UK Property Dilemma (Sell, rent out or hold onto as a vacant possession?)

[Shayman]

Hi

 

My wife and I are moving to Brisbane in the summer on 4 year work sponsored visas with £12k of savings.

We both have our fingers crossed that we settle happily and as a result end up seeking permanent residency.

 

Here in the UK I own a 1 bedroom flat in a popular and relatively affluent area near Leeds which has served its purpose well as a first time property. Due to its small size, however, if we were staying in the UK we would have long since been looking at a bigger home to reside in.

 

I have 3 options regarding what to do with it. From initial brainstorming there are numerous pros and cons of each...both from a convenience and short & long term financial perspective (not all of which are guaranteed):

 

Option 1: Sell

Pros:

 

• Convenience of no longer owning & having to worry about the flat
  
• No further running costs
  
• Proceeds could be used to purchase property in Australia in a couple of years time (assuming we settle)
  
• We may subconsciously find it easier to settle in Australia having disposed of it?? (would particularly be interested in your thoughts on this)
  

 

Cons:

 

• According to zoopla, the flat has increased £15k in value in the past 3 years alone and is in an increasingly popular area - we may regret not holding onto it as a longer term investment if this trend continues
  
• Selling costs (Estate Agency & Legal Fees)
  

 

 

Option 2: Rent Out

Pros:

 

• Due to its location I think it would be easy to find tenants to cover the mortgage & running costs
  
• Could sell at a later date at a potentially higher price
  

 

 

Cons:

 

• I reallydon't want to have to worry about dodgy tenants / broken down boilers etc and other estate agent queries while we are trying to settle in Australia
  
• We remain tied to the property which could make it harder to settle in Australia?
  

 

 

Option 3: Hold onto as a vacant possession

Pros:

 

• The "easiest" option (from a hassle perspective)
  
• Don't have to worry about potential stresses of renting it out
  
• Might be able to offer it to friends/family in the UK to use on a casual basis if they make a contribution to running costs
  
• Due to its small size, we could afford the continued mortgage repayments for a year or two (but would have to sacrifice future savings)
  
• Could sell at a later date at a potentially higher price
  
• It's a solid asset which we have to our name in case we don't settle and end up coming back to the UK in a few years time
  

 

 

Cons:

 

• Less ability to save due to ongoing mortgage repayments
  
• Rental income foregone
  

 

 

I would really appreciate any advice or shared experiences you have, and if you think I have missed important points!

 

Due to the small size of this property, it is nice to have Option 3 as a possibility, but this makes the decision slightly more difficult than a simple "sell or rent" decision. The fact that we are initially on temporary visas is another factor which makes it more difficult to simply decide to sell.

 

Regards

 

Shayman

[Marisawright]

I would not recommend keeping it vacant unless you have friends and family who will use it frequently. An empty unheated house will deteriorate and there's always the risk of burst boilers, leaks from neighbours etc which could go unnoticed for months and cause untold damage.

 

Renting it out - I know there are people here who will post to tell you about their horrible experiences with tenants - I've rented out properties for about 20 years and never had a bad tenant. You need to choose your real estate agent very carefully - check references (ask to speak to other landlords if necessary), and don't choose the cheapest (they won't provide a service if it's not profitable). You can give them strict instructions on who can rent, and insist on approving the tenant yourself - say you want only young professionals with references, for instance. Also get landlord's insurance.

 

You'll have to declare the rent on your Australian tax return as income, but you can claim the interest on your mortgage (ask your provider to tell you exactly what the amount is, as it varies during the life of the loan) and any other expenses.

 

As for whether selling will help you settle - right now, you're not settling in Australia, you're visiting on a temporary work contract, so I can't see it would make much difference. Even if you sell, it wouldn't be wise to buy in Australia because you don't know how long you'll be there: you might last the whole 4 years on the 457 or the company might go bust or restructure next year, and you'll have to come home. So the question is, what would you do with the money?

Edited March 28, 2016 by Marisawright

[Rachel Tilley]

Hi there,

 

I was having a conversation with my brother yesterday about a house that he owns and rents out. He was considering selling it but as the interest rates are so low in the UK at the moment he said it really wasn't worth having the money in the bank and he's better off having more tenants for the next few years and making money on the rent (he owns the house outright with no mortgage). I suppose it would depend on what you would do with the money if you sold it? Investing it in the UK is not going to make you much interest BUT it does relieve you of the worry of tenants not paying, trashing it or doing a runner with some of the contents, and relieve you of a mortgage. It could be a nest egg to come back to, or to transfer to Aussie dollars in the future (maybe when the exchange rate picks up).

 

Personally, I would find leaving a home vacant a bit worrying. You'd still have to pay some utility bills (Council Tax) and if word got round that it was empty you could end up with vandalism or squatters and then you'd have the worry and hassle of dealing with this from afar. You may also have problems with keeping it adequately insured for vacant possession as most insurance companies want to know if a property will be left for periods of 28 days or more.

 

Renting it out may be your best option for investment reasons. My brother has had a tenant in his house for the last 13 years with no issues whatsoever and the house and garden has been kept in great condition. He is also a good landlord and has done everything required of him, including fitting a brand new, good quality bathroom for the tenant a couple of years ago, a new kitchen and new carpets when required. It all depends on the tenant really, if you get a good one then you're sitting on a great investment, but if not, well, you'll have problems!

 

When we moved to Oz we kept our house and rented it out. Thank God we did. We were also on temporary visas and the move didn't work out for me. At least I had a home to come back to, even though the second lot of tenants had left it in a disgusting state.

 

Whatever you decide to do, make sure you keep a bank account open in the UK, even if it only has a small amount in it. Change your address with the bank to one of a trusted relative and opt for online statements only. It would seem that people who are coming back to the UK after some years in Australia are having trouble opening up bank accounts again so don't end up in that situation yourself.

[Patphillips47]

Some banks there is no need to use a relatives address we have banked with Lloyds for years and had our Aussie address on it at one time without any problems

With online banking its easy to keep track of things

Being in the position that we are returning to Oz soon but our house hasn't sold we are having to leave our Lloyds account open so that rates ,insurance etc can still be paid

[Shayman]

I would not recommend keeping it vacant unless you have friends and family who will use it frequently. An empty unheated house will deteriorate and there's always the risk of burst boilers, leaks from neighbours etc which could go unnoticed for months and cause untold damage.

 

Renting it out - I know there are people here who will post to tell you about their horrible experiences with tenants - I've rented out properties for about 20 years and never had a bad tenant. You need to choose your real estate agent very carefully - check references (ask to speak to other landlords if necessary), and don't choose the cheapest (they won't provide a service if it's not profitable). You can give them strict instructions on who can rent, and insist on approving the tenant yourself - say you want only young professionals with references, for instance. Also get landlord's insurance.

 

You'll have to declare the rent on your Australian tax return as income, but you can claim the interest on your mortgage (ask your provider to tell you exactly what the amount is, as it varies during the life of the loan) and any other expenses.

 

As for whether selling will help you settle - right now, you're not settling in Australia, you're visiting on a temporary work contract, so I can't see it would make much difference. Even if you sell, it wouldn't be wise to buy in Australia because you don't know how long you'll be there: you might last the whole 4 years on the 457 or the company might go bust or restructure next year, and you'll have to come home. So the question is, what would you do with the money?

 

 

Thanks for your reply, very helpful. As it is only a small 1 bedroom flat and I would be able to hand over the keys to my retired parents (who I'm sure would happily check on it regularly) the deterioration issue is not much of a worry of mine, but I'm glad you raised it. The tax on rental income is something which I had not considered.

 

What would I do with the money is a key question! The answer is I can't think of anything safer than sticking it in a UK savings account which will earn barely any interest, hoping that the exchange rate movement over the next couple of years or so is favourable should we decide to stay in Australia permanently.

 

Without ruling anything out I am are fairly confident that my wives sponsorship is pretty secure as she works for one of the "big 4" global accountancy firms, and they have already suggested that if she likes it she'll have no problem in applying for permanent residency a couple of years down the line...

[Shayman]

Hi there,

 

I was having a conversation with my brother yesterday about a house that he owns and rents out. He was considering selling it but as the interest rates are so low in the UK at the moment he said it really wasn't worth having the money in the bank and he's better off having more tenants for the next few years and making money on the rent (he owns the house outright with no mortgage). I suppose it would depend on what you would do with the money if you sold it? Investing it in the UK is not going to make you much interest BUT it does relieve you of the worry of tenants not paying, trashing it or doing a runner with some of the contents, and relieve you of a mortgage. It could be a nest egg to come back to, or to transfer to Aussie dollars in the future (maybe when the exchange rate picks up).

 

Personally, I would find leaving a home vacant a bit worrying. You'd still have to pay some utility bills (Council Tax) and if word got round that it was empty you could end up with vandalism or squatters and then you'd have the worry and hassle of dealing with this from afar. You may also have problems with keeping it adequately insured for vacant possession as most insurance companies want to know if a property will be left for periods of 28 days or more.

 

Renting it out may be your best option for investment reasons. My brother has had a tenant in his house for the last 13 years with no issues whatsoever and the house and garden has been kept in great condition. He is also a good landlord and has done everything required of him, including fitting a brand new, good quality bathroom for the tenant a couple of years ago, a new kitchen and new carpets when required. It all depends on the tenant really, if you get a good one then you're sitting on a great investment, but if not, well, you'll have problems!

 

When we moved to Oz we kept our house and rented it out. Thank God we did. We were also on temporary visas and the move didn't work out for me. At least I had a home to come back to, even though the second lot of tenants had left it in a disgusting state.

 

Whatever you decide to do, make sure you keep a bank account open in the UK, even if it only has a small amount in it. Change your address with the bank to one of a trusted relative and opt for online statements only. It would seem that people who are coming back to the UK after some years in Australia are having trouble opening up bank accounts again so don't end up in that situation yourself.

 

Thank you Rachel, most helpful advice!

 

If it was a house there would be no consideration of holding onto it as a vacant property. However, because the ongoing monthly costs would be manageable for us this option is something which we are willing to consider (versus sticking any sale proceeds we receive from a sale now into a low-interest savings account...).

 

Although I've described it as a flat its like an old stone building cut up into 4 x 1 bedroom apartments with its own uniqueness, so compared to modern apartment blocks I believe it has lasting value and due to its position the likelihood of vandalism is low.

 

I need to go and do some number crunching I think!

[Gbye grey sky]

I don't normally recommend this but in your particular circumstances I would rent it out. My reasoning:-

 

1. It is a flat so maintenance issues are much less than with a house.

2. Flats are more rentable than houses.

3. You are not on a permanent visa so there is that uncertainty on top of the usual uncertainties about whether you actually settle.

4. If you don't view the flat as a long term 'home' it will not be dragging you back to the UK.

5. You will have mortgage interest, maintenance and other overheads to offset against the income meaning that the UK tax liability may be modest.

6. You have family to keep watch over it for you.

 

Once you are settled and have PR that would be the time to sell and buy here.

[ramot]

I don't normally recommend this but in your particular circumstances I would rent it out. My reasoning:-

 

1. It is a flat so maintenance issues are much less than with a house.

2. Flats are more rentable than houses.

3. You are not on a permanent visa so there is that uncertainty on top of the usual uncertainties about whether you actually settle.

4. If you don't view the flat as a long term 'home' it will not be dragging you back to the UK.

5. You will have mortgage interest, maintenance and other overheads to offset against the income meaning that the UK tax liability may be modest.

6. You have family to keep watch over it for you.

 

Once you are settled and have PR that would be the time to sell and buy here.

 

Agree with everything GGS. has posted

We have rented out flats in Nottingham in a popular development for over 20 years (yes I know it's not Leeds), never been empty for more than a few days and a 1 bed. room apartment has always been popular.

Luckily never had a problem, have used the same really good agents all that time, that is a must, if anything needs doing, they run it by us only if over a certain amount, they have reputable tradesmen on call. Better than relying on friends or family when overseas.

You need landlord insurance cover, and certificates for some things, but agent will sort all that out.

You will be liable now for tax on any increase in value, only came in last year, so not from when first purchased, put the flat in both names to lesson that and get an uptodate valuation from when you start renting out.

Hope that makes sense.

 

We have never regretted renting, and although you hear all sorts of horror stories, we have relied on good agents and been lucky so far.

Good luck

[stamples]

Dear Shayman

 

I've only a few minutes, so a quick brief post in reply:

 

I don't know anything about the Leeds market or rentals there or anything, but here are some generic things to think about:

 

- at the moment if you rent out a UK property, you can get 'depreciation' tax relief here in Oz on it if it's under 20 years old or renovations have been done in that time (I think those are the parameters from memory) - this may change, but at the moment it's still there - we just got it done from here for a UK property via http://washingtonbrown.refr.cc/3HJFXMP. You can usually also claim your mortgage interest and repairs and maintenance off Oz tax. So after all sums done, often it's almost 'neutral' but someone else is paying your UK mortgage and the property is growing in value - so worth staying in the property market rather than being out of it altogether for 4 years I would personally think unless tax regimes become harsher.

 

- As part of you decision making - worth also checking out the newish UK's Capital Gains tax laws, but from what I understand it, it'll be worked out from 5 April 2015 until you sell and I'm guessing your rental income will keep you under the UK tax paying threshold.

 

- Leave it vacant possession - I can't think of any good reasons to contemplate this, a good rental agent should be able to look after a property and repairs etc. can often be claimed back via tax (or a proportion of).

 

On another note, have a read of posts regarding what life in Brisbane or Queensland generally is like to live in or why people have returned to the UK before you sell up anticipating you might move here permanently, it's not all fun and sunshine, things can be quite challenging, in the workplace especially.

 

All the best with your research and subsequent decisions!

 

Regards

[Shayman]

Thank you all for the most helpful advice and well wishes.

 

I have decided based on your feedback (and some rough calculations) to rent the property for the initial 2 year period, in hope that we settle happily and decide to sell it thereafter.