Can't sell old house, rent it instead?

[ProDave]

Some of you will know of the predicament we find ourselves in. Part way through building the new house. The pot of money to do so is dwindling quickly. Present house has been on the market for 18 months, in that time we have had 3 viewings and no offers.

We changed to a new estate agent in the spring because they promised the earth and have failed to deliver on a number of key items they stated. Thus proving they are all as bad as each other and just tell you what you want to hear to get you to sign up.

We are on a 20 week sole agency deal with the present agent that expires in August, so we can't do anything until then but let it run and hope. But what to do after that?

One option is to try another agent, but the fact 2 have failed to find a buyer is a pretty good indication there simply isn't a buyer for our house at the moment (that's a whole new topic of conversation that starts getting me angry so I will avoid it for now)

There is still quite a bit I can do on the new house spending the small pot wisely. I can finish the outside wood fibre cladding and rendering. I can finish the drainage. I will landscape the site (yes I know that's a strange thing to do so early but then I can sell the digger). I can finish insulating and cladding the walls ceiling and floor inside with OSB. I can frame up all the partition walls and first fix wiring and plumbing.

What I can't do is big ticket items like mvhr, heat pump, plasterboarding and plastering, kitchens and bathroms, internal joinery, windows and doors for garage and sun room, wood cladding for sun room.

So what to do if come August the old house remains unsold?

One option which SWMBO is pushing hard for is to rent the old house. She even has someone interested in renting it. It would only fetch a rent of £800 per month, which is barely a little over 3% of its value. It is not the sort of house you would buy for rental, it's too big and over the rental ceiling price for the area.

So I am trying to work out the pro's and con's of renting it.

Pro's:

• It would give us £800 per month to spend on the new house (less fees and tax). That would only mean slow progress, i.e. it's likely a whole years rent would only buy the kitchen.
• I could couple this with cashing in one of my pensions in 2 years time when I turn 55 which would give a pot of money to help finish the new house, but I can (and will) do that even if we are not renting and it has still not sold)
• Can't think of any more pro's.

Con's

• We would have the red tape of re registering as landlords, changing the house insurance to a rental policy, updating certain things in the house like the new requirements for hard wired CO and heat alarms (not a trivial job to do nicely)
• We would be spending a long time in the caravan, longer than if we could just sell the old house.
• There are council tax, home report and other complications.
• It only defers the need to sell, not removes it, and we would be gambling that in a couple of years time things would be better to try again.
• It would be virtually impossible to sell the house while a tenant is in it, so it would have to be taken off the market.
• No doubt by the time tenants have finished disrespecting our home, it would need a lot of re decorating and repairs before we could try selling it again.

I will talk about the "complications"

At the moment we don't pay council tax on the plot as the caravan is not occupied (and because the final drainage connection has not yet been made, it is not habitable so cannot be liable for council tax)

If we went ahead with the plan to rent the old house, then the caravan would be made habitable and we would be paying council tax on it. That raises an issue with the old house when we come to sell it later on. It too would still be liable for council tax, but there is a sting in the tail. If it sits too long empty trying again to sell it, there comes a point where you are penalised up here for having an empty home and they start charging you double council tax on it.

If the house is off the market for a couple of years we would be forced to pay another fee for re doing the home report, more money for old rope for the "professionals" just to get back to where we were.

If it were my decision alone, I would not be considering renting it yet.

Can anyone give me good reasons for or against renting it?

 

[Mikey_1980]

Would it rent as holiday accommodation, might be a bit late now but you might get £600-800 a week during the holiday period and then long term let for winter at £800 a month.

I had a friend who lived in cornwall and this happens a lot, short term rental contracts from September until March at £1000 a month, then kicked out and it gets rented weekly for Holidays at £800-1500 a week for 6 months.

[Ferdinand]

My comments, and I think you have been LLs in the past so it won't be a shellshock.

1. I wouldn't go the holiday route. That will be lots of buggeration and commuting-to-clean unless you have the right manager or are an outstanding prospect (in which case a holiday lettings bod would have bought it already!).
2. How certain are you to rent it out?
3. Scottish rental law has changed massively, and there is a lot to catch up with, which I think from your past you could do. Talk to the Scottish Landlords people. You may even need to be trained as well as rubber stamped. There is no guarantee that a populist government won't do something really stupid.
4. I am not sure what the position is with Tenure now - I think Section 21 has gone, and you now have to have one a define list of reasons to evict.
5. You could rent it out with a modest mortgage (<60%), and use the mortgage to finish your house. At present rates are very good, so if you lock in 5 or 10 year money (eg Kent Reliance, BM Solutions) that could work. 5yrs fixed at 3-3.3% with no arrangement charges is available. 800 a month would get you around £150-£160k for a normal 5yr fixed BTL mortgage.
6. If it is reasonably big can you make it an HMO for professionals, which should double or treble your rental yield.
7. I was pursuing those options I would have a good agent and be hands off? I have a couple of student HMOs, and will be doing a couple of pro-HMOs this year, and I just wouldn't want to manage them myself.
8. Can you convert it into flats or 2 semis?
9. Is there anyone you know and trust who would do a rent-to-buy?
10. Can you go any other route - eg London auction?
11. Or you could slash the price to move it. Would -25% do it?
12. Have you considered eg Purple Bricks?

Ferdinand

Edited June 3, 2016 by Ferdinand

[Barney12]

Hi Dave

We were in exactly the same position 2 years ago. We went down what I describe as "the reluctant landlord" route.

In some ways we were fortunate as planning and ecology severely delayed (and still is delaying) our build but we also had a reasonably comfortable 1 bed flat above the garage at our plot which we can live in.

In my view renting just doesn't add up and don't underestimate what a complete PITA a tenant can be. Let alone all the regulation and now the poorer tax breaks too.

2 years on we are incredibly fortunate that we still have same tenant but we now really need to release the cash. Last time we failed at selling the property, this time we will give notice to the tenant (2 months, assuming he actually leaves and doesn't cause issues), probably 2 months to decorate etc (and yes as they say they don't respect your property like you do). So our plan is probably to serve the notice around Nov and have the property on the market for the spring of 2017.

What two years of being a "reluctant landlords" does so is make you realize every property will sell at a certain price. We believed and were advised (wrongly) what that price was. This time we are philosophical and will price it to sell. Its going to hurt like hell. But...............that's life!

..............and don't get me started on Estate Agents! Otherwise this thread will be full of **!*!*!*!*!*! words!

[le-cerveau]

Renting is not a game for the faint hearted.

We have 2 properties that are rented out and they couldn't be different:
1.  Same tenant for over 8 years, pays, looks after the house, it just ticks over.
2.  Lots of tenants, we had to evict the last ones, that took time, money and a complete house overhaul after (cost), we also changed agents at the time because the previous ones were worse than useless.  We will just be above break even on that one this year (last tax year) because of all the issues.

The letting agents can be hugely different, we have one (the new one in the second property) who is proactive and on top of it (small company).  The other one, which also had the second property originally (different office national company) are hopeless.  They don't understand simple instructions, blindly accept quotes for repair work, you spend a lot of time monitoring what should be simple and have to keep a copy of everything.  For example the en-suite shower tray needs work and the quote says "hack away plaster", I don't expect anybody to do any hacking and the house is fairly modern and plaster boarded!

As we live in rented accommodation (Military) we are aware of it from both sides and one house we had (non military house, open market rent), the owners lived over the road!  This caused no end of problems as they tried to do the maintenance themselves and came a cropper because of it.  Before we moved out I dutifully filled in all holes I had made, painted over etc (never a perfect match but it is a rental house).  We cleaned the house, moved then came back about a week later for the handover, during that time the owners had been in the house (don't know what for, but obviously in the house) so during the inspection, all the 'damage' that they wanted to claim for against us (I would call it usual rental wear and tear) was completely written off as they had been in the house whilst we were not there so we were not liable for anything!

Recently the government intrusion has increased, Tax breaks are reducing and it is getting harder for the small landlord. 

To sum up:
You can make money but beware of the work it involves (and additional stress).
Once it is rented you will never want to live in it again and you need to think of it as an asset not a home.
Be prepared for more Central Government involvement.

[Jeremy Harris]

The point above about any house selling at the right price for a buyer is spot on, I think, painful as it is.  We reconciled ourselves to selling our current house at a lower than average price before we started looking at self-build seriously, as the market was depressed and we knew we didn't want to stay here.  In some ways we're fortunate, in that the market price of our current house is double what we paid for it in 2000, so even selling at below the estate agent market price won't be a loss.  Also, I deliberately under-valued this house in terms of doing our sums on what we could afford to build, as when we started the market was still depressed and I felt we'd be lucky to get a quick sale.

I've decided that I'm going to market the house using an online-only agent, to reduce costs, and I've been thinking of ways to incentivise the sale.  The house is in the right sort of area to sell to either a second tier buyer on the way up or to older buyers looking to downsize and who want a bungalow.  The village is OK and there are good public transport links here, with a bus stop only 50 yards away, a shop, post office, primary school and doctors surgery less than 300 yards away.  The main problem is that I've virtually done no maintenance work at all on the house in the last 6 years, and over the past three years during our build it has been getting increasingly tatty.  I debated whether it was worth re-decorating it but decided just to have the porch flat roof recovered and get the essentials done to sell, like the boiler servicing and safety check and a full EPC (it's not bad, came out at the bottom of band C).

What I think we'll do is offer  a "cash back and free access" deal after exchange of contracts, but before completion, where if the buyers make an acceptable offer we'll give them some cash under a separate arrangement (not part of the house purchase) to redecorate as they like, and give them day time access to do the work, with a nearby retired friend acting as daily key holder for us.  My hope is that this might be enough to give the sale an edge over other properties on the market that need a bit of work doing.

I'm sure we'll end up selling for £10k or so less than an agent would think reasonable, but we're just going to take the hit to sell the place and be able to concentrate wholly on the finishing touches to the new place (mainly landscaping and garden related stuff).  We'll still end up with around £120k or so of savings returned, even selling at a low price, and frankly I'm not at all sure we really need much in the way of a savings buffer.  It seems daft, but even with my fairly high monthly outgoings (small mortgage repayment, commuting 32 miles a day, spending a few hundred a month on stuff for the new house) I'm still saving around £400 a month from my pension, and once we've moved that level of monthly savings will increase a fair bit, as the running costs of the new house will be trivial compared to the one we're in now.

It'll cause a bit of pain selling at a low price, but my view is that it will be around a couple of years worth of savings lost, and that seems to me to be worth it just to not have the hassle of a protracted sale process.

[Ferdinand]

@ProDave

Having just read a bit of background, is it the former B&B we are talking about?

Is there a route which involves renting it to someone wanting to try out a B&B busines for a couple of years to see if they want to do that?

Or even renting it to a B&B chain (do these exist?)? Even Hilton Hotels are not mainly owned by Hilton.

Then there may be the prospect of them opting to buy.

Ferdinand

 

[ProDave]

I typed a long reply then lost it when my broadband crashed. I have to go and do some work now, I will be back later and try and remember what I typed.

[Nickfromwales]

The text editor on here saves your draft

just click on it ( as if typing a fresh reply ) and see if it's there. 

[ProDave]

d

2 hours ago, Nickfromwales said:

The text editor on here saves your draft

just click on it ( as if typing a fresh reply ) and see if it's there. 

If it's supposed to, then it's not working. No restore draft option. I expected that when I re loaded the page after my BB crashed, but there was nothing.

 

[Crofter]

A mate of mine lives in a rented house and runs it as a B&B- pretty lucrative here on Skye. He does this for a living, so must be pocketing most of the B&B income. Don't know how it works out for the landlord.

One bonus would be that a prospective B&B operator would have an incentive to keep the place in good fettle, or so you would hope.

[AliG]

Such a tough one Dave.

By the time you pay tax, agents fees and costs you'll be lucky to clear 5,000 a year on renting out the house. It won't make much of a dent in finishing the new place.

The two advatanges are, as suggested, you could lever up the rent and then use that to finish the new house. But that is risky if you couldn't cover the mortgage during a void period. The other advantage is I think it would restart the clock for the place being empty and having to pay council tax.

If I was you I would look into it, but wait until after the Brexit vote. I can see in Edinburgh it is killing the market. As long as the Nats say that they might use an out vote to hold a second referendum it creates massive uncertainty. If there is no out vote and my suspicion is that people are scared of change so there won't be, then I think the Scottish market will pick up, but it require an end to referendum talk.

I really think that many people have no idea of the effects of uncertainty in the economy. After the recession, I coined a term at work, "it was bad, but at least it was clearly bad". People are more able to deal with a recession when they know what is going on than the uncertainty leading up to it. This uncertainty really has to be put to bed one way or another. It hurts real people with real jobs. 

You could look into what you have to do to rent out as regards registering etc in the meantime. Could you look into Airbnb in the meantime. I am not sure whether the regs would be more relaxed on renting it on a casual basis and as has been stated you might make almost as much money in the holiday season as you would through a long term rental.

Edited June 3, 2016 by AliG

[ProDave]

I will try and remember as much as I can of what I tried to post earlier.

In Scotland, you have to have a home report done before marketing a property, that includes a valuation. In my case the home report as you would expect of a 12 year old house, found nothing wrong and valued it at £300K. That valuation did not include the range cooker, big fridge freezer and solar PV system that we expect to leave with the house, so the reality is we would have hoped for say £305K?  No estate agent here will give you an opinion of valuation, they all refer to what the home report says.

The house is currently on the market for offers over £285K and we have had 3 viewings in 18 months. So already offered below valuation.

I honestly don't think price is the "problem" and the only way you could "force" it to sell would be offer it at give away money. The problem is there is no market for big houses up here at the moment. The local agents tell me small houses in the town are selling but nothing big. The one agent who has been honest with me says "expect it to take 3 years to sell"

There were 3 other similar sized properties for sale here within a mile. These were all on the market for about 4 years. They all sold just after the Scottish independence referendum, and we thought the market had turned and that it was safe to put ours on the market, but that doesn't seem to be the case. We didn't want to put it on the market sooner and add to the over supply. Ours is currently the only large house for sale in this area.

We can't drop the price much more. Best estimates are that the new house will have cost £250K to build by the time it's complete. So that is the absolute 100% minimum we would ever begrudgingly take for our old house and if it goes that low they don't get the PV and they don't get any moveable items, no range cooker etc, not even the light bulbs.

There is no mortgage on the old or the new house and there never will be, we are both self employed on low incomes and what we could borrow is not significant in the scheme of things.

Part of the intention with building the new house and selling the old one was to downsize from 5 bedrooms double garage to 3 bedrooms single garage, and release some equity in the process. It would be a VERY bitter pill to swallow if we only break even on downsizing, and I can tell you 100% now, that there is no way on this earth that we would sell the old one for LESS than it costs to build the new one. I am NOT paying to dowsize.

I am enjoying building the new house, but this problem selling the old one is something we did not expect and don't want. I would not wish this situation on my worst enemy. It is casting a very dark shaddow over the whole project and the old house has gone in my mind from being our comfortable home to being a bloody millstone round my neck holding us back.

Yes the present house is run as a B&B but the occupancy is never particularly high, we are not really in a "tourist spot" We are still operating the B&B but not taking bookings for more than 2 months ahead, just in case we find that elusive buyer.

Our property is listed on airB&B I heard wonderful things about that so listed it at the beginning of the year to try and improve our B&B occupancy. So far in 6 months, not a single enquiry from that. So people don't even want to come and stay here, let alone live here?

It would be bloddy nice if certain politicians when they said "once in a generation" they actually meant it and just shut the hell up about it now.

[Declan52]

What about the house auctions where you can set the reserve to suit what your minimum amount would be. 

[ProDave]

1 minute ago, Declan52 said:

What about the house auctions where you can set the reserve to suit what your minimum amount would be. 

That is an option. Auctions tend to however have a reputation as a place to get a bargain, so I wouldn't expect to get much for it and certainly not my reserve price (allowing for the auction costs)

I know of one familly about to do this. They have a 4 bedrom house to sell in Dunoon (so the problem selling is not just the Highlands) They are currently renting a house that they intend to buy when their old house sells.  I think it's Novemer this year that the time is up and they start getting charged double council tax and they say that's when it goes to auction. I will watch very closely how much they get for it.

[Redoctober]

My sincere sympathies Dave - What an awful situation to be in. The only thing I can add to this discussion and I honestly have no idea of the finer details, it's just something I know has been used by someone. Would taking any equity out of the house be an option? There are companies [ some may say Sharks] who would release you funds against the eventual sale of the house. Yes it will cost because they will not give you a lump sum up front for nothing, I accept, but it is just another option to explore maybe.

PW.

[DeeJunFan]

We are in a similar spot but throw in about 100K of negative equity.

My wife bought a house at the height of the boom, we have had to rent it out and move into rented accommodation to start our build (as the house we own is about 80 miles away)

We were lucky enough to find some decent tenants but the rent is only covering about half of the mortgage so we are paying the same as our tenants for the house.   So far its a loss making operation as there has been a roof leak and some broken windows from young tramps around the estate.

The only silver lining is, there isn't one.  It will be at least 20 years before we can sell the house and hope to cover the mortgage.

I hope this makes you feel better about your own situation.  

If you are thinking about cashing in a pension regardless you could hold out and see how the chips fall.  Other than that you could try to market your house overseas.  Some mad Russian might buy it.  You could tell them William Wallace used to live there.

[ProDave]

Oh my that's a worse situation for sure. I don't care what nationality buys it, the colour of their money is the only thing that interests me.

It does annoy me when the news on the tv, even the Scottish news, keep on spreading the myth that house prices are rising because deamnd is outstripping supply.

I have said it before, house prices up here are so low, you really would struggle to build a new house and then sell it for your costs. As I have already said it's going to have cost us about £250K all in, and I doubt it would be worth that if we tried to sell it (not that we intend to) It would have cost a lot more if I hadn't done so much work myself.

No wonder the mass market builders build such rubbish houses, they simply cannot afford to build them properly, they would lose money.

[DeeJunFan]

Situation is the same there in Ireland.  The Govt is constantly going on about this recovery but it's a Dublin recovery, the rest of the country is lagging behind.

We have seen an increase in the price of our house but you're talking from an unreal collapse in price.  

At one stage the houses in our estate were going for about 30% of what we paid.

 

[AliG]

I let some friends who are hard up stay in the house I am knocking down for a year as it helped them out and they paid the council tax and utility bills.

One thing that isn't clear is how long does a house have to be occupied before the clock resets for paying double council tax.

The Highland Council website says that a marketed property gets a 10% discount for two years and this can be extended to three years if you can persuade them to do so.

If you rent it out for six months so that someone is paying council tax, does the two/three year period reset.

It may be worth renting it out cheaply to someone you know so that they cover council tax, standing charges, keeps the heating on in winter etc.

The whole difficulty to sell large houses is becoming bizarre. In Edinburgh new 3 bedroom flats are approaching the price of new 5 bed houses. Large houses are becoming very cheap. Worries about independence, higher rate tax, local income tax, the new stamp duty rules etc are all having an effect. In particular the new stamp duty rules are ridiculously punitive for larger houses.

Edited June 3, 2016 by AliG

[Jeremy Harris]

The problem with the news is that wherever you are in the UK whatever is newsworthy seems to be centred around London and the South East, with the possible exception of NI (we could only get NI TV when we lived in Portpatrick, and the news there rarely seemed to mention London, from what I saw of it).

I think we discussed this particular problem of larger houses in Scotland on ebuild, and I'm damned sure that part of the problem is that many of the potential buyers for places that would make good B&Bs are from England, and following the Scottish Referendum uncertainty (which doesn't seem to have gone away - the Nats seem determined to have another go before long) a fair few of those potential buyers will be staying away until the dust has settled.

Friends of ours who had B&Bs in D&G sold up before the referendum as they were concerned about the impact on house prices.  That's an area where house price inflation has always been very low in the main, even when there have been big booms down South, but the flip side has been that there haven't been big crashes in house prices there either, so the referendum uncertainty seems to have created a big new risk that is holding buyers back, I'm sure.

[ProDave]

I was trying not to politicise this thread. But Jeremy has hit the nail squarely on the head.

In my line of work as a self employed electrician, I get to see a lot of people in a lot of different houses. If I am called to a detached house in the countryside I am 90% certain the occupants will be English. If I go to a terraced house in town, I am 90% certain the occupants will be Scottish.

Now since the referendum, it was "decided" that Scotland would remain part of the UK, in our "once in a generation" referendum.  The trouble is, the SNP still don't accept that and are not prepared to honour the once in a generation bit and are just looking for any excuse to have a re run. The result is that while Scotland it technically in the UK. I can't believe that many people in England believe that, and while once moving to the Highlands was a desireable thing for English folk to do, it is not so at the moment.

It's very telling, that the three viewings we have had, were Scottish people, so rather confirming my view that 90% of the people that previously would have bought this sort of house are now not looking in this area (probably not anywhere in Scotland)

The only consolation is the situation could have been a lot worse. In the run up to the referendum I met a lot of English folk who said they would move back to England if the vote had been for independence, so if that had happened there really would have been an over supply of houses on the market and a lack of buyers.

You can probably guess I did not vote SNP/

 

[Declan52]

We have more than enough nutters here making the news that we don't need to include any from the rest of the UK.

[Ferdinand]

3 hours ago, Declan52 said:

What about the house auctions where you can set the reserve to suit what your minimum amount would be. 

Even if it doesn't sell at an auction the vendor will stir incur costs for eg advertising, literature and so on, which may amount to several hundred ukp.

Ferdinand

[reddal]

Hi,

I know you don't want to hear this - but it does sound like if you want to sell quickly - it will have to be at a slightly lower price.

Property is only worth what someone is willing to pay for it. A valuation is just a guestimate of this - and if you tested the market and noone was willing to pay close to the valuation then the valuation was wrong.

Maybe remarket it 10% lower?

Also make sure the property is as well presented as you can. People should be able to see through cosmetic details - but they do seem to make a big difference. So tidy up any small decoration issues, clear out as much clutter as possible, etc etc. And get new photos done.

A few years ago we were selling a property and I thought we were going a bit overboard with the presentation. We replaced a few carpets, repainted a few rooms, returfed the garden and then moved 90% of our stuff into storage and got a company in to 'stage' the place - with rented furniture. It looked a bit rediculous to my taste - like a show house - and I was thinking we were wasteing a lot of time/effort/money - that is until it finally went onto the market and the first 2 people who viewed in on the first day both offered the asking price on the spot!

Hope it all works out for you.

- reddal