Is renting out a property a nightmare?

[rentaldilemma]

My mum is soon to move into an annexe to our house. She has a lovely flat, the sort that gets flyers through the door asking if she's interested in renting it out.

We've never let a property before, but it does seem sensible-mum is pretty sure she wants to move, but if we rent out rather than sell, she can feel as if she hasn't burnt her bridges. Leaving it empty seem a bit of a security risk and also a waste.

She thinks it will be a huge horrible nightmare to have a rental property, based largely on one friend's experience with a very different property and them being hands on with the day to day issues.

If we used a management company, am I naive to think it could be fairly or almost completely hands off for mum, and is really as we would need to help with anything like that?

Hoping someone at least has had a fairly hassle free time!

I would leave empty for few months to see how it goes (you need specialised insurance for this). Then I would sell up. Most tenants will be fine, you only hear the stories of the bad ones but I would just sell. Landlord registration, statutory requirements, references, maintenance, self assessment. Definitely profit to be made but why would you bother?

@rentaldilemma yes you will make money on a non mortgaged property at £2k a month. However this is taxable at your mum’s marginal rate of tax - depending on her other income (if any) consider where this will lead you. As I said before you do need a sinking fund for major expenses. Other costs will include fees every time a new tenant moves in - this can become a lot if you have a steady stream of 6 or 12 month lets. Also bear in mind that depending on the value of the property and any likely increase you may be facing IHT on her death - it’s worth investing in some good tax planning advice now.

I wouldn’t underestimate the hassle and especially the emotional aspect of allowing people to live in her home. A well managed investment portfolio might be a better more tax efficient way to utilise this asset

I used manage my rental myself and it was so much stress, especially when working full time and with a young family. I now use a management company and it is almost totally hassle-free - worth every penny in time and stress saved.

We have a house that we let out at a reduced rate to my brother. Of course it does make money, even though we put in a new kitchen and added a downstairs shower room. When I moved I with my husband I let our my house for a year or so and we were lucky that the tenants paid on time and were really good. We make/made money on both but onl6 because they were mortgage free.

Will your mum be moving permanently to your annexe, or is there a possibility of her moving back or wanting to spent time back there in the future?

Is the home near the sea or an attraction/city where it could be let on Air BNB/Guestaway etc for short term lets? We had to work abroad for a few months and had a company manage our flat. Doing a short let like this meant we could return, stay a while, then go again when needed. May not be an option in your case though.

Is the flat anywhere near a uni? Classes/lectures are a bit up in the air at the moment, but some unis have good management. You'll earn more than just having a single family in the home, but if its an HMO, needs further regulations. We have a house rented to the uni. They inspect every 3mths, and the students don't get their degree if there are issues with them leaving it a wreck.

More good advice. I think ultimately mum will move here permanently. It's a good property minutes away from a good public transport to London and in a good location for young profs in terms of high street/bars (in more normal times!).
I am partly trying to work our what the best return she can get on what the property is worth and also it's future value. Any inheritance, whether shares/bonds etc or property will be subject to inheritance tax.

Air bnb wise, I'm pretty sure it would let and then give flexibility for family to use it too, but I'm guessing that's even higher maintenance and less predictable.
She has a pretty good financial adviser-I guess he would help with sell and invest v keep and rent out? Or is that not their role?
Too much to think about. In a way, she might be better selling and buying a property nearer us we could let if it weren't for stamp duty etc.

Financial advisers cannot advise you about selling or keeping the flat. You are gambling on house price inflation and they cannot know that. They do know historical returns on investments but these are uncertain times and investments can go down as well as up. Any investment at the moment, property or portfolio, might not make very much.

With the property, she should get at least £1500 Net a month In rent unless there are unforeseen expenses. Less the initial costs of setting up the rental via an agent. So could investing the proceeds from its sale realise £18000 pa? If that’s very possible, then it’s better to sell. It’s less hassle.

It might be better to sell and buy mum a less expensive property near you and invest the difference. Don’t forget that tenants don’t always want to move on when you want a property back.

The inheritance tax position for your mum doesn’t alter whether the money is invested in a property or in an investment portfolio. Unless she gifts enough to you to reduce her liability to £0 and lives for 7 years, you pay the 40% on all monies above the threshold. If she had serious wealth, she should be thinking about her IHT strategy.

I don’t understand your connection with stamp duty and letting out a flat she might buy near you. She would pay stamp duty if the value of the purchased property went into the various bands, but that doesn’t affect her renting it out. But of course it’s an added expense on the purchase. She really has to decide whether she wants a property or not. She could give it to you now.

MyOMy-i think she might need inheritance tax advice. Although I don't know what counts as serious wealth these days-I think she's got a lot of money but maybe not by today's standards of properties sold! I guess, including her flat and recent inheritance from my dad, she has £1million. I feel ridiculous now-that is serious wealth, isn't it?

Find a local letting agent with a good reputation and seek their advice. Hanging on to a paid for property in uncertain times is better than the famous ‘investing’. The agents often have existing known good tenants and will check the flat regularly and arrange for gas checks, etc, also arrange for repairs as necessary.

Remove all furniture, best to let unfurnished, then no issues with damage etc.

£325,000 plus a main residence band of £175,000 so she could pay 40 % on £500,000. You would need to check the main residence part of the regulations too. But she will pay at least £200,000. I think many people will consider £1m wealthy. Although not gloriously so. Before you do anything, I would take advice on her tax position and the main residence definition. You also need to check that out for CGT too. Is her property considered her main residence or, if she lives with you, is your property her main residence? I’m not an expert but I would get this clarified.

One thing to consider re-AirBNB/short lets, is that London has put a limit of renting properties out for only 3mths, from Jan-Dec. Thats a total of 90days within that time. I'm not sure whether that is just central London or certain zones, but something to consider. We used a management company called 'Guest ready' and they managed everything- cleaning, linen, the bookings, meet & greet of guests etc. They only covered zones 1-2 when we rented ours out, but there are many other companies doing it. With travel between Europe opening up, it might be an option- depending where the home it?

This could be an option to start with, prior to renting it out full time. We are central London and been advised my several estate agents that permanent rentals will hopefully pick up towards autumn.

MyOMy - I think "wealthy but not gloriously" is a good description. Try telling my not too financially savvy mother that though-she really doesn't know that she is very comfortable! We have to approach the idea of how she will contribute when she moves into our annexe...that's another story!

Being very pragmatic how likely is she to want to move back into THAT flat again? If she is 65, fit as a fiddle and it is ground floor or with supported living and fairly near to family yes maybe. If she is 85, finding it a bit much already and it is on the third floor with a dodgy lift, perhaps less so.

There is an argument for considering renting anyway later on in life. There would be less maintenance hassle (whether she or a tenant live there), one less thing to sort out for inheritance. She has more liquid wealth to contribute some towards her upkeep- with that sort of wealth I would be encouraging her to employ a cleaner too. She can also go on holidays, spend money on going out etc. She can't take any of it with her. If she eventually doesn't want to stay with you she could rent a supported living flat near to you.

Once she's moved and settled, I can't remotely see her moving back again to the area where her flat is. She's pretty frail, and although the flat is ground floor and accessible enough, she wouldn't have family around and I/she think she really needs someone within shouting distance. Until dad died, I don't think she realised how much she relied upon him. She doesn't need washing/dressing kind of help yet, but she really can't do any kind of maintenance or her shopping independently. She has a great network of friends, but doesn't want to be a burden on them (her words-I've met them and they are genuinely keen to help) nor us, but at least we are family.
I properly think that she'll settle in here, paying rent to us (to sort out not being a burden worries and, honestly, because we would have a space to rent or have guests otherwise) and decide if she likes being at the same address and if the space is big enough. She could easily buy a supported living place near us and not even touch the other flat, or she might choose to sell.

In that case I personally would probably sell it, tenants might damage it, you will have the hassle of maintaining it, what if the freeholder decides to redo the roof for example. When eventually she dies you would need to wait for probate before you could sell (unless you would keep it yourself as an inheritance), evict and tenants and then might have to pay capital gains tax. Plus if she needed to go into care it might need to be sold and it might be more hassle for you then.

Evict any tenants

We have rented out properties and always made money, simoly to varying degrees. Get an agency to manage them for you, but it works well, she will get a passive income, and likely a decent one, and the agent will take the hassle.

I can’t recall how much ours cost to manage but it wasn’t huge. It was a set fee monthly.

My brother rents properties out. He has nine and he makes money. Be careful who you rent to. He does not use an agent and has had no problems with his tenants.

Renting out 9 properties isn’t the same as one older lady renting out her personal flat that has memories.

I think your mum needs to evaluate her friendships that won’t be maintained if she moves. Can she get help and stay where she is? Live with you as a last resort. My mum is in her 90s. Until Covid she saw friends regularly. All are younger than her but she has her social life. She wouldn’t if she moved in with me. Everyone she knows pootles around locally and she knows everyone in her Road, in every shop and in the cafes and library. None of that here. If she needs help, we buy it in. Your mum has enough money to do that.

I am an accidental landlord and have been renting out a property for around £800 a month.

Half if that is spent on estate agent management fees, building management fees (it’s a flat), repairs, gas and electric safe certificates, and tax (am self employed so it’s added up to my earnings and taxed as a whole.

I still make some money on it, though only about half of what it looks like

When I have a good tenant who pays on time and looks after the place/causes no trouble with neighbours I tend to not increase rent, so I get a bit less than I could have, but a bit of goodwill goes a long way imo

It’s all a matter of luck really... I find that marketing to a professional couple is the best bet

MyOMy totally get all of that-and luckily she has genuine options.. . I think mum wants to make the move though-although luckily she has the option to have an extended break here and see how it goes. Whatever happens, she wouldn't rent out or sell her flat for a bit until she knows which she prefers.

If the property is empty she will still need to pay council tax, utilities, insurance

It's not a nightmare but it is deff not lucrative as it once was. If you have a big mortgage it's probably not worth it. if it's mortgage free you'll prob earn a fair amount. Make sure you vet all tenants carefully and get comprehensive landlords insurance.

I think you are very sensible to see how it goes with you. Try and get some IHT advice though. The 7 year rule might be a problem now.