For most people, buying a house represents a significant investment in both time and money and making the most of this profitable asset requires a good deal of thought. Selling your property might be the answer and yield some important capital, especially if you are looking to invest in other areas. Renting out your property, however, can provide a healthy monthly income if you play your cards right whilst the value of your property continues to rise still further.
Unlike our European counterparts, who can quite happily rent a property for life, we in England have long harboured desires to own our home. It was given impetus in the 80s when Margaret Thatcher introduced the Right to Buy policy for council houses and has stayed with us almost ever since. Having said that, with property prices rising quite considerably, more of us are beginning to realise that renting is not such a bad thing at all. It’s become a good way for property owners to make a little extra money on their investment.
Choosing the right option
If you have a house, and are undecided what to do with it, is there a good reason why you should choose to enter the rental property market rather than sell for profit? If you are lucky enough to be able to afford a second home, for instance, it could be a good idea to hold on to your existing property and use it to provide a long term, regular income. This works best when:
- You are perhaps just moving because of a temporary situation such as a work contract and don’t want to sell the house but want to realise some income from it in the short term.
- You are confident the price of your house is going to rise in the long term and that it will make a good rental property for a while.
Hanging onto your property is an investment decision and you need to take the long view on it because house prices will naturally rise and fall depending on circumstances such as the local economy. You will also need to take account of the surrounding area – if the economy stumbles again, is the surrounding conurbation likely to take a fall as well, something that could well happen with areas that have recently been regenerated?
Will your mortgage company let you rent?
If you are lucky enough to have paid off your mortgage and are free to do what you want, then the decision to sell or let is entirely in your hands. If you still have a mortgage on the property, however, you will need to check with the mortgage provider to make sure that they allow renting out. Moving into the rental market may well necessitate you changing your mortgage plan and perhaps having to pay a higher rate.
Can you afford to run two properties?
Whilst you will be earning income from your second property if you rent it out, you need to consider whether you have the finances to maintain both. The main problem comes if you are still paying back the mortgage of the rental property. You will need to work out the amount that has to be paid for this on a monthly basis and then take into account the cost of the letting agent and management fees. There may not be a great deal of profit left over at the end of the month once you have paid every one off and most of your hopes will be placed on the value of the property rising over time to make any profit at all.
There are other factors to consider too. For instance, what happens if you are unable to find the right tenant for your property for a while and it sits empty? You’ll have to pay things like council tax as well as finding money for maintenance and upkeep. You may have to invest in having the house renovated if you are intending to attract a number of renters with small flats – something for which you will also need to get planning permission. On top of that, you will have to pay for liability insurance and you’ll certainly incur tax payments on the profit you make. Whilst renting might seem the perfect option, you need to be financially secure at the end of the day if you want to take it on as a serious money making proposition.
Are you in the right place?
The rental market is pretty strong nowadays but it still depends largely on where your property is situated. Having your rental home in an area close to a university which will attract students or making it a suitable property for a professional wishing to commute into the city will ensure that you have a good choice of tenants. There are, of course, certain areas where the rental market is not particularly booming and, if you are located here, this may be the time for you to consider selling and getting the best price possible.
Is your house worth it?
Whilst the housing market is beginning to boom once again, recovering from the slump of the recession, many owners are still finding it difficult to get the full asking price and realise that selling generally involves a compromise on what you get as profit. If you are not getting the price you desire then it makes sense to think about renting out until the market improves. You should understand though that this could be a long term situation and you may be stuck with the property for some time to come.
Finding the right letting agent
How smoothly renting out your property goes often depends on the letting and management agent you choose. As with any industry there are some good and bad companies out there so it pays to shop around and ask for contact details of those who are using the service. Yes, you can do it all yourself but then you have to deal with everything that goes with being a landlord. If you want to just collect the money and pay someone else to manage the property, then you need to employ a reputable letting agent.
There are pros and cons for both selling a property and renting it out and a lot will depend on your circumstances at the time. There are plenty of times when renting out is the obvious solution, particularly if you are moving away for a short while and want to make some profit on an otherwise empty property. Selling a property comes with its own problems, especially if you are having trouble finding takers for the price you want to achieve.
In the end, it comes down to a balancing act of maximising your resources and what you get in return. Renting can produce a decent profit if you have the right circumstances but can be a drain on resources and time if you do the calculations wrong.
In short, it pays to sit back and think long and hard about all the pros and cons before you commit to either course of action.