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Sell or Let Current Residential Home

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Hey, we are complete newbies who are renting our main residential house whilst we take a mid-life gap year.  During this gap year, we have read Rich Dad, Poor Dad, and so have decided that a 5 bed house in a premium school catchment area isn't the best use of the assets of two childless people.


We have made the decision that we are going to buy a smaller house in a less family friendly place to reduce our ongoing costs.  


The main residential house has 75% equity due to improvements, mortgage repayments and overall property value increases.  Can anyone give any advice on how we can decide whether we sell this house to realise the equity or if it is better to remortgage and continue to let.  Either way we will be using the capital released to buy property to let.  Our aim is to have an income large enough to enable travel and work freedom.


Thanks in advance everyone!


Michelle & Greg



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Hi Michelle & Greg


You are in a strong position for sure. As to whether to sell or continue to let out your current home will depend on a couple of variables...


Your goal is income, so refinancing your existing home and using the proceeds to fund additional rental properties will allow you to 'leverage' your existing asset to fund the growth in a similar way to selling and doing similar. If you sell, you realise more actual cash to reinvest now. However, if you refinance you have less cash but retain the original asset obviously. As this was your former home, one very interesting tax break becomes open to you that is not available with say a rental property. Gains (profit through house price growth) made on your home are of course free of Capital Gains Tax (CGT) and even if you retain the property for a time to let it out, you may find that the CGT gain is minimal due to the various allowances open to you. I have recorded a podcast on your home being a very tax efficient asset here: http://www.thepropertyvoice.net/musings-home-as-a-tax-efficient-property-investment-asset/ and there is an accompanying spreadsheet that I produced to calculate the sums involved if you would like that.


So, if the value of this property is likely to continue to rise, holding for a time and then selling later could be quite tax efficient in terms of CGT. There is a slight bugbear with this strategy now though in the form of reduced mortgage interest relief, so doing the sums could get a bit complicated. Of course, if you believe the price is likely to flatline or even fall, then waiting before selling would eliminate this tax advantage.


The other big factor to take into consideration is Return on Investment or ROI. This is a measure of how well your cash is working for you. You should calculate the ROI on retaining the current home after refinancing and letting it out versus what you could do with the equity you end up leaving in. In simple terms, if you can get an ROI of say 8% by keeping the property, versus say 10% by reinvesting the proceeds elsewhere, then the decision would be to sell and reinvest elsewhere. Obviously, if the returns were the other way around would suggest refinancing, letting and then reinvesting the mortgage proceeds instead. Here is a blog post on measuring our returns in property: http://www.thepropertyvoice.net/how-best-to-measure-our-property-investment-returns/ 


Some other thins to consider are capital growth (ROI usually excludes this), non-financial criteria (e.g. having a footprint in a certain location), attitude to risk, comfortable debt levels and so on, and of course your after-tax income is the important thing, especially if it is to be a major / sole source of how you fund your lifestyle.


Hope that helps,




Richard W J Brown a.k.a. The Property Voice

Property Investment Strategist

10%+ ROI property deals every week: check out PROPERTY DEAL TIPS
Amazon best-selling author Property Investor Toolkit & #PropTech, YPN Magazine columnist & PODCAST host

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