Investments v owning your own home outright. WWYD?

[gregssausageroll]

We have 3 rental properties that clear around £500 pcm.

We are considering what to do with these over the next few years:

Do we keep them - maintenance costs will start to increase as they are starting to look tired re kitchens/bathrooms but we continue to receive a fairly good income each month unless there are any big repairs/maintenace issues.

Do we sell them - invest the capital into our family home and potentially buy our forever house and live mortgage free.

We are in Scotland if that makes a difference.

[lalalonglegs]

I'd keep them and use some of the income they provide towards a bigger mortgage on my own home and the rest as a slush fund.

[ischangepossible]

Mortgage free is an attractive option so I would personally recommend this route however it's not a straight forward equation and I think you would have to factor in the risks. What are risks of interest rises impacting your 'net' income? What is the likely maintenance costs? If you sell what is the CGT impact? I'm assuming the mortgages are repayment, rather than interest only.If interest only then the risks are obviously much higher.

I would recommend advice from a financial consultant - it's worth paying for truly independent advice as there are so many variables at play.

Mortgage free does bring about a certain freedom and the lack of worry of interest rises so can be the low stress option.

[WhaohThere]

So is £500 pcm = 1% return or 5% return or are you subsidising? We can't give you an answer until we know the "value" of your properties.

[gregssausageroll]

They are worth about £250,000 all in.

[WhaohThere]

That's only *2% interest (before tax, before expenses, before anything!). You need to sell (and soon before prices drop even more) and pay off your mortgage.

Do it quickly before prices drop even more.

*You can can 3.45% interest on an instant access account just now

[lalalonglegs]

Actually, even if the OP paid £250,000 (I'm assuming that she probably bought a few years ago and paid less), I make it 7.2% return...

[lalalonglegs]

Is it £500 each or collectively?

[gregssausageroll]

That is net, ie after tax and the normal monthly expenses and the mortgages that I have on 2 of them.

I bought them for £13,000, £33,000 and £37,000

[WhaohThere]

It doesn't matter what you bought them for. It's what you'd sell them for (hopefully) now that counts (ie the money you would have in the bank now).

2% is a bad return and because there won't be capital returns on property for many, many years to come, if I were you I would very seriously think of getting rid of them and paying off your own mortgage.

[lalalonglegs]

The return is worked out on what you paid for them though. So £6,000 after expenses on a £83,000 outlay is pretty good (most returns in rental are worked out on the gross amount of rent anyway - so the return is probably much higher than that).

I'd keep them and, with that much equity, get higher mortgages on them and use some of the income to pay for a bigger mortgage on a new home for me. Ultimately I suppose it depends what other investments you have, what pension you have and how much hassle you find renting them out.

[7to25]

Hi Gregs
Something to factor in is your age, or rather how near you are to retirement.
Then percentage return now might not be as relevant. The market is not great at the moment. Could you compromise and sell the worst performing one to reduce your mortgage but not eliminate it?
Could you buy the "forever" home now and hold off the sale of the other properties until the local market picks up a bit? Interest retes are low at the moment. I'm just thinking that you might be kicking yourself in a few years that you let go of them so cheaply.

[WhaohThere]

lalalonglegs - You are SO wrong. Return is on what the value is now. The value that you would have in the bank if you sold them. You have no idea what you are talking about. GRRRRRR.

[lalalonglegs]

Maybe in other spheres but in property the return (or yield as it is more commonly known) is the rent return on the price you paid - unless you are remortgaging. Believe me I do not what I am talking about

[WhaohThere]

Lala - You are so utterly wrong. You have no idea what you are talking about.

This has been the problem over the past few years...

Return is based on value (or perceived value)

• end of story.

[fluffles]

i would always prefer to live mortgage free than have other assets because it means you have flexibility and freedom to not work or earn very little if you want to for any period of time.

however, i am a bit puzzled that you have all these properties but are not yet in your 'forever' home? i also don't understand the concept of a 'forever' home... if you want a bigger house now, then will you not want to go smaller again when your kids all leave home???

[gregssausageroll]

Thanks everyone.

Fluffles - moved to Australia but had to come back. The costs of doing that and setting up again were huge so we are way back down the property ladder again.

We don't necessarily want a bigger house - well, actually yes we do - we are 2 beds now and I'd prefer 3 but just a house that we really want rather than buying for the sake of buying which we did just to get back onto the property ladder when we returned to the UK.