To buy rental property or holiday home?

[ellie2201]

We live in a house rent free provided by my husband’s employer. We are selling the home we used to live in on the other side of the country which we have rented out for a few years. We don’t really like being landlords but it made sense. The house now needs lots of work done to it (which we weren’t willing to do from 4 hours away) and our tenants were moving out so it made sense to sell up.
We are hopefully completing next week and will have a decent deposit for another property (with mortgage obviously) but we REALLY don’t know what to do. Should we buy a house in the town we live in now which we will eventually live in (whenever husband leaves current job) and rent it out in the mean time (despite hating being landlords)? Buy a small property in a place we like to holiday in? Put the deposit money away safely until the day we NEED to buy a home? We go between the three constantly and it’s doing my head in!
What would you do in our shoes?

ps I know how lucky we are to be in this position.

How long do you think it will be until DH finishes with current employer?

Do you have DC? If the schools are good, it might be better to buy local. Especially if its an place you'd like to continue living. If not, then that changes things. Would you ever want to live/work where the holiday home is? Could they be short term holiday rentals rather than have full time tenants?
Air BNB, home and away, booking.com etc? There is a 3mth restriction for London on AirBNB, but I don't know about other areas.

We live abroad for work some years, so have used a management company in the past. They take about 20%, but greet the guests, check their details, clean, provide professionally laundered bedding/towels etc. We are central London though, so a small town may not be as easy to rent out though, and if its coastal, it might be more seasonal. This option meant that when we returned, we could just book our own home out for a week or 2. You could use this for your holiday home place as an option.

@Smallsteps88 that’s the thing - don’t know! Could be until next retires (15-20 years!) or more likely he will see a better opportunity in the next 10 years I should think.

@Elouera yes, two children who are very happy here and will be hopefully starting at very good state secondary schools within the next few years. I’d happily stay in this area forever which makes me think we should buy here and rent out but the thought of being a landlord again fills me with dread. I feel it’s the most sensible option though. We don’t HAVE to live in the work house but it makes financial sense to do so, and it’s a nice house.

Thanks both.

Personally, I'd buy a local home to rent out. You'll be on the property ladder and hopefully the rental income will cover mortgage and other property expenses.

A holiday home may be too volatile - prices in traditional "holiday" locations like Spain, Florida, etc. can rise and fall widely, and of course, as per Covid, you could end up with no income for several months if you were thinking of renting it out most of the season. Holiday homes generally aren't the pots of gold people think them to be - yes the "weekly" rent usually seems high, but the expenses are also a lot more than residential, i.e. agents fees, cleaners costs, maintenance, power, repairs & replacements, insurance etc all mount up.

Just saving the money is also a risk - earning next to nothing from interest and if house prices rise you may not have enough for a deposit.

Couldn't an agent manage the property for you? What aspects of the being a land lord do you hate? Are you in a university town? My mum rents her 2nd home to students and the student association manage it for her. They charge a fee, but there are rarely issues and the students don't get their certificates if they leave the house in a state.

Yes, have an agent do v the hard work for you. In my experience they charge about 10%.

We have been landlords for years with an agent managing it so we have lots of experience of it. We don’t like dealing with the tax aspect (self assessment), huge capital gains tax, issues with the property that you have to sort immediately rather than waiting until you have the money but these are first world problems I know! I would rather live in the house I own but it’s silly when this situation will save us so much money.

Once we’ve completed and know exactly how much money we have in the pot maybe we need to be ready and waiting for a suitable house to come on the market. I agree with you that a house locally makes sense.

It’s really helpful to hear what other people would do. Thank you.

If you didn't live in the provided house, would DH wage go up to offset this? Do you think his job is stable at the moment, or is it likely to change very soon?

I wouldn’t buy just now if I had a choice.

Mercenary I know but I’d bank it and see what prices are doing in 6 months.

If prices have tanked you’ll be in a much better position to buy and unless there’s some weird local bubble it’s unlikely that prices will go up.

@Elouera no wages would be the same as it’s our choice - they’d rather we lived in the work accommodation.

@Fairybatman I have been thinking along the same lines... The houses we would want are still going quickly here though! I think a bit of patience until we know exactly what we want is necessary - it’s just not my strong point.

If you buy a house where you are now, and eventually move into it. you won't have t pay Capital Gains Tax.

When you have to move out of this free accommodation, you will have much less time to buy with a mortgage therefore the payments could be very high.

I would want to know that I had somewhere secure to live if the free accommodation fell through, so I would definitely buy a house that you would look forward to living in in the town you want to stay in. Then when you eventually move into it you will have had however many years mortgage paid off, paid for by the tenants.

@YinMnBlue are you sure about that? We have had really conflicting advice from so called experts!

For example, no one seems sure whether we’ll need to pay it on the house we’re currently selling. I’m calling HMRC when I have time at work this week but I’m astounded by all the different opinions!
Thank you x

Just seen your second post - I think you’re right.

It used to be the case that if you had job-related accommodation that if you owned a house and then sold it was exempt from capital gains tax. Might be worth checking

RE CGT, I don't know whether you are liable to pay it on your current sale, it may depend on whether it is a 'buy to let' property, but this seems unlikely - it is your only owned home, and you rented it out while you moved for work elsewhere. Lots of people move for work and rent out their houses without incurring CGT. .

But because you mentioned CGT as a reason you don't like owning a house and renting it out, I was just saying that this won't be a problem next time as you will actually move into the house eventually.

www.gov.uk/capital-gains-tax/what-you-pay-it-on

It does look like you will.

I also don't like the idea of being a landlord much, but it does seem to make sense in your situation. I think I would consider buying a bolthole in one of my favourite places that get a lot of visitors (either by the sea, Cotswolds or even popular destination cities like Brighton/Cambridge, as examples) and do short-term lets, eg Airbnb, to build up more equity and also have somewhere to visit. Problems with that are that it doesn't solve the CGT dilemma and wouldn't be somewhere you could move into as a family, but presumably you wouldn't have to leave the accommodation or sell up suddenly, or could afford to rent if you did.

Worth having a read of the YouGov website re: CGT. There are exemptions from CGT if you worked away from your home. We let ours out for 13 years, and won't have any CGT to pay, as we were abroad with HM Forces, and then dh had another related job, which meant we had to be abroad.

We let out or house the whole time we were away, as we wanted somewhere to come back to when we moved back, and as the mortgage was paid off by the time we returned, it made sense. The more you chip away at the mortgage, the shorter the term will be when you've left the work accommodation.

I phoned HMRC and finally got a straight answer - we are exempt from capital gains tax, phew!

I did this a long time ago (so the tax rules may have changed). I was exempt from CGT but dh wasn't as the accommodation (license) was in my name only but the mortgage was in joint names. Look up tied accommodation on the HMRC website. It gives examples such as sheltered housing wardens, agricultural workers in tied housing etc.
As to what to do, we bought and rented but also hated being a landlord. I was made redundant so was glad to have a property to move in to. I think holiday lets will be a real hassle. One thing to look out for if you're coming off the property ladder is, if you're buying again, you may need a BTL but these are very hard to find now unless you already own another residential property. Most mortgages assume you'll be living in them as your main property. Best to get some advice from a broker as in the current economic situation things are tightening up.

I would buy where you live if you like the area and want to be there long term. I know a few people who live in accommodation tied to their jobs and it can be very stressful - if the job is under threat you face unemployment and homelessness at the same time. To have the security of somewhere to move to locally if your DH loses his job or want to change jobs shouldn't be underestimated.

Holiday lets can be costly to manage as they need to be furnished so, unless you buy an existing let with all the contents, then you've got the hassle of completely furnishing it from scratch.

Personally, I just wouldn’t put any of my cash into property at all right now. I’d max out ISA allowances and set up a stocks & shares portfolio in a market which has lost value and is starting to climb again; but with the option to rapidly liquidate the fund should the paid accommodation deal end...which, by the way is a mega perk bound to come under scrutiny if there are ever job losses within any organisation.