Purchasing a second property is an exciting time for any homeowner, as it shows they are moving up the property ladder and potentially putting themselves in a position to trade their current accommodation for something better.
However, it can come with a number of organisational challenges, not least of which is the question of what to do with your first home. For many, the initial instinct will be to sell up, whereas others might prefer to keep hold of the property in order to rent it out. Both approaches have notable pros and cons, so it's well worth taking the time to consider all of them before coming to a decision.
The benefits of renting
Property owners who choose to let out their first property rather than selling it on usually do so due to the considerable potential for long-term financial gains associated with this approach.
By turning your first home into a rental asset, you'll be able to guarantee yourself a regular source of income, with the property generating profits from rent even after taking into account any mortgage fees you might still owe. Moreover, it allows you to hang on to a potentially valuable asset and build up a property portfolio over time.
If the property is in an area where prices are on the rise, you stand to benefit from considerable capital gains over time as the asset becomes more and more valuable; what's more, it offers the additional flexibility of knowing you still have a place to return to if you're expecting to come back to that area at some point in future.
Why selling might be better
For some, selling their first home when they buy their second will be a no-brainer, because they will want to use the proceeds from the sale to finance the new purchase. However, there are other reasons why selling might be better than renting.
Notably, the gains associated with being a landlord are offset by the fact that it requires a considerable amount of work, as you'll still be financially responsible for the property and will need to carry on looking after it as part your legal duties to your tenant. If you find that you're having trouble finding reliable tenants, it's also possible that it could become a financial drain, rather than a generator of profit.
It's also worth remembering that generally, it's easier to avoid having to pay capital gains tax when you only own one property; as such, you should bear in mind that if you choose to sell the home some time after purchasing a second, it's much more likely that you'll be hit with a hefty tax bill.
Which approach is right for you?
Ultimately, this is a question you'll have to answer for yourself, based on your individual circumstances, goals and needs. The important thing is that you make sure you take the time to do the necessary research and seek professional guidance, whichever option you ultimately choose.