Should I sell this rental or not?

[DancingHippos]

When we got married, my husband and I bought a bigger house and we rented out his flat. We now have a mortgage of around £115k on our home. The rental flat can be quite a bit hassle and needs a lot of maintenance. It has no mortgage on it though, is worth around £275k and brings in £1400pcm. We have an outstanding loan of about £10k due to work done on this flat.

Our lives are stretched due to me having to leave my career and work part time in a low key job. This is due to looking after our severely disabled son.

We are wondering if we should sell the flat, pay off our main house's mortgage and then have money to do a few more things in the house. Capital gains tax will of course take something off.

We are both in our 50s and stand to gain inheritance money eventually but it's life now which is OK but a little bit tight.

We have 10 years on our mortgage but neither of want DH to be continue working that long in a stressful job and so paying off the mortgage would shave off 2 or 3 years off his retirement start date.

However the money coming in could be good for us in the future. I feel asset rich but not so much with regards to cash flow.

Any thoughts appreciated.

It makes much more sense to have equity in your main home. When your main home is up for mortgage renewal, max out the flat on a buy to let interest only mortgage and that should give you enough to pay off your own houses mortgage. Then see if there is any profit left on the flat if so then keep it for the small profit each month.

Then there is much less capital gains to pay on the flat as there's as little equity in it as possible

The capital gains tax due on the flat will be based on it's value at the time it was purchased versus the value when sold and allowing for time when it was the husbands main home and capital gains annual allowance.
E.g. if the flat has gone up 100k but was the husbands main home half the time the gain is 50k less allowances.
Not having much equity won't make any difference to the tax due.

I'm not sure why I'd get out a buy to let mortgage on a flat with no debt on it.

Anyone else have advice?

I decided to sell my BTL property, as interest rates on savings are pretty good at the moment I’ll make similar in interest as I did in rent and it’s hassle free. Obviously I won’t benefit from any property value increase but then again I won’t have any costly repairs either.

We sold up last year. There are several good reasons to sell up IMO. At the moment, interest rates are high. You've only mentioned the gross income generated by your property and not the net profit after costs and tax and interest on the loan. But even if your costs were zero, that would be a 6% return, which is respectable but not huge. If the mortgage on the house you live in is at a higher rate than the return on the rented house, then paying off your mortgage is clearly a better move. Having done that, you could sling any additional money from the house sale into your pensions if you haven't maxed those out. The 25% government top-up on pension contributions for basic rate or nil rate taxpayers is not to be sneezed at!

Presumably you are hoping the property will continue to increase in value and you'll make some more money that way. It might or it might not.

If, like us, you have little or no money invested in your pension or elsewhere, and a lot in the house, that's an all-your-eggs-in-one-basket scenario, which is high risk and unwise at this life stage. What if, say, some major problem came to light which made this house practically impossible to sell? Or you are unlucky enough to end up with tenants who cannot or will not pay the rent and also will not leave? With current court backlogs, it could take the better part of a year to go through the legal process to get them out. Meanwhile you'd have no money.

I'd ask yourselves this: if you didn't already happen to own this flat, would you buy it as an investment rather than paying off your mortgage or investing elsewhere? Would you have chosen to accept the associated hassle, uncertainty, and risk in exchange for the returns you are getting? If the answer is no, then you are keeping hold of the flat simply because of inertia. I don't mean that as a criticism: you have a lot on your plate, and selling the flat will involve considerable effort. But if selling is the right financial decision, and you can muster the energy to do so, then it makes sense to do so as soon as you reasonably can.

Hi,
I have been thinking about your question from the point of view of someone who also has a disabled child who is unlikely to ever live independently.

If you pay off your mortgage and loan by selling the house you will have more money and less stress day to day. That would cost £125k and you would have around £150k left.

I would use what you need to of this £150k to future proof your home e.g. if you need a new roof or want solar panels etc also any adaptions needed for your son - if he is likely to live with you as an adult would he benefit from a downstairs bedroom or ensuite?

At the same time as doing any work on your house I would take careful advice on making a will/estate planning. You might after careful investigation choose to leave any money to your child (on second death of you/your partner) in a vulnerable person's trust. I'm no expert on this bit it's something I intend to investigate as it is designed to protect a child's inheritance from bring very quickly used up if they havd to pay for their care.

What you have left I would keep a little in savings and put some in each of your pensions (you might need advice on how much you are each allowed to put in). If you can't put more into a work pension you could open a private defined contribution one. You will benefit from the tax relief offered on paying in to a pension and can take 25% tax free at (I think) 57.

As you care for a child with a disability it could be relevant that if you needed to claim benefits at any point having a rental property would be a barrier to that - where your own home being paid off would not be. For example if you or your partner passed away - although perhaps you have life insurance?

It sounds like your child would be eligible for DLA so you should claim that if you don't already. Claiming DLA would allow you to get extra universal credit in the situation you needed to claim it in the form of disability credit and carer credit I believe.

Some food for thought anyway.