"Breakeven Crash Requirement"

westernpromise

Graham_Devon wrote: »

3. Everything leads to rent rises. Always. Period.

Observations would appear to support that. Interest rate falls in 2009 did not result in lower rents; capital falls did result in higher rents, though, both in 2008 to 2010 and in 1989 to 1994ish.

The only thing able to drive rents down is oversupply.

padington

Graham_Devon wrote: »

Oh.

I didn't realise it was that serious.

I didn't realise that, like Lemmings, everyone around them and who they spoke to also STR'd because someone else had.

I guess my next phone call will now be "Have you STR'd at a whim on the advice of some random on the internet.... you could be owed thousands".

Feeling guilty ?

Graham_Devon

padington wrote: »

Feeling guilty ?

I might be. It would probably help if I knew what the question was in reference to?

westernpromise

Graham_Devon wrote: »

I don't see why anyone who is STR'ing (and therefore keen to save money) would rent the equivalent house they left.

Someone could STR and live in a garden shed for £50 a month, but this doesn't prove anything because someone who occupies a shed is getting poorer accommodation versus occupying a house. The way to value this is to add the difference in rent in either case to the renter’s costs, so you express the value of living in a shed as a penalty.

It may help to grasp this if you think of it the other way around. If, as the assumed rental cost, I used a Docklands penthouse rental of £50,000 a month, and concluded that this proved buying was always cheaper, would that be a valid analysis? Of course not.

Last time I moved, the bill for a 4-bedroom house within a mile or two was £2k to £3k. Your £600 to move 100 miles is away with the fairies, but in general it's a bit of weak argument to try to nitpick the value of the small line items anyway. The point of my post was to invite people to work out their personal breakeven on buying versus renting. This depends not on whether I should live in a shed, or find some Albanians to do my move in a stolen van, but on what I’d spend on comparable rent, and on the change in the house’s price.

This seems to me a legitimate point to raise on a money saving website. If people are going to spend ten years advising others on forums like this to wait for a surefire crash, it makes sense to balance this by pointing out that after 10 years of waiting for one, you’d need that crash to be in the region of 70% or 80%. A 30% correction would leave you out of pocket unless it occurred very soon after. Those being advised to wait can then reflect on how likely they judge this outcome to be.

HAMISH_MCTAVISH

westernpromise wrote: »

As has been noted elsewhere, if you want to know who'll own property after a crash, look at who owned it before.

Spot on.

All the last crash did was consolidate even more property in the hands of pre-existing property owners.

Graham_Devon

westernpromise wrote: »

Last time I moved, the bill for a 4-bedroom house within a mile or two was £2k to £3k. Your £600 to move 100 miles is away with the fairies, but in general it's a bit of weak argument to try to nitpick the value of the small line items anyway. The point of my post was to invite people to work out their personal breakeven on buying versus renting. This depends not on whether I should live in a shed, or find some Albanians to do my move in a stolen van, but on what I’d spend on comparable rent, and on the change in the house’s price.

Firstly, I said £600-800 as it depends entirely on locations, access, floors etc.

As for your away with the fairies bit, it would seem not.

Rightmove have the average cost of removals for a 3/4 bed house and it comes out at £1,008.

So considering I was talking about 3 beds, and the rightmove average includes 4 beds, £600-800 seems pretty well on the mark.

Seems odd that you don't know whether your bill was 2 or 3k though I must say.

http://info.bournesmoves.com/home-moves/blog/home-moves/how-much-is-a-removal-company

This seems to me a legitimate point to raise on a money saving website. If people are going to spend ten years advising others on forums like this to wait for a surefire crash, it makes sense to balance this by pointing out that after 10 years of waiting for one, you’d need that crash to be in the region of 70% or 80%. A 30% correction would leave you out of pocket unless it occurred very soon after. Those being advised to wait can then reflect on how likely they judge this outcome to be.

So this is about a handful of people (if that) on HPC, again, then?

N1AK

HAMISH_MCTAVISH wrote: »

For "delaying purchase"....

200K sale price
Rent at 5.5% yield = 11,000 per year
Moving costs - Will differ for everyone - but renters move more often than owners - lets say around 2K every 2 years

I think you've got correlation and causation confused. Unless you genuinely think most people choose to move more because they rent, rather than rent because they know they move more that is; especially when considering people who are able to buy.

If you buy when you have a high probability of needing to move in the next couple of years then you should be considering the additional cost of moving as a homeowner as a cost saving of renting

cells

westernpromise wrote: »

I think everybody gets that it's a gamble, Graham. Anyone looking at a time series chart of house prices will notice that it is never a straight march upwards for long. It retraces then recovers.

My point really is that if you put a bit of structure on the thinking (as my sister didn't) then you can work out what the trade contemplated - STR, buy, don't buy - is worth. I was surprised to learn that I'd need a 9% price crash just to cover the costs of selling up in order to buy back post-crash, for example.

I am wondering whether others think about this in any roughly similar way. The STR trade may be rare but the prices-are-too-high-I'll-wait-till-they-crash trade is less so. I wonder if those who do it have thought it through and worked out that not buying in 2006 may mean they now need a 56% price crash; or whether they realise that finding a property at that level relies on sellers prepared to take a similar gamble.

my thinking is that virtually no one waits hoping for a crash to then buy or sells to rent to try and profit from a falling market. They really are the one in a million and as you say the return transaction costs are so high its pointless STR-ing if you intend to enter the market again.

my best guess is that a lot of the crash-wishers simply do not have the income or savings to be able to buy something they consider decent so they wish for a crash rather than spend time analyzing learning and understanding and coming to a conclsuion that prices are going to crash. of course in this day and age of internet forums a wish easily becomes a self confirming million posts forum all waiting for 50% off by Christmas

BTW if you knew this why did you not stop your sister from making a £1million pound mistake?

cells

mwpt wrote: »

I don't see the other guys posts (for my own sanity) unless someone quotes them. Responding to you, I was one of those who could have bought a long way back but didn't because I was young and didn't calculate value correctly. I got it wrong on several counts.

1. I thought a mortgage would be a huge weight on my back and not allow me freedom to do the things I was doing when I was younger (namely, contract, working in different countries and travelling).

This was vaguely correct but in hindsight I could have easily made it work, paying off to the point where a few lodgers would have covered the entire mortgage while I was free to come and go travelling when I liked.

2. I just plain miscalculated value. I house shared for the longest time. I have no idea why but I didn't consider that I could do the same thing but own the house. I didn't draw up cash flow spreadsheet until I'd long "missed the boat".

3. Due to not formalising things, I miscalculated the overall gain/loss scenario, thinking I'd just lose out massively if property crashed. Once I looked at it in much more detail, working out ways I could mitigate downside risk, I decided to suck it up and buy. I could still lose out massively but as each year passes the chance lowers and in any case, I have equity set aside to protect myself. And I'll still be able to rent out rooms if I so choose and even trade up if the opportunity was there.


That's not really addressing your point. It was by way of explanation why this one person didn't buy for many years though he had the ability. I have no idea how many people there are like me around, that have or had the ability to buy but sat out. It certainly seemed that everyone I spoke to about the bad fundamentals I saw in certain areas and property being overvalued didn't think very far at all. Ironically, they thought about it even less than I did initially and just assumed "can't lose in bricks and mortar" and bought when they could. Quite literally the only thing these people thought about was "can I afford the monthly payment for the next couple of years". Being relatively dumb paid off big time.

Of course, I have to always mention, there are lots of reasons the crash never materialised in my chosen area (London). If only for the meddling central bank and government.

An idea I was thinking about was if the internet and HMOs has played a part in increasing the volume of people willing to rent

I know one landlord who has a few HMOs in the midlands and one particular HMO always sticks in my mind. A HMO of 6 individuals all of them (for the area at least) well paid professionals. Two accountants, three actuaries, one civil servant all of them could buy a 3 bed in the town for not much more than 3 x wage but they choose to live there in some cases for the last 4 years (when the landlord bought and converted the HMO)

maybe in the past, say 20 years ago, there were not the easily available reasonable quality HMOs or rentals and the only option for professionals who could afford was to buy (and for those who could not afford to buy there was more council home supply)

There are definitely lots of people like your old self who clearly could afford to buy but they dont.

cells

mwpt wrote: »

Well, there are at least two amazing facts about this forum.

1. Most housing investors here do not suffer from hindsight bias in the way that other investors do. They knew all along that housing was a winner strategy and proof of this is the fact that they are rich.

2. Supply and demand is the primary driver of house prices. Except when it comes to BTL. Adding more demand in the market in the form of BTL buyers competing for houses has no affect at all.

It's a magical place.

BTL subtracts housing demand