Should I sell?

[Alimantado]

Hi Fools

I own my home outright and I've also got a cottage I rent out. I bought it for 143,500 in 2011 and I'd probably get 155,000 for it now. I've spent the difference on maintaining it. I've a 50,000 mortgage on it that costs me £378 pm. The tenants pay £600 pm. The money invested in this property is basically my pension, I'm self-employed and a single parent.

I'm beginning to think I could do better managing the money I have invested in the property in other ways that would not create such a big potential tax liability. Doing the sums it doesn't look like I'll get much of a return on my investment by keeping the property on.

I'd really appreciate thoughts from other fools

[StepOne]

Selling would net you say £100k after costs.

Annual gross profit is 2,664.

So you are getting a return of 2.7% on that £100k, from which you have to pay maintenance, insurance, etc and cover any voids, and then you pay income tax on the remaining profit.

Personally I would sell it. You could put 20k a year into FTSE tracking ISAs and in 5 years you'd be getting about 3.5% in dividend yield alone with no tax, and no hassle. Or you could look for a higher-yielding investment trust.

The downside would be if property values rise faster than shares then you will have lost out.

Cheers,
StepOne

[Mike4]

The downside would be if property values rise faster than shares then you will have lost out.

Which of course is the whole nub of property investing (other than the student and DSS markets which usually focus on income). A bet on prices rising faster than the alternatives. The OP also has the advantage of a degree of gearing if he sticks with the cottage which he will lose if switching to equities.

So really, the answer lies in the OP's view of where the property market is heading. Or more specifically, the property market for cottages like his. No-one can tell him what his opinion should be. He has to decide that for himself.