Risk of sitting on the sidelines in rental with house sale proceeds

[MelF]

Would be grateful to hear other people's experiences with this, about to sign contracts to sell my house but my next one won't be ready to close or for occupation for another 3 months. Having owned property since the mid-nineties I'm getting the heebie jeebies about the idea of waiting things out and being at the mercy of the rental market, and/or any black swan major world events in the interim that might place my personal and financial security at risk.

As you can probably tell I'm pretty risk averse in general, but prob ten times worse since Covid, and just can't escape the idea that if something similar were to happen between the sale of my old and occupation of the new that I'm putting my family in a massively vulnerable position.

Has anyone else done this recently and how did you frame it to yourself so you could push on without concern? I'm almost at the point where I want to pull out of my sale but that obviously comes with its own problems if the market takes a dive in the meantime!

 

[NoRegretsCoyote]

What do you fear exactly?

 

[MelF]

What do you fear exactly?

Like I said above, another Covid-type situation where the world basically goes sideways. I suppose I've always bought into the property ladder mentality and the gap between selling one and buying the other feels a bit like I'm kicking that ladder out from beneath me! I suppose maybe it's a psychology question rather than a financial one but am assuming others have done this and I'm wondering how it feels in practice.

 

[Silversurfer]

Would be grateful to hear other people's experiences with this, about to sign contracts to sell my house but my next one won't be ready to close or for occupation for another 3 months. Having owned property since the mid-nineties I'm getting the heebie jeebies about the idea of waiting things out and being at the mercy of the rental market, and/or any black swan major world events in the interim that might place my personal and financial security at risk.

As you can probably tell I'm pretty risk averse in general, but prob ten times worse since Covid, and just can't escape the idea that if something similar were to happen between the sale of my old and occupation of the new that I'm putting my family in a massively vulnerable position.

Has anyone else done this recently and how did you frame it to yourself so you could push on without concern? I'm almost at the point where I want to pull out of my sale but that obviously comes with its own problems if the market takes a dive in the meantime!

If you feel so worried about this perhaps try and time the sale of your current house and purchase of your new one simultaneously. I have done this in the past. However if you are relying on the proceeds of your current home to fund your new purchase it might be necessary to sell a few weeks before.

 

[LLB123]

This is what I’m trying to avoid at the moment, a gap between sale and purchase without losing my buyer. Its a fine line indeed and not for the faint hearted and nothing in life is without risk but just have to trust that all works out in the end.

 

[MelF]

If you feel so worried about this perhaps try and time the sale of your current house and purchase of your new one simultaneously. I have done this in the past. However if you are relying on the proceeds of your current home to fund your new purchase it might be necessary to sell a few weeks before.

Not an option unfortunately, my buyers are unwilling to wait and closing date is imminent.

 

[Itchy]

As you can probably tell I'm pretty risk averse in general, but prob ten times worse since Covid, and just can't escape the idea that if something similar were to happen between the sale of my old and occupation of the new that I'm putting my family in a massively vulnerable position.

Has anyone else done this recently and how did you frame it to yourself so you could push on without concern? I'm almost at the point where I want to pull out of my sale but that obviously comes with its own problems if the market takes a dive in the meantime!

You're not being reasonable. Your concerns don't even make sense. If the market takes a dive, you are buying and selling in the same market. It's about the RELATIVE change in price, not the absolute change. Good for you if you're trading up, not so good (but not the end of the world) if you're trading down. Have you verbalised your rationale at any point up to now or this is just a back and forth in your own head?

Here is a summary of your analysis. You want to take cautious approach in order to minimise your exposure to [insert highly unlikely and uncontrollable extremis event] but in order to guarantee that you have no exposure to said event, you are considering not following through. But if you don't follow through [another highly unlikely and uncontrollable extremis event].

Your risk aversion has led to analysis paralysis. Start again. The probabilities of your extreme event happening are small, the probabilities that the event happens over the next three months are even smaller. Your obsession with Covid is just your Recency Bias. People were moving house in 2019 too, nobody was preparing to be caught by a novel, worldwide pandemic expected to occur in the next quarter. You can only control the controllables. Consider events that will impact the process by order of likelihood AND impact, not just impact alone. The highest (most) likely event is that absolutely nothing of note happens in the next three months (what would have impacted the move if you had started in Jan and completed in Mar? What would have impacted if you had started in Mar and closed last week? Why wont that happen again in the next three months?).

Finally, it's not possible to push on "without concerns" - get used to it! Make the best decision you can with the information you have available to you at the time and get on with it. Something might happen, then again, it might not.

 

[MelF]

You're not being reasonable. Your concerns don't even make sense. If the market takes a dive, you are buying and selling in the same market. It's about the RELATIVE change in price, not the absolute change. Good for you if you're trading up, not so good (but not the end of the world) if you're trading down. Have you verbalised your rationale at any point up to now or this is just a back and forth in your own head?

No, I've already signed contracts and committed to buying the new place, my concern now is moving out of the old place and sitting on the sidelines for longer than I'd bargained for with all this cash in an inflationary environment, with the worst-case of my new property falling through/not being completed etc. And if I stay put and the market falls, I've bought at the top and will be catching a falling knife when I sell.

Oh I know what you're saying, I'm a catastrophist and exponential thinker, the worst possible combination but I can't help it. Sure I bought gold and stocked up on food supplies (and toilet roll) months before covid hit our shores!!!

 

[_OkGo_]

No, I've already signed contracts and committed to buying the new place, my concern now is moving out of the old place and sitting on the sidelines for longer than I'd bargained for with all this cash in an inflationary environment, with the worst-case of my new property falling through/not being completed etc. And if I stay put and the market falls, I've bought at the top and will be catching a falling knife when I sell.

I'm still not sure I fully understand your logic or your fears.

You've committed to a purchase at today's prices so to balance this, you need to sign contracts on your own property, ideally with a closing date as close to your own purchase as possible. You just have to accept the inconvenience of Airbnb, hotels or whatever other short term accommodation you can find. Furniture into storage and pets to friends/family or kennels, whatever works best.

By not signing contracts, you leave yourself open to the fear you have of your own sale falling through because of dropping prices.

with all this cash in an inflationary environment

Inflation has nothing to do with your situation. It is very specifically property prices. You are not going to buy €100k worth of groceries

Your other idea of trying to buy/rent an apartment is also a bit mad and actually exposes you to even more risk. You would now be committed to buying two properties and you are not going to buy or sign contracts on anything in such a short time that you would bridge the 3 month gap. The last thing a seller wants is to rent to a potential buyer while sale agreed.

As with most things on AAM, the questions asked are not usually the questions answered. You are discounting the idea of renting/hotels because you have pets. That is madness.

You need to put that into perspective for a minute and realise you are making a huge life choice based on your pets. You need to prioritise your own financial well-being and your family before the pets. A lot of your fears/risks go away if you find somewhere short term for the pets

 

[ClubMan]

As with most things on AAM, the questions asked are not usually the questions answered.

The XY problem again?

XY problem - Wikipedia

en.wikipedia.org

 

[MelF]

I'm still not sure I fully understand your logic or your fears.

You've committed to a purchase at today's prices so to balance this, you need to sign contracts on your own property, ideally with a closing date as close to your own purchase as possible. You just have to accept the inconvenience of Airbnb, hotels or whatever other short term accommodation you can find. Furniture into storage and pets to friends/family or kennels, whatever works best.

By not signing contracts, you leave yourself open to the fear you have of your own sale falling through because of dropping prices.


Inflation has nothing to do with your situation. It is very specifically property prices. You are not going to buy €100k worth of groceries

Your other idea of trying to buy/rent an apartment is also a bit mad and actually exposes you to even more risk. You would now be committed to buying two properties and you are not going to buy or sign contracts on anything in such a short time that you would bridge the 3 month gap. The last thing a seller wants is to rent to a potential buyer while sale agreed.

As with most things on AAM, the questions asked are not usually the questions answered. You are discounting the idea of renting/hotels because you have pets. That is madness.

You need to put that into perspective for a minute and realise you are making a huge life choice based on your pets. You need to prioritise your own financial well-being and your family before the pets. A lot of your fears/risks go away if you find somewhere short term for the pets

It's not just pets, but I get what you mean, it's more trying to balance the risk of being out of the market, not to mention the exorbitant cost and inconvenience of short-term rental (maybe months on end if my house is delayed/falls through) against the comfort of sitting out the wait in the comfort of my own home and just selling it after I've bought. Decisions, decisions!

 

[Brendan Burgess]

You have agreed to buy a house at a fixed price.

These things don't run smoothly. It might be ready in three months, or it might not. There is a high risk that it will be delayed, but you don't suffer that much in that event. An extra two months' rent is immaterial in the context of house price movements.

The big risk that you face is that the buyers of your house pull out. You are then legally committed to buying the new house and will not be able to get out of it. And you won't be able to complete without selling your own house.

You might sell it again, but there is a risk that house prices fall dramatically in the meantime or that the house market freezes and you can't sell at all.

It strikes me that your irrational worry and even thinking about not selling your own home, is dramatically increasing the real risk that you face.

So exchange contracts for the sale of your own home as soon as possible.

Brendan

 

[Brendan Burgess]

Trading up or down is risky. There is no way of avoiding it. It seems to me that you are almost at the point of avoiding it by getting both contracts over the line at around the same time.

Trading up is expensive and stressful. You can manage that a bit by trying to get a house with a flexible tenancy for the period. But there is only so much you can do. It will be stressful.

Brendan

 

[MelF]

You have agreed to buy a house at a fixed price.

These things don't run smoothly. It might be ready in three months, or it might not. There is a high risk that it will be delayed, but you don't suffer that much in that event. An extra two months' rent is immaterial in the context of house price movements.

The big risk that you face is that the buyers of your house pull out. You are then legally committed to buying the new house and will not be able to get out of it. And you won't be able to complete without selling your own house.

You might sell it again, but there is a risk that house prices fall dramatically in the meantime or that the house market freezes and you can't sell at all.

It strikes me that your irrational worry and even thinking about not selling your own home, is dramatically increasing the real risk that you face.

So exchange contracts for the sale of your own home as soon as possible.

Brendan

I don’t need to sell to buy, that’s a key element I neglected to mention.
Which is also why it makes all feel so much riskier with so much cash and because short term renting is so exorbitant too (20k pm in my area!) that’ll quickly eat away at any profit I’d make from the sale if my next is delayed any further than 3 months to say nothing of the associated hassle.

Having weighed up the costs, odds and the wise advice here, thank you, staying put and going back on the market when my new one is ready feels more prudent overall, but with still not without risk if market upends, which is why I’m torn.

 

[Zion2022]

I don’t need to sell to buy, that’s a key element I neglected to mention.
Which is also why it makes all feel so much riskier with so much cash and because short term renting is so exorbitant too (20k pm in my area!) that’ll quickly eat away at any profit I’d make from the sale if my next is delayed any further than 3 months to say nothing of the associated hassle.

Having weighed up the costs, odds and the wise advice here, thank you, staying put and going back on the market when my new one is ready feels more prudent overall, but with still not without risk if market upends, which is why I’m torn.

I’m finding this whole piece v confusing as others have alluded to.

You have agreed to buy a house at a known price, albeit variable move in date. You have agreed to sell a house at a known price with a known move out date. You have timed the buying and selling prices to be in the same market to minimise timing risk which is clever.

You’re now sacrificing all of this certainty in order to agree a sale on your house at some unknown future date for an unknown future price where market conditions could be significantly worse. Perhaps the next buyer pulls out at the last second and your sale falls through. And this is all being done to reduce risk?

I have to say, I think you might be approaching this backwards.

 

[AlbacoreA]

I think you have to accept there is some risk.

But you can't move forward in life without some risk.

 

[MelF]

I’m finding this whole piece v confusing as others have alluded to.

You have agreed to buy a house at a known price, albeit variable move in date. You have agreed to sell a house at a known price with a known move out date. You have timed the buying and selling prices to be in the same market to minimise timing risk which is clever.

You’re now sacrificing all of this certainty in order to agree a sale on your house at some unknown future date for an unknown future price where market conditions could be significantly worse. Perhaps the next buyer pulls out at the last second and your sale falls through. And this is all being done to reduce risk?

I have to say, I think you might be approaching this backwards.

It’s the gap between selling and buying that I’m most worried about. Renting will cost me 60k or so, possibly more, while staying put costs me nothing, so even a 10% house price drop in the meantime would still cover me. And if my new house is delayed further or falls through altogether then at least I still have my old place at the end of it.

 

[Zion2022]

It’s the gap between selling and buying that I’m most worried about. Renting will cost me 60k or so, possibly more, while staying put costs me nothing, so even a 10% house price drop in the meantime would still cover me. And if my new house is delayed further or falls through altogether then at least I still have my old place at the end of it.

If you’ll be renting at €20k per month. I assume the houses you are buying/selling are in the €3m-€4m range based on a generous 6% rental yield at those price levels. €60k in the context is not significant.

There are always some risks with trading up and down. But on the list of risks number 1 by a country mile is buying and selling in different markets. The risk of some new build just not being completed is very far down the list. So you are swapping a very minor risk for a very big one. You mentioned inflation but as mentioned by Brendan, inflation is the risk of your cash buying a lower quantity of something in future. This risk is insignificant to you as your future price is fixed. Inflation is irrelevant in your situation.

The conversation and responses have focused on financial risk. And there is no doubt here, you are choosing the increase your financial risk. You’re actively choosing to double your property exposure for a period in order to reduce some personal/lifestyle/convenience risk. Assuming you are trading in the €3m+ house range without the need for sale or finance this might be fair enough and you can carry the significantly increased financial risk you are choosing to take.

In short, for someone with ‘average’ financial means you are making an extremely high risk decision which could have life altering impacts (both favourable and unfavourable). I suspect you have significantly above average financial means so this might be reasonable. But this is at odds at your opening post where you said you are risk averse. I suspect you what you meant is you have such financial strength you can afford to take large financial risks in order to minimise personal inconvenience.

 

[MelF]

If you’ll be renting at €20k per month. I assume the houses you are buying/selling are in the €3m-€4m range based on a generous 6% rental yield at those price levels. €60k in the context is not significant.

There are always some risks with trading up and down. But on the list of risks number 1 by a country mile is buying and selling in different markets. The risk of some new build just not being completed is very far down the list. So you are swapping a very minor risk for a very big one. You mentioned inflation but as mentioned by Brendan, inflation is the risk of your cash buying a lower quantity of something in future. This risk is insignificant to you as your future price is fixed. Inflation is irrelevant in your situation.

The conversation and responses have focused on financial risk. And there is no doubt here, you are choosing the increase your financial risk. You’re actively choosing to double your property exposure for a period in order to reduce some personal/lifestyle/convenience risk. Assuming you are trading in the €3m+ house range without the need for sale or finance this might be fair enough and you can carry the significantly increased financial risk you are choosing to take.

In short, for someone with ‘average’ financial means you are making an extremely high risk decision which could have life altering impacts (both favourable and unfavourable). I suspect you have significantly above average financial means so this might be reasonable. But this is at odds at your opening post where you said you are risk averse. I suspect you what you meant is you have such financial strength you can afford to take large financial risks in order to minimise personal inconvenience.

Yes I think you’ve hit the nail on the head. Short term rental costs are utterly exorbitant though, which will eat into my sale proceeds and I still don’t know for how long. Both houses in the 1m - 1.5m mark. The disaster lies in that I went sale agreed on mine too quickly and far too early as it turns out, but I hadn’t anticipated such a long time lag between selling and buying and that’s the crux of it really.

 

[Brendan Burgess]

Why on earth did you agree to sell your house?

If you don't need to sell your house, you should have bought the new house first and then put your own on the market.

It's not fair to pull out of the sale of yours as the buyers have plans around it.

So go ahead with the sale and rent somewhere for the period.

Brendan