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Should I Sell My Home Or Rent It Out?

Property Saviour » Landlord » Should I Sell My Home Or Rent It Out?

Moving home can be a difficult experience that requires you to make decisions you never thought you’d have to. One of the most difficult choices is selling or renting your home.

If you are fortunate enough to be able to move to a new property and afford the deposit without selling your current one, you might consider renting it out to generate some extra income.

In this article, we’ll look at whether it’s better to sell or rent your home, how Capital Gains Tax might affect you, and whether becoming a landlord is right for you.

Table of Contents

Should I sell or rent out my house?

Deciding whether to sell or rent out your property is something many homeowners consider, but it’s often an issue that is forced upon them.

If you find yourself in a situation where you have to let out your current property instead of selling it, you are an “accidental landlord.” This can come about for several reasons, such as needing to move for work or the property not selling.

Other people choose to rent out as it’s a great way to establish a buy-to-let portfolio, as long as you can afford it.

The answer to whether you should sell or rent your property completely depends on your circumstances. If you need the money from the sale, then selling is the way to go.

On the other hand, if you can afford to wait and rent your property out, you’ll have a steady source of income and can wait for the right time to sell. Becoming a landlord comes with its costs, such as being taxed at full rental income.

Landlords now get taxed on their full rental income and not being able to offset mortgage interest as a tax-deductible expense.  This means you could end up with a huge tax bill at the end of the financial year!

Things to consider if you rent out your house and become a landlord

Becoming a landlord can seem great, after all, who wouldn’t want to make some extra money while growing their property’s value? But there is more to it than just that. Before taking the plunge, there are many other things to think about.

As a landlord, you become a lender to your tenant – an overdraft facility without the interest.  If your tenant splashes on a big birthday or Christmas, you are unlikely to receive the rent.

If you rent to a couple, you could end up offering them relationship advice – and budgeting tips!

 Before you can rent out your property, you must check that your tenants have a right to remain in the UK.

Should I Sell My Home Or Rent It Out
It is important to be prepared for the worst-case scenario when you become a landlord

Do You Fancy becoming a Landlord?

Being a landlord comes with huge responsibilities from compliance to being a lender, a marriage councillor and an immigration officer.

Hard work

If you are weighing up the decision to sell or rent out your home, it is important to be aware that being a landlord is no easy task.

Many people think that renting out a property means they will be able to sit back and watch the money come rolling in, but this is far from the truth. The level of difficulty depends largely on the kind of tenants you get.

You could have tenants who are great and cause you minimal stress throughout their stay. You will still need to spend some of your time and resources on upkeep and maintenance, but this is the ideal situation.

On the other side of the spectrum, tenants could expect you to change lightbulbs or fix small issues with the property, which can take up a lot of your time.

It is important to be prepared for the worst-case scenario when you become a landlord. You could have tenants who withhold rent, cause damage to your property, or even trash the place, leaving behind hundreds or thousands of pounds worth of destruction.

Though it is an extreme example, you must be ready to handle any situation that may arise.

Mortgage issues

If you’re looking to rent out your property, it’s important to know that your current mortgage might not allow it.

You’ll need to check with your mortgage company and look into switching to a buy-to-let scheme. Some lenders make this process relatively easy, while others may not. There may be a cost involved, as you may have to switch mortgage providers.

Even if you don’t receive rent from your tenant, you must still pay your mortgage or risk repossession.  Cash flowing the property when no rent is coming in is the most difficult part.

Income tax issues

The government is making it less appealing to be a landlord, raising taxes and making the process more complex.

If you’re debating renting or selling, you need to be aware that if you make more than the maximum personal allowance, you’ll have to pay tax at the usual rate if this puts you in a higher tax bracket.

When computing your taxes, the total rental income during the financial year is taken into consideration. Some costs that used to be tax-deductible, such as mortgage interest, will no longer be accepted.

What is a Capital-Gains-Tax?
If the property is a second property and its value has increased since you bought it, you will need to pay the tax on the increase in value.

Capital Gains Tax

If you choose to sell your property in the future, you may be liable for Capital Gains Tax (also known as CGT). This is a tax imposed on the profit made from the sale of the property.

If the property is a second property and its value has increased since you bought it, you will need to pay the tax on the increase in value.

House Health & Safety Rating System (HHSRS)

As a landlord, you must meet a higher set of rules and regulations, as stated by the Housing Health and Safety Rating System (HHSRS). You must take into consideration various aspects and comply with certain standards in order to be able to let out the property. These include:

  1. Fire risks
  2. Poor sanitation
  3. Damp, condensation, or mould issues
  4. Inadequate heating system
  5. Tripping or slipping hazards
  6. Security issues
  7. Gas safety
  8. Electrical safety

You can find out more about HHSRS through the Gov.uk website.

Extra Insurances

As a landlord, you need to be aware of some extra costs, such as insurance. While there are no legal requirements, there are some insurances you should consider.

Here’s a list of those you may want to look into:

  • Liability insurance
  • Contents and buildings insurance
  • Loss of rent insurance
  • Tenant default insurance
  • Accidental damage insurance
  • Alternative accommodation insurance
  • Unoccupied property insurance
  • Home emergency insurance
  • Legal expenses insurance

It’s worth taking the time to research each of these insurance policies to make sure you are adequately covered.

When does renting out your property make sense
You can get a letting agent to handle much of this, but it will cut your profits.  If you definitely want to be a landlord, you will need to switch your mortgage to a buy-to-let.

When does renting out your property make sense?

There are a few situations in which renting out your home could benefit you. Here are some of the most obvious ones:

  1. If you’re only temporarily moving away, such as for a work opportunity abroad, renting could be a great option.
  2. If the property market in your area is predicted to increase in the upcoming years, renting could be a great way to capitalise on this.
  3. If you don’t have a mortgage on the property, you can use it as an additional source of income.
  4. If the rental yield of your property is high (calculated by dividing the annual rental income by the value of the property), renting may be a great opportunity.

What factors should you consider if you want to rent out your home?

Do you have the time to become a landlord? Becoming a landlord can be quite demanding. You need to find a tenant, be always contactable in case something goes wrong, and ensure that your income tax is paid and recorded.

You can get a letting agent to handle much of this, but it will cut your profits.  If you definitely want to be a landlord, you will need to switch your mortgage to a buy-to-let.

Switching your mortgage to Buy To Let

You should also contact your mortgage company about the possibility of changing your current residential mortgage to a Buy To Let mortgage.

Some lenders may not allow this, so you may need to find a different mortgage provider.

What will happen to the house prices
You will need to pay income tax on your earnings and Capital Gains Tax (CGT) when you sell.

What will happen to the house prices?

Renting out your property can be an attractive option if you think the property price will increase over time. However, it’s difficult to predict if that will be the case, so before you become a landlord, make sure to research the house price trends in your area.

Doing your due diligence is essential for making an informed decision.

Income tax & CGT

You will need to pay income tax on your earnings and Capital Gains Tax (CGT) when you sell. This can be a sizable amount of your profits when you come to sell. For instance, if you buy a property for £200k and sell it for £250k, you will make a profit of £50k.

You are allowed a Capital Gains Tax allowance of £11.3k, meaning you would have to pay tax on the remaining £38.7k. This depends on your tax rate.

Is it going to be profitable?

You should ask yourself if this investment will be profitable and worth your time after considering all these factors.

The answer will depends on your individual circumstances. 

How do you go about renting your home
You have to decide if you want to put in the effort to market the property and manage the tenant yourself or if you'd rather have someone else take care of it.

How do you go about renting your home?

The next step is to investigate how to rent the property out. It’s not merely a matter of finding a tenant and renting it.  There are steps to take to get the property ready for tenants.

Here’s a quick step-by-step guide to get you started:

  • You’ve got to switch your mortgage to a Buy To Let

To switch your current residential house mortgage to a buy-to-let mortgage, you’ll need to talk to your mortgage lender or get a new mortgage. This doesn’t apply if you own the property outright.

  • Choosing whether you should let yourself or choose a letting agent

You have to decide if you want to put in the effort to market the property and manage the tenant yourself or if you’d rather have someone else take care of it. This may reduce your profits, but it will save you a lot of time.

  • Prepare the property

Preparing your property for potential tenants is important. Ensure it is tidy and freshened up, and fix any small problems like cracks in the wall or flaking paint. Safety is also a must—as the landlord, you are responsible for the safety of tenants in the property.

  • Get your insurance in line

As a landlord, you should consider obtaining extra insurance, such as Landlord’s Insurance. This type of insurance provides coverage in case a tenant stops paying rent, causes deliberate damage, refuses to vacate, suffers an accident, or is affected by storm, flooding, or fire. 

  • Know your responsibilities

As a landlord, your responsibilities are more than those of a typical property owner.

You must make sure the dwelling is secure and free of any health risks, all gas and electrical equipment is correctly installed, you have a current Energy Performance Certificate, the deposit is held on a government-approved scheme, and you have provided tenants with a ‘How to Rent’ checklist.

It can be challenging, but it is possible to keep up with the regulations.

  • Time to find a tenant

Now, you’re ready to find a tenant. Approach an estate agent, or take the property to the market yourself and save some money. Facebook has been growing in popularity for landlords looking to rent their property out.

But be careful.  Renting a house means doing thorough background checks, and even then, criminals use stooges to apply for your property and turn it into a cannabis factory.

What kind of profit can you expect from renting out your house?

Before jumping in, you should make sure you’re not going to be paying more for the house every month than you’re getting back in return. To do this, you’ll need to calculate the rental yield.

As the house is already yours, calculating the rental yield is slightly different than if you were thinking of buying it. Rental yield is the percentage of the total value of the property that you’ll receive each year.

It’s calculated as (Monthly rental income x 12) divided by the property value. However, in this case, you would divide it by what you still owe on the property instead.

Would selling my house be easier than renting
Selling a home is usually much simpler, and you get a substantial amount of equity quickly, whereas becoming a landlord is a more long-term investment.

Would selling my house be easier?

That depends on whether you have the time and money to become a landlord comfortably.

Selling a home is usually much simpler, and you get a substantial amount of equity quickly, whereas becoming a landlord is a more long-term investment.

Even selling the house can take a lot of time and money if you use an estate agent, although we offer a fast house-selling solution that could be useful if this is a concern.

Where do we come in?

Are you looking to sell your home?  Property Saviour can help! We are a cash house buyer who can purchase any house in any location and within your timescale. 

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