Sell at a Loss or Rent out

Shaken_not_Stirred

My Son & his family currently stay in a flat and HAVE to move.
They would have to sell their flat at a loss so are considering renting and taking on another mortage to buy a house.
There is good demand (according to the agent) in the area for rentals and it would be done through an agent (with permission from the lender )
They would just about break even renting & a high chance this would be DSS tenant.
They then plan to move in with parents to enable them to save for deposit (which they could do easily in 6 to 12 months)

I am very worried they would be overstretching financially with the two mortages as my son is just starting a new buisiness. If the flat was vacant for any time they would struggle.

I have some savings (enough for deposit for the new property & fees) which I can give them.
I suggested they sell at a loss and use the time they are staying here to pay this off during the 6/12 months.
I would then give them the deposit.

I will not give them the money if there is a chance they end up in fanancial difficulty and both properties are reposesed.
They are moving up the property ladder so the way I see it what they loose they will more than gain at the other side in 6/12 months time.

What would you suggest they do ?

bordercars

not all lenders like / allow dss, even insurance can be an issue. if they do let and pay an agent that is a god chunk of the profit gone, are they not able to either, just pay for an introduction or let and manage themselves. some LA's will pay rent 12 months of the year but at a slightly lower rental

another option could be when getting 2nd mortgage change flat to interest only, at current rates this will give them a little flexibility whilst waiting for the market to turn around.

Loopgames

I would personally never sell at a loss. In such a situation I would rent it out..and I would research the rental market in that area to see whether it is indeed in demand. But I would definitely give renting it out a go - no point in selling it at a loss the way I see it.

Of course the other fundamental is a +ve cash flow from the rental each month.

pinkshoes

Shaken_not_Stirred wrote: »

I suggested they sell at a loss and use the time they are staying here to pay this off during the 6/12 months.
I would then give them the deposit.

Are you saying they're in negative equity? In which case, they would struggle to get a buy-to-let mortgage (it would require at least 25% equity), so wouldn't be able to get another mortgage to buy another property.

brit1234

Shaken_not_Stirred wrote: »

They would just about break even renting & a high chance this would be DSS tenant.

Hi, at the end of the year come the housing benefit cuts for DSS tenants so there is a real danger you will get less rent. Then there is the insurance costs you would have to pay.

If you were to rent out the flat with the continuing price falls it may making remortgaging near impossible and produce higher mortgage payments.

Far better to sell now before prices fall further otherwise the rent strategy sounds very risky.

Do your family members have any landlord experience?

Shaken_not_Stirred

Thanks for all the replies.

They do not have any landlord experience.
They are not in negative equity as the flat is valued slightly higher than their current outstanding loan. But to get a sale now they would have to drop the price.
The LA has advised the need buildings insurace only as it wont be furnished....oh on top of the liability ins which I think they intend to get through the LA.

Renting out just seems a nightmare.

cake_lover

Hi,

I was in a similar position to your son myself. I tried to rent out my flat for a while but when prospective tennants came to view it, they were put off (understandably) by my horrible neighbour playing loud music

So in the end I decided to take the hit and sell it at a loss. It sold in 2 months and I have to say, it felt like such a weight had been lifted from my shoulders when I made that decision. No worries about paying a large mortgage and worrying about any repairs needing done to rental property etc.

We are now staying with my parents to save and make up what we lost.

Good luck with whatever you decide to do.

C_Mababejive

I would strongly suggest that if they choose to rent it without an agent that they do their homework big time first as they could get severely ripped off AND get no rent into the bargain..!

Having said that,choose the wrong agent and they will rip you off anyway..!

Shaken_not_Stirred

C_Mababejive wrote: »

I would strongly suggest that if they choose to rent it without an agent that they do their homework big time first as they could get severely ripped off AND get no rent into the bargain..!

Having said that,choose the wrong agent and they will rip you off anyway..!

Thanks MC they would be going thru agent as they know her personally .... but being an old synic that means nothing when it comes to money:D....I should prob just stop worrying and let them make their own mistakes:eek: