UKC

Hello UKC hive mind

I'm after a little advice please. I am just about to move in with my longterm girlfriend in a house we have bought together. This leaves my small terrace in Sheffield to either rent out or sell. I think I have about £60-80000 capitol in the property and an £80000 mortgage on it, with minimal other savings having just bought another house.

I'm pushing 40 and have spent much of my life self employed (though not anymore) so my pension pot is minimal (I am paying in to a work one currently and should be eligible for state pension etc. as i've always paid my stamps)

I think the house needs a fair bit of work doing on it before rental though nothing structural. Maybe £5000, but certainly a lot of my time. I've been told it would rent for £700-750 once the work is complete. I could do most of it myself, but while I'm a good bodger, i'm not exactly neat...

The question is whether its worth it or whether I should cut my losses and invest the money elsewhere. I need to get this right as it is in effect going to be my pension

(FYI i have looked at getting a financial advisor, but most don't seem interested when the amounts involved are so low)

All thoughts greatly appreciated

Congratulations on getting a house with your partner. Most likely the best option is going to be keeping your house. Although the rent will be taxable as income and there could be capital gains tax to consider. Also although it's generally easy to get tenants in Sheffield it's not without hassle being a landlord. It may also depend upon your current mortgage deal as if your on a low rate that expires anytime soon it is going to be more expensive to remortgage. Most likely the house going up in value over time will make keeping it the best option in the long term. 

So you've got about £70k locked away, plus £5 to spend, £75k.

It would bring in about £9k per year. A 12% return on your investment per year, minus tax and costs.

There's also the potential of capital growth.

I suppose the question is, what else would you do with that £75k, and would it earn more for you?

• Reduced mortgage on your main home
• Lump sum investment in pension (tax efficient)
• Other investments
• Blow it all on climbing holidays and shiny gear

Love the latter idea chris

Thanks both for the thoughts

Rent out first, give it a year or two and if it's not working out for whatever reason sell. It's impossible to test run the opposite. 

Life happens, things change and not always for the good, so owning some assets of your own is never a bad thing. 

Depends on what else you earn, whether you let through an agent, whether you need the money for something else, whether your mortgage company will allow you to keep the mortgage or switch you to a higher rate BTL one....

Is it a 12% return. Isn't there a mortgage to pay. If it is 12% definitely keep it!

I was in a similar situation when I moved in with my now wife.

Rented my house out to my sister while she was house hunting (long story) and then to a mate of mine for a year while his house was having major building work done.

BUT - then I sold it, partly to free up some cash and partly to avoid having to pay capital gains tax on the proceeds. Once you move out, it's treated as your house for 3 years before that applies.

Also, you'll need to contact your mortgage lender and they'll put your mortgage up for you, by at least another %.

Then you need to consider buildings insurance for landlords (and contents if rented furnished) and you'll need gas and electric certificates annually.

You'll need to do a tax self assessment and pay anything owed on that each year.

Lastly, are you going to handle finding a tennant, doing the relevant checks, contracts, on-call repairs and so on yourself, or hand it over to a lettings agent, which will take a weight off your mind and a chunk out of your wallet?

Once you've factored all that in, that may well influence your decision!

This.  Don't underestimate the hassle.  We let our my wifes house for a year, then got rid.

We were on holiday and the tennant was crying on the phone because the washing machine was broken, 'get someone round to fix it, we will pay the bill.'  'how do I do that' 'FFS'.
The tennant decorated the whole house pink before we even knew they had moved in - feckless landlords hadn't done the inventory so we had nothing to prove it wasn't always pink.
They left loads of crap in the loft, then when we threw it out, the threatened to take us to the small claims court.
Tax returns.
Damp and mould because they didn't have the heating on.
Non payment of rent.
The estate agent taking a finders fee of £500 to find the tennant again after 12 months, even though it was the same f***ing tennant. FFS.

Sell the house, use the cash to pay off the mortgage on the new gf's house, open a private pension and pay in everything you can each month.

Nobody knows which is the best financial decision - that depends on the housing market, but I know which will be less hassle.

Only reason to keep it, is as a back up plan incase you think you might want to move back there in the near future???

Sorry, just re-read that, lots of typos. I’m sure you get the gist. When I said “feckless landlords” I meant “feckless estate agents”.

Why can’t I edit the post?

If the funds were already in a pension, would you put them all in one asset class (property) or would you diversify. The latter, I think.

No-one has a crystal ball.  Is property any better than investment funds at any point in time over the next 20 years? Who knows.
Personally, I'd take the cash (approx £60-80k), put it in an stocks and shares ISA over 4 years (at £20k annual ISA subscription) so all tax free, and invest it in something quiet and boring, and sleep at night (no phone calls from tenants about washing machines) and go climbing.
Peronsally, I'd choose a well-spread low-cost international Vanguard fund, or possibly something like  F&C Inv trust (ticker: FCIT) or its peers (e.g. BNKR).
There's a debate whether it should be a pension or an ISA, but they both have tax advantages, and differnt flexibilities depending on what you do.
Personally, low-cost ISA, far more transparent than a personal pension (and you say you already have a pension through work, so spread your assets).

IANAL, or an IFA. And never trust anything you ready on an internet forum.... DYOR.

Yeah we were accidental landlords when I moved in with my (now) wife. Good things and bad things happened.

The tenants I had rented my house pretty cheaply and they were great tenants, they even got to keep my cats. When London turned out to be pretty shit for climbing I persuaded her to move back to Bristol with me  (let’s get you a dog). The first couple of tenants were great but after three or so years we had a nightmare with subletting drug dealing scumbags which cost us a lot of heartache and time. We decided to get rid of it in the end and copped a chunky old capital gains tax bill as a result. 

But, now I look back, the additional income meant that bringing up a couple of kids with an additional income gave us a certain level of home life balance that many of our friends didn’t necessarily have. She didn’t have to go straight back to work and retrained in something she loved doing, with her not having to work, we got more pets, the kids didn’t live in clubs and after school care, I could climb a bit more; it all felt a little easier. 
 

I think it boils down to how you want to spend your time really. 

HM Gov reduced this to 18 months a while back and now it is only 9 months  

If you don’t sell within 9 months of moving out you will be liable to CGT  

Depending on your employed income this will be at 18 / 28% of the profit on your selling price less what you bought it for (plus costs)  

Good comments here, my thought would be to second KeithC. But note RedFive and others comments on CGT. Remember that allowance will halve this April and again next April!

If you pay into partners mortgage and haven't done so, get a will. Better still, do it regardless.

Extra. Landlord insurance is £40-50 for a good policy, that covers all types of damage, lost/unpaid rent etc.

Agency management is normally around 10% a month, plus 1 months ish rent as a tenant finders fee, references, advertising etc.. find an agency by word of mouth, some are hopeless and beware the cheapest. A good agent will be managing the tenant as much as the property and you shouldn't have any random phone calls from the tenant, an agency should have a phone number for out of hours emergencies that need dealing with straight away etc..

Epc level E, gas, electric, legionnaires etc... are all things a reasonable property should meet with a little or no work. 

Tax will depend on your income etc you won't likely get away with no tax on your revenue, but then the tenant is paying the remaining mortgage for you, so it's all fair in the bigger scheme of things. 

Above all, a good clean modern ish house will attract good tenants and with a good agent you'll be fine. Most people, as in tenants if treated well aren't bad people.  

If you're an absolute bastard and love painting over light switches and complaining about tenants whilst being part of a system which screws them over, become a landlord. 

Virtually everyone I know in this situation decided to rent out and then sold within a few years as it just wasn't worth the hassle. If you are working full time, & have too much of a life to spend time doing all the things needed (maintenance, tax returns, finding tenants, insurance) then investing in another way is probably better. Personally, I can barely manage to keep up with paying my own house's bills but others are less lazy.

If you use your figure of £700 /month rent, setting aside 10% for an agent and, say 20% for maintenance costs you'd have £490 / month of taxable income, out of which you'd have to pay the mortgage.

You'd need to obtain consent to let from your lender, but that's not indefinite and at some point you'd need to move onto a buy to let mortgage.  Current best rate would give (interest only) payments of about £260/month, and you'd have to pay £2,400 arrangement fee.

If you work through it would give about £240 / month post tax income, so 3.6% net yield on your £80,000 . To me this really only makes sense if you expect significant capital gains on the house, or want to keep the safety net of an additional property. (Note - I'm not a financial advisor, just my personal opinion)

Otherwise you can get better returns elsewhere without the hassle. The tide of opinion is against landlords and you can guarantee that a future Labour government would turn the screws tighter on them.

Lots of good advice. I also know lots of people who quite happily rent and have done for many years. Me and my partner were in a similar position 5 years ago. I sold mine and she rented hers. Renting has been a hassle but no where near to the point that she would want to sell up. I noticed that my old house recently sold way higher than I sold it for and no doubt I'd be better off financially if I had rented. I've no regrets though as don't want the hassle and in your shoes I'd sell. To some extent you can't win and there is no right answer. You have about 25 yrs to retirement and will most likely either regret years of hassle renting out for a paltry return or if you sell you will look back in 25 yrs at what the house I'd worth and wish you had kept it. It's a very personal decision although with the short term prospects for house prices and CGT changes I'd make sure I was in for the long haul if I decided to become a landlord.

Someone once said to me 'the pensioners getting screwed over, are the ones who flew Spitfires and liberated Europe'. Meaning, if that's how we treat hero's, how do you think they will treat you? Note, the state pension age is set to increase regularly. So it may always be just out of reach for some.

How much is your work pension likely to give you?

If you haven't used your pension allowance in previous years you can roll some of it forward. So you might be able to put your 80k into a SIPP and have some peace of mind. If you're employed with a settled tax code, you can claim free money (20% or 40%) from the government to add to your lump sum.

If you pay off the gf's mortgage, then as mentioned above, get a will and an entry at the land registry that says you own X% of the house. You dont want to spaff your cash, only to split later and end up with nowt.

Could you set up a company and sell the house to said company at the current market value? 

I became an accidental landlord a few years ago and got stung for CGT, can't remember how much but it hurt. 

We bought the house for 14k, it was a total wrek and barely habitable, did it up whilst living it it, carried on living in for for around 14 years then moved and rented it to the sister in law who needed somewhere cheap fast for a few months (5 years and trashed the place) eventually sold if for £75k and the renovations were not taken in to account because I did them myself, no invoices for them because who keeps that for your home. 

Don’t know if it’s been mentioned yet as only skim read between chores but if you do want to rent it out and keep admin costs minimal then check out Open Rent. They do all the official checks for a one off small fee, then other landlordly duties are left down to you if you’re ok sorting out repairs etc. We’ve used it having been in the same position and it’s worked out great. 

A couple of thoughts:

1) If you decide to rent it, you have a backup for if living with your partner doesn't work out.

3) What are you going to do if you sell it? What will you do with the money from selling? There are as many options here as there are stars in the sky.

4) One of the basic tenets of financial stability and resilience is to spread your money over not just property, but also invest in the stock market. If you own a house with your partner then you have significant exposure to the housing market already but it sounds as though you do not have any exposure to the stock market.

5) Renting a house takes time and effort and involves risks to do with tenants damaging it or stopping paying rent, etc. If you have not done this before, make sure you are fully appraised of what is involved - speak to other people who do it rather than watching a youtube video imo. Investing money from the sale in a vanguard index fund on the other hand requires zero work, but you do need the discipline to not panic and pull out of the market when there is a crash.

6) Is the housing market in your area in a good shape or bad? What is the rate like on your mortgage? If interest rates stay high for a longer period, will you have to remortgage at a worse rate? How will that impact your profit margin from renting it out? Remember that if you are renting it out, your mortgage is a buy-to-rent mortgage and this is likely to be at a higher rate than a normal mortgage for a house you are living in.

7) If you do sell, make sure that every year you max out your isa allowance by transferring money into the isa wrapper from the pot from the sale (the isa can be used for cash and for stocks and shares. If a product cannot be put inside an isa then it's probably something dodgy and risky that you want to avoid).

As an average punter I would suggest that avoiding any of the fancy nonsense like crypto, art, wine, ferraris, etc. is a good idea.

If you decide to sell, a short conversation with an estate agent or two should show whether it's a good idea to "do up" the property before the sale or not worth it.

Don't forget the other classics:

1. Pretending you are helping people who can't afford houses whilst keeping good FTB houses off the market, bumping up the prices and making them unaffordable, whilst simultaneously using the money of potential FTBs to buy a second property for themselves

2. Blaming damp on people cooking/drying clothes/not heating the house whilst the house itself is in fact as ventilated as a victorian coal mine

3. Taking entire deposits of tenants for no real reason at all, and doing zero maintenance on the house

"Turn the screws tighter" is a strange way to say "stop them leaching money from the poorest in society whilst ensuring the property they provide is fit for human habitation".

any idea what stocks and shares ISAs have typically returned over last 4 years?

If you'd just invested a lump sum in a simple global index tracker you'd have returned about 50% over 4 years, over 10% annualised.

You've likely discovered it now, but it's best to value it precisely before you let, after all works, redecoration etc has been done. You can also print out a paper copy of what other houses have just sold for locally to add to your evidence, in case they suggest over valuing. 

In terms of practicalities keep the the rent competitive and try and get a family in. Tenant turnover is the biggest hassle I find.

You're a bit behind the times, to go through an agency you'll need at least E on epc, gas, electrical, legionnaires certs, h&s is a consideration for dubious steep stairs too, chimneys checked and swept...and more. 

Deposits have been kept by an external body for years, the landlord or agent has no control over the money returned. Pretty much everything deposit wise is in the tenants favour. 

Actually many landlords know it's wiser to keep rent just below the market rate and hang on to a good tenant, than be constantly chasing new ones. 

Note: yes there are bad landlords, but renting through a decent agency helps remove avoid them.

so way ahead of saving interest rates and presumably even higher without pandemics? not without risk tho? (4 yr periods may vary)- better for longer term investments?

I started a stocks and shares ISA when I bought my first house, the idea being that over 25 years I'd be able to pay off the mortgage with it. I've got to admit I'd have been able to pay off the mortgage after about 14 years (if I hadn't sold the house), it has a been a great investment.

Wholeheartedly agree with this, good tenants are worth a slightly lower rent.

Yes - way ahead, but it's for long term investments as things fluctuate. Over the last 10 years a global index tracker would have roughly trebled your initial investment. (Part of this is probably due to interest rates being so low)

Very easy to do - just find a low cost provider and drip feed it it. Best ignore trying to time things, or big funds with well known managers offering to beat the market etc. 

Mine is currently worth less than I have paid into it. Funnily enough, Covid had minimal impact but the war in Ukraine did quite a bit of damage and Liz Truss & Kwasi knocked about 15% off the value overnight. It should, in theory, have been doing reasonably well as they tend to be tied to inflation and interest rates but the market was acting funny at the time. I haven't checked in the past couple of months. 

Depends how they are invested but average annual return of the FTSE 100 over the past 4 years is about 7%. Compounded over those years it's about 30%.

A general rule of thumb is to have about a five year time horizon in mind for investing in equities. If you are likely to need the money before then, it may be better to have the money in cash or a low-risk investment such as a government or corporate bond.

Would that work? Though we paid next to bugger all for it it's value was around 90k when we moved, cue the banking crisis and its value plummeted and 5 or 6 years later we sold it for £75k but my accountant insisted it had to be on the purchase price and not the "value" when we moved out. 

You pay tax only on the increase in value from the point at which it ceased to be your primary residence. Hmrc will ask for a proper valuation and council tax invoice to verify. 

Seeing as the question of ethics was raised with regards to being a landlord I'm wondering how ethical some of these tracker funds are. I'd have thought a lot of the high returns at the moment are down to fossil fuels, arms and companies than many people wouldn't be comfortable investing in if not under the cover of a managed fund. Are there some high performing funds with an ethical ethos? 

They are as ethical as the component equities are. There are ETFs available for almost anything, including renewable energy technologies, however if you are looking for an index of specifically "ethical" investments then you may need to build such a fund yourself, as the criteria could be a bit subjective.

https://moneyfacts.co.uk/investments/best-ethical-funds/

I've lived in rented accommodation in the UK between 2008 and 2021 (when I left for greener, European pastures). I'm familiar with all the rules and schemes... yet this has not prevented some of the places I have lived from being absolute shit heaps. To take on the above...

E on EPC is an absolutely terrible standard. A shed with a lining would get it. 

Gas/Elec standards are just enough to make sure the house won't burn down. A few of the places I lived avoided gas regs by simply disconnecting from mains and only having electric. 

In theory yes, in practice this has not been my experience. Landlords know how to game this system, and frequently do. Under this scheme, I was once charged for painting because we actually heated the house properly, and it was so damp?poorly ventilated water seeped out the walls and put runs in the paint. We explained this to the ombudsman, to no avail. 

Actually many landlords DGAF and will put the rent up at every opportunity. I have always been on the receiving end of annual rent increases, and seen places I have left bumped up in rent.

I've always, bar once in seven, rented through agencies, in places across the UK. Every time they have been next to useless.

Note: I know there are some good landlords around, but honestly in my lived experience (and that of my friends, who are also all millennials) they are few and far between. In contrast, where I currently live, rental housing is generally in top condition, with faults and issues quickly resolved. Damp isn't a word in peoples minds, except in some of the oldest properties - and again, through experiences of my friends, landlords actually fix this, not just slap paint over the top.

Yeah this is IMO a far better way to invest a windfall/lump sum, from an ethical standpoint. Invest in a bunch of renewables companies - plenty of funds about with pretty clear info - my pension is in one.

They are for the most part no different to any other funds investing in a broad range of markets and companies when you compare their actual portfolios.  

I had a bad accountant then. Due to the banking crash it was worth less when I sold it than it was when it was no longer our residence. 

Ahh well, shit happens 

Depends what investments you put in them, which sectors/markets, and timescales.  Try and keep costs down, keep it simple, don't tinker, have a spread of about a dozen or holdings.

IANAL, IFA, DYOR etc etc

This article in Times today (Sat 28 Jan 2023) may be of interest

http://archive.today/2023.01.28-093824/https://www.thetimes.co.uk/article/h...

You might want to think about new regulations coming in reagrding the eenrgy efficiency of rental properties. They will all have to conform to an EPC rating of minimum of 'C' instead of the current 'E' level.

This could costs landlords a mint depending on the type of house

Not really.  The rents will go up to cover the cost.  House prices will also be increased for buyers if this work has been done.  I'm not saying it's a bad idea though.

Provided the property is not exempt, which it will be precisely if it costs the landlord "a mint" to make the required improvements (specifically £3500 for the cheapest improvement). Many old properties without cavity walls, for example, would cost far more than this to even reach an E rating.

See https://www.gov.uk/government/publications/private-rented-sector-minimum-en... for the full list of exemptions, of which there are many.

From 2025. 

Landlord won't pay a mint, they'll either stop letting it or as said pass the cost on over a few years. It's not that hard to meet C, and will add value. 

I think your accountant was probably correct.  The normal method is to time apportion the gain between the main residence and non-main residence periods.  (Taxation of Chargeable Gains Act 1992, Section 223 (2).) It’s possible of course that this has changed over time but that seems to be the method now.

Obviously this can give a result which feels unfair.

no question about it...do it up and rent it. You wont get a better investment than property, on average it peaks every 3 years then dips but the trend is upwards. keep it rented and sell up in the distant future...or keep renting. 

https://www.gov.uk/tax-sell-home/let-out-part-of-home

Private residence relief is used if you have no valuations done from the day you bought it, to the day you sell. 

However properties will not gain value uniformly and an owner isn't likely to uniformly invest or improve a property, there'll always be peaks and troughs. According to my accounts advice (2 accountant friends and our letting agent) an independent valuation at the time you let will be accepted by hmrc. 

It's not that hard for a new build property with cavity walls to reach C or above. For an older property, of which there are many in the UK, it can be prohibitively expensive if not impossible. An exemption only requires that it would cost more than £3500 to reach the required standard, so it seems likely many landlords will not bother.

Unless I’m missing something then the link you provided just talks about the apportionment method.  Specifically the example under “Work out how much tax you have to pay”.

 But if HMRC will in practice accept valuations then that is very useful to know, so thanks!

Thanks also to Dax H for the helpful reminder of the importance of keeping invoices etc for home improvements.

Didn't realise the bad was so low (3.5k) to qualify for exemption! 

Don't suppose your familiar with the commercial equivalent regs and know what the cut off is for those? Must far exceed 3.5k, surely?!

Don't do it!

If you're an absolute bastard, invest in stocks and shares, ISAs etc. Just focus on getting a good return and don't worry about anything else. Then, as an added bonus, you can massage that chip on your shoulder by getting preachy about evil landlords.

That is very questionable. The only thing you will get is bricks and mortar and more pressure from the govt to sell. Single btl are not what they were as a pure investment. 

I am in that camp, 200 year old solid stone house, sash windows etc... no mains gas. The epc scheme is bizarre at times, anything over 150mm of loft insulation is considered maximum points in that category(we have 300+), but then they get very excited about which type of led bulb it is as one is marginally better than the other. The same with under floor insulation thickness, type of double glazed... we then lose points because it's bottled lpg as it's delivered by a carbon emitting truck. We scrape into E, with underfloor insulation, secondary glazing etc.. C would required getting solar panels or an external air source unit in a conservation area - unlikely! But, the house is cheap to run and warmer in winter, with little effort, than many I know with their 20-40 year house. 

I think the margin is slim, especially if you cost your own time dealing with it, but it does help keep you in the house market, a foot in the door. It annoys me that governments bring in lots of measures to tackle evil landlords (the multiple property owning type), however generally the measures hurt the person who has one house, moved for employment and lets through an agent the most. 

If you have a given number of properties then they register as a business, all costs and interests become tax deductible etc.. which isn't any longer the case for the sole property owner, they are squeezing the wrong end of the market. 

About 6 months ago I inherited a reasonable sum of money. Not insignificant in the slightest, however a new kitchen and a couple of nice holidays and it would soon vanish. I have genuinely been struggling with what to do with it.

My first thought was the deposit for a rental property. But when we realistically thought about it and crunched some numbers for about the first 10 years, once the mortgage was paid off there would not be much left for us and that would rapidly be taken off us by the tax man, insurance and other fees / costs. By reading this thread, and talking to a guy at work, its kinda cemented in my brain that its going to be a headache. 

For now its locked away for a couple of years in an ISA. I can't be dealing with investing myself - I don't know enough and not brave enough! 

In the long run, I still dont know.  I want to buy an asset as I feel that would offer me the most long term security, but I am not sure what. I am almost thinking of a plot of land (renting it out for equine / small holding use?). 

The squeezing is also on others in the rental market, the returns are not very high.Just that most people are scared of investing in something which is not bricks and mortar over the long run. If you overcome that fear, then you are fine.

The tax man provides a whopping incentive for you to put it in a pension.Beats anything else hands down.

Ive never thought about a pension before. Good idea for it though (or at least a good chunk)

Definitely put it in a pension if you don't have one

£40 k a year tax free allowance ….no brainer

Is property investment in a dropping market with hostility towards landlords sensible? I don't think so.  I suspect a lot also depends on the nature of the property - an old terrace requiring work is unlikely to be a good investment - the rental return will be relatively low compared to the cost of work.

When it comes to weighing the pros and cons of renting out versus selling, there's no one-size-fits-all answer. However, it's important to consider factors such as the amount of work and time required to prepare the property for rental, as well as the potential rental income and the costs associated with being a landlord.

Lot of talk about rental, but how about renovate sell, buy another, repeat etc Sheffield house prices may not be on the up, but down here in the SE properties are still rocketing in value

Is this this future? Forums full of ChatGTP generated content that whilst plausible constructed is almost entirely free of meaningful content.

If you are in fact not a ChatGTP bot then I sincerely apologise.

It is rarely so straightforward, many will price in potential, so the margin to gain isn't vast. Can you do 90+% of the work yourself to decent standard. Can identify basic faults just off a single visit, when the house is likely furnished, carpeted etc.. and current owners won't be exactly highlighting flaws? 

There's a hell of a lot of them signing up at the moment. Is it you-know-who restocking the sock drawer?

Living together may cause unexpected tensions. 

I would rent it out for a year and see.

Alternatively if you are confident things will be great in your new home I would sell your first home and use the remaining money to get rid of the second mortgage or at least part of it. Or you can use the remaining money to buy a place in a cheap but great climbing area in Southern Europe, you can always rent it out to climbers when you aren't there.