Sell our rental property or keep it?

[Lesley1980]

We bought our family home 5 years ago & rented out our old flat because we couldn't sell it. The market seems to be picking up & flats in the area are selling in around a month & i can't decide if we should keep it or not.

The mortgage & factor fees are £600 per month but the factor fee can increase. The rent after agency fee is £610. We couldn't change our original repayment mortgage so Don't get full tax relief & our tax bill is £1000- £2000 per year so the flat costs us each year. The flat is usually occupied but if it's empty we pay £800 in bills. Last year we paid £1400 to paint the flat & fix things & it was empty for 1.5 months. This tax year it's £2000 because of unreported water damage in the shower room.

If we sold the flat & used our savings we could reduce our house mortgage to £30,000 or potentially even pay it off. We could then save £1000 a month instead of paying it into the mortgage.

I know the tax rules on rental payments change soon so all of the rent will be taxed at 40% & the flat will cost us more money but in the long term someone is paying most of the mortgage so should we keep it?

It seems silly keeping a flat when we could reduce our own mortgage & save more. Although everyone seems to want rental property so are we stupid to get rid of it?

Sell. Does not sound as though you make any money from it. You have a mortgage on it. Does not sound like a good investment.

Your own home is presumably going to increase in value similar to the flat. Paying off the mortgage on your home will give you a lot of financial pease and enable you to save for your retirement. At that point - debt free including your home - you can then look at the rental market and see if having a rental property as part of your retirement portfolio is something to consider.

I think the only reason to keep the flat would be that it might increase in value substantially over the next few years. And even then nothing is guaranteed even in property hotspots. And this doesn't sound likely in your case from what you've said. I agree that selling it is the best option. You aren't making any extra income from it.

The flat sounds like a liability rather than a money spinner. I would sell it and use the money to reduce your debt.

I think you have all said what I'm thinking. The only benefit I can see is we would have a flat to sell in 15 years but we could probably save what the flat is worth in that time - unless there is a property boom

Do you know what your cgt liability would be as it's not your main home?

We were in a similar situation and have kept on my husbands flat for the last four years..with one fab tenant for all that time.
We were lucky in that we had a buy to let mortgage interest only BUT even after that, didn't clear much profit each year by the time we paid tax etc.
She moved out in January. Had she not we would have kept it on going (to hopefully recoup more value as 4 years ago we would have had to sell at massive loss) however we have just accepted an offer on it.. we would rather pay off a chunk of our mortgage and gain value there. Plus we are expecting twins and could do without the added hassle of being accidental landlords!

You could have sold it 5 years ago at a lower price than you were asking. How much have you paid over the last 5 years and would you have been better taking the lower price.
Saving £1k a month for 5 years is £60k. In ISA's this is tax-free. FTSE has a total return of 50% over the past 5 years.
Had you sold previously, you would have £80k in tax free savings, as it is you have costly house which you will pay CGT on when you sell,

Consider this and where you want to stand in 5 years.