Here's my analysis of benefits of keeping or selling a property on completion. I'd be grateful for people's comments on these, particularly any of your experiences from real life, and any additional points you have, which I've forgotten.

Reasons to keep property

The market's I'm invested in (Czech/Slovkia) are still growing, so I'd be likely to continue making good gains long term. It seems unlikely that I'd be better off by selling and reinvesting in different markets or in new off-plan properties, particularly given what can be high purchase costs.

Selling before renting is treated as income in the UK and subject to UK income tax in full (I.e. no CGT exemption limit can be applied – not good!!!!). This could be very expensive!!!! i.e. 40%

Slovakia (and Czech I believe) CGT rules are that no local CGT is due after 5 years of ownership – if I sell now I’ll have to pay 19% tax on gains in the home country – if I wait I’ll pay nothing in home country and then benefit from the UK CGT tax free allowance

Remortgaging can release funds for reinvestment

Reasons to sell property

Much lower hassle option -Avoid mortgaging, tenants, annual tax returns, maintenance and so on

Nice to feel I’ve actually realised the gain and made some money

Full 100% of sale price (after costs) is available e.g. reinvest

Avoids having to put extra cash into these investments – kitchen, mortgage payments, maintenance (assuming not all covered by rent)

Hi Jeremy

What we are seeing is that prices (developer's sales prices) rise very fast in the 2nd and 3rd phases only to fall back in the 4th phase.

This is not always true - but happens in new or 'thin' markets. The result is that the developers's sales of phase 4 slow rapidly - due to very high prices, and he needs to get the sales going again with attractive pricing.

Hence, we are coming to the conclusion that if you strategy is to maximise your price (ignoring tax, hassle etc...) you will do best to rent for 1 year and then sell.

I'm seeing this on my personal units - but we are also seeing this pattern repeat across other developments.

Now, this is a result of tactical pricing by developers to achieve the max price during the phases of the build - not a sign of what the market is doing! (It is easy to confuse these).

So, the way to be sure you are getting the best price for your unit is to sell after 12 to 18 months after the first units were let.

Hope this helps.

Cheers
Neil

If an apartment requires furnishing for it to rent successfully, surely you would need it to rent for perhaps a minimum of 4 years to payback/contribute to the fit-out and furnishing cost. If you intend to sell after 18 months, in the majority of cases, I simply would leave it empty. If you have genuine friends on the ground in CEE markets then reconsider this. I have not found a property manager thus far that has filled me with confidence, finders fees and excessive management costs are the norm. The hassle factor cannot be understated. As these markets mature competition will no doubt improve things, but I can't help but think that not being a native is a significant disadvantage. Paul

yep - that is the challenge.

Usually, you can get the cost of the kitchen back with a raised selling price - but not so the furniture - so the ability to rent it unfurnished is a big advantage.

Depending on the rents and the mortgage costs - you may well do better to leave it empty for the initial period and sell it as a brand new flat;.

Cheers
Neil

Thanks for that info Neil. Very useful.

Just to reiterate my tax point above: I know everyone's tax situation differs, but for many, it is better to avoid paying more UK income tax (at 40%), so there is very good reason to rent first, and then get any gain treated as a capital gain to utilise our annual capital gain personal allowance of around £10k (i.e. get £10k of the gain tax free - thus saving £4k compared with paying income tax (assuming you hold for 5 years in Czech or Slovakia so there is no local capital gain).

The tax situation on these investments can get very complicated. I find it confusing and I'm a Chartered Accountant! It can make a big difference though.

what if you put the place up for rent but don't actually rent it out for a year? Does that qualify you for the capital gains exemptions? Or would that be hard to get past the taxman?
I do think that unless you need the cash to spend on yourself, it always makes sense to hold property for at least 5 years, maybe 10 to achieve best returns once you take into account not only the paperwork and costs upfront and on exit but also the hassle factor of finding another property to invest your money in.. why put yourself through that too often if you are still getting good capital growth where you are, and if you are not looking for a maximum rental yield?

Also, if you use Ikea to furnish an apartment it shouldn't cost that much ..less than the tax you'd save anyway, so maybe you should just write off the furnishings cost and not try to recover them?
Include the furniture for sale (free) with the apartment and it might sell quicker and you have no removal costs..
Trick is to furnish a place nicely but on a budget.. maybe PS should offer this service?

I think you would find that hard to get past the taxman!

PS do offer a furnishings service!

Had it in mind that they did but since I only bought my 2 units last month I'm learning as I go along..

Hi Jeremy,

I had 3 flats in Krakow and decided to sell them on completion rather than rent them. So to avoid the Income tax versus CGT trap, I made up 3 fake rental contracts immediately after I signed with the developer, each contract was for 1000zl a month and I paid income tax on the non-existant rental income at 19%. After 6 months when the apartments were finished (taken from developer standard to finished standard with bathrooms and kitchens etc) I sold them and then paid the CGT.

It worked for me!