Sell or rent

davidjc2

Hello,
Before I get a financial advisor I thought I'd ask here.
I have been left my parents house, worth approx £95,000 (shared between 2 of us)I want to invest this until Dec 2014, and hopefully use the money to reduce my working hours. Would it be better to rent the house until then (I would get approx £50 per week). Or sell the house now and invest the lump sum (approx 45k)
My brother is keen on renting but I'm not as enthusiastic.

Any views appreciated

pinkshoes

If you hadn't noticed, the market is rubbish, and houses are not selling, so even though it's "worth" around £95k, you might only get £80k for it. or less.

If it has no mortgage, it's not costing you anything as such, so perhaps rent it out for now until the market stabilises. How much money will investment make you each month?

davidjc2

Thankyou for your reply,
The 95k figure is a very conservative estimate, identical properties in the area are advertised - and are selling for around 120k
The estate agent is confident it would sell quickly for 100k.
I basically want to know the pros & cons of renting. Would £50 a week for 7 years (then sell at this time) generate more money than selling now and investing the 45k for 7 years. There are obviously tax issues, maintenance costs etc.
I just wondered if one was better than the other.

bobby-boy_2

Hi david did a check calculation in Excel (Table below) you would get 18200 at 50 pounds a week for 7 years if you did not increase the rent before expenses.

put 45k pounds in the bank at 6% with compound interst and you get approx 22663 pounds.

50 pounds per week on 45k is 5.7% return BUT you need landlords insurence safety certs letting agents etc.

only benifit of renting is if you hold on to it long term ie 10+ years the capitol value should increase.
hope this gives you some insight.
Capitol interest
50*52*7
=18200

Capitol/Int
45000 2700.00
47700 2862.00
50562 3033.72
53595.72 3215.74
56811.46 3408.69
60220.15 3613.21
63833.36 3830.00
67663.36 4059.80

67663.36- 45000 =22663.36

davidjc2

Thanks for the figures, very helpful.
What if I put say £40 per week in a regular saver account (keep the rest for landlords costs) there seems to be some good deals around for these accounts.
I know nothing about renting so I suppose it would need to outweigh selling by a long way to convince me.

bobby-boy_2

You say your brother is keen to rent, just sell your half to him :rotfl: Seriously on a 7 year plan i would put the money into a high interest account as being a landlord can be a lot of hassle especially with joint ownership.

bobby-boy_2

Dolcevita its 100 per week split 2 ways so 50 pounds each and david was sugesting puting 40 of the 50 into a high interest account.

pinkshoes

bobby-boy wrote: »

Hi david did a check calculation in Excel (Table below) you would get 18200 at 50 pounds a week for 7 years if you did not increase the rent before expenses.

put 45k pounds in the bank at 6% with compound interst and you get approx 22663 pounds.

50 pounds per week on 45k is 5.7% return BUT you need landlords insurence safety certs letting agents etc.

only benifit of renting is if you hold on to it long term ie 10+ years the capitol value should increase.
hope this gives you some insight.
Capitol interest
50*52*7
=18200

Capitol/Int
45000 2700.00
47700 2862.00
50562 3033.72
53595.72 3215.74
56811.46 3408.69
60220.15 3613.21
63833.36 3830.00
67663.36 4059.80

67663.36- 45000 =22663.36

Except the £50 per week rent would also go in the bank at 6% interest.

So £50 a week, and a 2% rent rise each year over 7 years, then interest on this money if it goes in the bank would give around £23500... but you'd have to pay perhaps a management fee if you didn't manage it yourself, and the property might be empty sometimes. But the rent might increase more than 2%, and obviously you'd have any increase/decrease in property value in 7 years time.

teabelly

If you don't have a mortgage on the property then you won't be able to offset any of the rental income against mortgage interest costs which might cost you more in tax. You'll only be able to offset it against any normal expenditure eg gas certificates, repairs etc.

What you should do depends on your attitude to risk, your personal financial situation and what you think will happen to the price of the house over the next 7 years.

Another option is to consider taking a BTL mortgage out on the house to get the capital out, invest some of it and put the rest for cash flow for repairs and rental short falls. After 7 years prices will have risen so you could either remortgage and pull out increased equity and carry on or sell up. This will do the job of pulling out profit now without EAs fees, hassle of selling but with increased debt and at possibly un-competative rates depending on whether you do it now or wait for mortgage rates to fall but risk some price falls depending on demand in your area. It will also give you capital for covering rental short falls and hopefully lead to a much greater gain in the future than if you just sold it right now. The market generally is wobbly and some areas are worse than others. It just depends on whether you want £45k now, £200 a month now with no debt or £200 a month + £35k ish now and another £Xk in the future with mortgage debt.

Pulling out the money to invest in further property is another way of increasing your returns but involves a higher risk then putting the money into a high interest account and just ignoring it for 7 years. You also need to do some tax planning to see how that affects what you get out also depending on whether you sell now or keep it for another few years.

davidjc2

Some excellent points, thanks everyone.
I need to do some research. The option of selling my half to my brother is on the table. I just want to be sure of all the options before I make a decision.