What to do with real estate?

1

I have a flat in London Zone 1 which I lived in before moving to Switzerland. Currently rented out at £20k per year. Tax on this is limited due to availabilty of UK personal allowance (around £12.5k per year) so around 7.5% effective tax rate.

Let’s say it could sell for £400k +/- £50k. I’m torn between keeping it and having some tax efficient income and some diversification.

Then again, I want to get rid of it to save on hassle. Any thoughts/ideas things to consider?

2

what other assets do you currently have and what’s your current asset allocation?

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Property is around 10% of gross assets (assuming debt=0). All other real estate is in Switzerland.

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4

Spontaneously I’d say that the value of the house is not a huge part of your portfolio.

The main consideration is whether those £20k are worth your time, especially if you could just buy a diversified portfolio of Real Estate, Stocks and other stuff that would generate a return of ~5% per year that does not cost you money.

Some points I am thinking about are:

  • Are house price still increasing in London? i.e. is waiting a few more years a possibility to see if interest rates decline and sell for more?
  • Do you have to pay a capital gains tax when selling?
  • Some people from abroad keep properties in their home countries in case they want to stay there spontaneously. Do you want to have a place to go back to? Then it might make sense to keep a foot on the London property ladder.
5

What would be more tax efficient income than this?

6

I guess the alternative would be to invest in stocks. Are people happy to hold just stocks (maybe plus bonds)?

7

Everyone is different. I need to have some real estate too (though I currently have too much).

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8

In case of a market collapse, having real estate properties could help you to sleep better.
REIT is not equivalent as you can have high volatility and could be bankrupt if the debt is not manage smartly by the board.

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9

I own rental property in the north of UK. I decided to keep them for the meantime. Here are the 3 main questions I mull over:

  1. How much hassle it ?

I outsourced letting and maintenance of the interior of the properties to agencies I worked with for more than 10 years. I no longer get stressed if there are expensive repairs because “I already achieved a good return” (mental accounting on my behalf)

The properties are leaseholds which means I don’t have to worry about arranging contractors to fix the exterior. I pay extortionate fees for building management firms to take care of it but my rents cover it (see below)

I keep an eye on the evolution of legislation and taxes. Evil Buy to Let landords were front page news a few years ago.

  1. Is it worth it economically?

My rents increased 30-50% in the past 4 years. High mortgage rates take many people out of the buying market and so put upwards pressure on rents. The impact comes in addition to all the other inflation effects. It is a kind of double whammy

So finally the diversification was worth the hassle of years of ownership and lower returns vs. stocks. Rent after co-ownership fees is ~6% of current market value and increasing.

We don’t pay any UK income tax (we own the properties jointly so get double the personal allowance)

I think rental yields may still have a way to go and now could again be a good moment for cash buyers or people betting on mortgage rates coming down to consider investing in UK rental property.

  1. UK inheritance tax

I want to be sure to lose my UK Domicile. At some point I plan to get out of all UK assets and sever ties to UK. Hopefully I have a few years still to plan this

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