Keep the house or rent and invest?

ejchopshop

So a little background... hubby is a builder and in the last 6 years we've done up two houses and made a bit of money in the process. We're currently living comfortably in a reasonably big and nice house and originally were thinking we'd stay here for 5 years or so while the kids are little but are now wondering whether it may be a better option to sell the house, put the money into funds etc and rent somewhere instead. Is this something that people do? Does it make sense? We've been investing in mainly funds in a stocks and shares ISA for the last 6 years and they've done really well. What has really sparked this thought is that we'd like to go full time travelling in about 6 years time and ideally be able to live off our investments while we do so. I suppose if we sold our house in the next year or so we'd have about £400,000 to invest. We also don't earn a lot of money as are both self employed and choose to have more family time over more money, so essentially it would be a way for us to accumulate larger amounts of money over the next few years. 
The thing we (well mainly hubby) is struggling with is the idea of having to downgrade our lives to rent somewhere that won't be anywhere near as nice or big as what we have now. Any thoughts or input would be really appreciated!! 

ejchopshop

In case it's relevant we are very frugal and don't really spend much money on day to day living or extravagant things. 

MaxiRobriguez

Short answer: Don't do it.

Long answer: You'd be subjecting what appears to be the bulk of your wealth to the markets when prices are high. How would you feel if stocks lost 50% of their value after you had invested and you no longer wanted to rent? Not only that but such a large amount couldn't be put in tax efficient vehicles easily.

It would make more sense to try and introduce stocks using tax efficient wrappers than go in one big bang. For example, you could remortgage and free up £25k, and use that to put in a SIPP. You'd get 20% tax bonus for doing so. Repeat every two years.

Voyager2002

Most people value having a home that they like. Moving house with a young family is terribly disruptive; moving into somewhere smaller and less pleasant makes it worse; moving somewhere that is rented so you cannot really get it the way you like will rub salt into the wound.

If you are concerned about building wealth then consider increasing your hours at work and obviously use the markets wisely to invest your savings. Maybe you will feel like selling your home once you are ready to go travelling...

ejchopshop

Voyager2002 said:

Most people value having a home that they like. Moving house with a young family is terribly disruptive; moving into somewhere smaller and less pleasant makes it worse; moving somewhere that is rented so you cannot really get it the way you like will rub salt into the wound.

If you are concerned about building wealth then consider increasing your hours at work and obviously use the markets wisely to invest your savings. Maybe you will feel like selling your home once you are ready to go travelling...

Yes, it's obviously not an ideal situation but I think for us we'd rather spend 5 years compromising on where we're living than having to work more hours, be away from the kids etc. We're basically trying to increase our wealth using the money we have rather than just working and saving more. But I know, it's a bit of you can't have your cake and eat it! 

ejchopshop

MaxiRobriguez said:

Short answer: Don't do it.

Long answer: You'd be subjecting what appears to be the bulk of your wealth to the markets when prices are high. How would you feel if stocks lost 50% of their value after you had invested and you no longer wanted to rent? Not only that but such a large amount couldn't be put in tax efficient vehicles easily.

It would make more sense to try and introduce stocks using tax efficient wrappers than go in one big bang. For example, you could remortgage and free up £25k, and use that to put in a SIPP. You'd get 20% tax bonus for doing so. Repeat every two years.

Thanks for your reply, I totally get where you're coming from, this is what i've been thinking. If we did end up selling, it would be a commitment for us until at least 5/6years time when we hopefully are able to go away travelling. In that time, I would hope we would see an increase in our investments. We likely wouldn't thinking about selling until the end of next year in any case. I have looked into a SIPP, it's just that having a large amount tied up until a much later date doesn't suit us so well. We're in our early/mid 30's and once we've had a year or two travelling we'd likely be looking to do a few more renovation projects. 

It's great to get others opinions though. And other suggestions of what might be a better alternative.  

Albermarle

. In that time, I would hope we would see an increase in our investments

I think that maybe having seen your investments grow over the last few years , you are maybe being overconfident that it will continue over the next 5 years . It might and it might not . Most of the experienced regular posters on here are positive about long term investing, but I am pretty sure most would baulk at selling their homes and betting such a big chunk of money on the next few years being as positive as the last few. 

MaxiRobriguez

As an after thought now you've said you're in your 30s: how much has your hubby made in doing up houses? You say you could have £400k to invest but how much of that has been contributed by hubby? If it's a significant proportion, perhaps it might be worthwhile considering using some money to fund his ventures to create/expand a business?

Cus

You seem to have made your mind up and are looking for validation. Apologies if that is not the case and I have misread.
If you want opinions, then the idea of moving into a (lower than current)  rented accommodation with young children, wait a few years enduring that whilst worrying that the investment doesn't go down loads, to then 'go travelling', which sounds wonderful but with kids I can assume not easy, and  then have to come back to all the same again as the money might not last etc sounds like a poor plan.
You mention you are living comfortably, big nice house, lots of time with kids etc.  Why change that?

Apodemus

I think I'd keep the house and rent it out while travelling.  We lived overseas when the kids were small, while keeping our house in UK, and it was always reassuring to know that we had a home base to come back to at some point.  It also made the transition back to UK much easier as schools etc were not unknowns. 

ian1246

Other thing to think about is the difference in future house value in 5 or 6 years (you can sell just before going travelling) vs. now... and then factor in the costs of renting deducted from that house value.

I.e. if your house is worth £400,000 now and the value goes up by a modest 3% a year - it could be worth £463,000 in 5 years time.

Now, its true that could be less than what you'd get on investments if you sold the house - if we assume 8% growth over 5 years, £400,000 would be worth £587k in investments in 5 years time. However lets say you'd be paying £1000 rent a month... thats £60,000 rent you should factor in over 5 years - so that £587,0000 becomes £527,000 vs. £463,000.

The question is.... will you make an 8% return on investments? There's absolutely no guarantee and as a poster has said above, what happens if the stock market dips? You could easily end up worse off vs. if you'd have stuck with your house - especially if the investments dip but house prices continue to climb.

Throw into the equation that your rent may be more than £1000 a month(depending on where you live!) and may climb significantly in that time (increasing by 5%+ every year) and you could easily end up in a position where you become far worse off vs. if you had retained your house - imagine how you'll feel if you sell up and invest and your investments dip, whilst house prices shoot up and then you get hit with significantly increasing rent every year - plus the costs of potentially having to move between rented accommodation (I.e. landlord decides to sell for any number of possible reasons).

With this in mind, given the risks of selling your house vs. the benefits of retaining it - not least having a lovely home to live in which is yours to do with as you like - I think you'd probably be mad to sell and invest...