Should I sell my under-performing property and invest better?

by Readers Question

14:59 PM, 19th November 2013
About 7 years ago

Should I sell my under-performing property and invest better?

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Should I sell my under-performing property and invest better?

I own a purpose-built first floor flat in a block of just 8 in St Albans, two bedrooms, 1 en-suite.

It was purchased in 2001 for £140k. It is rented for £800 but the mortgage, which is BTL interest only is £724 and management fees are £113. It’s had the same tenant for seven years and there is no letting agent involved. I managed to visit it recently for a gas check and it’s not in great condition – carpets need replacing and it could do with bath and kitchen goods etc, nothing major.

I took some equity out a long time ago and the current loan is £145k. RLA advised leaving as is because the tenant pays and there are no voids, or asking him to pay a bit more (market rate is probably £900 to £950 but he isn’t responding to that). Should I sell my under-performing property and invest better?

The problem is that many two bedroom flats have been built in St Albans over the past 10 years and most are closer to the station and a better spec than this one. Only one other flat in the block has been put on the market in that time and that only sold for £185k quite recently. I’m wondering if actually this is one to sell as I’ve learnt a lot since I purchased it and started doing BTL more seriously. The equity release after Capital Gains would be enough for a decent small HMO with a good yield.

Thoughts please!

Thanks

Sue


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Comments

Mark Alexander

15:04 PM, 19th November 2013
About 7 years ago

Hi Sue

My reading of this is that you have already made the decision to sell on the basis that you feel you can get a better return elsewhere.

There are probably a million what if's but there are only two potential outcomes and you can only pick one of them. Only you can make the decision and only time will prove whether it is the right one or not. If you believe you can make a better return and you are certain you have thought it through properly then I would say go for it.

Have you taken any specialist advice on possible strategies to reduce the CGT bill. Funnily enough, the Readers Article I published this morning was on that very subject - please see the link below
.

Joe Bloggs

14:43 PM, 20th November 2013
About 7 years ago

propose a much higher rent to the tenant giving him a choice of stay and pay or go. point out to the tenant that he is not having to pay any letting agents fees. if he says no, then sell as you are clearly loosing money.

Rob

15:42 PM, 20th November 2013
About 7 years ago

I think you also need to factor in how much it will cost you to sell the flat and then buy a HMO, you have solicitors and agents selling fees to sell the flat plus solicitors fees again and stamp duty to pay when you buy the HMO plus possible a void period in the middle of all that maybe. I would definatly increase his rent to 950 and if he does not like it then tart it up a bit and rent it to someone else for 950.

Kirsty McGregor

19:33 PM, 20th November 2013
About 7 years ago

Nowadays any business (property included) has to think about demand, supply but also marketing! So if others are getting £950 pcm, besides comparing the quality of your product (size, location, spec etc) also consider how effective your marketing is. If you 'tarted it up' you still have to be able to fet enough interest from tenants to sell it at £950 pcm...and that's largely down to the quality of the marketing & your product differentiation. It can be done! Have a look at http://www.rental-ratings.co.uk which would help you massively. Happy to advise both pre & post refurb.

13:08 PM, 22nd November 2013
About 7 years ago

I agree with JB and Rob Walsh.

When buying and selling a property there are always acquisition costs and these must be factored in when thinking of doing this.

It does not make good business sense to subsidise the tenant the way you are.

My advice would be to serve notice on him and agree at £900 pcm.

If he does move out, take the opportunity to do a small refurb and get the market rent.


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