Sell or rent

[belieb]

I own a property outright and spent money getting it to a nice standard, I have moved to another house and unsure whether to rent the old property out or sell use some money to upgrade current property and reinvest the rest. The property has gained £30k in value since I purchased but would make £750pcm rental (before agency fees and other expenses). Any advice?

🤔 lucky you and I hope you make the right decision. I own my property outright but got into trouble with refinancing etc (made a lot of terrible mistakes and decisions & now on the brink of losing it all except God intervenes miraculously). Whatever you do, be very careful. Good luck

I just don't feel being a one property landlord is a good idea. One bad tenant can turn your life into a nightmare and cost you thousands.

If you have a portfolio of properties and spread the risk but not for one. I'd sell tbh

Renting can be a nightmare. I'd sell it.

I'd rent it out. Ensure you get landlord's insurance and if the numbers work - an estate agent can help you manage it. Without a mortgage on it, you will most certainly turn a profit and still have the property at the end of the day. No reason to sell in this instance - you can use this as a foundation to build wealth and security for yourself or kids if you have them. It can essentially be a fairly passive income stream if approached properly.

@belieb Short answer: letting the property is unlikely to be a good idea.

Long answer:
I assume you bought the other property where you are living now? So you paid the additional 3% stamp duty, right? If you sell the old one within 3 years of buying the new one (and if you don't have any other properties), HMRC will refund you the extra 3%. This alone is a bit of a biggie!

Do you own this new property outright or with a mortgage? If with a mortgage, what rate are you paying?

Where is this old property and how much is it worth? Gross rental yield tend to be ca. 3-3.5% around London, higher up north. A gross rental yield of 5% means that a property worth £100,000 is let for £5,000 per annum. However, the net return can easily be half of that, after you take into account estate agency fees, void periods, taxes (what is your marginal tax rate?), ordinary and extraordinary maintenance expenses (eg this year I have to spend some £15k to replace a rotten French door + to replace the roof).

Quite a few landlords are getting net yields of around 1%, and quite a few are actually losing money because of high maintenance expenses.

If you're considering letting, I assume you don't need the money right away, but would be happy keeping it invested for longer periods, right? If so, if you have a horizon of at least 5-6 years, I'd say that investing it in funds and shares is likely to be a better idea.

There is of course an element of risk, but so there is with letting.

Over a longer period, funds and shares are likely to outperform the return from letting.

Importantly, they are a passive investment - you won't need to chase tenants for payments or to organise the repair of the roof.

Tax-wise, depending on your specific situation, it's likely that the return from funds and shares will be taxed less. The capita gains tax allowance is currently £12,300, meaning you only pay capital gains tax on amounts above that threshold, and the tax rate after that threshold is typically lower than the marginal tax rate at which rental income gets taxed.

Not to mention you can invest in a stock and shares ISA and in a pension (depending on whether you are already maxing these out).

@newmummycwharf1

I'd rent it out. Ensure you get landlord's insurance and if the numbers work - an estate agent can help you manage it. Without a mortgage on it, you will most certainly turn a profit and still have the property at the end of the day. No reason to sell in this instance - you can use this as a foundation to build wealth and security for yourself or kids if you have them. It can essentially be a fairly passive income stream if approached properly.

How can you say something like this without knowing any context?

What about the risk of tenants not paying, extraordinary, unexpected maintenance costs on the property, rents and/or house prices going down in the near future? None of this is guaranteed to happen, but none of this is impossible, either.

Also, even if the OP makes a profit, shouldn't the right line of thought be a comparison between the profit 9and risk, and hassle) of this strategy vs another strategy (like investing in shares and funds)?

@ParentOfOne many possible options to allow money to grow. However, if the options as laid out are sell or let out - I would advise let out everytime - if as I mentioned - the numbers add up. There is a risk with rogue tenants as there is a risk with stocks and shares (anyone who has invested for a long time knows about the lost decade). I do both and data bares out the fact the letting a flat, particularly without a mortgage can be lucrative and does not have to be much hassle. In certain areas, even with a letting agent managing it and landlords insurance - you still make a net yield and capital gains over decades. No brainer in my view if the numbers stack up!

@newmummycwharf1 "saying if the numbers stack up" is a bit of a tautology, isn't it? :) That's not particularly useful advice. Trying to point out what might cause the numbers to stack up or not might have been more useful.

I'd love to see what "data" you are referring to, and how much that data relies on increases in rental yield vs increases in house prices, and to what extent it referred to the more favourable tax regime of the previous years. Between 2000 and 2015 anyone with half a brain would have made money out of a buy to let in the London area (I'm not so familiar with the market elsewhere), but good luck if you expect comparable house price increases over the next 10 years

E.g. in London, where gross rental yields are almost never above 3.5%, it is currently almost impossible for numbers to "stack up". In other parts of the country it may well be different.

Oh, and if selling means getting back the 3% extra stamp duty, that's quite a biggie!

PS This is a chart of the total return (with dividends reinvested) of the FTSE 100:
a.c-dn.net/c/content/dam/publicsites/igcom/uk/images/content-2-chart-images/image%20(4).png
www.ig.com/uk/trading-strategies/what-are-the-average-returns-of-the-ftse-100--200529

Between 2002 and 2009, the annualised 10-year total return (ie if you had invested from 2002 to 2012, etc) has ranged between 4% and 8%. between 1998 and 2000 it was closer to zero, but not negative.

The data is a simple google away. The current tax changes are not great but for someone without a mortgage - which is few landlords, it is still profitable. What needs to be calculated as part of the numbers has been alluded to. I am sure the OP gets the message. OP I wish you luck and prosperity whatever you decide but definetely do not be put off until you have crunched the numbers yourself