If you plan to move house, you probably expect to sell your current property first. However, that may not always be the best financial decision. So is it better to sell or rent out your central London home, and how do you decide?
When people ask us whether they should sell their house or rent it out, we would love to give them an immediate answer that sends them away satisfied they are doing the right thing. Unfortunately, there is no one size fits all solution. The response we end up giving them will depend on their circumstances.
Should I sell my house or rent it out?
When buying a new home, most people expect to sell their existing residence because they need to release the equity tied up in their current home to buy their next property.
However, there are several situations when renting out your home, rather than selling it, would make good sense:
- If you are moving away temporarily and plan to return to the property.
- If you are buying a property with your partner, renting out one of the properties and selling the other could provide you with enough capital to buy your new home and allow you to earn rental income from the other property.
- Your house isn’t selling, but you need to move quickly.
- You can afford to buy your new home without selling your current property and want to become a landlord as both a long-term investment and to benefit from the rental income it generates.
Renting out your property
Things to consider
Renting out your property isn’t as simple as just approaching a letting agent and asking them to find a tenant. Before you decide to rent, ask yourself:
- Can you afford your new home without selling your existing one?
- Is the rental market right for your home? Do properties like yours rent easily and to good tenants?
- What rent could you achieve, and will this cover all your costs?
- Have property prices been growing steadily in your area, and are they likely to continue to do so? The best rental properties provide both a steady rental income and capital growth in the long term.
- Will your mortgage lender allow you to rent your property? You will probably have to switch to a buy-to-let mortgage.
- Is it tax efficient to rent out your property? You will have to pay income tax on the profit you make from renting out your home. A tax accountant or financial advisor will be able to inform you of the tax implications.
The pros of renting out your property
- You can make a steady income from renting out property.
- If you keep the property for an extended period, you stand to make a sizeable profit when you come to sell.
- The rent will cover your mortgage costs.
The cons of renting out your property
- You may need to invest money in the property to get it ready for tenants and to ensure you meet legal obligations.
- You will need to pay ongoing maintenance costs.
- You’ll pay a stamp duty surcharge if you own more than one property.
- You may be liable for capital gains tax when you decide to sell. Find out more about capital gains tax in our blog.
Selling your property
Things to consider
Selling your property is the simplest option, but it may be easier said than done. Failing to secure a sale at the right price could be why you are considering renting your home out.
The pros of selling your property
- You will have more to spend on your new home, allowing you to buy a more expensive property or put down a larger deposit and benefit from a better mortgage deal.
- As the property is your primary residence, you won’t have to pay capital gains tax
- Less hassle, you won’t have to deal with tenants, repair bills or worry about making your mortgage payments if your tenants are late with their rent or the property is empty.
The cons of selling your property
- You are missing out on a potentially good source of income, and the capital gains could contribute to your pension.
- It may take time to sell
Need more help?
If you are still unsure whether to sell or rent your property, contact us here at Plaza Estates. We have years of experience in the central London property market and will be able to advise you on the best course to take regarding your property.