Selling To Rent

wotsthat

I thought about STR’ing in 2006 as I thought prices couldn’t keep rising and was worried about the ease that credit was available. (I never thought in a million years we’d be in the current turmoil though)

I didn’t STR for four reasons; my wife told me I was being a retard, I had two children settled in a good local school, the mortgage was affordable and, to be honest, I couldn’t be bothered with the hassle.

I’ve tried to revisit the situation and work out the situation I’d be in if I’d STR’ed.

In Q3 2007 my house, 3-bed detached, was worth around £200,000 and according to Nationwide it’s now worth £179,400 however I’m certain that it would be sold this time next week if it was £170,000 so I’ll go with that. Let’s say I sold in 2007, rented from the purchaser, and bought back today at this ‘distressed’ price.

The basic reduction in price has been £30,000. My selling fees (1% EA + legal) would have been £2611 and my buying back fees (mortgage valuation, stamp duty and legal) would be £2759. From my profit of £30,000 therefore I need to subtract the total fees of £5370 which leaves me with £24630.

Then I need to factor in the rent I needed to pay – well today there’s a house almost identical to mine within ½ mile up for a rent of £775/ month. We know rents have risen since 2007 so let’s say I could have rented for £650/ month and because my landlord likes me the rent hasn’t changed since. 48 months of rent at this level would be £31,200.

So using figures intended to help an STR argument i.e. bargain rent, low EA fees, selling at peak, buying back at distressed levels, no moving costs etc. I’d be down a total of £6570 just on the basic buying and selling.

As it happens my mortgage has remained quite some way below the rental and I’m 4 years closer to paying off the mortgage too. Maintenance costs have been minimal; most of the expenditure such as a new bathroom were cosmetic and I’m sure wouldn’t have been considered by a landlord.

If I had STR’ed I’d need prices to fall roughly 10% (from an already distressed price) just to break even by the end of 2012. If I wanted to present the figures more realistically I’d need much more significant falls to break even and who wants to take a five year punt against a market just to break even.

The only realistic circumstances I can see this working is as short term gamble i.e. sell up, short sharp crash and buy back. Even gradual declines don’t really help as rent just means that you end up treading water.

Has anyone managed to make STR pay?

Graham_Devon

Who cares?

It's a personal decision and some will win, some will lose.

This kind of thing goes on every day with share buying and selling.

If your hindsight argument makes you feel superior to someone else on the internet who did sell to rent, thats brilliant, and I'm happy for you. It could have panned out very differently. The fact is, if it had panned out differently, you woudn't be writing the above post.

The reality is, hardly anyone did sell to rent and hardly any would. The numbers who did are miniscule. Most buy houses to live in, rather than gamble on.

Dan:_4

What sort of person would uproot their entire family from the family home into rented accomendation on the off chance they can make a quick buck? discusting if you ask me. And, as described above it never seems to work and ends up costing far more then just staying put.

wotsthat

Graham_Devon wrote: »

If your hindsight argument makes you feel superior to someone else on the internet who did sell to rent, thats brilliant, and I'm happy for you. But the reality is, hardly anyone did and hardly anyone would.

I'm not trying to feel superior and I very much doubt that you are happy for me. That said I am delighted that I didn't STR but put this down to luck rather than judgement.

I wondering if anyone actually made it work in their favour because, until I did these calculations, I had a nagging thought that maybe it would have been a good decision. In fact it would have been a spectacular mistake - that doesn't mean it would be a mistake for everyone though which is why I ask the question.

Mallotum_X

Ask it on HPC im sure loads will tell you how great an idea it was.

Really2

wotsthat wrote: »

Has anyone managed to make STR pay?

Yes, I decided to buy two days before taking on the rented property.

It is all very personal really,
But for me I would be far worse off if I had STR'd, but that would be mainly be down to a good call/luck on mortgage product late in 2008.

chewmylegoff

wotsthat wrote: »

I thought about STR’ing in 2006 as I thought prices couldn’t keep rising and was worried about the ease that credit was available. (I never thought in a million years we’d be in the current turmoil though)

I didn’t STR for four reasons; my wife told me I was being a retard, I had two children settled in a good local school, the mortgage was affordable and, to be honest, I couldn’t be bothered with the hassle.

I’ve tried to revisit the situation and work out the situation I’d be in if I’d STR’ed.

In Q3 2007 my house, 3-bed detached, was worth around £200,000 and according to Nationwide it’s now worth £179,400 however I’m certain that it would be sold this time next week if it was £170,000 so I’ll go with that. Let’s say I sold in 2007, rented from the purchaser, and bought back today at this ‘distressed’ price.

The basic reduction in price has been £30,000. My selling fees (1% EA + legal) would have been £2611 and my buying back fees (mortgage valuation, stamp duty and legal) would be £2759. From my profit of £30,000 therefore I need to subtract the total fees of £5370 which leaves me with £24630.

Then I need to factor in the rent I needed to pay – well today there’s a house almost identical to mine within ½ mile up for a rent of £775/ month. We know rents have risen since 2007 so let’s say I could have rented for £650/ month and because my landlord likes me the rent hasn’t changed since. 48 months of rent at this level would be £31,200.

So using figures intended to help an STR argument i.e. bargain rent, low EA fees, selling at peak, buying back at distressed levels, no moving costs etc. I’d be down a total of £6570 just on the basic buying and selling.

As it happens my mortgage has remained quite some way below the rental and I’m 4 years closer to paying off the mortgage too. Maintenance costs have been minimal; most of the expenditure such as a new bathroom were cosmetic and I’m sure wouldn’t have been considered by a landlord.

If I had STR’ed I’d need prices to fall roughly 10% (from an already distressed price) just to break even by the end of 2012. If I wanted to present the figures more realistically I’d need much more significant falls to break even and who wants to take a five year punt against a market just to break even.

The only realistic circumstances I can see this working is as short term gamble i.e. sell up, short sharp crash and buy back. Even gradual declines don’t really help as rent just means that you end up treading water.

Has anyone managed to make STR pay?

You need to take into account (i) the mortgage interest that you have paid (not capital repayment, obviously) and (ii) the interest income on the equity that would have gone into a bank account had you STRed.

i STRed sort of by accident in august 2007, not in any way as an economic decision or because i was "calling" a house price crash/fall and thought i would "win" by STRing. i haven't bothered to work out whether i am better off or not, probably worse off financially but i am living in a nicer (and much more expensive) part of the world and have enjoyed my life more since selling up.

wotsthat

chewmylegoff wrote: »

You need to take into account (i) the mortgage interest that you have paid (not capital repayment, obviously) and (ii) the interest income on the equity that would have gone into a bank account had you STRed.

I was thinking about calculating the capital I've paid off in that time which would have balanced this. I didn't want to make it too complicated and I didn't want to end up double counting something.

Graham_Devon

wotsthat wrote: »

I'm not trying to feel superior and I very much doubt that you are happy for me. That said I am delighted that I didn't STR but put this down to luck rather than judgement.

I wondering if anyone actually made it work in their favour because, until I did these calculations, I had a nagging thought that maybe it would have been a good decision. In fact it would have been a spectacular mistake - that doesn't mean it would be a mistake for everyone though which is why I ask the question.

This isn't at all about you (and 99.9% of the home owning population) didn't do.

This is one of the most bizzare arguments that happens on this forum. How many people actually STR?

This is all about you having a pop at Geener. All those nicely laid out words, only to go and thank Dan's post, made up of asking about the integrity of people and how disgusting they are if they choose to STR.

Please don't pretend it's anything more than the same old argument, and you having concerns about your thoughts. The very fact you went and thanked the post calling people who STR disgusting shows your intent with this thread. How many times does this argument need to take place? It's continual.

wotsthat

Graham_Devon wrote: »

This isn't at all about you (and 99.9% of the home owning population) didn't do.

This is one of the most bizzare arguments that happens on this forum. How many people actually STR?

This is all about you having a pop at Geener. All those nicely laid out words, only to go and thank Dan's post, made up of asking about the integrity of people and how disgusting they are if they choose to STR.

Please don't pretend it's anything more than the same old argument, and you having concerns about your thoughts. The very fact you went and thanked the post calling people who STR disgusting shows your intent with this thread.

Back to looking at who thanks who again instead of considering the points?

I did see the response Dan made (to a sockie rather than geneer?) and thought he seemed pretty cocksure in dismissing it as a good idea. As it was something I had considered in the past and I had the numbers to hand I thought I'd do the sums.

The number of people that STR'ed might be very small but there are some parallels with people who are choosing not to buy because they are expecting prices to fall. That's their choice and they'll be right or wrong in their assessment. However, if they are renters then there's an automatic drag on profitability. It makes more sense if you are living rent free with parents say but if you've struggled to get a deposit together and prices move against you then you've got to struggle even more to get a bigger deposit together.

Flight2quality

Dan: wrote: »

What sort of person would uproot their entire family from the family home into rented accomendation on the off chance they can make a quick buck? discusting if you ask me. And, as described above it never seems to work and ends up costing far more then just staying put.

With the coming end of cheap easy credit, and the soaring of mortgage repayments very soon, the best advice is if you have a second home sell it pronto. And if you anticipate moving in the next few years sell you house and rent. The hassle of moving to a rental is nothing compared with the mental anguish of being upside down in a mortgage in a plummeting market. The next several years will be a great time to be a renter waiting for the bottom of the house value crash.

One unusual approach that may prove to be prudent is sell your house to a property management company at todays high prices. And then rent it back from them, let them watch the value of the house go down meanwhile you sleep well. When values hit bottom which will be after interest rates nomalise and clear out all the repossessions then even buy your house back off the management company at the new lower price if they haven't gone under.