STR - Yay or Nay!

muzer

We've had our house on the market for eight weeks (after living here for eight years) and have dropped the asking price from £137,500 to £124,995. Yesterday we received an offer of £123k which we've accepted. Our plan was to bank the £60k equity, rent for eighteen months or so and then jump back on the ladder when prices have dropped some more. However we're both now having doubts as we've already accepted less than we thought we would have to on our own house. To rent a comparable house will cost £600pcm which would be what our mortgage would be if we stayed put (£60k mortgage). Because we've taken a bit of a hit on our place we're now faced with the dilemma of selling and renting a house which is no better than ours for the same price as well as having to pay out £3000 estate agent fees, £500 moving fees, £1350 redemption penalty on the mortgage, £500 solicitors fees. Our other option is to accept we've got a sale and look to buy another house (hoping we can get a good deal on a house we could really look to stay in long term) or we stay where we are (thus saving £5000k plus it would cost us to sell) for a couple of years and then move into the "house of our dreams" when prices have levelled out.

We are comfortably able to meet our mortgage payments and don't have any debts. The reason for selling to rent would purely be to put us in a stronger position when prices drop to a level where we could come back into the market with a £60 grand deposit (obviously we're aware that we would lay out £11k in rent over 18 months - so called dead money but will house prices drop by another 10% over the same period?). If we did stay where we are we would need to spend out a few quid to bring it up to a really nice standard knowing that in the next few years we would want to move on anyway. We don't see ourselves being in this house in three years time for sure. Making the decision is proving more difficult than I thought as until we received the offer i'd convinced myself that we should sell up and sit it out for a couple of years - help!!!

mewbie_2

Congratulations on selling your house. I think you are doing absolutely the right thing, all the indicators point to house prices continuing to drop. A minimum of another 10% down would seem to be highly likely, but it could be much more.

If you rent, then each month your old house could have dropped say another 1%. That's over 1k a month that you are saving which doesn't make rental seem quite so bad.

No one can be sure, which is why it is a big decision. But there are very very few who would say that in the period you are talking about they are likely to rise. I suspect if you rent, and hang on to that nice chunk of equity you will be in a very good position in a couple of years.

leftieM

It's normal to feel jittery. You are speculating on the market falling. You are likely to gain but you may lose.
When we STR'd I, too, felt afraid about our decision. Was I being cruel to the children moving house? Would prices start to rise again? Were we selling too low? Would renting be awful?
I knew that moving was the right thing to do and the reality was that, to live where I wanted, buying cost three times as much as renting, so there was no real choice. Leaving our last home was the main goal, and any financial gain that has subsequently come from that has just been a bonus.
If you don't want to move then don't move. Just don't let fear of what might be stop you. Sometimes taking a risk can be the most liberating thing.
Also, don't forget that your 60k will be earning interest every month.

amcluesent

>The reason for selling to rent would purely be to put us in a stronger position<

IMHO, you've gone about this the wrong way. You want to make a 'bet' on house prices dropping, but are using the physical actual asset to do so. And will incur the transaction fees and emotional upset of moving out, eating in to any gains.

You need leverage.

You could just have placed a spread bet on the national house price index. If you call the market the right way, then the gains don't attract much tax either.

>have dropped the asking price from £137,500 to £124,995. <

So most of the bad news is already priced into the market. The STR boat left harbour in Aug 2007.

>Yesterday we received an offer of £123k which we've accepted<

What do you do when 24hours before completion, you are 'gazundered' by the vulture buyer with a take-it-leave-it offer of £99k, as the survey has shown 'problems'?

muzer

amcluesent wrote: »

>The reason for selling to rent would purely be to put us in a stronger position<

IMHO, you've gone about this the wrong way. You want to make a 'bet' on house prices dropping, but are using the physical actual asset to do so. And will incur the transaction fees and emotional upset of moving out, eating in to any gains.

You need leverage.

You could just have placed a spread bet on the national house price index. If you call the market the right way, then the gains don't attract much tax either.

>have dropped the asking price from £137,500 to £124,995. <

So most of the bad news is already priced into the market. The STR boat left harbour in Aug 2007.

>Yesterday we received an offer of £123k which we've accepted<

What do you do when 24hours before completion, you are 'gazundered' by the vulture buyer with a take-it-leave-it offer of £99k, as they survey has shown 'problems'?

If they gazunder us at the last minute we'll tell them to clear off and they'll have lost their survey fees and two months of thinking they were about to move out of the rented hole they're in now. We don't have to sell, we're selling to hopefully take advantage of the current situation. I also realise we missed the best time to str - last year we could have sold for £140k without too much problem but that doesn't change the situation we're in now.

bristol_pilot

I am STR, but it may not be the right thing for you.

Firstly, do you have a family? STR is fine for people without kids but there is no security of tenure - the landlord can just turn up and kick you out with a month's (or two months) notice and you can end up moving repeatedly if you are unlucky. If you are very unlucky you can be kicked out at a moments notice if the landlord fails to keep up mortgage payments on the property. Kids need stability.

The other reason is financial. You say you are able to rent for £600 pcm in your area a house that would be £130k or so to buy. Where I live you can't even get a bedsit for that - maybe a parking space - but rents are similar to those in your area. My £650 pcm rents me a place that would have cost £375k-450k to buy, so renting is a bit of a no-brainer. If I could buy anywhere decent for £130k I would rush out and buy now.

Incisor

muzer wrote: »

We've had our house on the market for eight weeks (after living here for eight years) and have dropped the asking price from £137,500 to £124,995. Yesterday we received an offer of £123k which we've accepted. Our plan was to bank the £60k equity, rent for eighteen months or so and then jump back on the ladder when prices have dropped some more. However we're both now having doubts as we've already accepted less than we thought we would have to on our own house. To rent a comparable house will cost £600pcm which would be what our mortgage would be if we stayed put (£60k mortgage). Because we've taken a bit of a hit on our place we're now faced with the dilemma of selling and renting a house which is no better than ours for the same price as well as having to pay out £3000 estate agent fees, £500 moving fees, £1350 redemption penalty on the mortgage, £500 solicitors fees. Our other option is to accept we've got a sale and look to buy another house (hoping we can get a good deal on a house we could really look to stay in long term) or we stay where we are (thus saving £5000k plus it would cost us to sell) for a couple of years and then move into the "house of our dreams" when prices have levelled out.

We are comfortably able to meet our mortgage payments and don't have any debts. The reason for selling to rent would purely be to put us in a stronger position when prices drop to a level where we could come back into the market with a £60 grand deposit (obviously we're aware that we would lay out £11k in rent over 18 months - so called dead money but will house prices drop by another 10% over the same period?). If we did stay where we are we would need to spend out a few quid to bring it up to a really nice standard knowing that in the next few years we would want to move on anyway. We don't see ourselves being in this house in three years time for sure. Making the decision is proving more difficult than I thought as until we received the offer i'd convinced myself that we should sell up and sit it out for a couple of years - help!!!

There are only 2 reasons for selling a house:
[list=n]
[*]Lifestyle choice
[*]Financial
[/list]
OK there is dying, but let's count that as a lifestyle choice.

What does not come across clearly is why you want to sell. You are expressing no clear lifestyle choice and your financial plan is pants, because you have not looked into it closely enough to decide how much you need for the house if you are to bank the equity for the time being.

If your reasons are purely financial, consider the obvious cases.
[list=n]
[*]You are approaching negative equity and either you are in debt, or you know you will need to move in the forseeable future. In this case there is no doubt you need to sell
[*]Your equity is substantial, you know you are going to make a lifestyle choice in the next few years and it is no skin off your nose to bank the money and rent off the proceeds, so you have flexibility for later
[/list]
You fall between these cases, so you have to justify what you are doing. It makes no sense to sell now and buy again for financial reasons - your justification for this would have to be lifestyle.

If you are going to rent for a year or 2 before buying again, then the estate agents fee and legal fees don't come into it, you would have to pay these when you finally come to sell, so paying now is no loss. The financial positives of renting are no mortgage, interest on your equity and any drop in house prices, which can all be set against the rent itself. You may even be able to calculate an increase to your equity through savings. But you may also bear a cost in terms of lifestyle in rented accommodation.

Do the sums and decide how much you must get for your house before you embark on this course.

chewmylegoff

dont forget to also factor in that although your mortgage payments may be the same as your rent, if you are paying £600 on a £60k mortgage, then, depending on interest rate, only about 50-60% of that is interest (6% of £60k /12 = £300) and the rest is capital repayment. you'll be paying roughly £3000 of the mortgage off a year. you can't save this £3k towards a new house if you have to spend it on rent. edit: although as pointed out above you will be earning interest on capital which will, net of tax, roughly match this difference. the gain in interest income offsets the difference between mortgage interest and rent.

as you say you are going to sell the house within 3 years and sell anyway, then i think you should discount the selling costs when thinking "is it worth it" as you will have to pay the same selling costs whenever you sell the house.

i think you have kind of missed the boat on timing - but obviously it all really depends how much the market falls during the time during which you rent. if the market doesn't fall at all (most unlikely) then you lose money by doing this. if it falls only another 10% whilst you rent for 2 years then you are up, but it may not be worth the hassle of renting, if it falls 20-30% more then it will probably have been worth it.

also it will be tricky to rebuy exactly at the bottom as it will take you time to find what you want, and then you will have to extract yourself from your tenancy agreement - you could end up renting and paying off a mortgage for a few months.

GDB2222

Personally, if child-free, I would go for it. The property derivatives market is pointing to a 25%-30% fall from where we are now. The hassle factor is significant, so bear that in mind, and factor in some strain on your marriage/partnership.

leftieM

bristol_pilot wrote: »

Firstly, do you have a family? STR is fine for people without kids but there is no security of tenure - the landlord can just turn up and kick you out with a month's (or two months) notice and you can end up moving repeatedly if you are unlucky. If you are very unlucky you can be kicked out at a moments notice if the landlord fails to keep up mortgage payments on the property. Kids need stability.

Children are able to adapt to changes in their housing and other circumstances, as we all are. They don't know or care whether the house is rented or mortgaged. I agree that too much change is unsettling to some children but you'd be pretty unlucky to have to move regularly if you were a reliable tenant.
The main thing children need is love from their carers. They can cope with anything when they have that.