Am I missing a trick by owning my own property?

by Mark Alexander

9:20 AM, 26th March 2013
About 6 years ago

Am I missing a trick by owning my own property?

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Am I missing a trick by owning my own property?

Am I missing a trick by owning my own propertyTwo of my best friends are far more successful property investors than I am, however, they rent their own homes. 

Am I missing a trick by owning my own property?

One of them is a Director/shareholder in a property company which owns nearly 10,000 properties. He lives in a very modern barn conversion, A rated for energy efficiency, gated, top notch property. I would happily live there. It has to be worth well over £500k (which is a lot for mid Norfolk) and yet his rent is just £1,200 a month. My other friend tells a very similar story.

Their justifications for renting their homes have got me thinking. We debated this recently and all I could come up with is that “it would not feel like my home if I was renting it”. Their response was, well do your tenants feel that way. I was stumped! I couldn’t see why their landlords would settle for such a terrible rental yield either but that’s another story.

It was difficult for me to pick holes in their logic. If they had a big mortgage, which they both would no doubt qualify for, the repayments would be significantly higher than the rent. If they had just a small mortgage their argument was that it was very poor use of capital. Hard to argue against.

There reasons go on. How many landlords have got a Gas Safety certificate on their own home one friend asked? That could be a whole article for discussion on Property118 I thought to myself.

Both of them like the ability to constantly look for somewhere better to live and be in a position to move at the drop of a hat. The fact that neither of them move very often wasn’t a counter argument they accepted, it was knowing they could if they wanted to that mattered to them. It’s much more difficult to do that if you own your home they insisted.

The third thing they said to me really did get me thinking. They are both too busy fixing problems with other peoples homes to ever get around to their own. If something needs fixing they just call their landlord.

So I have two questions to ask you:-

1) Do you agree or disagree with their rationale and if so why?

2) Have you got a Gas Safety Certificate on a home you own and live in?



Comments

17:54 PM, 26th March 2013
About 6 years ago

We've basically done the same thing. We sold up 3 years ago & used our capital for BTL while renting close to our eldest son's secondary school. Next year we might move to be closer to our second son's school.

Our rental property is not great but the location (and size) for the price is. We wouldnt be able to get a residential mortgage easily as we are self employed/semi retired but we can get BTL as our main income is off our capital.

The only downside I would say is that we havent unpacked a lot of our boxes after almost 3 years as we arent sure if our landlord will keep renewing the lease as he was trying to sell when we first came. Also we downsized & have tons of mirrors & pictures but are now finally accepting that we arent going to use them so ebay will be getting them soon.

I cant really see us going back to being home owners(for ourselves) in the near future as financially for us it works better this way, but my mum,being old school, is constantly telling us we must buy & not pay off someone else's mortgage, even if it would be £300 pm dearer. She doesnt count our 5 BTL's as being on the property ladder.

Jerry Jones

18:46 PM, 26th March 2013
About 6 years ago

I too was a landlord and tenant at the same time. In 2008 I had to sudden;ly get a job back in the aerospace industry and to do so moved down to rural south Somerset, working in Crewkerne. I let my own small 2 bed end terrace 1980s starter home, worth £150k, for £625 a month and rented a lovely converted coach house with stunning views, worth over £300k, for £700 a month. Also, when the job went pear-shaped after 11.5 months (coincidentally!) I was able to give a month's notice and Foxtrot Oscar back up to North Somerset. Chose not to give my tenants the boot (had made friends with all the neighbours) and moved in with elderly Mum. She developed Alzheimer's so my house is now let to another tenant and I am a full-time carer with an adequate income from 7 lots of rent, while interest rates are low. Not how I planned on spending my late 50s!

When I get to sell her rather nice 4 bed county house I shan't be buying for myself, but renting where I choose in the sun. Cyprus was high on the list but we shall have to see how that goes. Nominal yields there on a house are about 2% so I could put the cash in a bank deposit account, pay the rent and still be ahead of the game. Plus, if it all goes wobbly where I live, I can just move on easily, knowing that I still own a number of houses in the UK to come back to if I am so inclined in the future. Oh, and there will be a nice liveaboard sailing boat, of course, so I might not need to rent somewhere to live in the sun anyway.

21:45 PM, 26th March 2013
About 6 years ago

Mark, your friend’s landlord may also be onto a winner here; his property is worth 500k so if he sells it and buys another similar property for 550k the transaction will cost him at least 25k and anything up to 40k if he needs a new mortgage. If he is renting even at 1500 per month the money he has not spent is equivalent to between 16 and 26 months rent. If his property asset increases during that time at between 2.5% and 5% per annum respectively he is notionally no worse off. In this period of property value uncertainty, any-one who is downsizing may well be better off to let to rent. Certainly we have seen tenants arriving in Oxford from Central London where they are happy to sit on a property asset that is going up in value at between 8 and 10% per annum and let it without a yield on the basis that they can rent a similar property in Oxford for about half the rent they are receiving from their London property.

Ian Ringrose

12:11 PM, 27th March 2013
About 6 years ago

How many BTL lenders are happy for you not to own your home?

Tony Atkins

18:13 PM, 2nd April 2013
About 6 years ago

I too am renting a house with my wife whilst letting out the majority of the rooms in my official owned residence 40 miles away. The reasons:

1) we met and got married after I bought my main house, and our rental location is in a more convenient location, half-way between our respective work places. Unfortunately this is in a significantly more expensive part of the country, so it is cheaper to rent than to buy here, especially when the economy is so uncertain and we don't want to commit all of our capital to one location.

2) It also pays to rent while we work through the current phases of our respective careers and my wife waits for a promotion prospect or an equivalent job to materialise in a more convenient location. Professional specialist careers combined with long-term hiring freezes means it pays to hang on to a job and wait for someone else to die, retire or move on in the locations you really want to live. Buying a house just ties you down in such circumstances.

3) I have a really good Base Rate + 0.5% mortgage which I suspect I would lose if I sold up - I too am effectively self-employed (I'm a director of my own company, so am paid a minimal amount and only take dividends as "income" when the company can afford it). My IFA says any housemove will be used by my mortgage company as an excuse to re-evaluate my affordability according to their much-stricter new criteria. I was once considered a good AAA risk and have never had a problem paying my mortgages over 25 years, but because I don't have a large conventional annual salary, but take my income/capital out of my business as and when I need it, I am now seen as a risky client. The terms of my mortgage do not guarantee me the right to move it to a new house, so I am effectively trapped, despite having over £600K in free cash which I use to capitalise my business and could draw down if I ever really needed it. The mortgage market is now dramatically biased against entrepreneurs and people trying to run businesses: self-certification loans were ideal but now unless you play the mortgage companies' game and show a reliable high income according to their definition of what constitutes "real" income (basically heavily-taxed PAYE salary and declared dividends, irrespective of tax-efficiency or business timing, and completely ignoring bonuses, capital gains, release of loans to one's business etc), you are stuffed.

I am therefore in agreement with Mark's friends: if you are running your own business and can put up with the renting lifestyle, it is currently often more tax- and capital-efficient to rent whilst also renting out one's own house!

4) I am sick and tired of the huge expense of moving houses: stamp duty in particular is far too high. Not moving houses just saves me a huge amount in tax caused by the vagaries of the employment market and repeated job-relocations.

5) I have large accumulated losses on my rental investment business, so because of the strange way HMRC taxes rental income, it is much cheaper to earn rent and pay little or no tax than to pay myself a conventional income or company dividends.

The main problem with renting is the lack of security if the landlord decides to sell up, and the poor quality of most available property. Our landlord is only renting to us to generate an income to keep his mother in a nursing home, so once she dies, we're probably out. Our previous landlord was only renting because he'd moved in with a new girlfriend who didn't want to live in his house because of its associations with his former partner, and he didn't want to sell up his principal asset. They therefore rented themselves and rented the house to us; their relationship then broke down and the landlord wanted his house back . . .


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