Should I sell and rent for a while ? (05-06-2008)

Sangster

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We are contemplating selling up our family home which we purchased in 2004. We had it valued at between 650 and 700 by a couple of local EA's in 2006. Unfortunately due to market conditions we are looking at around the 600k mark now. I am of the view that selling now for as close as possible to 600 and rent for a year is a clever move. At 600 we would walk away with 280k(approx), if the market keeps falling I should be able to pick up a 'better' house for the amount I'm mortgaged to at the moment in a year or so. Am I being naive ?
Sorry if the above is a bit of a ramble but it late ;)
 

Chris

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1,323
Re: Should I sell and rent for a while ?

Two things to keep in mind:
1) Can you really say for sure that prices will continue to drop significantly? What if they start going up?
2) You may not be able to get the same amount of money from a bank given the effects of the credit crunch
 

eamonn123456

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Re: Should I sell and rent for a while ?

Bad idea IMO.

You have all the transaction costs to sell, then again to buy.

You have all the moving costs.

You have rent to pay in the interim.

You have the hassle.

And at the end of the day, you are speculating on house prices, via the medium of your family home.

You need a home. You are thinking about treating your current home as a speculative investment.

Your plan will work if prices keep on dropping (a lot).

If they stabilise or rise you will have serious egg on your face.

Don't do it.
 

eamonn123456

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Re: Should I sell and rent for a while ?

PS this plan would work better if you got out at the very top of the market, but you didn't.
 
C

Camry

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Re: Should I sell and rent for a while ?

I would reckon if trying to set your expectations for sale at the moment that you should not expect to obtain much of a premium, if any, over prices paid in 2004.

That of course is an extremely generalised statment, without knowing anything specific about you property and how its capital value might have been enhanced (objectively).

AAM is not the place to get this sort of information. I ssuggest you try this site. Clever people:

www.thepropertypin.com
 

tiger

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1,159
Re: Should I sell and rent for a while ?

everything eamon123456 said.
Think long and hard before you treat the family home as a speculative investment.
 

Afuera

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Re: Should I sell and rent for a while ?

If you were already considering selling up for other reasons (e.g. you need to trade up), then do it and as soon as possible. You would have to encounter most of the downsides that eamonn123456 mentioned anyway (i.e. moving costs, transaction costs, hassle etc.).

280k in the bank would put you in a very good position to buy back in no matter how hard it is to source credit. The huge build up in inventory (both for sale and rental) tells the story of where things are going. Be aware though that you may have to rent for up to 5 years before you will find good value. Property is a rather illiquid asset so market corrections take time.
 

Mpsox

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Re: Should I sell and rent for a while ?

On the pluys side, €280k invested for 12 months would cover off a fair chunk of your costs of moving again

However, is it really worth the hassle of moving twice in 12 months. I was watching Panorama on the BBC earlier in the week about the effect the credit crunch is having on householders/mortgages etc and it made a very good point at the end. In the long term, it might be a good thing if it got people to think of houses and property as their homes and not simply as a financial investement
 
I

IFT

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Re: Should I sell and rent for a while ?

PS this plan would work better if you got out at the very top of the market, but you didn't.
Trying to pick the top or the bottom of any market is a fools game. Warren Buffet is famous for always commenting on that.

My advice would be to sell. And I say that with full knowledge of the hassle, the transaction costs,renting, the stress, the risk, that it would involve.

By selling you have minimised your risk to the transactions costs , stamp duty,rent etc etc but some of that will be offset against say house insurance, mortgage interest, house maintenance.

So say , i dont know, 30-40 , maybe 50K is what you could lose taking into account a slight or stable future property market. My own analysis would tend to lead me to believe that by not selling you may expose your risk to maybe a loss of 100-150K. By your own accounts your 'loss' for the last year is 50-100K (value of house has decreased from 700/650 to 600). Your 'loss' in the subsequent 2 years may be the same. The risk, in my opinion, is very high and the stakes are massive.

But this is only my opinion based on my own logical analysis and is in no way intended as speculation on future house prices.
 

Howitzer

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Re: Should I sell and rent for a while ?

We had it valued at between 650 and 700 by a couple of local EA's in 2006. Unfortunately due to market conditions we are looking at around the 600k mark now. I am of the view that selling now for as close as possible to 600 and rent for a year is a clever move. At 600 we would walk away with 280k(approx)
600 - 280 = 320

You bought in 2004 for 320K and in 2006 it was valued for 700K. Today it's valued at 600K. Are these numbers correct? If so I'd suspect the agent is playing to your vanity in order to get your business. You could end up placing it on the market at that price and wondering 12 months later why you've had no takers.
 

pinkyBear

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1,064
Re: Should I sell and rent for a while ?

On the pluys side, €280k invested for 12 months would cover off a fair chunk of your costs of moving again
And you can say that for sure??
This is a family home and call me old fashioned but the one good impetous of buying a place - is that at some point in life you will own it.
 

moneygrower

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630
Re: Should I sell and rent for a while ?

Why are you moving at all? We did this but we had too move anyway, we had a baby in a one bed apt so needed more space very urgently. If we had a three bed house there is no way we would have done this.
 

eamonn123456

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483
Re: Should I sell and rent for a while ?

Trying to pick the top or the bottom of any market is a fools game.
I agree. I think this buyer is hoping to do something like that. I wouldn't.

My point is that he is not even going to sell at a peak, so he has missed that part of the equation. He must be hoping to buy at a low, or a near-low.

In reality, if he sells below peak (as he has), and ends up buying in at a similar, slightly lower, or even higher price, he has made a big mistake.

The only way this scheme will now work is if he ends up buying at a MUCH lower price, before he has lost too much cash in rent (plus the fixed costs).

Which may not happen for years if at all. By which time all his costs, especially rent, will have eroded any benefits.

Meanwhile it could be sub-ideal to rent, and it could be stressful waiting for the right market conditions and then the right house.

I wouldn't.
 

Sangster

Registered User
Messages
32
Re: Should I sell and rent for a while ?

600 - 280 = 320

You bought in 2004 for 320K and in 2006 it was valued for 700K. Today it's valued at 600K. Are these numbers correct? If so I'd suspect the agent is playing to your vanity in order to get your business. You could end up placing it on the market at that price and wondering 12 months later why you've had no takers.

House cost 380 and was in need of renovation. The 320 figure is the mortgage balance.
 

angela59

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594
Re: Should I sell and rent for a while ?

Hi,

I'm not going to discuss house prices as it is banned on AAM but I'm in a similar situation and had house valued around same time by 4 auctioneers for a bit more than what you've said - I'm in rural location on 1 acre have full planning permission to build on 3 acres - that's only reason I'm moving to have slightly larger house and more land but have been stuck for last year trying to sell house and have reduced price by 15%. I wouldn't advise what you are doing prices may start to go up and where are you then - it's too much of a gamble - it is stressful selling your house and it is particularly so now - I honestly wouldn't advise anyone unless it is really necessary to sell to enter the market this year.
 

triplex

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134
Re: Should I sell and rent for a while ?

Interesting thread.

what if interest rates increase to 6.5 or 7% - you could end up with a smaller mortgage which costs you the same as your current one in the long term, which would only be worth while if your new property is larger than your current one...

mess around with mortgage calculators - www.bankrate.com

you need take the long term effects into account - this is not a short term decision..



thinking along same lines myself tho!
 

eamonn123456

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483
Re: Should I sell and rent for a while ?

Suggestion:

Do your sums on this whole idea, end to end.

Guesstimate your timeline i.e. how long do you think you would be renting before you would buy again. Add in a large contingency factor to reflect the lack of certainty.

Total up:

Selling costs (all of them)

Moving costs

Renting costs

Buying costs

Moving costs again

Be brutally honest with these and add some contingency.

Total = A

Guesstimate your selling price (B).

Decide on your target buying price (C).

B - C - A = your 'profit'.

I guess you can also add in the interest (after tax) on your capital. YOu need to subtract any interest relief I think.

You also need to add in the interest you would have paid on your mortgage - interest only!.

(I don't agree about the saving on the insurance - you get what you pay for.)

How about putting your figures up here and see what people think?
 
Last edited:

camel

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239
Re: Should I sell and rent for a while ?

Just because it's been mentioned twice on this thread now by eamon123456 (how paying rent is money down the drain) I would just like to point out paying interest on a mortgage is also 'dead' money. So if they are paying less rent that mortgage interest they are 'up' overall (all other variables mentioned in other posts being equal).
 

ClubMan

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43,866
Re: Should I sell and rent for a while ?

Neither rent nor interest on a mortgage are "dead money" or money down the drain. They are simply payments for a service provided.
 

eamonn123456

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483
Re: Should I sell and rent for a while ?

Absolutely true of course [that it is money you pay out]. I forgot to put that into the equation, you need to include that.
 
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