At Mr Homes we encounter many of what the industry refers to as ‘accidental landlords.’ This describes a person who is letting their own home without doing the necessary due diligence.
These ‘accidental landlords’ usually fall into one of two categories; the first are those who have made the best of a bad situation, perhaps letting a property that they couldn’t sell. The second are those who were not suited to the role of landlord, for whom ‘falling’ into this role did not end well, perhaps losing their once beloved home to damage or failing to receive months’ worth of rent repayments.
However, if you’re reading this blog it’s likely because you’re intentionally considering becoming a landlord, and looking to do your due diligence in weighing up the pro’s and con’s beforehand– we can help with that!
Pros of Selling Your Home
When comparing selling your home with letting your home, there’s one large advantage that usually springs to mind, selling releases an instant lump sum of equity. This large lump sum might be crucial in helping to buy your next home, or can simply prove beneficial as a ‘rainy day’ fund.
However, you might not have considered the many other advantages you’ll encounter if you chose to sell your home rather than let, some of these are as follows:
- Can be a ‘quick fix’ – Selling your home is undoubtedly less hassle long-term than letting your home would be. Of course, selling is not always quick and can carry its own host of problems, but in the long run letting will usually require more time and energy. Essentially, once you have sold your property it is no longer your concern.
- Avoid tax – As the property your selling was your residential home you won’t be liable to pay any capital gains tax on the profit you make.
- Invest in your new home – If you’re selling your property to move to a new home you can use the profit from your property sale towards your next deposit or any home renovations.
- Instant return on investment – The current rising property market could mean you secure a great return on investment when selling your property.
Cons of selling your home
As with most things, there are also a few possible drawbacks you should consider before choosing to sell your home
- The state of the market – You risk selling your home when the market is falling and losing out on potential return on investment.
- Loss of investment – Selling your home at the wrong time might mean you’re selling a lucrative asset too soon. In this instance you would fail to reap the reward of an asset that could grow substantially with time.
- Negative equity – If your property sells in negative equity you might need to find more cash to pay off your mortgage.
- Sentimental value – One of the reasons many people chose to let their property is because they’re not yet ready to part with their family home.
Pros of Letting Your Home
Whilst we’re sure you’ve heard a few horror stories surrounding late rent payments, costly property damage and ongoing disputes. You might not be aware of the many rewards that come with being a landlord, some of these are as follows.
- Reliable income – Regular rent repayments provide landlords with a steady, reliable form of income.
- Maintain ownership – As previously mentioned, homeowners might often choose to let out their property as they are not yet ready to part ways with their family home. Maintaining ownership can also be ideal if you’re moving away temporarily.
- Capital growth – As previously mentioned, selling your property might mean losing an asset that could grow in value with time. Letting your property allows you to benefit from capital growth, as your asset has the opportunity to increase in market value.
Cons of Letting Your Home
Now you’re aware of some of the advantages associated with being a landlord, you should consider some of the possible disadvantages before making your final decision.
- Taxable income – Any income received through property rent will be taxable.
- A long-term hassle – Letting out a property can require a lot of time and money. Issues such as property maintenance, property viewings, being compliant with current legislations and marketing your property to find prospective tenants can all eat into your bank account and your daily life. Alternatively, if you chose a good estate agent all of this will usually be taken care of for you, to find out more read our article on the ‘dangers of private renting.’
- No ‘instant equity’ – As previously mentioned letting your home is a long-term investment that can provide you with reliable income. However, this might not be suitable if you’re relying on instant equity to purchase your next home.
Circumstances where letting makes sense
There are certain circumstances where letting your home could be the most suitable option. If the following situations apply to you; landlord status might just be calling your name!
- Moving temporarily – In this situation retaining your property might be the most sensible option as your home essentially remains a base waiting for your return.
- You can afford to let – If you don’t require the instant equity that selling offers then letting could be a suitable option. You should also carefully consider the costs that are associated with letting a property and whether or not they are affordable
- The market’s not ready – What is your home currently worth and could it be worth more in the future? If the market is at an all-time high then selling your property could be the best course for action. However, if the property market is at a low then letting can allow for capital growth, so you’ll yield a bigger return in the future.
Circumstances where selling makes sense
Similarly, there are certain circumstances where selling your home simply makes sense. If any of the following circumstances are applicable to you, then selling your home might be the best decision.
- A booming property market – Selling your home can be a sensible decision if the property market is at a high. Equally, if the property market is currently suffering, selling your home might not be in your best interests.
- Pursuing new investments – Selling your home could be the best solution if you require instant equity for new investments such as renovating your new home, investing in a business venture or repaying any debt.
- You don’t have the time or money – Selling might be a sensible decision if you don’t have the time to commit to being a landlord, or the money to fulfil the maintenance costs associated with letting.
How we can help
The team at Mr Homes can help you decide whether to sell or let your property. We offer free market appraisals, and advise you on the state of the property market for both sales and rental.
Contact a member of the team today to discuss your unique circumstances.