The goal of real estate investing is to maximise profits. But what happens when you’re an “accidental” landlord, owning a property you’re unsure whether to sell or fix and refurbish to rent? Passive incomes, while being “passive”, come with many responsibilities and efforts in the real estate industry. However, holding on to a rental property for too long can be risky. Prices fluctuate, and the condition of your home is depreciating. Not to say you’re likely paying some fees for your waiting.
If you stress over the “To sell or to rent?” question, the following considerations will help you gain a clearer vision.
When renting is better than selling
Before you assume it’s a good idea to rent your property, you should analyse the implications in the future.
Letting your property out might make sense in several situations, like when working remotely or moving abroad for work for an extended period. This is passive income you shouldn’t overlook. However, since you’re far, you should be 100% sure the tenants are trustworthy. Renters are looking for the same in you and your home. To legally let it out, you’ll likely need some modifications.
Clean your property thoroughly and focus on the bathroom and the kitchen. Consider hiring a professional for extra safety. Additionally, undertake the necessary repairs. Look for issues like
- Damaged roofs
- Cracked gutters
- Broken driveways
- Leaky taps or pipes
- Dangerous electricals.
When you venture into the real estate world, you’ll see that challenges can come your way. According to specialists from www.how-to-sue.co.uk, landlords can, too, be sued in some cases. They are responsible for offering their tenants a certain level of protection regarding the accommodation.
Understanding the implications
Understand the exact expenses of renting a home, including what improvements are necessary to legally rent to tenants, as they might cost several thousand pounds. If you believe the property market in your area is going to improve significantly in the following years is another scenario that makes renting out a mindful choice. Has it benefited from capital growth lately, and are these rises slowing? Is there a significant potential uplift, like malls or new transportation?
It would help if you understood the tax implications of earning rent. If the rental income takes your earnings high, are you losing benefits like child benefit? Additionally, there are some risks associated with renting, like the following:
- Tenant damage
- Eviction costs
- Job loss
In some places, like Scotland, Northern Ireland, and Wales, you need to be licensed or registered as a landlord to let your property out. In other areas, you might need a licence from the local authority.
Can you afford the mortgage and rent?
There are monthly mortgage payments and rental maintenance payments. Bear in mind the rental property management costs, even if your mortgage lender says that your rental revenue is enough to cover the mortgage interest payments.
Here are other rental property expenses you should consider:
- How many months of the year are you going to rent? As a general rule of thumb, you should prepare for a “dead month” when your property won’t be rented, like the one spent looking for new tenants.
- Can you cover the mortgage in case you’re unable to rent it? If you have trouble renting it out for a period of time, you should be sure that you can avoid repossession or a forced sale.
- Can you pay for your property’s maintenance? Determine whether you’ll afford to fix issues as they appear, like getting a new boiler or replacing the fridge.
What will happen to real estate prices?
The average UK house price grew with £12,801 since last year – an annual house price growth of 4.7%. What happens to property prices is likely to be the deciding factor in deciding whether to sell or rent a home and how quickly to act. If home prices grow, it’s worth building a property portfolio. But if they’re falling, your home’s value will also decrease.
If you’re planning to keep your property for many years, a short price dip shouldn’t be worrisome.
Will your mortgage company allow you to rent out your property?
When deciding whether to rent or sell, check your mortgage’s small print to see whether you can let your property out. Most mortgages have a condition that restricts you from renting out your home, and some allow you to do so for up to a year. There are also clauses that allow you to rent if you work remotely for a limited period and plan to return.
If you need to change mortgages, you will almost certainly need to turn to a (usually higher-interest) buy-to-let mortgage. This will likely include fees for new mortgage arrangements, a valuation survey, and early repayment.
How do you finance two properties?
Your financial position also impacts your decision to rent or sell. Suppose you need more confidence dealing with financial matters or are already financially stretched. In that case, you might regret the opportunity to sell your home when the real estate market is doing well. However, the world keeps facing economic uncertainty, recession, and other financial issues, so no one can guarantee where the prices are going. You should make sound, unbiased decisions using common sense.
Becoming a landlord requires effort, ambition, and, most of all, implication. One drawback to renting out is that it’s stressful. But if you find it appealing, letting your property out might be a great choice.
Additionally, you’ll have to keep up with goods and regulations as a landlord. You’ll have to ensure your property is safe, considering the following:
- Mould, damp, and condensation issues
- Gaz and electrical safety
- Trips, slips, and falls
- Security issues
- Poor hygiene
- Fire hazards.
Renting a home isn’t a small “job” or a “hobby”. You’ll have to meet many rules and regulations for your property to be legally and safely rented.
Before renting your property, be clear on what to expect.