Pros and Cons of buying a UK rental house?

[Familyofmonkeys]

The background story......
Since we arrived in NZ we have inherited some money. We had always intended to bring this money over to NZ at a favourable exchange rate, but sods law, this plummeted a couple of weeks before we got this inheritance and although we've been waiting patiently for a couple of years now, it shows no sign of going up to a half-way reasonable level anytime soon. We've done the sums and don't want to bring the money over when the exchange rate is so low because although the interest rates here are higher than the UK, we would still end up losing an awful lot of potential capital, but equally the interest rates in the UK are really low, so the money isn't doing anything for us there long term either. Neither do we have any sort of morgage here that needs paying off, so even if the money was brought to NZ, it would just end up stuck in some sort of savings or investment.

So.....
We've been discussing the idea of buying a rental house in the UK. Not with the intention of providing us with an additional income as such, but something that will, in the long term, pay off it's own morgage and provide us with something (income or capital) when we get to retirement age. We have already investigated buy-to-let morgages, which we are aware can be a lot harder to qualify for when not a UK resident. However, we would be putting down a minimum 60% deposit on a house, so it seems getting a morgage is currently possible because we're not talking about huge sums of money, and I am also pretty young so years away from retirement age, which seems currently to make a bit of a difference. We have a target area where would could potentially buy a property, and know the housing & rental market of that particular area very well indeed, including reliable rental agents if we chose to go down that route.


So a few bits of advice needed:

1. What are the implications (in basic simple terms - I know we'd need proper advice at a later stage) of declaring foreign earned income.

2. What tax would we pay in UK?

3. Would it be better to set up a UK business and have a rental house set up that way, or have it as a private income? I'm thinking there would be some capital gains issues?

4. In the past (pre children) when we were looking at buying a second rental house, there were rules that if you sold a property that wasn't your primary dwelling, then you paid capital gains on the increase in property value. However at that time, if you moved into the said house and lived in it personally for at least 6 months (I think), it legally became your primary dwelling and the capital gains thing no longer applied. We know people who have sold on their rental houses in this way, by moving from one of their houses to another one. Does this rule still exist, or has it been replaced by something else?

5. Re the above: Would we then need to spend 6 months in the UK at some point in the future, living in a rental property in order to be able to sell it, or would our kids be able to take a gap year in the UK when older and fulfill this living requirement, since they are our dependant family?

6. Anyone else like to share their experiences of /advice for renting houses out in UK. We are interested in balanced experiences......good + bad, but not just horror stories of where it has all gone horribly wrong please.

7. Extra expenses! We've thought about morgage, maintenance, getting gas/electric compliance certificates annually, agents fees etc. What else are we forgetting?

8. Reasons why this might be a stupid idea?

[bulu]

I believe (and really hope) the NZ dollar high is short term. Most likely caused by its strong links to the Australian dollar. Other than that there is really nothing else supporting the recent appreciation.

THat said, you should have your money on standby to bring into NZ. Locking yourself in a UK real estate will not help.

Disclaimer: Always consult a professional financier before acting.

[Familyofmonkeys]

.

THat said, you should have your money on standby to bring into NZ. Locking yourself in a UK real estate will not help.

But as I have already said above, we don't NEED to bring the money into NZ. We are managing just fine with the capital we brought over with us at the time of emmigrating, and living within our means here, so it's not just a case of waiting for the right time to bring the money here. We are taking a much more long-term view, and looking to stick our money somewhere that will be of benefit to us when we retire, which is still a long way off. Hence us investigating real estate options.....

[shawankit]

Hi,
Not sure how secure it is in UK to invest in Sections or Land, but if you are looking for long term appreciation - Its better to buy off large sections/ multiple sections (land) in newly established suburb with good connection to CBD.
These kind of sections need not have to have mortgage and can be bought off cash and 2-3 sections together in growing new suburb just outside a major city area are bound to double its value every 7-8 years and appreciates much more than currently established home (as home gets old - house value goes down and its the land / section value that appreciate and gives you overall appreciation of investment)

Just my thought, but do consult a financial advisor and investment on sections need to be more throughly researched - specially with transport connections and wide roads(prospoective commercial value too)

[Familyofmonkeys]

These kind of sections need not have to have mortgage and can be bought off cash and 2-3 sections together in growing new suburb just outside a major city area are bound to double its value every 7-8 years and appreciates much more than currently established home (as home gets old - house value goes down and its the land / section value that appreciate and gives you overall appreciation of investment)

The UK housing market is very different to NZ and other countries, due to high land values and housing shortages. One does not generally buy 'sections' as a large majority of houses are attached to others and on much, much smaller plots of land compared to NZ. Detatched housing is very expensive in most areas. New housing estates are usually built by large developers/building companies, and people then purchase the finished houses, with very little input into the design etc other than chosing paint, tiling and carpet colour. Of course, there are people who build independently, but usually only when they intend to live in a property themselves, as it's an expensive proposition.

Hope that explains my quest from information from people who currently have/or have had an actual house rental in UK.

[Duncan74]

I'd suggest that this shows that you need to seek professional advice. As there are issues and options that may or may not be more appropriate for you. Possibly think about paying for an advisor in both the UK and NZ. And if you worry at the cost, consider how much the purchase of place is going to cost in fees alone, let alone the other issues downstream / lost opportunities.

[Duncan74]

And whilst very very different to buying a rental property as an investment then you wouldn't believe the hassle we had. And how quickly the 'profit' disapeared from jsut one poor tenant, and that was with the rent paid in advance by an insurance company.

[themilkybarkid]

I can't advise regarding profit/risk etc but I personally would avoid the option as I think it could be 'high maintenance' work and potentially drawing you away (psychologically) from NZ and back to the UK. You'd have to ask -is it really worth the financial gain?

I appreciate the need to make better use of you UK ££££s siting in a UK bank earning little but I'd explore other low risk options

Best of luck.

[benandclare]

With my first wife we rented out our house when we moved counties in the UK and despite being only 90 mins away it was a pain.

We had agent to supposedly look out for us but after 2 tenants we gave it neck, way too much hassle

[Kea]

We kept our UK property as we only came to NZ for a year (2 and a half years ago). We have an accountant here in NZ who specialises in UK/NZ tax and he has advised us that we will need to pay NZ tax on the income after the 4 year exception period is up. If you would like his name I can PM it to you.

The rental business can be tough and some of it is luck what sort of tenants you get. I would factor in at least 1 month a year of the property being empty. We are happy to be tracking the UK property market as we want the freedom to be able to move back to the UK in the future so are not too bothered by short term ups and downs.

Another issue it is worth being aware of is the move towards Houses of Multiple Occupancy (HMO's) and the need for these to be licensed. So a property let to three or more unrelated individuals is classed as an HMO and in the future may need a council inspection, fire doors and hard wired fire alarms. Personally, I'd be happy to install the fire alarms but object to installing fire doors in my Victorian property and feel that these institutionalise tenants. It's a complex situation. I'm a member of the National Landlords Association (and get cheap insurance from them). They advised me to evict my tenants and let to a family instead!

So a smaller property, or family home may be a good idea. There are also advantages to letting as part furnished, rather than unfurnished but I'm not sure of the details.