Imagine this situation: your beloved home has been in the family for decades, it’s part of your history and has been handed down through many generations. However, it’s now empty as you’ve got somewhere else to live, yet you don’t need to sell your family home and you’re stuck in a quandary. It is mortgage-free but could do with some work to modernise it.
Do you sell your family home and release all the capital? Or do you hang onto it and chance renting it to strangers to review what to do in a few years?
Pros of renting it
- Firstly you need to get an up to date rental valuation from a professional, on how much it will rent for each month and what changes you need to make before you can begin to let the property. Then factor in any upfront costs to get the property ready for letting, plus management charges, potential repairs and the renewing of safety certificates to give you an annual rental income.
- Having a paying tenant in there means they will be responsible for council tax and utilities which you would need to pay for otherwise whilst it is empty.
- If you have no borrowing on the property, you could use the opportunity to take out a buy to let mortgage on it, release some equity and use this as a deposit for another property. Thus giving you two sources of rental income instead of one, or none. If you do this, you will need to work out the yield that each property then gives you, to check if you have a good rate of return on your investment, remember, yields aren’t what they used to be and anything over 7% is considered great in today’s market.
- Once that equity has recovered, you can release more equity from it over time, thus providing you with money to start a potential property portfolio.
Cons of renting it
- A home which has history needs to be treated differently from your standard investment property. Therefore, you should consider how you will feel about renting out your beloved family home to strangers because if it has significant sentimental value, then no tenant is going to be able to look after it as you would.
- To ensure it is looked after properly, you may need to think about paying for gardeners or cleaners which may affect your rental income.
- Remember if you do decide to rent it, that all sentimental items should be removed and placed in storage, plus you may need to change the décor to something neutral and hard-wearing which will also affect your initial year one income. All of these costs (removals, storage, decorating, carpets etc) need to be considered in your decision because they can quickly add up.
- You’ll not only be responsible for general repairs with a tenant in there but you will have to act quickly if the property is in danger of being classed as ‘uninhabitable’, if you don’t have spare cash to fork out for an expensive new boiler (if needed) or to repair a leaking roof then think carefully about whether you should become a landlord.
- You will need to abide by all 170+ pieces of legislation that it is thought private landlords now have to uphold. The sensible landlords this liability to letting agents who know what they’re doing day to do to keep your tenants, and you, safe from the law.
Pros of selling it
- You get to remember the property ‘as it was’ without tenants potentially causing damage OR changing it decoratively.
- You could sell the property and reinvest the money into a property which has less emotional attachment for you and potentially better yields if in a more sought after area for tenants.
Cons of selling it
- The current sales market is buoyant, however, in the current climate with sales taking a number of months to complete, even after you’ve found a buyer, this could mean having an empty property draining you of funds for council tax and utilities for a long period of time. Having a paying tenant in there until the pandemic passes could be an idea to avoid this.
- Because there is such a range of available properties on the market at the moment, it could mean you achieve a lower asking price than you hope for, which you could achieve when the market picks up again.
- Doesn’t the old saying go ‘always buy property, never sell’?
- Of course, selling it means waving goodbye to a property that contains many memories for you, it can be a lot of heartache selling a property, ask yourself, do you want to put yourself through this right away?
Every situation will be different so you must consider all the facts plus your emotional attachment to the property and what you look to gain from both options.
To find out more information you can watch our lettings market update video above.