Selling To Rent - A Good idea?

rcman

I am married with two young children. We are thinking of moving house and have some debts to clear. We have an endowment mortgage with 18 years left to run.

With the property market now cooling off, I have often wondered about the idea of selling to rent.

The equity from our house could be put into savings, and we'd earn approx 6-7 thousand a year in interest. We'd be paying slightly more monthly than we currently do through mortgage & debt repayments, but on a house we could never afford to buy.

We'd be free from building manitenance costs etc. and of course if the property market makes a downward turn, we'd be quids in.

But I wonder if the risks are too high for someone with a young family to consider.

Any thoughts please?

dougk_2

Personally I wouldn't do it - you are gambling on house prices dropping substantially and that rental costs do not increase.

Also you may end up having to keep moving from one rental property to another - you cannot control what the landlord wants to do. To me that is not a stable environment for children - especially if they have to change schools etc.

Don't forget it will cost you to sell too (solicitors fees, estate agents etc)

If you sell and rent now its possible you would never be able to buy again (especially if house prices rise - its possible they will!). If you endownment pays out in full or within a few thousand in 18 years time you will have a wholey owned asset.

Don't forget if you are a tax payer you still pay tax on your savings in general (obviously some can be put into ISA's)

IMHO selling a house to rent always seems a backward step.

If you have debts that cost more than say 6% in interest then you could remortgage (income allowing) in order to clear these... but speak to a proper independant advisor first.

If you need more space because of the children then perhaps you could consider extending  (using equity in the house).

oh - and one last thought , you would have to be careful about your savings .. would you be strong willed enough not to start spending them when you decide you want things (holiday, car, gadgets etc)?

MarkyMarkD

I wouldn't give a blanket yes/no as the previous poster does.

If you can afford your mortgage payments, and your debt repayments, you have no pressing need to sell up.

If you are struggling to do so, and couldn't remortgage to consolidate the other debts, it might be a different matter.

I know a friend who was in EXACTLY this position - poor income, expensive mortgage + secured loans, and completely unable to keep up with the monthly payments.

But because she had equity in her property, she was able to sell it, clear the mortgage & secured loans, and end up with (a little) cash. Her outgoings now are less than they were before: although the rent is slightly more than it would cost a normal borrower for the mortgage, it's about the same as it would cost her (adverse credit record and low income) and she no longer has the secured loan repayments.

So, it's horses for courses.

Renting is not such a bad option. And landlords aren't in the business of chucking out good tenants for the sake of it - they need a good reason to want to sell, or to want you out.

dougk_2

I didn't mean to give a definate yes or no either - just what I would do personally, and give some points to think about......................

What MMD says is all valid and I agree with him on many points ;D

What I said about controlling landlords was not implying they would want you out, but more that you cannot guarantee that they are in it for the long haul or that the circumstances they are in do not change - i.e. they need to sell or need to raise funds for other properties etc. This will always be a bit of the unknown.

I think the decision you make will partly be on your personality , likes and dislikes and ultimately what is financially best for you. We all want different things from life and have different priorities so there is no right or wrong answer!

MarkyMarkD

Agreed, doug.

You can have good landlords and bad - and even good ones might want you out, because they need to liquidate their assets.

But I don't think there should be a social stigma against renting as there often seems to be. Renting is a valid choice for those who can't afford to buy, or who need to move frequently (for work, or whatever).