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Deciding whether to put your property on the market or lease it out can be a complex and difficult decision to make.
The right option for you depends on many different factors, including your current circumstances, future plans, the condition and location of the property, and the health of the housing market.
Before you can make an informed decision about whether to sell or let your property, you’ll need to do a little research and weigh up the pros and cons of each option.
If you’ve never been a landlord before, letting your house is not a decision that should be taken lightly. Landlords are subject to a lot of rules and regulations, and getting set up as a landlord can be a complicated job.
In this article, we will look at the key factors that should influence your decision on whether to sell or rent out your property. We will also explore the pros and cons of each option to help you to make an informed decision.
To Sell or to Rent? 7 Essential Factors to Consider
Your home is likely to be one of your most significant assets and deciding whether to sell or let it can be a complex decision with huge implications.
We’ve put together a list of some of the most important factors that you should take into consideration when deciding which option is right for you.
When making your decision, you should consider each of these factors and assess the impact that they could have on your financial situation and lifestyle to ensure that you make the best choice for your unique circumstances.
Financial Considerations You Should Consider Before Selling or Renting Your Property
- Renovating or refurbishing your property for tenants
Before a property can be rented out to tenants, it will require some degree of renovation or refurbishment to bring it up to the required standards. First, you should assess how much work is required, considering whether the updates needed are purely cosmetic or if more extensive repairs or improvements are needed. If you plan to rent out the property as a house in multiple occupation (HMO), it may require considerable work to comply with HMO regulations. After evaluating the property’s condition and getting quotes on repair work, you will need to determine whether the rental income that could be generated will justify these costs.
- Ongoing landlord expenses
Renovating or refurbishing your property ready for your first tenants is just the tip of the iceberg when it comes to landlord expenses. To ensure that you can afford to own and maintain a rental property as well as your own home, it’s important to consider all the associated costs involved in the day-to-day management of a rental property. Additional expenses to factor in may include:
- Ongoing repairs and maintenance costs.
- Fixtures and furnishings for your rental property.
- Fees for advertising your rental property.
- Regular gas and electric safety checks.
- Landlord insurance.
- Additional stamp duty charges.
- Additional council tax and utility bills.
- Letting agent fees (should you choose to use one).
- The tax implications of renting out the property
When deciding whether to rent out your property, it’s important to consider the tax implications that come with being a landlord. Landlords are required to pay income tax on their rental income. The amount owed depends on other earnings and allowable expenses. Additionally, if you then choose to sell the property in the future, you may be liable to pay capital gains tax on the property made from the sale. The rate of capital gains tax varies depending on your income and the amount of the gain. By selling your property now, whilst it is your main place of residence, you can avoid paying capital gains tax.
Consider Your Personal Circumstances Before Renting or Selling
- Will your mortgage allow you to rent out the house?
If you’re seriously considering letting and you’re still paying a mortgage on the house, you’ll need to speak to your mortgage provider to find out whether you can let the property with the type of mortgage you have. Some mortgage agreements have restrictions on renting out the property or may require you to switch to a buy-to-let mortgage. However, if you’re only planning to let the property temporarily, then your lender may be able to provide you with ‘consent to let’.
- Do you have the time to be a landlord?
One huge mistake that many first-time landlords make is underestimating the amount of time and work that managing a rental property requires. Running a rental property is not a passive income by any stretch of the imagination. Landlords have a huge number of responsibilities to ensure that they stay compliant with legislation and keep their property in good condition and their tenants safe. Managing a rental property requires you to be available to address tenant problems and answer queries 24/7. If you plan to manage an HMO, then you should be prepared to dedicate even more time to managing the property and its tenants.
Take the Housing Market into Account During Your Decision Process
- How is the house’s value forecast to change?
If property prices in the area are on the rise, it may be more financially beneficial to retain your property, lease it out, and use the rental income to pay off the mortgage. Opting to sell your property during a period of appreciation could mean missing out on opportunities to maximise your profits.
- What is the rental market like in the area?
When contemplating whether to sell your property or let it, one of the most important factors to consider is the rental market’s strength in the area. With a little research, you can assess the demand for rental properties similar to yours and the average rental prices for comparable properties in the area. Zoopla and Rightmove are good places to start your research. It can also be useful to identify the type of tenant that the area is most popular with.
Pros and Cons of Letting
There are two types of landlords, those that planned to own an investment property and “accidental landlords”, those who find themselves thrust into the role by unplanned circumstances. Some common scenarios that result in people becoming “accidental landlords” include:
- They are working away from home temporarily or for an unknown period.
- They are struggling to sell their property.
- They are moving into another property with a partner.
- They’re unsure yet whether they want to move.
If you find yourself in any of the circumstances listed above, letting your property instead of selling it could be a good solution.
If you can afford it, keeping your property as an investment and renting it out to tenants, sounds like a sensible idea on paper. The rental income you receive could provide you with an additional stream of income and you could use this income to cover the mortgage payments on the house. Then, once the mortgage has been paid off, if your property has increased in value, you could benefit from a tidy sum of profit in capital growth.
On the other side of the coin, you’ve got to consider the outlook if things don’t go as swimmingly. There is a risk that you could end up lumbered with an unsuitable tenant, who could stop paying rent or cause damage to your property. If you struggle to find tenants and your property is left void for a period, you may find yourself in a situation where you have to bear the burden of paying the mortgage on both your primary residence and the rental property without the support of rental income. Let’s not forget the ongoing costs of managing a rental property and the considerable amount of time and effort that the job requires. You will need to be available to address tenant concerns around the clock unless you choose to use a letting agent or assistant, which incurs additional expenses.
If you can afford it, renting your property out instead of selling it can be a good investment, but it doesn’t come without its challenges and risks.
Pros and Cons of Selling
For some people, taking on all the responsibilities of a landlord is just not a viable option for their lifestyle. If you don’t think being a landlord is for you, or if you’d rather just close the door on that chapter of your life and move on from the property in question, then selling your house may be the most sensible option.
By choosing to sell your property, you will also put yourself in a better financial position for spending a little more on your next home. Selling your house could release a lump sum of equity from the property for you to spend or invest elsewhere. Another key benefit of selling straight away rather than holding onto the property and letting it, is to avoid capital gains tax. Capital gains tax is only due on properties that you have made an income from, not those that were your main place of residence.
However, selling your property can be a lengthy process and it could also mean missing out on potential gains if the housing market is strong and properties in the area are increasing in value. If the property is in negative equity, you will also need to find the money to pay off the mortgage if you want to sell the property.
Selling your property rather than letting it out certainly seems like the simplest and most hassle-free solution, but it may not be the most profitable option in the long term. Whilst the housing market is impossible to predict, with a little bit of research you can usually determine whether house prices are rising or falling and weigh the potential gains against the costs of capital gains tax if you decided to let your property and then sell it later down the line.
The Rental Market in 2023
Although the housing market is inherently unpredictable, experts predict a decline in house prices in 2023. Furthermore, landlords are expected to face increasingly stringent regulations in the coming year, particularly concerning energy efficiency standards. Despite these potential challenges, the UK’s persistent shortage of rental homes suggests that demand for rental properties is likely to continue to rise, along with rental prices.
Ultimately, the decision to sell or rent out your property depends entirely on your unique circumstances and is not a decision that should be rushed. Take your time to weigh up the pros and cons of each option and seek professional advice if you’re still not sure which option makes the most financial sense.
