Rent or Sell investment property

Blizzard

Hi all,
bought a house back in '02 with a view to having income in our retirement (25 yrs from now) however with the way the markets have turned we're undecided as to how to proceed. Have had good tenants who've kept place in top condition but they've given notice and will be moving next month. Decision now is - do we sell house OR re-rent? Things we're considering:

If we decide to sell:
- House value may decline further (although we're not in a negative equity situation) - and right now after a local estate agent viewing house gave impression its what first time buyers are looking for now and that if we price it right it should sell (who knows how long that will take, she seemed optimistic but I think that is what they are supposed to say, yes?)
- If we do decide to sell, while house is unrented should we ask bank to put us on interest only mortgage for those months so that we don't have to be paying the full mortgage while it's on the market?
- Tenants have kept house in great shape so no major renovations or updates will be required when we put it on the market

If we try to rent it out:
- we could re-rent but rental market isn't like it was and there appears to be a surplus of rentals in Kildare
- want good tenants (ie, pay bills on time, keep up house/garden, don't cause disturbances to neighbours). we rent ourselves as we've heard to many horror stories about management agencies not keeping an eye on things and houses were left wrecked/unchecked, etc. it's a pain handling things but i guess that's the price for having the investment.
- have contacted county council and they have a scheme in place that they are willing to sign us up to for 5 years - but unless we already have someone in the house on the scheme they put whoever they want in the house which I think will only lead to problems (ie, tenants who won't look after the house which will end up costing us much more in long term)

Any feedback or suggestions appreciated. Sorry for the long post - but after re-reading above it does appear that i'm pointing to the 'sell' idea, but i am open to renting again. Not sure what to do really.

3DataModem

If you intend keeping as a pension in 25 years... then definely keep and rent.

Over that period you will see further capital appreciation (from now) and income appreciation (from now).

Consider a local agent, and pay them a flat % not a fee per tenancy. Pay no more than 10%, and stop worrying about damage etc. Ensure your agent does inspections every three months and provides you a written report.

Good luck. Tip: good tenants are worth 25% roughly... drop the price and choose tenants that suit you.

Blizzard

Thanks for that quick reply, 3DataModem. I agree - about not worrying, but it's such a pain to see people move in and not look after the place. I also agree that dropping the price for good tenants is required and we've done that, including renovating the bathroom completely last year in order to keep tenants happy, which it did. They are only moving now because the house (3 beds) is not enough for them-a couple and 3 kids under age 5, they need a 4 bed. They are on social welfare and their payment/allowance gives them enough to rent a 4 bed.

D3PO

well its impossible to 100% say what would be best to do. Only you know the ins and outs of your finances.

However if you plan to keep it as an LTI for your pension you need to consider what selling now and reinvesting your equity in something else will return you over the next 25 years versus what keeping the property and renting out will yield you.

Perhaps selling, wiating as the market continues to drop and then purchasing again in a few years time might be a strategy worth looking at ?

Again you will need to determine what kind of savings are to be made in purchasing at a lower price versus the cost of selling (EA fees, solicitor fees etc) and the cost of rebuying (stamp duty, solicitor fees etc) and also consider would the bank relend to you in 5 years time given the state of the economy and your proximity to retirment.

my gut instinct without any figures says having waited this long that continuing to rent is probably the most advantegous but you really need to work out your yields for every possible streategy and go from there

best of luck

20goto10

There are better investments out there which do not require you to put up with all the stress involved in being a landlord. I would sell and invest in something else. If you bought in 2002 you should be able to sell now and still make a profit when considering the rental income you've earned so far.

D3PO

20goto10 wrote: »

There are better investments out there which do not require you to put up with all the stress involved in being a landlord.

agreed investing the money from the sale for example into the national solidarity bond for 10 years will yield 4.7% annually with no stress or risk.

of course you could find a better yield in investments but its just an example of a no risk strategy that is likely to increse well ahead of inflation (or delfation as were currently seeing )

Blizzard

thanks for the comments all.:) Here's what we're planning: getting our BER done early next week (as OH has to insulate attic before that is done) as this has to be done whether we rent or sell it. Have met with estate agent this week and talked to her today about putting it up for sale next week without putting a sign out front so that at the same time, I'm can advertise it for rent. Estate agent is happy to go along with us keeping our options open. This way we can see if we get any interest in a buyer and if we do all well and good and the money we make (if, and thats a big if, sold!) will be invested elsewhere. On the rental side, if we come across a potential tenant that we think is good, we can go with renting again then. Will keep you posted on how it works out.

athtrasna

Don't forget if it's been rented out you are liable for capital gains tax. It's currently at 25% of any increase between what you paid for it and what you sell it for. This is reduced proportionally by the amount of time you've lived in the property so if you lived in it for half the time you've owned it you would only pay 12.5% of the difference etc

3DataModem

athtrasna wrote: »

Don't forget if it's been rented out you are liable for capital gains tax. It's currently at 25% of any increase between what you paid for it and what you sell it for. This is reduced proportionally by the amount of time you've lived in the property so if you lived in it for half the time you've owned it you would only pay 12.5% of the difference etc

That's not quite correct. The reduction is not proportionate.

They look at the increase in value over the period you didn't live in it LESS ONE YEAR if you lived in it at any stage. So basically add one year to the date you left, and value it at that date.

The sale price can have expenses deducted from it (agent, legal, etc) and you can also deduct the effect of inflation over the period in question.

And then you have a CGT allowance of a few grand too.

So after all that work out your net capital gain and pay 25% of that.

It can be a lot less than you think.