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Unwanted property you say? If you have inherited property and never intended on becoming a land or property magnate, you may not have the first clue how to proceed. Never mind turning a profit; you just want to eliminate the impending stress involved with your new accidental landlord status.
It’s easy to panic because a property investment can be costly, both in terms of time and money. However, although you don’t know it yet, you’ve been handed the ideal opportunity to boost your earning potential and increase your wealth. You don’t even need to recoup the initial outlay, so you’re already on to a winner!
The only thing you must focus on is putting yourself in a position where the revenue stream is steady and doesn’t impact your finances. It’s tough, yet it’s doable with the following pointers. This is how you make money from an unwanted real estate investment.
Make Sure It’s Yours
Ownership should be a no-brainer, but it’s not as straightforward as it appears. There should be a will that states the asset is left to you and you alone for starters. Many people share an inheritance with siblings, in which case, it’s vital to include your brothers and sisters in any proceedings and avoid potential legal action.
It’s tempting to think that you don’t need a written agreement when dealing with family; however, it’s safer to dot the I’s and cross the T’s. That way, if something goes wrong, everybody is covered legally.
You may not be out of the woods even when the will states that you’re the beneficiary of a house or flat. Family members or friends can choose to contest the decision, and a long and complicated process is likely to occur. You have to apply for and wait until the probate process is over before you can legally sell an inherited property.
Speaking to a solicitor and asking for a professional opinion is a good idea. The last thing you want to do is try and sell a house that may not be yours and incur the consequences.
Find A Chartered Surveyor
You’ll require a surveyor for probate purposes as the HMRC will want to know an accurate figure regarding the property value. They need it for capital gains and inheritance tax, but there will be more on that later in the post. For now, a surveyor is vital because they can spot the telltale maintenance signs that you may want to avoid.
The condition of the property will dictate your biggest decision – whether to sell or to rent. The latter is more lucrative and comes with additional responsibilities, whereas the former will provide a lump sum figure and allow you to wash your hands of the investment.
Of course, it’s tough to sell a building when it has major structural issues. A basic survey should pick up the warning signs, so there’s no point in wasting resources trying to sell it without addressing the problems. After a potentially expensive investment, you could be better off renting to recoup the money in this scenario. You can hire a letting agent if you don’t have time to manage the property yourself.
On the flip side, if the work is cosmetic and relatively affordable to repair, you can flog it and invest in the money.
Factor In Taxes
Another factor that will impact your decision to sell or rent is the amount of tax payable. As well as inheritance tax, there’s also a capital gains levy that you could be saddled with, so it’s double trouble. Of course, the more you pay in tax, the less you receive from your investment, which is counterproductive.
Regarding inheritance tax, the threshold is £325,000 (correct at tax year 2020/21).
Capital gains tax is an expense that you should thoroughly research. When you have two homes, you must pay gains on the second one if you sell it (the home which isn’t your main residence). However, there is a two year grace period as you don’t have to tell the HMRC legally until twenty-four months. Therefore, if you can sell it within this period, it’s all good.
If you can’t, and if your investment is worth more than the inheritance tax threshold, it is smarter to rent. At least with renting, you can build a steady stream of income for decades. And, if you do list it, the final tax bill won’t be as severe. After all, you’ve milked it for years and secured a big profit.
Inform The Council If Unoccupied
You’ve only been notified that the house is yours, so the odds are that you have no idea what you’ll do next! That’s understandable, and you shouldn’t rush into a decision that may change your life. However, you could have to pay rates in the meantime, and they’ll affect your bottom line.
Thankfully, you aren’t eligible for full council tax fees if the house is unoccupied. It has to be unfurnished or the local authority will assume you’re using it for residential or commercial purposes. Regarding the energy bills, you should only have to pay for the standing charges for gas and electricity, and water can be temporarily disconnected.
Another trick is not to classify it as a business venture. Once you do, you must pay full business charges after the three month grace period is over.
There you have it – an unwanted property investment can be lucrative. How will you turn an inheritance into a money-spinner?
