9:33 AM, 28th September 2022, About A year ago 9
Good evening, I am looking for some expertise from the forum if possible please.
I am a landlord by mistake – currently to my sister. However, she is moving out soon and so I have a new dilemma:
1. Do I rent it out? (An area I have very little general expertise currently)
2. Do I sell instead (I would invest the money in the global equity markets – Which I am more comfortable with versus property given my profession).
The property is in North East London. The mortgage is coming up for renewal next July when I’ll need to remortgage it.
There is currently a 1% early exit penalty of 2.5k on it.
I am trying to figure out if renting out the property is worth my while so this is I guess where I am looking for some guidance. I’m treating this as an investment decision as referenced above – no need for advice on the alternate investment solution of global equity markets for reasons mentioned.
In terms of some useful info to be aware of:
I would like to maximise borrowing to 300k (or as much as poss) on 500k property. The mortgage is 250k currently. I appreciate the maximum I could borrow could change based off rates. I plan to pay back a loan of 100k to family with some of the funds – I can pay back the full amount today standalone but would like to maximise borrowing because I prefer to keep my funds invested in global equity markets (I appreciate they are currently down 20% or so but will likely rebound over the next 6 – 12 months as they always do after a bear market). I will repay the other 50k with funds I have in cash.
Based on 4.5% BTL mortgage which is about to expire, I can take out 300k of equity based on rental yields.
But I expect this to increase to 5-5.5% shortly, if not more dependent on interest rate increases.
The incoming rent will be around about 1650-1700 GBP per month.
On 300k @ 5.5% equates to about £1,400 interest payments. (Again this could increase soon). This means profit of 250-300 per month. Where is the lower limit of profit I should accept first of all?!
I am not expecting too much in the way of repairs or maintenance as when I was living there I refurbished it. However, I expect roughly 500- 600 gbp in landlord and building insurance. Annual electricity and gas certs at roughly 120 gbp.
Plus maybe some other unexpected costs that could take these up to 1000 gbp per year in total. (Please let me know if I am missing anything).
In terms of upfront costs –
I also have a landlord license of 700 cost due to the area the property is in.
Also I will have the EPC fees to think about so call this 60 gbp.
I am expecting remortgage fees of 2.2k (I am an expat so will need to pay a hefty upfront fee) too. If I remortgage now – I also would pay 2.5k early exit fee too.
I want to make sure I leave enough profit to cover unexpected costs.
I’d look to take out 5 year mortgage most likely to help spread the costs out – but realise this does lock me in for a while.
I will be able to claim 20% tax relief on the mortgage interest too as a non resident which should give me 3.3k in tax relief. This should mean I don’t pay any tax given I have no other UK based income and I will get my full personal allowance and be able to offset some of the above costs referenced.
To me, the profits are slim and the hassle of sorting out issues / tenants (I’d plan on doing this via open rent) leave me thinking that selling might be better right now.
I’d be able to repay the mortgage – albeit with a small exit penalty, pay back the loan and still have some profit (with no CGT to pay based on my calcs).
I feel comfortable I can get 10% annualised returns in equity markets over the long term. I appreciate the possibility of leveraged returns at a lower annualised rate of return should provide more in the way of investment returns in the long term but the profit margin and hassle in the short term are putting me off this route.
Would anyone view this differently?
Any advice or perspective would be appreciated.
Please let me know if I have missed any details that might be helpful to offer a more insightful perspective.
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