an armchair millionaire,

matthewse

Under the current climate is this not a risky thing to do? Also I don't want to manage another 4 properties as cannot afford to pay 4 mortgages if I cannot get them rented. I have looked at buying other properties and the rental income will not cover the mortgage (or it will just cover it leaving me no income to cover additional expenses). And how do you work out I will be an armchair millionaire?

pinkshoes

It really depends how else you intend to invest the money. If you sell for £150k, could you put the £93k equity towards the mortgage on your current home?

At least the rent more than covers the repayment mortgage, which is obviously a good thing...

Ignore Zammo... he's an odd bod!

dolcevita

I think you'll find that zammo was being sarcastic.

From an investment point of view, the yield is low (about 4%) but you are receiving an income and with the amount of equity you have it is unlikely you will end up in negative equity. So long term you will probably be ok
But you will see big capital losses over the coming years so now would be a good time to get your money out and invest it elsewhere.

In order to sell quickly, you must take advantage of your large equity and price accordingly.

matthewse

Al_Mac wrote: »

In the current climate getting £155k for a flat is unlikely.

Sorry I have to disagree to your note that it is unlikely that my flat will get between £150,00 and £155,00. I am being very realistic as to the price that I will achieve and have worked out if I get anything over £145,00 it will be a bonus. I have been working on a profit of approx £85,000 including cost in selling it. Two flats in my area have sold pretty quickly in the last three months for around this price as it is in a really good area. PS my flat is in Scotland where prices are stable.

matthewse

Al_Mac wrote: »

Does your mortgage company know you are renting it?

Yes my bank does know I am renting it out. My husband and I took out our new mortgage with the same bank and they agreed as long as they know what it is being used for it does not have to be a btl mortage. I also have a fixed mortgage (took it out two years ago) and I checked with them about his issue.

matthewse

dolcevita wrote: »

I think you'll find that zammo was being sarcastic.

From an investment point of view, the yield is low (about 4%) but you are receiving an income and with the amount of equity you have it is unlikely you will end up in negative equity. So long term you will probably be ok
But you will see big capital losses over the coming years so now would be a good time to get your money out and invest it elsewhere.

In order to sell quickly, you must take advantage of your large equity and price accordingly.

Thank you so much for this advice. I appreciate a straight answer. Can I ask, if you were in my position, would you keep it or sell it? Can you take into account tax impliciations, managing the property and what I will get out of it in 22 years when my mortgage is paid off. I am tired of people telling me I am mad to sell it and I am afraid that I am making a decision that I will regret in 22 years time!!! I could invest my profits in other areas but I am also nervous about doing this as I don't know were to start!!!

matthewse

pinkshoes wrote: »

It really depends how else you intend to invest the money. If you sell for £150k, could you put the £93k equity towards the mortgage on your current home?

At least the rent more than covers the repayment mortgage, which is obviously a good thing...

Ignore Zammo... he's an odd bod!

I could do this but I would like to see the benefits of my money in 25 years. I feel if my husband and I paid off some of our current mortgage we would not use the money we are saving and therefore in 25 years would be left with nothing. We also cannot use all of it to pay off our mortgage as we can only pay off a certain amount every year as we are on a fixed rate.

teabelly

You have a couple of choices. Keep it and keep the mortgage the same and own it in 20 years for a pension income or large cash amount if you sold then.

Keep it and refinance to a higher level according to what the rental will allow, put some aside for rental shortfalls and then invest the rest in either lowering the mortgage on your current home or buying another property with a decent deposit (again putting capital aside for paying mortgage payments, maintenance etc etc) If you do the former there may be tax implications unless paying off your current mortgage counts as 'investing in property'.

You could sell it now and bank the money but lose out on any future gains or losses in the coming years. Depends on whether you think it will be worth more in 20 years time or less really as to whether you want to take the gamble.

In your shoes I'd keep it. If management of it becomes an issue then you can always pay someone else to have the headache with either a letting agent or a property management company.

Investment yield isn't so relevant as it is down to what you have put in and what you get out for the amount you actually put in. Stocks and shares may look good in yield terms but you have to put in all the money, you can't just put in 15 or 20% like you can with property. If it was some awful new build with negative rental cash flow and negative capital growth outlook for the next few years then you'd be better off cutting your losses but it isn't. It brings in a decent rent and you have a decent tenant.

matthewse

teabelly wrote: »

You have a couple of choices. Keep it and keep the mortgage the same and own it in 20 years for a pension income or large cash amount if you sold then.

Keep it and refinance to a higher level according to what the rental will allow, put some aside for rental shortfalls and then invest the rest in either lowering the mortgage on your current home or buying another property with a decent deposit (again putting capital aside for paying mortgage payments, maintenance etc etc) If you do the former there may be tax implications unless paying off your current mortgage counts as 'investing in property'.

You could sell it now and bank the money but lose out on any future gains or losses in the coming years. Depends on whether you think it will be worth more in 20 years time or less really as to whether you want to take the gamble.

In your shoes I'd keep it. If management of it becomes an issue then you can always pay someone else to have the headache with either a letting agent or a property management company.

Investment yield isn't so relevant as it is down to what you have put in and what you get out for the amount you actually put in. Stocks and shares may look good in yield terms but you have to put in all the money, you can't just put in 15 or 20% like you can with property. If it was some awful new build with negative rental cash flow and negative capital growth outlook for the next few years then you'd be better off cutting your losses but it isn't. It brings in a decent rent and you have a decent tenant.

Thanks for your advice. It has given me alot to think about. This issue I have to consider what will be its worth (or rather what rental income will I get from it) in 20 years. I feel that I shouldn't take into account what my flat will be worth in 20 years as it is the rental income that I will take into account if I am keeping it as an investment. Also if I sell it in 20 years I will need to consider what I will have to pay in taxes!!!! I don't want to refinance it as I don't think I have enough gain on the rent to pay out on extra mortgage payments.

I worked out if my property rose by approx 3% on average every year (taking into account highs and lows) it would be worth £277,819 in 21 years. If I sold my property and invested £85,000 profit (I am being very realistic) with a 5% return my investment would be worth £236,790. I am not sure if it is worth it to keep it as there is only £40,000 difference which I may have to pay that out in CGT and Income Tax over the years. I am not sure if my calculations are correct or if this is the way to compare the worth of my two choices (sell flat and invest money or keep flat and sell in 21 years) in 21 years?