If you’re buying a house, it’s likely you’ll be expecting to sell your primary residence first.
However, that might not be the best financial decision. Your other option is to wait and let the property out.
So, is it better to rent or sell a house, how can you decide?
Let’s dig a little deeper to help you make your choice.
Should I sell or rent?
Asking yourself, ‘should I sell my house or rent it out?’
First things first, think about your individual situation:
- Can you afford to buy without selling?
- Will this move be long term or temporary? If so, do you want the option of moving back into your current property at some point?
- Are property prices likely to rise?
Here’s a closer look at some of the questions to consider.
Can you afford two mortgages?
Consider financial commitment carefully. Rushing into this decision before properly thinking it through might mean you end up regretting it later.
If you have equity in your current property, and a stable income, it will make renting it out while paying another mortgage much easier.
However, there’s still the question of how to raise money for the deposit and you might have to increase the mortgage payments on your current home.
You’ll then have two mortgages, one paid for by your salary, the other by the rental income.
Remember, affording your new home will depend on the cost of living there as well as the rent money.
Can you rent out your house with a mortgage?
Always read the small print. Double-check whether your mortgage lender will let you rent it out, or if there’s a clause preventing it.
You may have to change to a buy to let mortgage. This can incur extra fees, such as new arrangement costs.
Is it a good property?
Before you rent out your property, look at it through the eyes of a potential tenant. Is it a desirable home? From size to transport links, there are a number of factors that you need to weigh up.
Look at how much similar properties are rented out for in the area. How much rental income could you make? Would it be worth waiting to sell?
Work out how much the mortgage repayments would be to help you weigh things up.
How much is your home worth?
Try looking at things from a buyers’ perspective too.
Finding out how much your home is worth can help you decide the best course of action. Look at similar properties in the area, and consider what makes yours unique.
Are you ready to become a landlord?
A rental property can be a great source of income. However, you will have to dedicate time to being a landlord or pay a letting agent to manage the property for you.
Remember, if you let the property it will no longer be your home. Tenants have rights and it becomes your responsibility to ensure these are met.
What is the current state of the housing market?
If property prices are likely to rise, chances are that waiting to sell your home makes great financial sense. For example, Autumn can be a great time for sellers.
However, if property prices are set to plummet, you’d be better off selling it.
Ensure you’ve figured out if you’re selling off a lucrative asset or not.
Should you rent or sell an inherited house?
Those have sentimental ties to a property, but either don’t want to or can’t live in it, often opt to rent it out. Have you considered this?
Pros of letting your home
Still asking yourself, ‘should I let my home?’ Let’s take a look at a few of the positives.
- Helps if you’re struggling to sell your home
- Allows you to take advantage of house price rises
- You might want to move back in later
- Generates a steady source of income
- Potential for capital growth
- The cost of selling a house can be high
- Someone will be there to look after the property when you’re not
Cons of renting out your home
Of course, there are some inevitable downsides.
- Renting out your home can be a hassle, are you prepared?
- Selling a property can release equity to buy a new place
- You don’t have to pay capital gains tax or extra buy to let mortgage fees
- There are risks involved with renting out a home, e.g. damage
- There are associated costs with renting e.g. agent fees
- Taxes on ‘second properties’ are often much higher – converting residential to an investment property can be expensive
- Could lose income if a tenant stops paying out the rent
- If the property is expensive to maintain, could it be more than the rent you receive?
Some landlords only rent because they have to, not because they want to, but it doesn’t have to be this way.
If you are temporarily working away, renting your home can be a great solution that provides a steady source of income.
Why rent it out?
So, when does renting it out make sense?
In financial terms: if you’d make more money keeping hold of it than selling it on. But this can be difficult to predict in the long run, especially with an unstable property market.
Lack of interest
There are other factors that come into play too. For example, if it’s not selling and has been on the market for a while, you might be tempted to accept a low offer out of desperation. In this case, playing the waiting game and renting it would make more sense.
Let’s take another example scenario.
If you’re moving abroad, you might be wondering if you should sell or rent the house? Consider whether this move would be permanent or short-term. If it’s the latter, you may want to be able to move back in later. Therefore, you can see the appeal in renting it out.
How do I rent out my home?
Decided it would be worth waiting to sell? There are a few things to consider first.
Make sure your property is ready
Is your home suitable for renting?
Consider whether it needs any renovations or fresh decor. Making your home more appealing to tenants might mean you can charge more rent but will result in some upfront costs.
Get your head around landlord responsibilities
There are hundreds of rules and regulations you need to get a good understanding of.
From fire safety to maintenance repairs, being a landlord comes with great responsibility.
Ensure the needs of your tenant are met at all times.
Research, research, research
Look at similar properties in the area to give you an idea of how much rent to charge.
Also, you need to think about who you want to rent to. Would you allow pets in the property? If you’re happy to let to students, is it a good area for them? Consider all avenues before going forward.
Choosing the right letting agent will make your life easier, but will incur its own fees. Make sure you’ve thought this through.
Sort out the paperwork
Always inform your insurance provider you’re letting the property out. It’s likely there will be some changes to your policy. Failure to do so may mean you’re not covered.
Also, from right to rent checks to tenancy deposit schemes, there’s a lot of legal matters to get your head around. Ensure you’re thorough and follow the necessary steps.
Cost of letting a property UK
Let’s crunch the numbers.
Here are some of the approximate associated costs with renting out a property:
- Maintenance fees and repairs – varies
- Insurance – varies
- Gas safety certificate – £80 (per year)
- Energy efficiency certificate – £65 (every 10 years)
- Estate agents & property management services – 8-15% of rental income
- Inventories – £50-£150
- Tenancy deposit schemes – £15-£30
- Income tax – varies
- Mortgage interest – varies
- Capital gains tax – varies
Of course, these vary depending on the type of property and the individual circumstances. For example, some tenancy deposit schemes are free, while others will charge the landlord.
Is it better to sell my house or rent it?
The answer ultimately depends on you and your individual situation.
If you can get a great price now and want to avoid the hassle of renting, use a guide to selling a house to help you.
However, if you’re looking for another source of income and want to hold on to the property a bit longer, renting it out might be the better solution.
Can I get a second mortgage to buy another property?
Speak to a professional to work out the options available to you. We can connect you with the right people to make that happen. Get a free mortgage quote to find out more.
Last Updated: February 20th, 2020