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

[z108]

You seem like your mind is already made up and fair enough you dont like where you are living now but ,

I'll point out you said one of the main positives was to have savings but right now your savings are going into the house. So you do have savings, you just cant spend them on holidays.

And theres other things to consider, do you have a pension ? If not I'd consider my house and the savings going into it to be my pension to sell up and downsize when I am older and the kids move out.
What would happen if you lost your job ? How would that affect paying your rent or your mortgage ? Would you end up renting somewhere in a neighbourhood where you are even more unhappy than the one you are currently in (Im not slagging ashtown. I dont even know where it is) if that happened ? If you have more kids would you need to rent somewhere bigger with an even higher rent than 1400 ?
But I think your mind is already made up about this..

 

[delboy159]

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.

A major factor in this decision seems to be the soon to be one year old child and when it comes to making life decisions that impact on our young - prudent and dispassionate thinking are best left in industrial schools and the like.....

To dispose of an asset to rent and thus expose yourself to property price rises is not a good long term risk/reward strategy, but, and a lot of Irish people seem to forget this at this moment in time - quality of life is everything...

I know a lady who recentley divorced, she was determined to get back on the property ladder in South Dublin after the family house was sold as part of the settlement. She now owns the apartment she wanted in the area she wanted, but is forced to work 12 hour days, rarely sees her teenage daughter and is up to her eye balls in debt. But, as she says herself, she did the right financial thing for herself and her daughter...

I threw out the idea (not to her) to mutual friends that if she rented in the area, the rent would be far less than her mortgage, she'd have cash in the bank, no car loan etc. work not only less hours in a day, but probably a 4 day week and consequently get 10 fold the amount of time with her daughter and more free time!!! The raised eye brows were obvious - "thats just silly, she wouldn't own her own home!!!"

 

[seller2000]

Yes im in a pensionable, permanent job in a large company with many promotional opportunities.

In terms of my child, the 6x2 foot balcony of the present property or the garden of a rented house...........definitely the garden.

Plus the sale allows me to set up a savings account for her for when she is older or to finance a private secondary education or whatever expenses crop up in the future.

Plus she will have a far less stressed out Dad who wont have to work every hour of every day to pay off the countless debts.

I have taken on board the advise about the different savings accounts to put the money into and we reassess what ones are the most advisable.

Yes my partner and I will have to get back on the property ladder. But we will both be on a full salary.........in a years time we should be able to apply for a joint mortgage with a joint salary of 90k. With the balance of both of us working we should be able to manage the cost without it draining the bank account each month.

Plus we will still have those savings in the bank to put towards the price of a property and also so that we can live a good quality of life.

Plus we wont have thoses little loans to repay that eat into the salary.

We will be starting out fresh with no debts and the bank balances firmly in the black. Yea property prices could well have risen by then but its all relative as we will be on higher salaries.

Life is not about the possible risks of shifts in the property market, but about being able to enjoy it with a roof over your head and not suffering a heart attack at 40 due to the stresses of paying all the bills.

 

[CCOVICH]

seller2000-to echo other posters-you really sound like you've made up your mind. If you are happy to rent for the foreseeable future (5+ years?) then go for it.

 

[gonk]

Sounds fine to me. The Irish & the Brits have by comparison with continental Europeans an obsession with owning their own homes. The problem with renting here was always the negligible rights and security of tenure tenants had. Now that the PRTB has been set up and tenants' rights have improved somewhat, there is much more of an argument for renting instead of buying.

You are right in prioritising quality of life issues. When you're sitting in your rented house in Clontarf reading about another fall in the values of commuter belt houses in Wicklow, Kildare and Meath, as were reported today, you'll know you did the right thing.

 

[Persius]

...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.

The transaction costs in re-entering the market are only an issue if the alternative is to remain in his current property for the forseeable future

....In terms of my child, the 6x2 foot balcony of the present property or the garden of a rented house...........definitely the garden...

Based on this comment, I guess his alternative would be to consider trading up in the near future. In this case, he will have to look at the expenses involved in selling and buying, and the SD for non first time buyers (assuming second hand house) either way, so that's not really an issue.

I guess the main things are
1) if house prices continue to rise at a faster rate than inflation (*), then it may be difficult to purchase again in the future.
2) Rents may be cheaper than mortgage at present, but may rise as demand is quite strong and landlords are hungry for higher rents (as their mortgages have grown due to higher interest rates)
3) Security of tenure. Under certain circumstances (e.g. landlord selling up), the landlord can evict you with just statutory notice.

1 and 2 are pretty unpredictable. 3 depends on the luck of the draw with the individual property you choose to rent.

* by inflation, I probably actually mean, the rate your money grows in your deposit accounts after DIRT and/or the average growth in wages. I.e. the amount of extra money you have to purchase in the future

The headline figure for consumer price inflation of 5.1% (or whatever it is) is somewhat misleading. The EU harmonised rate for Ireland is only 2.7%, and your personal rate is different again based on your own consumption patterns.

 

[Bronte]

I think quality of life is undervalued in Ireland. I moved house 2 years ago for 1 reason and 1 reason only. I couldn't take the stress of living 1 hour from work/crèche/school. I didn't want to spend my life in the car with the kids anymore. Fortunately I was able to sell and buy. In comparison to you guys where I live (Belgium) your stamp duty rates are piffling low. I was willing to take the huge purchase tax hit just for quality of life.

As a landlord in Ireland I have not increased my rent in over 3 years. Don't agree that rent is going up. Oversupply in my opinion will lower rents.

I visited Dublin last weekend; I got a taxi from Swords to Blanchardstown. Frankly I'm completely shocked with the development of Dublin. We went across country. We passed miles upon miles of new bright shiny apartments with miniscule terraces, sad for me to see all the kids bicycles on the balconies. Furthermore the apartments were built to within a couple of feet of the road. There were NO green areas, none whatsoever, not a tree or shrubbery in sight. No shops or amenities. Passed the Ballymun flats and got to Finglas. I would prefer to live there than what went before. These houses (while they looked like corpo type houses) were of a family size, they had front and back gardens AND they had a big green area out the front even if there was a piebald pony grazing there. Also saw a big football pitch. Also noticed white van man. There is something seriously wrong with all these families commuting long distances and never seeing their kids just so they can live in a miniscule apartment. So OP I agree with you in your personal circumstances, move to a nicer area, maybe where you have family and I'm sure you'll find a very nice place to rent with a garden and have quality of life.

Re parking in the new estates in Ireland, I now know why there are so many problems in relation to this issue as mentioned numerous times on AAM. Brown envelopes and planners/politicians is all I can say.

 

[Remix]

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.

This was certainly true in the past but may not currently be the case if you are saving primarily for a house and house prices are falling as your savings are accumulating.

The Irish Independent reports that house prices are falling rapidly across Ireland, the latest house-price index reveals.

finfacts

Still early to call a trend but it is a factor to keep in mind if you are a saver.

 

[casiopea]

As a Dub myself I do not understand the Irish fascination of having to own your property, look at London and Paris.

Hi OP,
First of all good luck it sounds like youve your mind (nearly) made up and you've put a lot of thought into this. I think sometimes you just have to jump even if its against the group way of thinking.

Just one thing to be careful of, in europe there is quite a lot of infrastructure around renting. Protecting both the tenant and the landlord. While Ireland is getting better in this area (with PRTB etc) there is still a long way to go. As you have a family be extra vigilant about what landlords you chose to deal with. Make sure you get a contract, ideally ask to have a 3 month notice period on the property (given that youve a child and moving is not so trivial). Just my 2c, good luck,
cas.

 

[dublinli]

The rental market is determined by supply and demand, not interest rates.

and supply is determined by interest rates to a ceratin extent

 

[Afuera]

and supply is determined by interest rates to a ceratin extent

So lower interest rates means we'll have more property for rent (or would it be less)? I'm sorry, can you explain what you mean here?

Are you really saying that the ECB controls how many houses are for rent in Ireland???

 

[ubiquitous]

I would have thought that higher interest rates = less development of new rental properties = eventual shrinking of numbers of rental properties = less choice for tenants = sellers market for landlords = higher rents.

The opposite should apply when interest rates fall.

 

[beattie]

I would have thought that higher interest rates = less development of new rental properties = eventual shrinking of numbers of rental properties = less choice for tenants = sellers market for landlords = higher rents.

The opposite should apply when interest rates fall.

As interest rates rise affordability is reduced, thus leaving a larger pool in the rental market which would push up rents if there was not an overhang of vacant properties or a reduction in the supply of new builds (a proportion of which will hit the rental market as they have being purchased by investors). It will be interesting to see whether the recent upward spike in rents is maintained or if the increase in rental availability (as seen on daftwatch) will reduce them again.

 

[michelle123]

Like someone else mentioned the Irish are obsessed with owning their own property ..and the whole perspective that renting is dead money ..although no one ever mentions paying interest on a mortage to the bank is also dead money ..
The boom in the housing market seems definetly over and we are not going to see property prices rising like they have done in the last 5 years
Whether it will level off, drop dramatically ( crash), or rise at a much slower pace is anyones guess and theres a lot of debates about it at the moment ..
I think you have decided what is best for you.. and in the event of possible property dramatic down turn you might not be able to make the profit you would now make by selling your home and would be possibly stuck with a long commute and living in an area you dont seem too fond of.
Have you ever thought about moving down the country - It might be a much nicer way of life rather than long commutes and huge rents/mortgages

 

[minion]

I think you are nuts.
Have you added up all the transaction costs and taxes to get back into the market?
If you dont intend to reenter the market then all is fine but if you do you are taking a gamble.
If someone said to you would you put 30 odd grand on a bet if houses will go down by say 10% where you live over the next 3 years would you hand over the money to paddy power? Because i think thats what you are doing. Gambling with your families future.

 

[Steve D]

Hi Seller,

I think that your decision should be based on how you think that the property market will perform over the next couple of years.

If you think that property prices are going to fall substantially then you could be better off selling and renting because you may be able to buy property at a much reduced price in a couple of years time. You have to weigh up that gains of doing this with the transaction costs and the cost of the rent.

If you think that property is going to increase in value, then you will be better off not selling.

However, in the current climate there is very little chance of property increasing in value of the next two years, some commentators are suggesting that values of property could fall by 40 to 60 % over the next five years.

I do not see the point in having so many savings accounts either. Where you invest your money will be dependent upon your attitude towards risk. Personally, I consider it wasteful to have large amounts of money in bank deposit accounts because, if you know what you are doing, you can make much better returns in equities. For example, there are many funds in the UK that regularly make 20 to 25% pa. I realise that you have to have some money in the bank for a rainy day and you may be too risk adverse to try out equities.

The details above are my honest opinion but legally should not be considered to be investment advice.

Good luck with whatever you decide to do.

 

[z108]

Hi Seller,
... For example, there are many funds in the UK that regularly make 20 to 25% pa. ....

If risk is important with regard to your familys future,I think you'd be very lucky to get those sorts of returns consistently without taking a big risk. Not even Warren Buffet is getting that sort of return.

 

[gearoid]

Personally, I consider it wasteful to have large amounts of money in bank deposit accounts

Doesn't it depend on whether you are willing to rent for eight to ten years or not as to whether you invest the money or not? I am hoping to buy a house or apartment when interest rates hit the top of the cycle, perhaps a year or eighteen months away. At that stage those with large cash deposits should be able to get a better deal. I guess it is using the Buffet dictum of buying when others are selling, and selling when others are buying. If I were to invest my deposit now I might risk having access to it when I want to buy, and therefore I put it all in a high interest earning deposit account. I know that this is a very conservative strategy but it guarantees me a good interest payment at least at the end of every year. Aren't equity values also possibly somewhat stretched at present times? The possibility of increased interest rates may affect both property and equity values.

 

[Steve D]

As I said in my previous post, an investors attitude towards risk will determine which types of investments are suitable. Yes, of course if you plan on using cash in the near future you will need to hold a large balance in cash.

Personally I do not mind taking calculated risks so I always like to have a reasonable proportion of my investments in certain equities or equity funds. I know that they could drop by 20% in one day but that is a risk that I am willing to take. I balance that with some other less risky investments.

However, individuals who are more risk adverse could dip their toes in the water by investing a small proportion of their capital in equity funds. The percentage would depend on the individual's own circumstances such as what his other investments were and how long he was willing to hold the equity investment. If, for example, a risk adverse individual invested only 5% in equities, then the riskiness of his total portfolio would still be low.

Yes of course, the return on an investment will depend on when you buy so if you buy at the top then your return will be less. No-one can ever predict the top or bottom of a cycle so this can be mitigated by drip feeding investments, such as by buying monthly units by diredt debit.

Sign - there are a few equity income funds funds in the UK that deliver this type of return. You have to try to pick out who the good fund managers are and how consistent they are. Of course they all take a bath when the stockmarket collaspes. I usually find equity income funds to be less risky than other funds because they tend to invest in large companies that are very profitable and you can ask for all the income to be reinvested, if you choose. For example this is a fund that has generally, apart from the occasional large dip (as you would expect), done well:
http://www.trustnet.com/ut/funds/?fund=477

The above should not be considered to be investment advice.

 

[csirl]

One cost that you havent factored in is the amount that your mortgage would have reduced if you had continued to pay it for the next year or 2 instead of renting. I dont know how valuable your current property is and what type of mortgage you have etc., but it would be fair to say that the equity repayment on a typical Dublin property would not be insignificant per annum - €10k per annum would not be unusual even if the mortgage is only a couple of years old. This means that by renting, you will have e.g. €10k per annum less money when you go to buy another property in the future.

Mortgage is not "dead money" and is not like "renting from the bank". While the interest portion of a loan may be quite high in the early years, most people are still paying a not insignificant amount of the equity per annum. This is money that is not lost. It is as real as saving an equivalent amount per annum. When you come to sell up and buy another property, this IS very real money that you'll have.

The question the poster has to ask is will house prices drop by more than the amount of equity that would have been acquired? If the answer is that property prices are going to stabilise or only drop slightly over the next couple of years, then selling and renting is a bad idea. If the answer is that they are going to drop significantly, then its not.