Sell the house and Rent

tejero23f

I have recently come across people who having retired, paid off the mortgage have decided to sell their houses to rent, their reasons being-

1)The ability to move at short notice, have less responsibility for house maintenance and have a large sum to enjoy retirement with.

2) That investing in the stock market will give better returns and easier access than tied up in bricks and mortar.

23 The belief that the housing market is at it's peak and once interest rates goes up..house prices will drop (hard to believe but it's happened before!)-thus their potential equity


it seems many people are thinking along these lines, comments appreciated-

MEM62

This may be suitable for some limited circumstances but my concerns would be.....

tejero23f wrote: »

I have recently come across people who having retired, paid off the mortgage have decided to sell their houses to rent, their reasons being-

1)The ability to move at short notice, have less responsibility for house maintenance and have a large sum to enjoy retirement with. Yep, move at short notice. The flipside of that is that you have less security and may be forced to move when you don't want to. I would want more security than that later in life.

2) That investing in the stock market will give better returns and easier access than tied up in bricks and mortar. I doubt that is the case especially when you take into account (a) rent payment and (b) blowing the capital as indicated in the statement 'have a large sum to enjoy'. You can't have it both ways - you either spend it or leave it and have the income.

23 The belief that the housing market is at it's peak and once interest rates goes up..house prices will drop (hard to believe but it's happened before!)-thus their potential equity At that age its irrelevant. What difference does the level of equity make if they are not going to realise it by selling?


it seems many people are thinking along these lines, comments appreciated-

My comment.... short sighted and ill considered. It will leave them with no money, no property and a monthly rent bill to cover.

marathonic

I reckon it's not an idea without merit in certain circumstances.

For example, I'm single and live alone in a property worth £175,000.

Renting an equivelant property would cost £650 per month, or £7,800 p/a.

Selling the property at £175,000 and investing the proceeds in a portfolio of shares with a dividend yield of 4% would result in dividend income of £7,000 per annum.

In other words, by selling the property, I can relocate as desired at a much lower cost. I'd be paying £800 per year more in rent than I receive in dividend income but would have no maintenance and reduced insurance costs.

The fact that I'm single and live alone means that, were my landlord to evict me, it wouldn't be TOO MUCH of an inconvenience. However, I wouldn't want to choose the renting lifestyle if I had kids at school or some other circumstance that requires more consistency than the young, single, lifestyle.

To me, given the figures above, the security of owning my own home represents the better option. However, were stockmarkets to crash or property to rise further, or both, I may consider re-evaluating.

DigForVictory

If my folks were to do that, I'd be asking them if they'd had a positive diagnosis for dementia.

That said, what they choose to do is their business. I'm just a daughter.

kidmugsy

The tax breaks on owner-occupation are substantial. The rent you pay reflects the fact that the landlord is exposed to income tax on that rent; you are not exposed to income tax on the rent you save by owning.

You are also free of CGT if you sell; the share-owner is not.

There's even an IHT break in the pipeline.

Maybe the plan described is just a variant of "I'll blow all the money and then freeload on the taxpayer" - we see a lot of that in these parts.

AndyT678

I'd say that generally I'd consider it to be a pretty terrible idea for all of the reasons already covered. There are ways to access the equity in your house without exposing yourself to the rental market if really necessary.

Having said that

tejero23f wrote: »

it seems many people are thinking along these lines, comments appreciated-

I have never known anybody say they were thinking of doing this and I have never even heard of anybody actually doing it. Presumably some have but what's your basis for claiming "many people are thinking along these lines"?

jimjames

tejero23f wrote: »

it seems many people are thinking along these lines, comments appreciated-

You're the first person I've heard suggest this idea. Who are these "many" people?

Timing the market is bad enough to attempt for shares, trying to do it for residential property when you need somewhere to live just seems crazy.

What happens if prices don't fall but continue to rise and you can no longer buy a place back?

alanq

tejero23f wrote: »

23 The belief that the housing market is at it's peak and once interest rates goes up..house prices will drop (hard to believe but it's happened before!)-thus their potential equity

What about a belief that the stock market is at a peak and that once interest rates go up shares will be less attractive? What about effects of governments reversing the quantitative easing of recent years?

The housing market is not booming because mortgages are hard to get and interest rate rises are being anticipated in deciding whether potential borrowers would be able to cope. However, there will still be a demand for housing including property being bought up to rent out for ever higher amounts.

It is near impossible for elderly people, even those with good pensions, to get mortgages so if circumstances change and wanting to buy a new property shares would have to be sold whatever the state of the stock market at the time.

kidmugsy

alanq wrote: »

property being bought up to rent out for ever higher amounts.

I read an article recently pooh-poohing the idea that rents have been soaring in recent years. Except for London and the SE, rents have risen no faster than CPI i.e. in real terms they have not been changing.

kidmugsy

Of course, if anyone has a surefire way of identifying the popping of the house price bubble before it happens, the plan would be a good one. If.

atush

MEM62 wrote: »

This may be suitable for some limited circumstances but my concerns would be.....





My comment.... short sighted and ill considered. It will leave them with no money, no property and a monthly rent bill to cover.

Couldn't have said it better.

By all means downsize from a house to a flat, but you need someplace cheap and secure in your old age, not to be a the mercy of a landlord.