So you have a Buy to Let you are thinking of selling? Let me share a few things with you.
Last year, I read an article in September which predicted that the average price of a home in the UK will hit £323,718 by 2031 (Compare the Market).
That is against Land Registry who are presently quoting the figure for an average house in the UK to be £218,161.
Which means in the next nine years, Compare the Market predict that we shall see a 49% increase in the price of an average home. Very scary for both those wanting to buy and those looking at investing in property to boost their pension in the future. However most landlords are more likely to look at returns as opposed to sale price.
As we all know the reason for the consistent rise in prices is due to a lack of supply. The magical 300,000 homes we need built a year to keep pace with population growth has not been met, which gives you a classic supply vs demand issue.
There is no doubt that we are finding that some landlords are being tempted down the sales route, due to the prices that can now be achieved. A word of warning here, Land Registry are showing that there is an average 10% difference between asking price and selling price.
But you have thought ‘now is the time to cash in and I want to sell ‘?
If so, my first question to you would be ‘why do you want to do it and have you considered the costs?’
Obviously, you are going to think that I would have a very biased view… and you would be right! Early in our property investment journey we got stung: we decided that a property which was about an hour away from us was too much hassle to run, so, we decided to sell it and buy two properties more locally. Big mistake.
Why – we never factored in the cost of buying and selling, the capital gains tax (CGT) and the time it took. In all we lost about £19,500 in the value of our portfolio. Well done us! Compare that with how much we would have made in rent if we’d kept it another five years, with the property still appreciating – selling was madness!
How much does it cost to sell a property?
Just Google that question and you come up with some interesting finds. However Which? have estimated that when you add in estate agency fees, remortgaging, conveyancing/ solicitors fees; the total cost would be anywhere between £5,000 and £6,500
If you have a mortgage on the property, there could be another two things to consider
- Will you need to pay a mortgage exit fee? – anything from £50 – £300 (THE Advisory )
- Will there be an early repayment charge? Costs range from 1% to 5% of the loan amount
Then you have CGT to calculate – based on the difference between the price you paid and the price you sold it.
To give you an idea of this cost the best thing to do is to look at https://www.tax.service.gov.uk/calculate-your-capital-gains
Having recently done this for a landlord with a potential gain of £68,000 he was looking at CGT of around £13,000.
All I am saying is that there are costs involved with selling.
The best advice that I could give you (which I did not receive 15 years ago) would be to look at your potential gain, take away your potential costs and then take this away from the income you would receive over the next 5 years if you kept the property.
The last calculation we did for the landlord above with a potential gain of £68,000 went as follows.
We found that after costs were taken into consideration, they would be left with £49,000 as there were no mortgage fees to consider.
As the rental is £850 the rental gain over a five-year period (with inflation and interest) would be £56,000. In fact he would only have to wait 4 years to have roughly the same gain and he still would have the asset.
No prizes for guessing what they decided to do!
There are many reasons for wanting to sell an investment property. Just be aware that the costs involved are not small. The asset you have will continue to grow over the years. Until we build enough new homes the supply will outstrip demand, meaning your rental investment should appreciate.