Sell to Rent..........Crazy or Good Idea?

S

seller2000

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I have a property on the market and assuming it sells for the asking price the following is what I hope to do with the proceeds of the sale.


289,000 Clear mortgage, outstanding debts and selling costs.
20,000 Rabodirect savings account
10,000 Northern Rock savings account
10,000 NIB Savings account
10,000 Credit Union savings account
10,000 Quinn Life savings trust for my 1 year old child
10,000 Rent Account
10,000 Holiday of a lifetime

Upon the sale of the property which is solely in my name we plan to rent for a year for the following reasons:

(1) My partner is not working enough hours for us to get a sufficient mortgage as she minds our child.

(2) For the first time ever we will have savings (60K) instead of throwing it straight back into bricks and mortar.

(3) I would like to step back and monitor what way the housing market prices go and also how many more interest rate increases the ECB apply.

As in the breakdown above I have put 10k into a rent account. This would cover approx 80% of 12 months rent in Dublin, meaning that I would have to contribute very little of my salary to rent expenses. This would enable me to add 1k a month to our savings.

I currently have a car loan, maxed out credit card and credit union loan that are taking a large chunk of my monthly salary. The thought of clearing all of these and starting fresh appeal greatly to me. I have also sworn to myself never to get into these debts again.

So with the sale of the property we would be debt free, have 60k savings and be adding 1k a month to these savings, have a place to live even though it is rented (plus we could be a lot more flexible in choosing the location than if we were buying) and we also would have alot more disposable income to enjoy life.

I look forward to your views on this matter. I personally believe that it would create a much better quality of life for us and our child and we will get back on the property ladder when we are in a stronger position. As a Dub myself I do not understand the Irish fascination of having to own your property, look at London and Paris.

I know I mightnt get the full asking price but please base your opinions/advise on the assumption that I do.


P.S I have colleagues and friends in good jobs who are so tied up with their mortgages that they cannot even afford to go for a pint on a saturday night................this is no way to live.
 
"I personally believe that it would create a much better quality of life for us and our child and we will get back on the property ladder when we are in a stronger position."

There you go. Quality of life is worth a lot. Certainly worth more than the feeling that you own the place you live in.

Everything in your reasoning looks sensible to me. There's always the chance that it may be harder to get on the property ladder again in the future, but you have to weigh that up against the the risk of trading up now and being stretched in an environment where interest rates are rising and everyone (apart from the people on these boards of course) is talking about uncertainty in the housing market.
 
Congratulations for putting a lot of thought into what you would like to do with you self financially.

I'm not sure that this thread will be kept open for very long as it might be thought of as discussion of house prices which is currently not allowed by Brendan, the site's owner.

You're prob going to get lots of (what I consider silly) suggestions like could you not go interest only/increase the term of you mortgage for a while, yada yada, yada.

Personally I advocate your idea, however you should be aware that you might :
  1. Find it difficult to sell you house based on reported experiences over the last 6-9 months.
  2. Get less than you expect for it.
  3. Incur the transaction costs of selling then buying another house later on which aren't recoverable.
  4. Rent prices have been squeezed of late due to people holding off buying and landlords removing from rental market to sell (although this is prob temporary) with increases on daft of up to 25%
On the more positive side, being debt free with good savings is a good way to be, should the downturn come to fruition. If your house is not the size you want or is in a poor area, socially or location wise (i.e. requires long commutes to work), selling now and buying later could work well for you. Of course it could be a disaster also. It's somewhat of a calculated risk.

I'm currently following this path (abeit I sold a few years back) so my opinions are prob a little biased. I believe it's better to buy in a slacker market (with higher interest rates) given that you're less likely to be involved in a bidding war and can prob bid under the asking price. Also you're less likely to get squeezed out (as you currently appear to be) from increasing interest rates and might even get some relief from dropping rates.

I can see why you're spreading across multiple savings providers (to get higher teaser rate) but you might do better throwing money into some funds. I advocate European Equity funds (from either Rabo or Quinn) due to resurging (mainly German) economy (which is of course the thing driving those interest rate increases so it's kind of a counter measure).

Best of luck.
 
Whilst this sound like a bit of a wind up I do have 1 question. I don't disagree with your plan but why have you split your savings between 5 different institutions? There can be very little, if any, benefit in doing this and surely just incurs extra overhead on your behalf in setting them all up. You may in fact be offered a better rate on a lump sum over 25K in any one of those banks rather than scattering it all over the place.
 
P.S I have colleagues and friends in good jobs who are so tied up with their mortgages that they cannot even afford to go for a pint on a saturday night................this is no way to live.
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Best of Luck, I agree with you completely. (and I am an s.Dub EA- 15 yrs exp!)
You won't loose out by stepping off for a while to reassess, I do not beleive prices will shoot up , at best stagnate, in all likelyhood fall further than the 10-15% fall we have already seen since the peak last easter.

I have also sold to rent, it's also discussed on; www.propertypin.com

Good Luck!:)
 
Well its a gamble prices go down you win prices go up you lose,

It may be nice to move each yea but for your child they might not wish to leave friends and schools each yea (based on 1 year leases)

But what could also happen (I think it more than will) interest rates go up and investors need more rent to cover their repayments. They WILL want to hire the amount you pay and you could end up a lot worse

Now if you stay at your home you will get more in the long run as you save on these expenses
Stamp duty on buying a new home Est. 10'000 (your not going to be a ftb)
Legal fee on buying a new home 2'500
Survey report on new home 700
Decoration on new home 2'000

But most import of all when you are make your mortgage repayment you are building up your saving and when you rent your building up someone else’s savings

If money is a issue try some of these
Check revenue if you are entitle to more benefits
Go to a car boot sale and sell some stuff to pay off credit cards
Ask a family member for a loan to pay of credit card and then cut it up
Speak to a bank about combining your debts
Worst of all another job to pay off the debts
 
Niallm said:
But what could also happen (I think it more than will) interest rates go up and investors need more rent to cover their repayments. They WILL want to hire the amount you pay and you could end up a lot worse
Click to expand...

The rental market is determined by supply and demand, not interest rates.
 
Hi there Seller,
I do see your point in selling and saving the equity (and clearing debts) that you have built up in your current home....

You are in a good position.... If I were in your shoes, I would be reluctant to sell my home because of how hard it was to get on the ladder in the first place....

I, like you, live and work in Dublin, however I recently went down to Kerry to see some cousins and Mr Bear and I were really impressed with the pace of life down there and thought "Yes, why not sell up and move" we got back to Dublin and couldn't leave his sisters!

If your wife is at home would you think of moving down the country and possibly commuting or even better working from home - how cool would that be!!!!!

If your finances are a challange would you look at remortgaging and paying off the debts. Remember this may only be a temporary situation as your wife could decide to go back to work when your child is old enough.....
 
Landlords will not necesserily have an option to 'higher'/raise rents. The amount of investors trying to offload/sell their property that they are subsidising because of higher interest rates is very significant- as in they have caused a flood of similar property to come on the market for sale.

This happened months ago.

What has happened now, is that these same landlords who have failed to sell, have put the properties back on the rental market - again causing a flood of rental properties that = more choice for tenants. http://daftwatch.atspace.com/ - you can see the trend here. More suppy generally means downward pressure on rents.

If you were going to move anyway in the next few years - ie. the property you own now is not ideal for your family long term, the fact that you will loose your FTB status, paying legal fees etc. is irrelevent as you would have paid at at some stage anyway.....

BTW. The savings accounts AND the funds is the way to go with the equity you release as robd & Howitzer have said. Excellent advice.

Good Luck !
 
Thanks for the advise folks.

Howitzer this is not windup, this is my plan when the property sells.

I fully believe that me and my family will benefit from this plan. I just wanted to know if there was some financial logic saying that this was a mad idea. I think that the root comes back to the point of the fascination of owning our homes in this country.

Im not a financial expert but as far as I was aware itwas better to spread the amount over different savings accounts to earn the best interest return eg 5% on 10k in Rabodirect etc

With regard to my child, she is only approaching her first birthday so friends and school are not an issue yet.

As for buying in the satelite towns of Dublin, well thats the quality of life going out the window. I really dont see the value in buying a property where you spend 2 hours crawling on the M50 to get to work and 2 hours to get home no matter how cheaper it is compared to in the city.

We will rent for a year and then scan the market for value. Me and my partner will then both be on a full salary (as daughter will be old enough for creche), my salary will have increasedover the year and we will have 72kplus the interest earned over the year to put towards the purchase of the property............how can this be a bad idea??
 
seller2000 said:
289,000 Clear mortgage, outstanding debts and selling costs.
20,000 Rabodirect savings account
Click to expand...
On this specific point and echoing some of the earlier comments... (all interest rates quoted are gross CARs):

Doesn't really make sense to split across so many institutions - for example why put €20K in Rabo which is €10K @ 5% and €10K @ 3.75% and only €10K in NR when all amounts in excess of €1K with NR earns 4.3%?

Similarly unless you are getting a good rate with other institutions then it does not make obvious sense to deposit with them.

INBS are offering 4.75% with 30 days notice on their FlexiSaver 21 account but it closes tomorrow.

Bear in mind that after DIRT and inflation are accounted for your money will proabably be losing real value in the meantime even at the highest deposit rates on offer.

I would sooner, if necessary, do an equity release and pay it off over a short period (e.g. c. 1-2 years) if I wanted the holiday of a lifetime. Personally I would not sell up to rent and gamble on the residential property market.

How could you lose? Your money could be losing real value in the meantime and you property prices could remain steady or increase either pricing you out of the market or leaving you at a loss when you want to get back in. Don't forget the significant transaction and ancillary costs in selling and then buying again later (e.g. easily €5K in total and quite possibly even higher especially if as a non FTB you have to pay SD).
 
If you are going to buy again in about a year and plan to buy in the same area, then property prices would have to have dropped a lot to make it worth your while to pay all of the expenses involved in selling and buying.
On the other hand life is not all about money.
 
I question having so much money on deposit with the credit union etc in your plan instead of having it in a fund.
The only investment with a medium/long term view is the 10,000 Quinn Life savings trust for the kid and the 10,000 Holiday of a lifetime is a rather large way to dispose of the small profit you have made which will only go onto a mortgage later if you decide to reenter the market.

What you are proposing is a gamble allright and people say that rent money is dead money yet we are really renting money from the bank when we pay mortgage interest. I would like to know how much are your mortgage repayments versus the rent you plan to be paying in future ?
Could you go interest only on the mortgage and reduce the pressure on yourself to pay the credit card and car loan and have this at the same level as the rent you anticipate paying? It seems to me that our much complained about high Irish inflation has one benefit in that it is acting to reduce the real value of any loan taken out even if the loan is interest only. All this while rents can go up.
And do you like where you live ? Would you be happy to move away from there?
 
Do also remember a little bit of maths take rabodirect saving at 5% but if you read the small print this in only until 31/12/07 with a balance up to 10’000 after that the standard interest rate applies 3.75% on the 10’000 to 20’000

=
First 10’000
Interest after dirt = 400 per year

Second 10’000 to 20’000
Interest after dirt = 300 per year

Total amount of interest after saving 20’000 for one year 700 paid once a year in December

The banks may have these nice big interest rates on advertised but when you read the small print you find these
High interest up to a certain balance
High interest if you deposit you 1500 (your wages into this account each month)

Please do read all the small print they love to tempt you in the door and give you nothing after that?
 
Yea of course i would like to move away from where I currently live. Im paying almost 1600 a month out in Ashtown, where I could rent in Clontarf, where I grew up for approx 1400 a month. Ive accepted the fact that I will never own a property in Clontarf unless I win the Lotto, but by renting I could live there and my daughter could benefit from such a nice area to live in.

With regard to the holiday...............I cant see when else Ill have such a large sum of money sitting in my bank account to enjoy at trip of a lifetime. You only live once and you cant take it with you.

So if I went interest only, Im still stuck out in Ashtown, I still have all the debt to pay.

So in real life terms I do not see this as a gamble.

No debt, 60-70k savings, flexibility of where to live

Versus

Loads of outstanding debts, stuck in the same property, impossible to creat savings due to debt repayments


When Im able to give my daughter the best things in life, enjoy holidays and not be stressed out with debts up to my ears, I wont give a damn whether a landlord owns the deeds to the property or whether the bank does.
 
seller2000 said:
I wont give a damn whether a landlord owns the deeds to the property or whether the bank does.
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Yes - but even when the property is mortgaged the householder normally owns at least a portion of the equity.

You seem dead set on this course of action so there's probably not much point in me or others giving you some alternative and counter views. Personally I don't think that this is a very prudent step in most cases and arguably evel less so if you have kids. I certainly wouldn't chance it myself. I don't think that you are looking at this dispassionately and objectively which might increase the risks of you making a bad decision. But good luck with whatever you do.
 
I think its an excellent idea. Increasing your mortgage when your wife isn't working will only put further pressure on you, and might not even be possible. Best of luck.
 
I might be on my own on this, but from personal experience there is nothing worse than going back to rented property after owning one. The feeling of dread once you move in is unbearable. Paying someone elses mortgage when you could be paying your own, and the fact that you could end up with a nightmare landlord. Big No No from me.
 
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