House Dilemma

littlesos

Doozergirl wrote: »

I am fairly local to you (Worcs/Warks border) and haven't noticed any kind of slow down, in fact last year was fairly brisk with a small increase in prices, which we haven't seen for a while.
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I'm on the other side, (Warks/Leics border) and there is a definate slow down here. My house has been for sale for coming upto 2 years now (hopefully sold again, but that's another thread!). Everything around here is stagnant, the only ones selling are smaller semis, and even they are going slow.

£750 pcm seems high if you're over this way, our large 3 double bed detached was only valued at £595 pcm rental (valued at 190K), which didn't make it feasible to keep hold of as the mortgage would cost more than that.

Personally I would hang in there and sell it.

KingKenny

This just goes to show the disconnect between the

1) Cost to purchase value of the house

2) Rental Value of the house

Because as a BTL business model the house value to purchase is only worth:

Yearly Rental income divided %Gross Yield Muiltiplied by 100

So this £190,000.00 house can expect to command £700.00 per month.

Thats £8400.00 per year

8400.00 divided by 7 (7% Gross Yield) = 1200

1200 multiplied by 100 = £120,000.00

Current house value as a BTL business model is £120,000.00

£70,000.00 over valued, around 37% which would seem about right in this current enviroment?

There is your disconnect, so until rents rise, you are stuffed. When rents rise, so does inflation, then so does interest rates. So either the cost of servicing your loan rises, or if you own out right, you are better off with your capital in the bank. Which unless rent rises outstrip inflation which i would doubt?

Rent rises are more aligned to wage growth, unlike house price growth which is aligned to pure stupidity?

The disconnect is there between the purchase cost of the house and the average wage, until wages rise, houses have nowhere to go but stagnate or maybe even fall in value to realign with wages?

rchddap1

If the house is just sitting there empty then even if you rent it out temporarily for 6 months (whilst you have a serious think about what you want to do) you are better off. Personally I would be hesitant in taking out a mortgage for a property that is already paid for. However, I don't know how it all works out in terms of the numbers and what else you have planned.

Consider that in some people's eyes bricks and mortar is a safer investment that stocks and shares (yes I know and vice versa for others). I'd be happy renting it out...taking the rental income and then using that to invest further elsewhere (after making sure that there was a little emergency fund for when the house is unoccupied)

Good luck

KingKenny

Sell it now, there is a flood of properties to rent in the West Mids, all competing for tennants on low wages with the demise of the auto sector in the region.

With the announcement of Ford selling Jag, things could get worse for the local economy?

kingkano

KingKenny wrote: »

What a load of old tosh, BTL as a business model is dead, dead in the water, and the sooner people wake up to this fact, the sooner we can get some sort of sanity back into the housing market. Rather than the vested interested parties such as Estate agents, Financial Advisers and Brokers talking up the market. They have created this bubble we are in, and when it bursts will they be there to mop up the tears, no they will not!

If you are not getting a Gross yield of at least 7% on your BTL then you might as well put you money into a Fixed Rate Bond which will now pay 6.45% Gross, that way you have no maintenance to do, no void periods, and no hassle with bad tennents!

http://www.thederbyshire.co.uk/savings/longer_term/1_year_fixed_rate_bond.aspx?ekmensel=2152299f_175_197_3345_1


£190,000.00 house

Rent per annum at 7% = £13300.00
Rent per Month Gross = £1108.33
Rent per Month after 20% tax = £886.66

£190,000.00 in the bank at 6.45%

Gross = £12255.00
Net after 20% tax = £9804.00
Interest per Month = £817.00 and no maintenance to do, no void periods, and no hassle with bad tennents!

Sounds excellent. Tell me where I can put down £30k and borrown 160k to invest in a bond (with no property as security) and I will go for it!!!

Otherwise you can hopefully see where this argument about yields all falls over

You havent taken much into account with tax implications either. ie you taxed the whole rental income at 20%, with a mortgage that'd be unlikley.

To be fair the OP has admitted they own the place outright so thats fine but then he could mortgage it as he says for 100k, and get the bond for 100K + the rent/mortgage combination (which is what they did ask about) which would yield somewhere inbetween your calculations.

KingKenny

kingkano wrote: »

Sounds excellent. Tell me where I can put down £30k and borrown 160k to invest in a bond (with no property as security) and I will go for it!!!

Why, its irrelevent, we are talking about the sale of his house, why mortgege against an over priced asset class that is stagnent, with no capital appreciation?

You havent taken much into account with tax implications either. ie you taxed the whole rental income at 20%, with a mortgage that'd be unlikley.

He has no mortgage, and it just goes to show why houses as a BTL business model are no longer very attractive option?

To be fair the OP has admitted they own the place outright so thats fine but then he could mortgage it as he says for 100k, and get the bond for 100K + the rent/mortgage combination (which is what they did ask about) which would yield somewhere inbetween your calculations.

Why keep the house, your argument holds no water, rent is great when you recieve it every month with no problems. But if the house is falling in value or at best stagnant, and the rent is less than the interest you would recieve from a bond, why keep the house?

BTL = Herd mentality = Houses do not always go up, they can come down, and with rising interest rates, become more expensive to service, and less attractive in comparison to a savings bond?

CB1979_2

oooh we have a live one here, in King Kenny!

i do like the argument of well if he had £190k in the bank he'd be better off, but he doesn't have £190k, he has a property.

personally I'd rent it out, if you own it outright, and if rental prices are £700pcm round your way theoretically you could afford to rent it out for £100 pcm and you'd still make money! lol
ie all you'd have to pay for is the management & buildings Insurance.

if you desperately want your cash then you're gonna have to lower your price obviously, 18 months & no sale = overpriced.

have you actually lowered the price at all?
chuck a link up and get some input from people.

Romani_Ite_Domum

18 months & no sale = overpriced in a falling market.
Why hold onto a depreciating asset?
Drop the price to sell and invest elsewhere.

KingKenny

Romani_Ite_Domum wrote: »

18 months & no sale = overpriced in a falling market.
Why hold onto a depreciating asset?
Drop the price to sell and invest elsewhere.

In a nutshell:T

financial_solution

UFO 8,

You seem to be getting lots of good, sometimes differing, advice which seems to suggest that what one person may do, another person armed with the same data may not do. What I am trying to say is knowledge is one thing, how you act on it is another.

Also, as we dont know what you shall invest in, it seems difficult to give a definitive answer.

This is in essence a very positive situation (ie) an unencumbered asset with no extreme pressure on releasing the capital.

If you dont intend to lower the asking price, you could consider the Buy to Let option, and "sit-it-out" if you are confident in the longer term that the property market will firm up. The capital you raise will effectively be paying for itself.

I think that you should make a decision and stick with it, as whatever you decide to do, if it is what you want to do, then fine, it is your decision.

Just dont be reckless with the capital be it from re-mortgage or sale that is the biggest issue...I am sure you will be fine, you seem to have got yourself into a favourable position so far.

ALL I KNOW IS THAT THE "ASSET" HAS STAGNATED FOR 18 MONTHS ALREADY.

Good luck,

Mark.