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Many of our investors buy properties with the intention of renting it out to provide some of a pension pot when retiring.
But what happens when a person inherits a property after the death of a family member? Many of our clients see this as the perfect opportunity to enter the rental market to earn some additional cash. But many opt to sell the property and extract a substantial amount of money from a property they never paid for in the first place.
There are many pros and cons of each option, and you’ll have to weigh them up carefully before making a decision that will best suit your lifestyle and financial position.
If your renting or selling, it’s not just about the profit, it also depends on your personal circumstances. If you stay far from the inherited property, will it make sense to manage, maintain and rent it out?
If you plan on renting out your property, there are a few things to take into consideration. You might not be prepared for the responsibilities a rented house brings with it. This is especially true if it’s your first property your planning on renting.
If you’re a landlord with an existing portfolio of properties, it makes the decision much easier.
If you plan to rent out your inherited property, ask yourself the following questions:
- What is the Energy Performance rating of the property at the moment? Recent legislation cites that all rented properties must have an EPC of at least E. Older properties might not have this and you’ll have to spend some money.
- In what condition is the property? Is it in a good enough condition to attract a proper tenant and what will the future maintenance bills look like?
- In which area is the property? In other words, if it’s a popular area, you’ll know you’ll have a steady stream of tenants and less void periods. If not, an empty property can also pose security and insurance issues.
- Does the area show an average house price growth? If so, it might be best to hang on to it.
- A big question to ask yourself is: If you hadn’t inherited the property, would you have bought it yourself? If not, keeping it might be the wrong thing to do.
- Are you willing to get up in the middle of the night for a broken boiler? Renting out a property comes with maintenance responsibilities. You can either appoint a letting agent or decide if you’re willing to handle it yourself.
- How much will you be taxed? The new tenant tax really places landlords under strain, so would it be worth your while to hang on to the property?
That brings you to selling the property, which also has its pros and cons.
If the property is in poor condition, will you be able to make the necessary alterations and get a higher price for it? This includes your time and financial input to bring the property up to a certain standard. Or are you willing to sell it as is and accept a lower selling price? The latter providing you with less hassle.
If you do decide to sell, a little bit of window dressing can help the property sell faster, seeing as you are chainfree. On the other hand, if you are strapped for cash, you should try and be patient in order to receive the right price for the property.
A third, less common option is to sell the inherited property and reinvest in 2-3 other properties. This obviously depends on the value of the inherited house.
For example, is the house is worth £200,000 and would rent for £850 pcm, that’s a 5.1% yield on the property. But if you sold the £200,000 house and reinvested in two properties worth £100,000 each and rented both for £500 pcm, you’ll get a 6% yield and and £150 more per month in rental income.
The things mentioned here are just a few of the issues we’ve come across when dealing with our clients. But each situation is unique. If you’ve inherited a property, especially if it’s your first property, it’s best to speak to a professional about the pros and cons of renting vs selling.
All the best now!