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Moving home can be a challenging experience which will leave you making decisions you never thought you would need the answer to.

One of the most difficult decisions you will need to decide is whether to sell or rent. If you are in the luxurious position of being able to move to a new property & afford the deposit without selling your home, then you may be considering renting your old one out instead of selling it to generate a bit of extra income.

In this blog post we will be looking at whether it is better to sell or rent out your home, how you may be affected by Capital Gains Tax and if becoming a landlord is the right step for you.

Looking for a quick answer? Check out our drop down menu below!

Should I sell or rent out my house?

Deciding whether or not to sell or rent your property is a position that a lot of homeowners consider, but it is often one that is forced upon a lot of would-be sellers.

An accidental landlord is someone who is forced to rent out their current property instead of selling it. This can happen for a number of reasons such as the seller having to move for work, or perhaps the property simply won’t sell.

Other people opt to rent out as it’s a good way of starting a buy to let portfolio, as long as you can afford to do so.

The answer to whether you should sell or rent out your property completely depends on your personal circumstances. 

If you are dependent on the money from your house sale, then the best route for you is to sell your property. However, if you can afford to wait and rent your property out, you will generate regular extra income and wait until the time is right to sell.

However, it is worth bearing in mind that becoming a landlord comes at a cost.

Things to consider if you rent out your house and become a landlord

On the surface, becoming a landlord sounds fantastic, because who doesn’t want an extra bit of income whilst also increasing the equity in their property?

However, there’s quite a bit more to it than just extra money, and several other things you need to consider before jumping in.

Below are some of the other factors you will need to consider before settling for renting out rather than selling:
Hard work

If you are deciding whether to sell your home or rent, it is important to remember that it is not easy being a landlord.

People think as a landlord you’ll be able to sit back & watch the money roll in, but that couldn’t be further from the truth, in some cases, which mostly hinges on what kind of tenant you have.

Some tenants can be fantastic, and over the duration they stay in the property you may hear very little with only having to do the minimum on-going maintenance and repairs.

This is the perfect scenario, but still means you will have to dedicate some of your time to maintain the property.

On the completely other side of the scale however you could get tenants that expect you to change a lightbulb, which you don’t have to do, but you get the idea!

Constantly being called by the tenants to fix minor problems with the property can take up a lot of time & resources.

If you’re very unlucky you can have severe tenant issues who withhold rent, damage & trash the property leaving hundreds or even thousands of pounds of damage in their wake.

This is obviously extreme, but when you’re preparing to become a landlord, you need to be ready to handle the worst-case scenario.

Mortgage issues

If you decide to let out your property, you need to be aware that with your current mortgage you may not be allowed to rent it out.

You will need to make your mortgage company aware and change your mortgage to a buy to let scheme.

Whilst some mortgage lenders will let you do this with no problem, some will not.

If this happens to you it may mean that you have to change mortgage lenders which could come at a cost.

If you let your property out and have a mortgage on it, then you also need to keep in mind that if for whatever reason you don’t receive rent for a period of time with the property either being untenanted or the tenant withholding rent then you still need to pay the mortgage, regardless.

Income tax issues

The government has recently tried to make becoming a landlord less appealing, the amount of tax has recently increased, and it’s also become a little more complicated.

If you are debating between whether to rent or sell, you should know that if you earn more than the maximum personal allowance you will have to pay tax at the rate you normally pay, unless it pushes you into a higher tax bracket.

When your tax is calculated it’s based on your total earnings for that financial year, and unfortunately from 2021 onwards you won’t be able to deduct some financial costs that you previously were able to such as mortgage interest.

Capital Gains Tax

If you decide to later sell your property you may be subject to Capital Gains Tax often referred to as CGT, which is a tax on the profit made on the property.

If the property is a secondary property for you and has increased in value since you’ve purchased it then you will have to pay the tax on this increase.

House Health & Safety Rating System (HHSRS)

As a landlord you have to maintain your property to a higher standard of rules and regulations, as enforced by the Housing Health and Safety Rating System or HHSRS for short.

You will have to take into account a variety of things & adhere to certain standards to allow you to let the property out, this includes:

1. Fire hazards

2. Poor hygiene

3. Damp, condensation or mould problems

4. Inadequate heating system

5. Trip or slip hazards

6. Security issues

7. Gas safety

8. Electrical safety

You can find out all you need to know about HHSRS on the website.

Extra Insurances

When you become a landlord there are a few extra outgoings you need to consider, and one of those is insurance.

As a landlord you have a few extra insurances that you may want to consider, although there are no legal requirements.

We won’t dive into each of them, as that’s a blog in itself!

However, here’s an idea of the insurances you might want to consider as a landlord:

1. Liability insurance

2. Contents & Buildings insurance

3. Loss of rent insurance

4. Tenant default insurance

5. Accidental damage insurance

6. Alternative accommodation insurance

7. Unoccupied property insurance

8. Home emergency insurance

9. Legal expenses insurance

How much can you get?

The pros and cons of becoming a Landlord

We’ve gone through a few of the things to consider, and here we’ve put together a quick list of pros & cons to becoming a landlord, to help you weigh up your options and summarise.

Additional source of incomeTax on extra income
Extra tax deductionsYour money is locked into the property
Long term securityIt can be expensive being a landlord
It’s an investment (pension)Emergencies, maintenance & repair to consider
Perfect if you’re moving away temporarilyTenants can be time consuming
Any legal issues or disputes
Finding new tenants can take time and money

When does renting out your property make sense?

There are several scenarios in which renting out your home may make sense for you, so we’ve pulled together some of the most common reasons that renting out your property could be beneficial:

  • If your move away is only temporary, such as moving abroad for work

  • If it looks like the property market in your area may see some significant increases in the next few years

  • If you don’t have a mortgage on the property you can use it for extra income

  • If your property is going to return a high rental yield, which is annual rental income divided by property value

What factors should you consider if you want to rent out your home?

If you want to switch your property to a buy to let then there are a few things that you need to consider when you become a landlord, and we’ve broken it down for you below:

Do you have the time to become a landlord?

  • Becoming a landlord can be very time consuming, you need to find a tenant, always be contactable should anything go wrong and make sure you keep up with paying and recording your income tax. You can get an agent to handle a lot of this for you, but that will eat considerably into your profit margin.

Switching your mortgage to Buy To Let

  • The other thing that you have to do is approach your mortgage company about the possibility of switching your current residential mortgage to a Buy To Let mortgage. Some lenders might not let you do this, which might mean that you have to find another mortgage provider to do so.

What will happen to the house prices?

  • One of the main reasons you might want to rent your property out is that overtime you might think that the property price will grow. It can be really hard to tell if that is actually going to be the case, so before jumping in to becoming a landlord, we recommend doing as much research on house price trends in your area as you possibly can.

Income tax & CGT

  • What you also need to be aware of is that you need to pay income tax on your earnings and CGT or Capital Gains Tax when you come to sell it. This can be a considerable chunk of your profits when you come to sell, for example if you buy a property for £200k, and sell it for £250k, there’s a £50k profit there.

  • You have a capital gains tax allowance of £11.3k leaving you with £38.7k which you have to pay tax on, which is dependent on your personal tax rate.

Is it going to be profitable?

  • Ultimately the question you should ask yourself after assessing all of these factors, is it going to be profitable? Will it be worth your time? There are a lot of factors here, and it’s completely dependent on your personal situation.

How do you go about renting your home?

The next step is to look into how you’ll actually rent the property out. Unfortunately, you can’t just go, find a tenant and rent the property out, there are a few things that you need to do to prepare the property for tenants. 

Here’s a quick step-by-step may look better guide to get you started:
1. You’ve got to switch your mortgage to a Buy To Let

We touched on this earlier, but you’ll have to approach your mortgage lender, or get a mortgage, to switch your current residential house mortgage to a Buy To Let mortgage. This obviously doesn’t apply if you own the property outright.

2. Choosing whether you should let yourself, or choose an agent

You need to choose whether you want to do the hard work yourself, taking the property to market and managing the tenant yourself, or if you want someone to handle it for you. This will eat into your profits but will save you a lot of time.

3. Prepare the property

Similarly, if you were selling your property, it is important that you get your house ready for potential tenants to view.

Make sure to tidy and freshen up the property, fixing any small flaws such as cracks in the wall or flaking paint. You will also need to ensure the property is safe, as you’ll be responsible for the safety of tenants whilst they are in the property.

4. Get your insurance in line

As a landlord you need to get additional insurances, such as Landlord’s insurance. This specialist insurance will cover you should a tenant stop paying rent, cause any malicious damage, refuse to leave, the tenant suffers an accident or is damaged by storm, flooding or fire.

5. Know your responsibilities

As a landlord you have a lot more responsibilities than your standard property owner. You need to ensure the property is safe and free from any health hazards, all gas and electrical equipment is safely installed, you have an up-to-date EPC, the deposit is kept on a government scheme and you have given the tenants a copy of a how to rent checklist.

6. Time to find a tenant

Now you’re ready to find a tenant. The typical way of doing this is to approach an estate agent, although you can take the property to the market yourself and save some money, Facebook has been a platform growing in popularity for landlords looking to rent their property out.

What kind of profit can you expect from renting out your house?

Before jumping in, you want to ensure that you’re not going to be paying more on a monthly basis for the house than you’re getting back, and that’s where working out the rental yield comes into it.

As you already own the property, working out rental yield is slightly different than it would be if you were looking to buy it.

Rental yield is the percent of the overall value of the property that you get back every year.

Rental Yield = (Monthly rental income x 12) / property value

The difference here however is that you wouldn’t be looking at dividing it by the property value, instead you’d want to divide it by what you still owe on the property.

Would selling my house be easier?

That depends if you have the time & capital to be able to comfortably become a landlord. Selling a home is generally a lot quicker, easier and you get a large amount of equity much faster, whereas becoming a landlord is a much longer-term investment.

Just keep in mind that selling may still take a considerable amount of time & money if you choose to go through a traditional sale method, although we offer a sell house fast solution that may be beneficial if you are concerned about this.

What are the onward plans for renting my house out?

Depending on your onward plans, you might have to prove that you can afford to have both properties if you plan on buying another property. I know what you’re thinking, you’ll have a tenant and be turning a profit on the house you’re renting out, but have you thought about the times in which you might not have a tenant or if you need to pay for maintenance? Because your mortgage provider will!

You need to be able to afford payments on both properties at any given time, which is what your mortgage company will be looking at.

We’ve gone through a few of the things to consider, and here we’ve put together a quick list of pros & cons to becoming a landlord, to help you weigh up your options and summarise.

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The pros and cons of selling instead of renting your old property

So, what are the pros and cons of deciding to sell instead of renting out? 

We’ve pulled together a table for you:
It’s much less hassle and stressYour property is likely to grow in value over time
You can spend more on the property you live inYou’ll miss out on the continual equity stream
If you use the additional money to improve your current home, this won’t be subject to CGTThe property could have been part of your plans for a future pension fund
No unexpected bills
Not as much risk involved

Where do we come in?

If you’re on the selling side of the fence, then we may have the perfect solution for you. At The Property Buying Company, we are a cash house buyer who buy any house in any location in a time scale that suits you! Plus, we cover all the fees for you - even the legal ones!

We will only require one quick viewing of your property to make sure that our cash offer is accurate and as we are a genuine cash buyer, once you have accepted our offer that is the amount that you will get in FULL in your bank!

We are also a member of the National Association of Property Buyers and The Property Ombudsman, as well as being rated excellent on TrustPilot, with over 1000 reviews, allowing you to feel safe in our hands.

So, if you are ready to rent, give us a call or fill in our online form for a free, no-obligation CASH offer which we could have in your bank as soon as you choose…

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Mathew McCorry

If you read my property blog now, that'll be the end of it. I will not look for you, I will not pursue you. But if you don't, I will look for you, I will find you and I will make you read it.