hi,we are in an interesting position and we need some opinions! We have a flat that we are refurbishing. Neighbouring flats are selling for more than ever and we are thinking do we 1- sell it 2- rent it . if we sell now we could bank about 70 grand but what do we do with the money, we have a 80 k mortgage on another house so do we pay part of that off? Alternativley we could rent it and hope house prices dont fall too much as we have only 10% of the value mortgaged. any ideas??
simple. compare the rate of interest on the mortgage with the rate of interest of money in the bank (or you could invest, but the stock market is looking dicidely dicey at the moment with some wild daily swings) and see which would give you more.
You could always split it, pay off some mortgage and keep some money in the bank. It is usually a good idea to have some savings for those unforseen circumstances. between 3 and 6 months salary is recommended. Lowering your mortgage repayments is helpful too as it then gives you a greater disposable income with which to enjoy life!
As for sell/rent. from the opinions on the PL thread, renting is a hasstle, so sell, sell sell. (also keeps you safe if we doom mongers turn out ot be right after all ;-)
My partner recently came into a large amount of money. He thought that the best thing to do would be to invest it in the stock market, but actually a stockbroker advised him to pay off the mortgage instead, which we did.
I'd agree with SohCahToa that some of your money should be accessible in case of Unfortunate Events, though.
It was me that was moaning on another thread about renting out a flat - it's my partners rather than mine so I haven't done the maths, but I genuinely think that in his case it isn't a good investment of his time. If you were to rent it out, I would log all the time that you spend on it, in order to work out how much your time is being paid at, and whether you could get more money for it elsewhere. It seems to me that for someone who isn't a professional landlord, the skills / pay match isn't profitable.
If I was in this lovely position then I think I would sell the flat, pay £40K off the mortgage on the house and bank the rest of the money in a savings account. I would also then keep paying the same amount per month for the mortgage on the house (presuming that there would be no penalties for doing this) and end up owning the house outright in a hugely shorter time.
If the numbers for renting are quite reasonable (ie get rental valuation, cost in insurance, gas certificate, agents fees maintenance etc) then I'd keep it because if you sell it you could be stung for a huge tax bill.
If you keep it and rent it for a few years and it covers its cost plus a bit extra then you get taper relief on the tax due and it becomes a capital gains liability rather than income tax which means for most people an extra tax free allowance. All the above assumes that you've acquired it relatively recently for the purpose of renovation, if you've had it a while, ignore the above!!
"If you can keep your head when all around you have lost theirs, then you probably haven't understood the seriousness of the situation."
