Should I sell my rental property

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DeiseKP

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I'm looking for advice/opinions on the following scenario:

We're extenting our home and have an approximate idea of the cost. We have a modest rental property (accidental landlords) that's occupied and have a mortgage on it with 12 years remaining on it. Over the course of a year, after paying mortgage, taxes and upkeep, the rental income is barely breaking even.

In a nutshell we need to decide whether we should sell the rental property and put the profit we make towards our new extension at home and have take a significantly smaller loan, OR, do we retain the rental property, take out a bigger loan which means we could complete the mortgage and sell the property and use the proceeds as a pension pot.

We have tracker mortgages (2.8%) on both our home place and the rental property.
Factors that I'm considering are total cost of ownership of the rental property (and the hassle of managing tenants) VS the potential payoff at the end of the mortgage
 
It's hard to give advice in the absence of information about your broader financial circumstances.


Try a money makeover post:

Key Post - Basic information required for the "Money Makeover" forum

It can be difficult, but please try to use a meaningful title in your thread For example "27 year old with mortgage arrears". You will get a much better and much more coherent answer if you give as much information as possible in your first post. For example, if you give your mortgage rate, it...
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The framework set out in this post for approaching this decision might help -

Key Post - Keep Apartment as Rental or Sell?

Updated May 2020 The question regularly comes up on AAM whether somebody should keep an apartment that their family has outgrown as a rental or whether they should just sell up. Borrowers often run projections on the anticipated rental income from an apartment with a cheap tracker and conclude...
www.askaboutmoney.com
 
Sarenco said:
The framework set out in this post for approaching this decision might help -

Key Post - Keep Apartment as Rental or Sell?

Updated May 2020 The question regularly comes up on AAM whether somebody should keep an apartment that their family has outgrown as a rental or whether they should just sell up. Borrowers often run projections on the anticipated rental income from an apartment with a cheap tracker and conclude...
www.askaboutmoney.com
Click to expand...
Thanks for this. I was searching the site but couldn't find something like this. I'll take a look.
 
In your situation coupled with the current rental climate (RPZ, Eviction ban or whatever it's called, RTB process bias, Tax, Probality of tenants going rogue, the general headmelt of being a landlord, the barely breaking even aspect) I'd sell as fast as ever I could.

You're barely breaking even & you're carrying the risk of a tenant going rogue. Sure, what's in it for you?

You mentioned taking out a bigger loan to finance the extension & close out the mortgage.
I don't get that.
Why would you want to take out a loan at ~6% to pay off a mortgage that's currently charging 2.8%. I may be missing something but have a good think about that approach.

Good luck whatever you decide.
 
The constant moving of goalposts and negative spin on Landlords doesn't help.

The price coming right now and a good chunk of mortgage made my decision to get out.

That and a double hit of management fees last year.

Always had good tenants for 10 years, always fixed anything straight away
Got caught low in RPZ.

Now home house is practically mortgage free after the leftover from the sale and it feels good, even with a 20k loss on buying the apt.

Always going to be
a change in policy
a bill
a problem.

Made it through the tough years, did the right thing, now take the gravy.
 
Horatio said:
In your situation coupled with the current rental climate (RPZ, Eviction ban or whatever it's called, RTB process bias, Tax, Probality of tenants going rogue, the general headmelt of being a landlord, the barely breaking even aspect) I'd sell as fast as ever I could.

You're barely breaking even & you're carrying the risk of a tenant going rogue. Sure, what's in it for you?

You mentioned taking out a bigger loan to finance the extension & close out the mortgage.
I don't get that.
Why would you want to take out a loan at ~6% to pay off a mortgage that's currently charging 2.8%. I may be missing something but have a good think about that approach.

Good luck whatever you decide.
Click to expand...
Thanks for the response Horatio. What's in it for me would be a significant lump sum from selling when the mortgage is paid off, albeit in 12 years time. My equity in the house is increasing as time passes.
 
Ok, I don't know your financial circumstances but I can explain to you why I have decided to sell my rental property which I own outright.
I calculated the gross yield of the rental (current income divided by the current value) and it has become much lower than I guestimated previously.
I also looked at the mortgage on my own home, which I will be able to clear. The tracker interest rate on this property is now higher than the gross rental yield.
On top of this, I looked at all the current difficulties with the rental sectors.... and the fact that I beneficiated from a CGT exemption (7 years).
I made the judgment that property prices are now high, they might not go down but in the short term, they might not increase hugely. It is unfortunately the unknown.
The equity on the property you have might increase over time as you pay off the mortgage but that depends on the value of the rental house when you sell.
Perhaps you can redirect part of the amount you currently pay on your monthly mortgage repayment and smaller home improvement loan to saving (pensions funds) so you can build a lump sum over time. I plan to redirect our mortgage repayment toward pension plans.
The other consideration is also to make sure that, because you have more cash available, you don't "splash out" on the extension and increase the budget you plan...
 
DeiseKP said:
That's wha'ts forcing me to consider holding on to the rental property.
Click to expand...
That increase in equity means you are not just breaking even, the income after expenses and taxes are covering the cost of acquiring full ownership of a valuable asset. That needs to be considered against the cost of financing the extension.

Also consider whether you are maximising pension contributions and whether offloading the investment property might allow you both fund the extension and invest in your pension.
 
azerty said:
Ok, I don't know your financial circumstances but I can explain to you why I have decided to sell my rental property which I own outright.
I calculated the gross yield of the rental (current income divided by the current value) and it has become much lower than I guestimated previously.
I also looked at the mortgage on my own home, which I will be able to clear. The tracker interest rate on this property is now higher than the gross rental yield.
On top of this, I looked at all the current difficulties with the rental sectors.... and the fact that I beneficiated from a CGT exemption (7 years).
I made the judgment that property prices are now high, they might not go down but in the short term, they might not increase hugely. It is unfortunately the unknown.
The equity on the property you have might increase over time as you pay off the mortgage but that depends on the value of the rental house when you sell.
Perhaps you can redirect part of the amount you currently pay on your monthly mortgage repayment and smaller home improvement loan to saving (pensions funds) so you can build a lump sum over time. I plan to redirect our mortgage repayment toward pension plans.
The other consideration is also to make sure that, because you have more cash available, you don't "splash out" on the extension and increase the budget you plan...
Click to expand...
Great food for thought, thank you
 
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