My house - sell it or rent it?

[Mr Fro]

Just sealed the deal with the OH on our new "grown-up" house.

In a nutshell, we flogged her place for the deposit and mine will be going spare once we move to the new place.

I've still got a year on my mortgage before I can get out without paying an ERC (about 3k). I'm umming and ahhing about whether to take the hit on the ERC, leave it empty or rent it out.

I'm not adverse to renting but I have completely renovated it myself to a very high standard (cheers OCD) and would be mucho cheesed if a tenant ruined it! The extra bunse would come in handy though.

Anyone been in this position or are already a landlord? Your experience would be really appreciated!

[Joeman]

Yep. I rented out my old flat and I have a few other rental properties. Once you rent it out you need to forget the idea of it being your home and look upon it as purely a business deal.

Tenants Dont look after the place as you would do and you need to accept that.

Technically you need to tell the mortgage company if you let it out, but most people Dont bother.

Alot depends on what equity you have in the property and what you can make in rental profits.

If you Dont have huge equity but can make a nice monthly profit rent it out. If you have huge equity and only make a small monthly profit then your money is not working hard for you...

Ideal situation is low equity and high monthly profit. Then repeat with your next buy-to-let

[Matt Strange]

Alot depends on what equity you have in the property and what you can make in rental profits.

If you Dont have huge equity but can make a nice monthly profit rent it out. If you have huge equity and only make a small monthly profit then your money is not working hard for you...

Ideal situation is low equity and high monthly profit. Then repeat with your next buy-to-let

 

If you have low equity then most of the monthly rental payment would be covering the interest on the loan, so what profit would you be making then? Maybe after the loan period expires the property may have made some capital gains, but with interest rates at rock bottom (and only able to rise) & wages/inflation static I wouldn't have thought there was much opportunity as such.

Technically you need to tell the mortgage company if you let it out, but most people Dont bother.

 

I'm pretty certain that would invalidate buildings and contents insurance. And technically it's fraud so you may end up facing a court case from your lender.

Madness!

[Joeman]

Its all about gearing.

If you had 100k equity and you only made £100 per month profit, your money is not best invested. Your money would be best invested in other ways.. Even a simple savings account would be doing better!

However If you only had 1k equity and you made £100 per mont profit your money it working very hard for you. Its making 10% profit per month - that easily outstrips any savings account and most high risk investment plans.

The main aim for most people is to have their money invested in a way that provides a better return than a savings account but also has the added advantage of an appreciating asset (the house) so in 10years time when the house has doubled in value, the low monthly income won't have mattered.

So again if the house is worth 100k now, you have 1k equity, and it doubles in value over the next 10years your 1k investment yeilds 100k profit.

If you had owned the house outright (zero mortgage) your 100k investment would only have doubled in 10years.... 100% return on investment is pretty poor in comparison

As for telling the mortgage company most just provide you with permision to rent, but others insist you swap mortgage product to a buy2let deal which in this case would trigger the early redemption charges and a higher monthly payment... That's why many dont tell the lender. Not saying its a good idea but that's what many people do.

[Matt Strange]

I know how gearing works, however it can also equally work the other way though if the price of property should fall. Property in general is not worth 2x what is was selling for in 2004 apart from London and some areas of the S.E. Also if you own the property outright, then you are making a full return each month on the rent as there is no mortgage or interest to cover. Over ten years @ say, £600 a month rent that is an additional £72k (minus running costs like maintenance etc)

So, I'd like to know what makes you think houses are going to double in the next ten years when:

Wage rises are almost non existent

Interest rates & the cost of a mortgage can't really get much lower?

The government is having to give a 20% bung via help to [strikeout]sell[/strikeout] buy as it is!? You're presuming that property is going to rise when it's already at the limit (beyond it really given the need for H2B) of most people's affordability, at a time of record low interest rates - what happens when rates start to rise again?. Unless there is massive monetary inflation, I can't see much scope for capital gains tbh

[Joeman]

Far too many factors involved to generalise but prices in many areas will continue to rise for a while more. Everyone needs somewhere to live and just because individuals can't afford to buy that doesn't mean landlords can't, so landlords can put up rents and afford to buy more property.

Interest rates won't rise until at least the end of next year so no worries there. And even when they do, the BOE can't put them up much as so many people are already overstretched on mortgages that a sharp rate rise would bankrupt millions of homeowners as well as causing rental prices to increase.

People have been saying for years that house prices can't continue to rise, and for years they have been proven wrong... The big driving force now is buy2let landlords and overseas investors. The average uk salary has little influence on house prices anymore.

[Matt Strange]

If landlords can just put the rent up when they feel like it, why not do it now to make more money? Say a Landlord's costs increase via an interest rate rise or other unexpected bills, it doesn't mean that the tenant is in a position to pay this extra cost, especially during a recession for instance.

Yes people have being saying that prices can't keep rising but bear in mind that the base interest rates are currently about 1/11 of what they were in 2007 (5.75% - 0.5%), that is a massive drop. O.K. so not all of that has been passed on to borrowers and mortgage holders since the "credit crunch", however I do think it's led people in general into a false sense of security, and without them having a proper grasp on the effect of such a drop in rates on "affordability" and people's subsequent ability to meet mortgage costs. Be it for buy to let or home ownership.

I would say at least a 50% drop in borrowing costs is driving the current demand.

But:

I do know that there is limit to what people can afford to pay for both each month (and tenants paying rent, of course) and that was (b?)reached in 2007, now there's been a bit of relief in the form of lower rates, but property prices can only rise to level that the cost of borrowing (and being able to meet the repayments) permits, be it to rent a property or to live in it.

Interest rates can't go much lower next time there is a crisis either. Base rates are set for all borrowing costs, not just mortgages and also for the value of sterling on Forex.

P.S. if millions lose their homes due to rising rates, wouldn't there likely be lots of very cheap property for sale & hence not much demand for rentals? Would the rents rise in such a situation I wonder?

[Joeman]

So back on topic, you'd rather pay the bank a 3k early redemption penalty and have the cash sat in a bank making virtually zero interest just in case there is a major crash in the next year than to ask the bank for permission to rent and let it out for a year during which time its value will likely increase by at least 3-5% and make a monthly income from rent?

[thebendyfox]

I would advise rent. Especially if you are in a position to pay off the mortgage shortly.

Start speaking to management companies about renting it out. Although you might not make as much back on the rent, its worth the piece of mind that things like maintenance, legals etc is sorted by them and not you. If you aren't legal savvy, then renting it out yourself can be a ball-ache.

[Joeman]

I only pay an agent a finder fee to find my tenants. After that I deal with it myself. No point paying an agent to collect rent, and when stuff goes wrong all they do is use their super expensive builder mates to do a crap job and then charge you a fortune.

And if the rent doesn't come in, they still want their fee, so the agent sends the landlord a bill!!

I'm not a fan of letting agents...

[Mr Fro]

Interesting discussion!

I've done some maths and think I'll be going down the rental route - about 5.5% yield which isn't the best but better than banko snatcho.

Bendy - it works out better financially if the property is mortgaged so you get more tax relief. Still got to check which rate the rental income is taxed at and just how many things I can claim back.

Interesting you don't use a management company Joeman, does that create any bother for you? Our lot round here want ~10% for doing FA... Have you had any issues with tenants yet?

[Joeman]

5.5% is better than any bank account so if you Dont need the cash at the moment, rental is the way to go. Just remember what I said in the first post - it ceases to be your home and becomes and investment vehicle. It won't look the same after someone else has lived there.

Two ways to claim stuff back. Keep all receipts and do it the hard way, or claim flat rate wear and tear allowance.

Flat rate is simpler and works out better financially if your property is in good condition and doesn't need anything replacing.

Never had and serious problems no. But I tend to rent to rich overseas students. They have no credit or rental history so many people won't touch them, but I take the gamble for a slightly higher rental price and often get paid 6months in advance

My view is that generally 99% of people just want a place to live and they won't risk their home for stupid stuff like not paying rent or trashing the place on purpose.

Worst I've had is tenants moving out and leaving a load of stuff their, so I just keep a chunk of deposit to pay my mate to get in a clear up. Last time it happens it was a rich russion girl and she left a pair of 18ct gold designer earnings.... Ca-ching!!

Ask the agents about a finders fee. Tell them you already have a load of property in the area that you rent out, buy due to new business ventures you Dont have tine to show people around... Make it sound like they could get more business from you and they will drop the prices

I pay flat fee equivelent to 3weeks rent to an agent to find me new tenants. Bargain considering the number of idiot dreamers they have to put up with.

[Fozzie]

Good to know Joeman knows his stuff here too as I will probably pick his brain at some point! I'm going to buy a house up north in a year or 2, it will be paid for outright and I won't have a mortgage, which means if I can get my earnings up to a good level there and get a few years good books, I'm going to invest in some property as my dad does and see if I can merge with his small empire

[Mr Fro]

3 weeks rent finders fee? That's 500 odd sods! Talk about ripping the arse out of it!

My market will probably be young families so it could go either way... I'm not emotionally attached to this place but I will be annoyed if they scratch up my walnut worktop or spill stuff on the new carpets! Then again, that's what a deposit is for.

Going through the figures, it kind of surprised me how little the net gain is and how many properties one would have to have to make it a sole income.

You got any tips for maximising the net Joe?

[Joeman]

3weeks rent sounds a lot but consider for that price they list on Rightmove, do background checks, show countless idiots around and can generally get me a new set of tenants in under a week it works out a good deal.

If you're employed PAYE then you Dont have much flexibility as the profit will be classed as taxable income in addition to your wages. So you need to reduce the profit by claiming what you can. The wear and tear allowance is a good start.

[NearOn]

Yep. I rented out my old flat and I have a few other rental properties. Once you rent it out you need to forget the idea of it being your home and look upon it as purely a business deal.

Tenants Dont look after the place as you would do and you need to accept that.

Technically you need to tell the mortgage company if you let it out, but most people Dont bother.

Alot depends on what equity you have in the property and what you can make in rental profits.

If you Dont have huge equity but can make a nice monthly profit rent it out. If you have huge equity and only make a small monthly profit then your money is not working hard for you...

Ideal situation is low equity and high monthly profit. Then repeat with your next buy-to-let

 

I have rented since leaving home 12 years ago and I have looked after all 3 properties I have lived in excellently and actually improved them at no financial gain to myself. Not right to tar all tenants with the same brush. But do agree letting agents a rip off, needs to be far more legislation for them to adhere to. They make up fees willy nilly!!!

[Joeman]

Yep. I rented out my old flat and I have a few other rental properties. Once you rent it out you need to forget the idea of it being your home and look upon it as purely a business deal.

Tenants Dont look after the place as you would do and you need to accept that.

Technically you need to tell the mortgage company if you let it out, but most people Dont bother.

Alot depends on what equity you have in the property and what you can make in rental profits.

If you Dont have huge equity but can make a nice monthly profit rent it out. If you have huge equity and only make a small monthly profit then your money is not working hard for you...

Ideal situation is low equity and high monthly profit. Then repeat with your next buy-to-let

 

I have rented since leaving home 12 years ago and I have looked after all 3 properties I have lived in excellently and actually improved them at no financial gain to myself. Not right to tar all tenants with the same brush. But do agree letting agents a rip off, needs to be far more legislation for them to adhere to. They make up fees willy nilly!!!

 

Doesn't matter how well its looked after, it won't be as he left it. General wear and tear, different smells, small marks etc etc. My point was not that tenants trash the place but rather from a phycological point of view its no longer your home and you have to accept that when it transitions from home to rental property.

And yes, agents are scum who need to be regulated.

[TIPC]

Hello,

I'm a lurker on the forum so far. The only advice I have for you and anyone else thinking of buying to let is do not let to council Tennant's or those whose sole income is from benefits while a large quantity are nice respectable humans the rest are just amazing.

[RantMachine]

I have rented since leaving home 12 years ago and I have looked after all 3 properties I have lived in excellently and actually improved them at no financial gain to myself.

 

See, that's where you're going wrong... just walk oil through the house every now and then and leave it to the next bunch of poor sods to clear up, you'll get screwed out of your deposit either way

[NearOn]

I have rented since leaving home 12 years ago and I have looked after all 3 properties I have lived in excellently and actually improved them at no financial gain to myself.

 

See, that's where you're going wrong... just walk oil through the house every now and then and leave it to the next bunch of poor sods to clear up, you'll get screwed out of your deposit either way

 

Always got my deposit back in full. Guess comes down to tenants with respect and tenants who have been brought up with none.

[RantMachine]

I have rented since leaving home 12 years ago and I have looked after all 3 properties I have lived in excellently and actually improved them at no financial gain to myself.

 

See, that's where you're going wrong... just walk oil through the house every now and then and leave it to the next bunch of poor sods to clear up, you'll get screwed out of your deposit either way

 

Always got my deposit back in full. Guess comes down to tenants with respect and tenants who have been brought up with none.

 

I would beg to differ. BikerMoo and I got royally messed around by our old landlord, who tried to fleece us for something like 95% of our deposit. She had to spend ages taking it through the courts and the Tenant Deposit Scheme to get most of that money back. I would say it comes down to tenants who have been royally f**ked by greedy landlords in the past and tenants who haven't.

[Mr Fro]

I guess the deposit thing depends on perception, what one person deems as being pristine might well be a shit state for someone else.

For example, if a tenant put knife marks on my worktop by not bothering to use a chopping board then I would be keeping most/all of their deposit, regardless of whether they'd given it a good clean. It's justifiable because I'd be losing three days pay to sand it back and re-treat it as well as materials and lost rent for the same period.

However, a landlord must accept reasonable wear and tear - a carpet is never going to look super fresh after a couple of years use.

[RantMachine]

Please realise that I mean this in the nicest possible way, if you would want to withold an entire deposit for knife marks to a kitchen worktop then renting out your house may not be the best way to go as you'd be likely to find that the TDS would not represent your interests very well, even if it is careless damage rather than wear and tear

[Joeman]

yep, as i said in the first post - once its rented out, its no longer your home, and you cant expect it to remain in perfect condition.

Your worktops will get damaged - you can almost guarantee that, but why do you care? you take the rent money, someone gets a home and in a couple of years you sell the property. you'll never live there again, so why do you need pristine worktop? no prospective tenants is ever going to not rent your house because of a few knife marks...

Wooden worktops are notoriously delicate which is why you would never put them into a rental property through choice. In fact my own solid oak worktops in my house have been destroyed in less than 4 years just through normal use. They looked great for the first few months, but over time have developed watermarks etc... i'm currently having a new kitchen built so this time round i'm having Quarts (not granite as granite is porous and can stain).

[RantMachine]

Presumably, the really important thing is to ensure that you recoup any costs to repair anything that would significantly devalue the property so that you still sell in a few years for a similar price to what you would get selling it today, so that everything else made in the middle is a bonus?