Should I sell my BTL ?
Discussion
Ok, so 12 months ago I purchased a property to develop and eventually live in. I was in the fortunate position to buy this new property but keep my old property and rent out which is exactly what I have been doing over the last 10 months or so however I’m now thinking it’s not really worth doing any more.
The rental property is valued at £160k with a £100k let to buy mortgage on it. There is a redemption penalty of about £1,500 if I sell it in the next 12 months. To counter that I paid second property stamp duty on my new house of which £8k will be refunded to me if I sell my rental in the next two years.
The rental figures are these……….i get £650pcm in rent (possible £725 if I reviewed) and the mortgage is £210. Insurance plus gas certs etc I account for about £30 a month leaving me with a profit before tax of £410 per month. Over the year let’s call it £5k but once the new tax laws come fully come into effect I’m walking away with about £2.8k profit as I’m a 40% tax payer on my day job.
I’ve come to the conclusion that £2.8k profit on a £60k investments ain’t that great and the risks far outweigh the reward. A few months missed rent, an eviction etc. and it’s wiped out two years profits. I know I stand to gain on the capital value (Brexit anyone) but even so I’m not sure it’s worth it.
So, I’m thinking of selling up and that my lump sum would provide a better return via a stocks and shares fund (up to ISA limit). What do you all think? Two other factors I guess, my house has solar panels on that I own outright and that provides an annual tax free income of £1,300 a year but my tenant has also just given notice. S is prepared to stay till mid-August potentially meaning I could sell it without having to market it with an empty period.
So, do I a) sell
b) keep
c) seek proper financial advice
d) another?
Thanks in advance
Jon
The rental property is valued at £160k with a £100k let to buy mortgage on it. There is a redemption penalty of about £1,500 if I sell it in the next 12 months. To counter that I paid second property stamp duty on my new house of which £8k will be refunded to me if I sell my rental in the next two years.
The rental figures are these……….i get £650pcm in rent (possible £725 if I reviewed) and the mortgage is £210. Insurance plus gas certs etc I account for about £30 a month leaving me with a profit before tax of £410 per month. Over the year let’s call it £5k but once the new tax laws come fully come into effect I’m walking away with about £2.8k profit as I’m a 40% tax payer on my day job.
I’ve come to the conclusion that £2.8k profit on a £60k investments ain’t that great and the risks far outweigh the reward. A few months missed rent, an eviction etc. and it’s wiped out two years profits. I know I stand to gain on the capital value (Brexit anyone) but even so I’m not sure it’s worth it.
So, I’m thinking of selling up and that my lump sum would provide a better return via a stocks and shares fund (up to ISA limit). What do you all think? Two other factors I guess, my house has solar panels on that I own outright and that provides an annual tax free income of £1,300 a year but my tenant has also just given notice. S is prepared to stay till mid-August potentially meaning I could sell it without having to market it with an empty period.
So, do I a) sell
b) keep
c) seek proper financial advice
d) another?
Thanks in advance
Jon
I agree get out and buy S&S Isa(over 3 years) and its going to be pretty much tax free.
I have sold my BTL's recently and its all going to be invested in Stocks and Shares - Mainly Global Passive Funds with a few others in the mix.
Long term BTL's might be ok but they have become a soft target for the chancellor and who knows when that will stop.
Also you could end paying 28% CGT on the BTL if you keep it long term and you are a higher rate tax payer.
I have sold my BTL's recently and its all going to be invested in Stocks and Shares - Mainly Global Passive Funds with a few others in the mix.
Long term BTL's might be ok but they have become a soft target for the chancellor and who knows when that will stop.
Also you could end paying 28% CGT on the BTL if you keep it long term and you are a higher rate tax payer.
Vladikar said:
I'm not an expert but surely the risk of a rising asset is better than S&S ISA. The risk vs reward on your property, I'd take the risk for sure.
Owning one BTL is a very specific bet on the fortunes of a particular country, region and town and on the state of repair of one set of bricks and mechanical/electrical equipment...An S&S ISA allows you to benefit from economic growth all over the world, if you choose to buy global equity index trackers, with zero hassle (it takes me 5 minutes every April to manage my ISA for the year, and it's 100% online).
That diversification is massively beneficial and over the long term should generate higher returns.
Whilst UK property has had lots of tailwinds for the last 30 years there is no guarantee that the future will resemble the past.
To the OP, I think you have demonstrated that the running yield on your BTL is not great, so you are effectively playing the capital appreciation game. I suspect you would make your life easier by selling in a year when your mortgage prepayment penalty rolls off, but soon enough to claim back stamp duty on your other property.
Vladikar said:
I'm not an expert but surely the risk of a rising asset is better than S&S ISA. The risk vs reward on your property, I'd take the risk for sure.
If I'm wrong could someone explain why that might be the case?
Why do you think property is a rising asset but shares are not?! If I'm wrong could someone explain why that might be the case?
Both are assets that can rise and fall in value. Over the long term shares have historically outperformed property.
A S&S ISA is also liquid and tax free.
Property is far less liquid and subject to income tax and capital gains tax.
The OP is looking at a future c. 4.5% yield on £60k (with further £100k leverage to support this) based on one single asset.
If selling now returns £8k in stamp duty then this obviously needs to be factored into the equation when it comes to total returns.
As is often the case there is no right or wrong answer, just different ones when looking at things from different angles.
NickCQ said:
Whilst UK property has had lots of tailwinds for the last 30 years there is no guarantee that the future will resemble the past.
Tailwind has been there for properties for the last 100 years at least (since some formal records been kept) has it not? 1905 Letchworth sale price £150 (copied from another site cant verify.)
2012 sale £400k to £500k
1972 Lewes Sussex £3000 .
2018 £330k
1982 £150k
2009 £560k
2019 £750 - £800k approx. Sussex
31st January 2018 Property sold for £355,000
14th December 2004 Property sold for £249,950
30th October 2000 Property sold for £146,500
Its the capital increase that the claim to fame if/when you cash it in and a long term view 10+ years?
Have a look at the last 20 years...
https://www.economicshelp.org/blog/5709/housing/ma...
Nothing wrong with property - I have a lot of money invested in it - but has been my worse performing asset class.
https://www.economicshelp.org/blog/5709/housing/ma...
Nothing wrong with property - I have a lot of money invested in it - but has been my worse performing asset class.
Have you considered moving the property into a limited company?
It won't be free of cost to make the transfer as you will likely need to pay stamp duty and you will have the costs of running the limited company accounts. But you can then offset fully your mortgage costs. Plus you can retain the profits within the company (or reinvest if you wish) and so you can withdraw them at a later point in your life when it is beneficial to do so.
You would need to consider whether you would need to remortgage. The simple answer is to say you would. However, some BTL people have split the legal ownership from the beneficial ownership (the beneficial ownership moving to the company, whereas the legal ownership is retained by you as an individual), which for certain mortgage lenders means you may not need to advise the change (depending upon their specific T+Cs). But you would need to take advice on this. It probably isn't applicable for just one property, but I mention it just for reference.
As to what you should do with your investment, my view is that it depends if you like being a landlord and would like to expand.
If you plan to stick with just the one, I would probably sell, reclaim the extra stamp duty you paid, and stick to first paying the maximum amount into your pension.
If however, you enjoy it and like the challenges, you could set it up properly in a company and then expand. There are going to be lots of properties you can pick up from other landlords as the BTL tax regime starts to bite.
It won't be free of cost to make the transfer as you will likely need to pay stamp duty and you will have the costs of running the limited company accounts. But you can then offset fully your mortgage costs. Plus you can retain the profits within the company (or reinvest if you wish) and so you can withdraw them at a later point in your life when it is beneficial to do so.
You would need to consider whether you would need to remortgage. The simple answer is to say you would. However, some BTL people have split the legal ownership from the beneficial ownership (the beneficial ownership moving to the company, whereas the legal ownership is retained by you as an individual), which for certain mortgage lenders means you may not need to advise the change (depending upon their specific T+Cs). But you would need to take advice on this. It probably isn't applicable for just one property, but I mention it just for reference.
As to what you should do with your investment, my view is that it depends if you like being a landlord and would like to expand.
If you plan to stick with just the one, I would probably sell, reclaim the extra stamp duty you paid, and stick to first paying the maximum amount into your pension.
If however, you enjoy it and like the challenges, you could set it up properly in a company and then expand. There are going to be lots of properties you can pick up from other landlords as the BTL tax regime starts to bite.
superlightr said:
Tailwind has been there for properties for the last 100 years at least (since some formal records been kept) has it not?
Property has grown broadly in line with earnings (as you would expect) over the last 400 years - this book is a good readhttps://www.amazon.co.uk/Safe-Houses-Historical-An...
The last 20 years, when we have experienced the biggest UK property bubble in history (or as far as records go) is not normal. Nor are negative real interest rates. The BOE are of course aware of this but choose to kick the can down the road.
Edited by Derek Chevalier on Wednesday 22 May 09:36
Derek Chevalier said:
superlightr said:
Whilst UK property has had lots of tailwinds for the last 30 years there is no guarantee that the future will resemble the past.
Property has grown broadly in line with earnings (as you would expect) over the last 400 years - this book is a good readhttps://www.amazon.co.uk/Safe-Houses-Historical-An...
The last 20 years, when we have experienced the biggest UK property bubble in history (or as far as records go) is not normal. Nor are negative real interest rates. The BOE are of course aware of this but choose to kick the can down the road.
that's not my quote. I was suggesting the opposite superlightr said:
Derek Chevalier said:
superlightr said:
Whilst UK property has had lots of tailwinds for the last 30 years there is no guarantee that the future will resemble the past.
Property has grown broadly in line with earnings (as you would expect) over the last 400 years - this book is a good readhttps://www.amazon.co.uk/Safe-Houses-Historical-An...
The last 20 years, when we have experienced the biggest UK property bubble in history (or as far as records go) is not normal. Nor are negative real interest rates. The BOE are of course aware of this but choose to kick the can down the road.
that's not my quote. I was suggesting the opposite Gassing Station | Finance | Top of Page | What's New | My Stuff