Renting vs buying - costs, what have I forgotten?

[anonymousbird]

Hello. I am trying to work out the costs of buying (and then selling) as opposed to renting for a year whilst I renovate/rebuild my current property.

Renting is "easy" but rent is dead money, and I will assume worst case scenario that we lose at least some of our deposit, so we are exploring buying to live/rent out/have as an investment/sell on. My mortgage repayments would be considerably less than the monthly rental.

So, am I better off using the dead rent to buy and put towards investing? It's a pretty fine balance, so trying to be completely realistic about the costs of buying.

Buying costs (other than the purchase price):
Legal and search Fees
Survey
Stamp Duty
Mortgage arrangement and such like fees
[Mortgage interest]

Selling costs:
Agents fees
Legal fees
Mortgage early redemption fees (hope to avoid these)

Moving costs etc are in both equations, whether rent or buy, so what else have I missed that I will only incur on a buy/sell scenario??? It's so long since I bought a property that I am sure there are lots of hidden bits and bobs I have forgotten about, so your input is greatly appreciated.

Many thanks.

You may not find a buyer for your property right away, so you could end up paying two mortgages for a while...

Yes, thanks sparky, we need to budget for a dead period... good point. May not sell straight away, but keep and rent it out. Demand around here for rental way outstrips supply, so would hope to rent reasonably easily... then when it's on the market, eventually, hopefully someone will be paying rent/covering the mortgage whilst we find a buyer.

But it is a contingency to factor in.

Thank you.

potential drop in market price would mean you don't recoup your costs if selling within a year (although as you say you could rent it out at the end).

hi anonymousbird!

Can I suggest another option? assuming this is because of your difficulty finding a rental place which will accept your dog? And assuming that you are in Renovation Property at the moment so it's at least habitable?

if you can afford to own two properties at once, why don't you change the schedule of your build to rearrange the house so that you can live in fewer rooms - will increase the build costs and you may need to have some stuff in storage, and you may do rooms twice in different phases, but against the risk of losing money on a 'temporary purchase' or the dead costs of renting, may not be much different. plus it may be attractive to a building firm to have early work (for example, changing use of rooms so you have an alternate kitchen and bathroom in a part of the house that won't be knocked through)

Otherwise I would agree with others that you should effectively buy another property as a buy to let, and choose it on that basis (ie not to suit you but to suit a rental market). The advantage would be that you would occupy it and it would give you that CGT advantage in future (I am no accountant so don't go by my interpretation of tax rules!!)

Lexi thank you so much for your suggestion.

Funnily enough, just yesterday, talking to a friend who IS living in whilst renovating (and yes, we are completely habitable, not a falling down wreck) I did wonder whether we could just cordon off one half. DH massively not in favour, he cannot face coming home to "the build" every night and living in it at the weekends. I'll be honest, I don't particularly relish that prospect. I think I might go mental with the noise, the dust, the never-being-on-your-own-ever side of things. But, on the upside, it is only for 6 months. Also, the practicalities are awkward.

Main problem is, current kitchen is in the midst of what is being pulled apart most, and it being usable will disappear pretty much in the first 4 weeks of the build. Don't know how we could run a temporary kitchen elsewhere for 6 months or more... there just isn't an obvious candidate space (old property, gas and water supply points are seriously limited).

But maybe we need to think about it in more detail. It would be massively convenient NOT to have to move for lots of reasons. Quite young DC to consider in all this, so impact on them again a major consideration.

But, it is certainly food for thought, and I really do appreciate you taking the time to set that out. Seeing it in black and white rather than in the jumbled scramble which is currently my brain right now is seriously helpful!

And yes, blooming dog. Blooming, silly dog! Aggghhh.

Yes, it might extend build time and costs, but possibly won't equate to the amount of 6 months rent... The house is long and thin and feasibly could be done in blocks as such...