Sell house then rent to become a FTB

laurence2163

Hi
I am considering selling my house which is now virtually mortgage free (worth £230-260k) and then renting for a period.

I think that this will provide the following benefits
1) I can rent in the area I hope to eventually buy in and assess it's suitability
2)when I come to actually buy, i in effect become a first time buyer again and would hope to use this as a tool to negotiate a good discount on the purchase.
3) when selling as i am the end of the chain the process should be made slightly easier.
4) it would appear that prices are likely to fall slightly in the next few years, consequently when I buy in say one year's time I should get more for my money.

Has anyone else followed a similar method, what disadvantages do you see? I can't see too many apart from the hassle of moving out twice.

slipp_digby

laurence2163 wrote: »

1) I can rent in the area I hope to eventually buy in and assess it's suitability

Good idea if your are moving areas

laurence2163 wrote: »

2)when I come to actually buy, i in effect become a first time buyer again and would hope to use this as a tool to negotiate a good discount on the purchase.

What kind of discount do you expect. On these boards people advise buyers to look for 10% discount which they rearely get. IMO, you can only get hefty discounts from forced sales which at the current time aren't happening.

laurence2163 wrote: »

3) when selling as i am the end of the chain the process should be made slightly easier.

depends how big the chain is below. there is still a lot which can go wrong so 'slightly' may be correct.

laurence2163 wrote: »

4) it would appear that prices are likely to fall slightly in the next few years, consequently when I buy in say one year's time I should get more for my money.

Has anyone else followed a similar method, what disadvantages do you see? I can't see too many apart from the hassle of moving out twice.

Agree prices are starting to reduce, but IMO if you own your own house and have no mortgage payments you are insane to take any kind of risk to save what could amount to a relatively small amount of money.

Is it because you are worried about seeing the price of your prized asset gradually falling?

laurence2163

To be honest I'm in the camp that would expect some form of price reduction in houses over the next few years (not huge but say 10%). Given the amount of equity we have we are potentially looking at houses in the £450k bracket.

Consequently if i sell my cheaper house now and realise it's full potential (or close to it) , if prices do fall in two years time i might be able to afford a house currently costing £500k as it would have fallen by 10%.

Obviously if prices were to rise I would be worse off, but i'm fairly confident that this will not occur.

Regarding the first time buyer discount, i know from experiance of our first house purchase, if you turn round to the right kind of seller and say i can complete in four weeks no problems then there is scope for price reductions (we got 5% off our first house in a rising market because of this).

Doozergirl

1) I can rent in the area I hope to eventually buy in and assess it's suitability
I agree.

2)when I come to actually buy, i in effect become a first time buyer again and would hope to use this as a tool to negotiate a good discount on the purchase.
I'm not convinced personally. Most people are looking for a sale at the right price. Being chain free is a bonus, but I can't say that I have ever discounted a property because it's chain free; if I were desperate for a particuarly quick sale then maybe but perhaps I'd just be more flexible on the price to the first person who showed signs of being proceedable. Fair enough you got 5% off but I bet people who were SSTC managed it too. It's all dependant upon the circumstances of the person selling.

3) when selling as i am the end of the chain the process should be made slightly easier.
LOL! I wish it was! You just go through the same thing twice because you buy again!

4) it would appear that prices are likely to fall slightly in the next few years, consequently when I buy in say one year's time I should get more for my money.
Maybe. I certainly doubt they will be any higher. Rent isn't totally dead money, but you should consider how much you will spend over the year. renting isn'nt the same as having your own place. And I had to move twice between moving back into a place that's mine because our first LL was a right old witch.

PasturesNew

laurence2163 wrote: »

I am considering selling my house which is now virtually mortgage free (worth £230-260k) and then renting for a period.

I did that last year.

laurence2163 wrote: »

1) I can rent in the area I hope to eventually buy in and assess it's suitability

I've done that. Realised this isn't a great area, so am free to leave whenever I want

laurence2163 wrote: »

2)when I come to actually buy, i in effect become a first time buyer again and would hope to use this as a tool to negotiate a good discount on the purchase.

Yes, and if there are any FTB deals going on, I think you qualify officially as a FTB after 9 months (don't hold me to that, I read it in a forum online when the question was asked)

laurence2163 wrote: »

3) when selling as i am the end of the chain the process should be made slightly easier.

Yes. No stress as if it all goes boobies up, you're not caught in the middle.

laurence2163 wrote: »

4) it would appear that prices are likely to fall slightly in the next few years, consequently when I buy in say one year's time I should get more for my money.

I am in the 30% or more camp

laurence2163 wrote: »

Has anyone else followed a similar method, what disadvantages do you see? I can't see too many apart from the hassle of moving out twice.

Did it. No disadvantages. But you do need to stand by your convictions and not get suckered into buying straight away again.

But, get your bank accounts for where to stick the money set up before you move, put £1 in each ready and practice moving money around those accounts.

My money in the bank is allowing me to kick back and do nothing.... I am just chilling out, doing my own thing. I earn money here and there, never having to touch my pot/interest, because ultimately I know that money's there if I ever needed it. It's a real freeing experience.

A big advantage at having banked the cash is you know exactly how much you'll get from the sale of your house and all the associated disbursements because you've done it.

Big advantage is that your cash, left in the bank, is outperforming the market so you're keeping up with any small gains that might miraculously be squeezed out of the dying market, so you won't feel you're slipping behind. Then you'll shoot ahead as prices drop and your savings rise.

The only disadvantage now I have is that with the savings churning out interest, I view the purchase of a house in terms of lost interest. Having a house paid for in cash is good, but it can be marred by the concept that if you'd bought something a bit smaller you'd have the income too.

I actually used this chance to get rid of everything I owned except a PC and 2 small suitcases. Got rid of the lot. Gone. I then rented the smallest/cheapest place I could to minimise my outgoints. I am now completely free of goods, having to earn money, responsibilities. It's great.

Good luck!

lynnexxxo

Although pasturesnew paints a rosey picture I would say it depends on whether or not its just you, or if you have a family to think about.

Personally I like owning a house, having it filled with 'my stuff' my children can play in the safe garden on their bouncy castle/trampoline/bikes whatever they like, I can redecorate if i fancy (mostly I think about it and never do it though).

i don't have to have stuff in storage and live out of suitcases, I don't have a dodgy landlord annoying me and trying to diddle me out of a deposit.

Yes my house may in the coming years decrease in value, who knows. But as the equity in my current house is actually from the rise in house prices then its not really money that i have earned anyway.

laurence2163

Thanks for your insight guys.

I do have a young family and I realise this type of thing could be very inconvenient, however the next house I buy is one that I would like to stay in for the next 10-15 years so I really want to try and make the best informed decision that I can.

Therefore given the chance to
a) crystalise an unearned gain:j
b) try an area before you buy, via the rental option
c) possibly benefit from a downturn in the market by buying a better property than currently available in 1-2 years time.
d) possibly exploiting my posistion as a cash rich very flexible buyer at the expense of a desperate seller (harsh but true)

It seems a good idea to me, that why I wanted to check it over with people who may have explored this route before to ensure I hadn't missed any major drawbacks.

Stevie1

Just make sure you take into consideration all possibilities, Laurence.

As long as you follow your gut feeling, and do what you do because YOU believe in it (and not because some faceless people on an internet forum think), you'll be fine i.e. as long as you'll still be happy with the consequences even if the outcome as not as you've assumed.

What I am trying to say is, two of your points above bank on massive reductions in house prices, which may or may not come around - no one knows as no one has a magical crystal ball!

Second, and I feel this is ignored in the price crash threads, massive price reductions are likely to mean worse economical news which could in turn mean you're unable to borrow as much / lose you job / capital devalued through massive inflation etc.

Personally I think, that to sell and sit and wait for houses to crash is a risk and a gamble, and doing that means being well aware of ALL possible outcomes not just the ones you'd like to happen.
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jimc_2

That's a very good point made by Stevie1. House Price Crashes do not just happen in isolation from the rest of the economy. Even if housing stock is overvalued against the rest of the economy, it's not just a drop in prices we'll see.

Remember that a lot of the pain of negative equity last time around was not just that people couldn't get enough money from their house sale to cover their mortgages but that they were trying to sell for other reasons - like lost jobs or ruinous interest rates on other loans. Some financial prophets are predicting the return of stagflation (price inflation in a stagnant market) and job-losses as companies try to stay afloat.

It's less than a year since Northern Rock was being held up as a paragon of financial excellence and was praised as the darling of the City in the financial press. Now look at it and its employees prospects. If you are 1000% positive that your job is secure, your company will go on forever and that you have absolutely no financial liabilities whatsoever then you MAY be justified in taking a chance but it is still that: a chance i.e. a gamble.

You may be in a better position to get a reasonable price for your house if you bail out early but some people who bailed out even earlier are now looking at their savings dwindling and outgoings increasing faster than their investments.

The best advice ever given to gamblers was "only gamble what you can afford to lose".

jimc_2

As an update to my previous post I just read some recent comments of Mervyn King that support my own view that the House Price Crash faction are going to be severely disappointed.

When he was talking at a press conference for the Inflation Report a few days ago, he predicted static house prices producing gently shifting price to earnings ratios over the next five years. No drop - only the rest of the economy catching up. And over five years!

He also mentioned the decoupling of lenders' rates and base rates since all lenders will want to rebuild margins. What he meant was that even if the official bank base rate drops, mortgages are still going up. More expensive mortgages in the future will severely dent any 'profit' from a 'sell now, rent and buy later' scheme.

There are just too many factors to be certain of a 'correct' decision right now.

laurence2163

Cheers Jim for pointing out the downsides. That is what I wanted to get out of this thread.

My own personal situation given my current employers prospects, personal qualifications and area of specialisation make me as recession proof as you can be (although never guaranteed), add to that a nice little ebay shop sideline have given me the confidence to consider this line of thought (i am normally fairly risk adverse)

Me and my wife have both worked hard to pay off our mortgage and build a level of security, I just want to be in a position to capitalise on this (based on my assumption of a fall in prices which you may/may not totally agree with).

I agree it is a risk, but I feel the odds are in my favour.