Question for Landlords / Tenants. Relocating: Sell or Rent Out Our Existing Home?

[NookAndCranny]

Bit of a dilema really. We know for certain that in five more years we will again be in an entirely different set of circumstances and then may be the time to actually choose a forever home. In the meantime we need to decide whether to keep our existing home on and rent it out as a way of maintaining a foot on the property ladder or hurry into selling and buying / renting in our new location.

Question is this: Do we / can we accept that renting our existing home out as a viable way of maintaining a foot on the property ladder? How risky is this? What do we need to know? Any words of wisdom very much appreciated. Thanks.

[specialsubject]

keep it and rent it - but do not expect to make a fortune, and make sure you do things properly. Clear out all your stuff, clean it, decorate it tidily, get a gas certificate, vet tenants, get all the right insurances etc etc.

there is a LOT that you need to know, so you will need a reputable letting agent. Choose an ARLA member; doesn't guarantee service but does provide compensation against fraud (there are no licenses or training needed to set up as a letting agent).

[NookAndCranny]

Thanks special. It's a fairly newbuild house but needs a few bits touching up here and there. We're not really hoping to make a profit at all, not in the current market anyway. Just don't want to find ourselves out of pocket and struggling to meet rent and mortgage on two houses. Are there any agents that offer a guaranteed income covered through insurance? What insurances do we need? Any tips on what to look for / to be added to any contracts?

[munchkinmaster]

We have done this for 3 years then moved back in. There were several months where we had to pay rent, mortgage and 2 x council tax but were able to manage short term. Would your mortgage allow you a brief holiday in that instance. They may charge you a £100 consent to letting fee or may be buggers and try and get you to switch to a buy to let mortgage. We dug our heels in and refused as we always planned to move back. Our home was pretty wrecked by three years of letting but was all fixable with new carpets etc. there was absolutely no profit in the exercise at all though.

[NookAndCranny]

munchkin yes, that's what we're worried about. We could manage the x2 for about 3 months but would then be having to sacrifice family holiday money etc. It's not really a move of choice but necessary for DH job and DC's choice of schools would be much improved. But the new location is a fair bit more expensive than the current one. Can I ask how much I should expect to pay for agents to manage it all?

[CautionaryWhale]

Hello OP

You need to be renting it out usually at 125% of your monthly mortgage to get bank's agreement. They will usually add .75% or 1% onto your monthly payment as a 'load' for renting it but mine recently put me on Standard variable as they could not do the loading anymore yet had no buy to let product I was eligible for.

Some will insist on remortgaging to a BTL product.

Insurance costs me 350 quid a year - this includes property liability insurance and malicious damage but there is a big excess. It only provides income if my home is flooded but there may be other products out there.

My letting agent takes 12.5% + vat, some start at 10 others high street 15.
So I pay approx 50 quid a month, maybe a bit more for them to collect the rent and manage any problems.

You must do an online self assessment before 31st Jan each year if you apply not to have tax taken directly at source. Any profit - and I have only ever made a loss - is taxed if it goes over your personal allowance, you and DP have one each.

You are best off with an unfurnished except cooker/poss fridge as you are liable for repairs/replacements (under expenses in tax return) and if unfurnished you used to be exempt from council tax when empty. This is no longer the case and if empty you will pay council tax until you get new tenant.

More in a mo

[CautionaryWhale]

The letting agent will charge you a one off fee 250 quid in my case for finding you the tenant - they stay for fixed 6 months usually then resign a new contract or become rolling tenants whereby if you need your house back you give them the 2 months notice.

I have had 4 lots of tenants in 6 years so a grand on finders fees in that time and some time with empty property where I have covered mortgage but usually only a month or so, my agent is good and my house is 450 a month. Except for flood damage but my insurance covered the mortgage then.

You have to detach emotionally from the house.

[NookAndCranny]

CW Thanks. It's starting to sound like it could leave us quite a bit out of pocket. The reasoning behind it was that we don't really want to sell and buy another house now, knowing that in five years time we are likely to want to move again and finally settle. It's mainly to avoid the remortgaging situation of only ever chipping away at the interest and not paying much off the capital. If the bank insists on a remortgage to change to BTL, this would kind of defeat the object. Is this something that they often insist on?

[CautionaryWhale]

There will be some who treat it beautifully and others who may not trash it but may leave it filthy as an example.

The deposit must go in the legit deposit fund - your agent will sort this and it can be appealed by either party re damages at the end.

Some people manage their own properties but if you are not in the area and you are a newbie I would advise a hell of a lot of reading. It is not something I would do myself.

Your bank and insurers will tell you exceptions who you cannot rent to but sometimes will waive this if guarantors in place. They will need to be told if property ever empty so nothing is invalidated.

Be aware that councils will tell tenants to stay put if you give them notice and they have nowhere to go then you must start proper eviction procedure - luckily This has never happened to me nor have I had arrears simply a bit of damage here and there.

You will need some level of emergency funding for if heating goes, oven needs replacing etc
In 6 years I have had two sets of new carpets and repainting but that was flood damage.
I did have to replace a cooker, a boiler, new locks, a door frame, some ceiling work, some mortar work, some electrical etc but this would have been the case had I been living there.

[NookAndCranny]

Other than the expense, what are the other pitfalls we should be aware of?

[CautionaryWhale]

The banks can insist but not always unless the law has changed - in my case as I said they were happy to just put a load on for 5 years as it was and is my family home but as I am an ex pat they were bending the rules for me and it is now a standard variable or nothing (they have no BTL for me as I am a non uk resident but that won't apply to you. So I have to find a BTL expat product soon or stick with a higher rate)

Ask your bank for advice - there is sometimes a one off charge for either switching product or for 'permission' to rent out - as an admin charge.
But you would need to ask as I have been with the same bank for nine years...

[CautionaryWhale]

Pros: ultimately I still have my house to come back to eventually - I am over 40 so needed to stay on the ladder. I have an interest only mortgage in any case though so still have 15 years to go and chip bits off the total as and when I can.

My tenant therefore is paying the 'interest' not my mortgage but is allowing me to keep a foothold in the UK.

Cons/pitfalls: As I have said lose the emotional investment in your home and accept that when you move back you may need new carpets, deep clean, repaint etc

You remain solvent for as long as you have a decent reliable tenant. Expenses aside if you have a rogue tenant then you will have the costs and pain of eviction/double rent/writing off cash which is why vetting is so important but it is an inherent risk particularly for non profit non professional landlords who do not have a portfolio.

Non payers/arrears/tenants instructed by council to wait for eviction - you won't see your money or court costs usually. Squatters for empty property inherent risk even though think law has changed recently.

If you are in negative equity, if you want to stay on the ladder, if your future plans are uncertain then renting out makes sense.
If not and there is no leverage or wriggle room at the end of the month for the unexpected then selling makes sense.

[CautionaryWhale]

Only thing I have not mentioned is capital gains tax when and if you sell up eventually - if it was your former home you are exempt for some time but it has been ages since I looked at the rules and they are different for expats anyway so you would need to research this and see if it affects you or what your timescale is.

There are landlord forums, government website re taxation and Letts guide to renting out property was useful. Will look for links after a .

I have no regrets YET but I have a very good local letting agent - whereabouts are you OP?

[CautionaryWhale]

Oh and one of the posters above mentioned annual gas check - MUST be done (electrical not compulsory as far as I know but I had a full survey done before leaving): the gas check is about fifty quid a year and I also have carbon monoxide detectors and smoke detectors installed.

Hope this has helped you - it all sounds daunting and a nightmare but if you are an absentee landlord the managing agent should be taking care of pretty much all of it which is why they earn their 600 quid a year. Some do bugger all though from what I've heard which is why you need word of mouth/personal recommendation if possible.

[CautionaryWhale]

www.landlordzone.co.uk/forums/forum.php?s=1bb64e87564cfecdebea41eaf02a836d

www.hmrc.gov.uk/cgt/

www.money.co.uk/article/1005586-i-want-to-rent-out-my-house-what-do-i-need-to-do.htm

www.thisismoney.co.uk/money/mortgageshome/article-1684849/How-to-rent-out-your-home.html

www.amazon.co.uk/Renting-Letting-Financial-Essentials-Essential/dp/1844901165/ref=pd_sim_b_5?tag=mumsnet&ascsubtag=mnforum-21

Good luck!

[munchkinmaster]

2 years I think till capital gains kicks in.we actually let two properties (one is my old flat from before I got married). One has £100 consent to letting. The other we argued yo keep on our old mortgage. However I recently rang the £100 mortgage who were bought out by Santander last year and they were banging on about btl. Our landlords insurance is with endleigh. It's 100 but is contents only.

One flat rents easily - same tenant for 5 years. Little maintenance. The other had about 5 tenants in 3 years.

Realistically you need to repaint every 3 years.

Every thing you spend on maintenance, fees, counxil tax, is all tax deductible - makes a huge difference. Any losses will be tax deductible too but you have to make a loss for 2 consecutive years before this kicks in. I did quite a bit of upgrading when I was a higher rate tax payer

[ArabellaBeaumaris]

Does a house have to be to a particular standard to rent out? I assume not when I think about various student dives but just wondering.

[Goodwordguide]

We have just turned our house into a BTL - we did change the mortgage plus we 'neutralised' and smartened it up - painted throughout (did it ourselves so not v expensive), got the carpets cleaned etc. we also put in new white goods as ours were v worn. We are in London where rents are high so the extra money allows us to build up a surplus for maintenance costs. We don't have any extra insurance beyond the usual buildings. We manage it ourselves but i have a local friend who i pay by the hour to wait in for tradesmen etc. we negotiated a one-off fee from the letting agent.

We have another flat that we rent out and have had the same tenant for 10 years - we deliberately have kept her rent low as it's worth it for not hving any empty months.

[Goodwordguide]

Would add, you need to co sider your market when deciding ow much to refurbish. Our area is full of young professionals who want furnished or at least part-furnished, every room to be a double, clean and neutral. Families usually prefer jnfurnished

[Goodwordguide]

Apologies for rubbish typing

[specialsubject]

other random additions:

• you can get insurance against malicious damage,legal expenses and non-payment of rent. If you get a rogue it takes six months or so to get them out legally, and they won't pay a penny in that time.
  
• there are income guarantee schemes; I think they work by the scheme becoming your tenant and then subletting to actual people. Worth investigating.
  
• capital gains; the rules keep changing but if you lived in the house before and after the rental period (REALLY lived, prove with bills, letters etc) then it may not be an issue. Whatever, the last three years of rental don't count, and the time owned versus time rented also helps reduce the bill. And of course you have a CGT exemption, as does any joint owner.
  
• remove anything you value from the house. Five years of storage is non-economic, so either find a friendly relative with an attic or if the house has an attic, exclude it from the let and use it. (Still don't leave anything you value, though). Do give the tenants some storage though - garage, shed etc.
  
• don't expect much in the way of gardening. Include a good gardener, or just expect lawn mowing.
  

most tenants of course are fine, look after the place, don't wreck it and are perfectly normal people who just live their lives. It is just that the damage and expense that can be caused if you get one that isn't is so huge that you need to cover yourselves.

[NookAndCranny]

Thanks for all the replies. Sorry I wasn't back sooner, but been busy with guests.

We're in a city in the north and not actually moving very far but just too far for a daily commute. The house never was going to be our "forever house" and the new town is actually closer to where we want to be. So emotional attachment isn't an issue. We are reasonably sure that we be in a position to consider buying our "forever home" in about 5 years time but struggle with the idea of buying another stepping stone house and just loading up more interest on a mortgage in the meantime.

Our current house is still relatively newbuild and is a 4/5 bed 2.5 bath where most neighbouring houses are occupied by families. But the city has lots of singles and couples looking to rent. As they're newbuild and already quite top loaded, rental is likely to barely cover the mortgage alone, all other extra costs will be out of pocket.

We really couldn't afford to pay mortgage and rent for more than 2 or 3 months as the new area is much more expensive. So the income guarantee schemes sound very worth considering. How do we find one?

[CautionaryWhale]

www.endsleigh.co.uk/Letting/Pages/rent-guarantee.aspx

www.northwooduk.com/landlords/information/insurance-services.html

but suggest you shop around.

I use a broker (Jelf) but only because I am lazy and have always used them.

You have to have proper buildings insurance for flood fire etc but I am amazed if other LLs do not have liability insurance - if a tenant dies or is injured on your property for whatever reason, it is essential that you can afford the damages if sued.

I do not have separate legal insurance but can understand those that do if wanting to avoid court costs. Your house sounds lovely btw

[TheChaoGoesMu]

WeI did this and our house got completely trashed. I think we were very unlucky though. You need to remove any emotional attachment you have to that house and treat it entirely as a business. Oh, and make sure your insurance covers malicious damage. Ours didn't, and plenty don't. My insurance company lied to me and told me it did. My fault for believing them and not double checking the small print.

[TheChaoGoesMu]

*we

[CautionaryWhale]

We also leave our tenants with local window cleaners and gardener's details but up to them if use them. Also left a mower and hoover.

Obviously if you are going to self manage you need decent emergency plumber sparky gas care tradesmen etc - preferably ones you currently use or those that will treat your tenant as a regular so you do not face extortionate call-outs.

Agree with neutralising - we did magnolia throughout faun carpets creme curtains. If using agent make sure you get good photos