Which property will make a better return?
My goal is to get an income to replace my rental income. I have funds to cover the next few years but need to plan ahead. The choice is between a one-bed small freehold terrace vs a 3-bed leasehold flat
I was planning to sell my remaining BTL, a very small one-bed freehold house (£280K realistic sold price). I prefer to live in my 3-bed leasehold home (£480K) as it is in a better location with good transport.
However, the leasehold service charge and GR £3000pa and increases yearly. Due to this, it may be more difficult to sell as the lease is 99 years and some of the others 100 households, may also be selling.
My other option is to sell the leasehold and move to the Freehold to save the service charge but the freehold will need work (£8K). In a few years, I will need to replenish my funds for income. The other option is to take in 2 lodgers £1800pcm (incl bills). I have read that I may need an HMO license and also EPC, Boiler cert, EICR etc and when I sell I will probably have to pay more CGT, and not sure whether it is worth it as having strangers in my home (vice versa).
I had lodgers 10 years ago and things have moved on since then so I might have missed something. I was thinking if I sell the leasehold I will have money to invest but return is not guaranteed!
However, the freehold is too small to take on a lodger and I may have to live with my elderly parent for a few months every year and still would like to keep a property, and the leasehold cannot be left unoccupied for more than 2 months so definitely no lodgers.
I am not sure how much the value of my leasehold will grow in 10 years time. As the income from lodgers will be spent and not invested, whereas if I sell and invest the proceeds there may be a higher return as an income but it will be at least a few years away.
I am unsure which property may make a better return or provide a more’ guaranteed income.
Welcome your thoughts.
CL
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Member Since January 2015 - Comments: 1435 - Articles: 1
4:19 PM, 1st April 2025, About 1 year ago
Sell both. Move in with parent temporarily. Put money in a high interest fixed rate bond.
Wait for 2 to 3 bed freehold properties to come down in price – they will because (1) more small portfolio PRS landlords will be selling up (2) I’ve looked at property prices since 1989 (near bottom of the curve) and to me it seems about an 11 year cycle. Taking Covid into account plus EPC forthcoming legislation, I think the next real bottom of the curve will be 2027/29.
Then buy the 2 or 3 bed. Take in 1 lodger (currently up to £7,500 tax free on the Rent a Room Scheme) and no CGT liability when you sell. Take in 2 lodgers you then may pay income tax on the 2nd lodgers rent and pay CGT when you come to sell.
Member Since March 2024 - Comments: 18
12:23 AM, 2nd April 2025, About 1 year ago
Reply to the comment left by Judith Wordsworth at 01/04/2025 – 16:19
Sounds like a great plan, I am thinking of how to make it work as my parent lives in the Far East, with limited accomodation (and rent is high there), hence, I my original plan as I think I need to keep a base, may sell after 5 years
I have my first btl on the market since 6 months and the market is slow
I have no income so will have to be cash buyer and not certain how much a 2- 3 bed freehold be as at the moment in my area is about £850K +, if i can follow your suggestion, have to find somewhere to live, or sell the one bed and in live the 3 bed leasehold and get 2 lodgers while I try to sell or better to sell the 3 bed (if the market price is going to fall? and also is a leasehold)
I am getting our of the btl market as my property’s value have remain static for the past five years.,
I am hoping to get better return with equities but that is not guarantee but BTL is not for me so next option is lodgers.
As i may have to be away for a few months a year so will not have lodgers then and have to think of council tax etc but I am guessing the property value will increase more on a freehold than a leasehold flat? Also, thinking about CGT and Stamp Duty, first timer, may have missed something.