So I sold my rental: Part 2

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Last week I wrote about selling my rental. I wanted to reflect a little on the financial side of how that went.

I bought my property in my home town in early 2016, intending to live in it. It was a tricky time with the market, and we moved further out that our previous home. Since I was on a budget, I looked at 42 properties and eventually chose the one we had nicknamed ‘the ugly house’.

A friend gave me some great advice at the time. He reminded me that I wasn’t looking for my forever home: that I needed something that would work for at least five years until my son reached secondary school age when maybe we would have different needs. It needed to be cloe to public transport, have some outdoor space, and some flexible living space for when my parents visit etc. And it had to have rental potential based on how my job works and how things might pan out in future years.

And it turned out that rental potential was needed much before imagined. I was offered a job almost straight away, and moved six months after buying the house. So naturally I rented it out.

All in all, it was rented for six years. There were about six months of ‘void’ (without tenants) and I had three different sets of tenants in that time.

During that period, the house went up in value by £96,000. So even if I hadn’t rented it out or made any improvements, I would have made a profit.

So how did the financing work out?

Below I set out a) the costs which are due to buying a house. These include sale and purchase costs, the mortgage, and insurances. Whilst the types of insurance are different, it probably works out about the same. Then b) costs unique to having a rental. Whilst some of these are maintenance costs, having to contract these out (or indeed do them when I would happily live with e.g. not redecorating for a while) I add them all in here as relating to the rental.

Purchase fees (solicitor, survey, stamp duty etc) £         8,544
Sale fees (solicitor, survey, stamp duty etc) £         9,360
Mortgage insurance £         1,440
Other insurance (landlord, boiler etc) £         4,200
Mortgage £      64,440
Total costs regardless of tenanting £      87,984
Letting agent fees £      11,448
Maintenance, decoration etc £      12,000
 Costs specific to renting the property  £      23,448
Tenant income £      93,600
  
Total costs £    111,432
Total costs in spite of tenant income £      17,832

So overall, I didn’t break even. Since this was bought as a family home and perhaps wasn’t the best in terms of rental options, I can live with this. But it is nothing like the predominantly American mantra of real estate as a way to make millions. Since it was rented out, I also had to pay capital gains tax on the increased value, which cost an additional £23,000, taking the total rental specific costs to £46,448.

On the flip side, having tenants essentially paid my mortgage which is a huge deal. So that was £64,400 which I didn’t need to make as income.

So it worked out pretty well in the end. I made the decision to overpay my mortgage, so was able to sell the rental and come out with a decent chunk of money clear, a lot of which is profit from the shifting market. And now I get to decide what to do with it!

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