I've £100K equity and I'm going to sell and rent...

HeWhoDares

I posted this message on the Properties and House Prices thread and was advised to come here for better advice on what to do with £100K:

I've got £100,000 equity in my house.
I'm going to sell and rent.
Rent will need to be subsidised by £350 to live on current means.
I'm going to fill up my (and wife's) ISA's with as much as possible (against FTSE 100 currently (Jupiter Finance)).
Then with as much as good interest rates allow, I'm going to contibutr to Regualr Savings accounts monthy (electronic setup).
Whatever's left I'm going to bank in high interest account.
I'm also going drip feed the £350 into my account for the rent subsidy.

Obviously I'm banking on the housing crash and making myself Interest Rate immune.

What do you money savers think - I'm still very much researching this idea!!

Thanks Guys - and keep winning!!!

Andy_L

How much do prices have to drop & over what time scale for you to be ahead of the game?

whambamboo

Andy_L wrote:

How much do prices have to drop & over what time scale for you to be ahead of the game?

Depends on how much rent he pays.

If he makes £6,000/year on the £100k net, then if he pays £6,000/year rent, then unless prices rise he's better off.

Under that scenario any downward movement in prices benefits him.

ReportInvestor

Unfortunately the OP needs to specify a time scale for this property crash before we can suggest investments.

Although I note that a willingness to invest in shares indicates that he does not think it will be over and done with in the next few months.

Although he says he researching the idea, it would appear that a medium+ timescale and interest rate rises are already part of his given equation.

Happy to be corrected, though.

whambamboo

ReportInvestor wrote:

Unfortunately the OP needs to specify a time scale for this property crash before we can suggest investments.

Although I note that a willingness to invest in shares indicates that he does not think it will be over and done with in the next few months.

"I missed out that this is a 4-5 year plan - judging the housing market. If prices fall and interest rise, then I'm laughing. This is still speculative, but judging by the high personal debt, high mortgage debt and over valued house price (6 times avg salary as opposed to 3.5 five years ago), I can only see interest rate rises and house price drops (40% in 90's).
Am I blinded?"


I think that's fair comment. Any crash if it does come will take 5ish years to the bottom, and there's always time to get back on the ladder when things start moving up again - nothing doubles overnight - it takes several years. So I reckon this would be a 7+ year investment

Andy_L

"I'm going to fill up my (and wife's) ISA's with as much as possible (against FTSE 100 currently (Jupiter Finance))."

Every thing invested in a single fund? What's likely to happen to the FTSE 100 if house prices crash? Would it fall as people stop spending money or rise as people swith investments from (BTL) property into the stockmarket or something totally unrelated.

Pobby

What the Op is doing is known as sale to rent.Works well if there is a price crash how ever some people did this a few years ago thinking that houses wouldn`t rise any further and have lost out.

Imho the housing market is bloated and is due some form of correction,however in the area I live prices would appear to have suddenly jumped this year.Bit of a gamble but who knows?

Chrismaths

What the Op is doing is known as sale to rent.Works well if there is a price crash how ever some people did this a few years ago thinking that houses wouldn`t rise any further and have lost out.

Given that by most (optimistic) measures, house prices have gone up maybe 5-10% over 2 years, and that the FTSE All-Share (captial only) has gone up 33% in that time (probably more like 50% on a TR basis), it's hard to see how people would have lost out.

EdInvestor

If prices fall and interest rise, then I'm laughing. This is still speculative, but judging by the high personal debt, high mortgage debt and over valued house price (6 times avg salary as opposed to 3.5 five years ago), I can only see interest rate rises and house price drops (40% in 90's).
Am I blinded?"

IMHO you are right to connect interest rate rises with property price falls.This is what happened in the past.But looking at the two major previous house price crashes (1974-5 and 1989-92) plus the smaller one in 1979, we see a few other things may be necessary in order to cause the rise in interest rates that causes the recession which causes the fall in house prices, eg

1.Inflation caused by major rises in the price of oil (74,79)
2.Serious instability/wars in the Middle East (74,79)
3.Inflation caused by problems with the pound sterling ( eg exit from the ERM)(90s)
4.Mismanagement of the property market/economy by incompetent (normally Tory) Chancellors of the Exchequer (Barber,Lawson,Lamont) (74,89,90s)

These past additional factors are either not present, or aree not having the same effect as they used to these days. Thus I remain to be convinced that a house price crash is a racing certainty.

Do bear in mind that once you are in the market, a crash in prices is not a problem unless
a)you need to trade down to release equity - eg for retirement, or
b)you are a very recent buyer with very little or no equity in the property.

The former will end up with a smaller retirement investment pot and the latter could get stuck with negative equity for a period.

But no-one else will be badly affected.This is because although the value of your house will go down, along with your equity, so will the value of the next house you might want to buy.

On the other hand if you sell to rent and prices then rise, you could find yourself priced out of the market or losing a part of your saved equity buying yourself back into the market before it runs away from you. Also consider the expensive transaction costs, especially stamp duty, these days.

On balance, IMHO, the risks are too high on the STR side.

nrsql

Brave man.
I thought of doing this a couple of years ago but decided I was too risk averse. I compromised by not buying more property.
Now have fixed rate mortgages to protect against interest rate rises.

I'm also not heading into equities as much (also not moving out either) but sticking more with savings accounts for a similar reason.
I wish you well. It has to happen (imho) but the question is when.
I still think a couple of years ago would have been a good time for a correction - and that could have been triggered by a interest rate rise. Think anything now will be painful.
If you really think this is going to happen you might consider shorting an index but I don't want to put seriously risky ideas into your head - the timescale is all important and unfortunately it's not just dependent on value.

whambamboo

EdInvestor wrote:

IMHO you are right to connect interest rate rises with property price falls.This is what happened in the past.But looking at the two major previous house price crashes (1974-5 and 1989-92) plus the smaller one in 1979, we see a few other things may be necessary in order to cause the rise in interest rates that causes the recession which causes the fall in house prices, eg

Just to clarify that was my re-post of the OP's comments, not my own....