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

[Treehouse]

Re: Should I sell and rent for a while ?

Signed up for an AAM account just to reply to this thread, as I'm pretty perturbed by some of the stuff being said here.

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.

OP, let me say to you in all honesty that this sounds to me like you are very seriously behind the times.

The valuation you got in 2006 - the top of the market - is utterly meaningless in 2008. I note that you have shaved around 10% off the valuation you got back then to get your 600k figure. Now, I don't know where your house is, but wherever it is, if it has only fallen in value by 10% in that time I would be absolutely astonished. In my opinion, you will be lucky to get the 2006 price minus 20%. And given that the valuations you were given in 2006 were in themselves probably optimistic in the first place, I think you need to work on figures of 650k for the 2006 valuation, minus 20%, giving you a figure of 550k +/- today. My personal opinion is a property valued at 650k in 06 would now sell at or below 500k, but that's a reflection of my bearishness on property, and I'm not gonna try to convince anyone to accept that big a drop. But even conservatively, 550k to me looks tops.

And with respect, you seem somewhat naive in your presumption that it will sell even at this kind of price. Not everyone is aware of this yet, but the market is absolutely tanking at the moment. Every day we are seeing more and more price drops. Prices could be falling at almost 2% per month at this point. Expecting to offload your place at 2006 valuation less 10% in that environment is very, very optimistic. Why would somebody buy your house when it will be 10% cheaper by the end of year?

If I could say something else with the greatest respect, I think this thread shows that people are not at all coming to terms with the seriousness of the situation in the property market. It is absolute carnage out there folks. That OP still thinks he can make money from this kind of move is naive in the extreme. Please don't take that as an insult OP - it's not meant to be one - it's just my honest opinion about how uniformed people are about the current market. It is going belly-up by the hour, and yet a lot of people still see it as a sure-fire money maker. That people are still apparantly thinking like this astounds me.

Basically OP, selling to rent is a really good idea, but it is 2 years too late. You cannot get that time back, the moment is passed and your idea will not now work.

FWIW, I am not a VI or in anyway connected with property buying/selling.

 

[IFT]

Re: Should I sell and rent for a while ?

Basically OP, selling to rent is a really good idea, but it is 2 years too late. You cannot get that time back, the moment is passed and your idea will not now work.

I agree with most you have said except for your point above that I quoted. Are you not making the mistake by calling the bottom of the market. It will not cost the OP anything to put his house on the market to see what value it might get.

Also you cannot accuse the OP of being naive when you do not know the type of property he is selling. Even in bad times, good stock still sells.

You also contradict yourself somewhat also. You are right that some people are still uninformed about the market but it is these types of people who will be his 'customers'. So , the market is still intact until those behind on the information curve catch up.

Also....
Better to be 2 years too late than 2 years down the road and being 4 years too late.

 

[cnu]

Re: Should I sell and rent for a while ?

When people find a shorter queue, it all suddenly fills up and now it is the longer one. Now joining "shorter" queue is a wrong choice

Assuming people need a place to live:

Year 2006: When people were making money in property, many jumped into it, now buying is a wrong choice
Year 2008: When many are trying to sell, few more jump into it soon selling becomes wrong choice [imagine all those who sold have to rent]

What's my point? So there is always a phase - either buying or selling becomes that "wrong choice". What is constant is your monthly deduction towards residence [rent/mortgage]. The one who hung-in there for 30 years gets a house the other would have made profit 30 years ago [hopefully it multiplied]

So choose who you want to be first - a short time player, take the profit and call it a day or a long time player see's house more than money.

lastly: I sometime back took a mortgage top-up of 30k, I dont know where its all evaporated [can you believe it?]. Looks like I'm going to stay a lill while more
.

added later...

Found this calculator, may be useful

 

[Treehouse]

Re: Should I sell and rent for a while ?

Hi IFT

Are you not making the mistake by calling the bottom of the market. It will not cost the OP anything to put his house on the market to see what value it might get.

Yes, I see what you mean, but I was not so much calling the bottom of the market as calling OP's bottom line...his post implied that his plan will only work for him if he achieves the 600k. The piece of my post you quoted was meant in that narrow context. But if OP's plan could work for a sale price of 500k, then by all means I'd advocate he does it because I think prices still have a long way to fall and his house will almost certainly be worth less this time next year than he will sell it for now.

Also you cannot accuse the OP of being naive when you do not know the type of property he is selling. Even in bad times, good stock still sells.

Well, it's not really true that we don't know anything about OP's property - we do know the most important thing about it: the last valuation, which was in '06 at 650k. So we know it is not a redbrick in Dublin 4, and we know it is not a 1 bed apartment in the Liberties. So it is something in between: most likely a 3/4 bed semi-d, perhaps in somewhere like Churchtown, Rathfarnham or Castleknock. In my opinion, any property of that kind that was valued at that price in '06 is now experiencing a severe decline in price.

And in general terms, I do not believe any category of home or location is immune to the current HP falls.

You also contradict yourself somewhat also. You are right that some people are still uninformed about the market but it is these types of people who will be his 'customers'. So , the market is still intact until those behind on the information curve catch up.

Ok, fine, but are we really going to make such an important decision based on the hope that we find the last fool? That's really no way to proceed. Even if there are naive people out there, finding one and nabbing them is by no means a sure thing. But for what it's worth, I don't think it would be a bad idea to give it a go. Maybe OP will get lucky and it's probably no skin off his nose to have a for sale sign up for a few weeks to see what happens.

Also...Better to be 2 years too late than 2 years down the road and being 4 years too late.

True. But again, I was basing my advice on OP's need to sell at 600k. If he doesn't need to do that, then maybe he is not too late.

 

[eamonn123456]

Re: Should I sell and rent for a while ?

Is it just me or has this thread suddenly gone over-complicated? ;-)

Spit it out, in plain english and ideally in bullet points - what are your recommendations for the OP.

 

[Sangster]

Re: Should I sell and rent for a while ?

Thanks for your contributions Treehouse.

The £600 figure was given to my wife a few weeks ago by an ea who valued it back in 06. Even if I'm being optimistic at getting the 600k now if I wait for another year or so I could be looking at offers of sub 450k. I'm not sure it's worth moving at that price considering the mortgage settlement figure is around 320k.

The house is a 4 bed semi in Rathfarnham in an estate which houses generally sell quickly. I am going to get that ea up next week to give us a proper evaluation (the 600 was over the phone) and as long as its valued at over 550 I am going to give it a lash. I have nothing to lose other than the few hundred quid fees. I will let you all know what he says and keep you updated as to how it goes.

A question for you treehouse - you say that the market is tanking at the moment, do you have any idea how much more things are going to drop.(not a sarcastic question) I feel that they have along way to go and that's my logic for trying to cash out.

 

[Afuera]

Re: Should I sell and rent for a while ?

A question for you treehouse - you say that the market is tanking at the moment, do you have any idea how much more things are going to drop.(not a sarcastic question) I feel that they have along way to go and that's my logic for trying to cash out.

Sangster, the policies on this web site do not allow for speculation of house prices. You will have to look at some of the lead indicators such as the build up in inventory and historical examples of boom-bust cycles to come to your own conclusions on this. Let's just say though that the chances of a 10 year property boom correcting itself in a one to two year period are very slim.

I think you are doing the right thing by trying to sell to rent given your personal circumstances. Since you already want to move a lot of the transaction costs can be discounted and the sums are greatly simplified.

Currently the interest portion of your mortgage for 320k is costing you about 16,000 per annum to service. If you sold for 550k, you would be able to bank 230k profit which would earn you interest of around 11,000 annually. Considering the area you live in, and presuming you want to remain living in that area, you would have to shell out maybe 2,000 p/m rent (24,000 over the year). Discounting the interest you earn from your outgoing rent means that it would cost you 13,000 a year on rent versus the 16,000 you are currently paying in mortgage interest. So at current price levels, even if it was a flat market, you would actually be better off to rent by 3,000. In a falling property market then obviously it goes even more in your favour.

Anyway, best of luck with it. Be sure to let us know how you get on.

 

[Treehouse]

Re: Should I sell and rent for a while ?

Thanks for your contributions Treehouse.

The £600 figure was given to my wife a few weeks ago by an ea who valued it back in 06. Even if I'm being optimistic at getting the 600k now if I wait for another year or so I could be looking at offers of sub 450k. I'm not sure it's worth moving at that price considering the mortgage settlement figure is around 320k.

The house is a 4 bed semi in Rathfarnham in an estate which houses generally sell quickly. I am going to get that ea up next week to give us a proper evaluation (the 600 was over the phone) and as long as its valued at over 550 I am going to give it a lash. I have nothing to lose other than the few hundred quid fees. I will let you all know what he says and keep you updated as to how it goes.

A question for you treehouse - you say that the market is tanking at the moment, do you have any idea how much more things are going to drop.(not a sarcastic question) I feel that they have along way to go and that's my logic for trying to cash out.

Hi Sangster,

Funnily, I had a feeling you were in Rathfarnham for some reason!

As someone mentioned, speculation about house prices is inderdit in these parts so I can't do that. But you say if you can get €550k, you'll give it a lash. In my personal opinion, you will do very, very well to achieve this figure (if the 2006 valuation was €650k).

But I don't want to be too gloomy, so using your figures, selling at €500k would still allow you bank €180k. Would that not be worth it? Seems to me it might be, even allowing for fees and stamp duty on your next purchase.

But that kinda gets back to my original point. Selling to rent in 2006 would have been a massive no-brainer. But now, the figures look tighter. It's possible your banked €180k when all costs are taken out, and hassle factored in, might actually get shaved down considerably, and the house might only drop a small amount below €500k when you want to re-buy it. This was why I originally said I thought you'd missed the boat on this.

Good luck anyway.

 

[sadie]

Re: Should I sell and rent for a while ?

My husband had a car accident yesterday. Car written off but thankfully he got out unhurt. However, as we are currently renting while househunting, it brought it home to me should he be out of work for say a couple of years or longer due to back injury or whatever, our buying power would be seriously reduced as we are a single income family. It just made us want to return to owning a family home asap. It might be advisable to take some additional measures to protect your buying power while you are 'between family homes' in the form of serious illness or accident cover insurance policies which would give you a lump sum in the case of being unable to work.

 

[Complainer]

Re: Should I sell and rent for a while ?

Don't gamble with the family home. The potential impact to your family if the market moves against you are huge. This could include never being able to purchase your current standard of property, or being saddled with a huge mortgage into your retirement years.

You could make a case for putting your house on the outcome of the 3.30 at Haydock, but you wouldn't do this. Don't gamble your family home on the property market.

 

[Kemo_Sabe]

Re: Should I sell and rent for a while ?

IMO the sums don't stack up, never mind the less tangible stuff.

Do the sums first. Ideally, share them on this thread so we can all understand the situation better.

If it still looks like it makes sense, then consider the hassle factor, the risk factor and the other stuff that has been mentioned.

this idea intrigues me so I ran some simple scenarios in Excel today using the following info: sorry this may appear messy but stick with it.

It relates to my own personal situation.

Goal: buy 'dream house' within 3 years for maximum financial benefit

Three scenarios:
A - sell now, buy now (the traditional method if you will). Take out 25 year mortgage on 'dream home'.
B - sell in 3 years, buy in 3 years (again traditional method). Take out 25 year mortgage on 'dream home'.
C - sell now, rent and buy in 3 years. Take out 25 year mortgage on 'dream home'.

Assumptions:
3 year timeframe

Current residence market value (realisable - very realistic, current asking of similar is about 450k) = 380k. (standard 3 bed semi-D in Raheny)

Current 'dream house' realisable value = 700k (again realistic). (nice 4 bed with biggish garden in Raheny)

Current cost to pay down mortgage = 267k (checked this with mortgage provider)

Cost to pay down mortgage in 3 years = 237k

Price gap ratio between two houses stays constant over 3 years (i.e. prices fall/rise in same ratio to each other)

40k in current savings - will save 60k more over next 3 years (realistic number, conservative if anything)

Interest rate of 6% used as working assumption.

I am interested in the total cost of the mortgage over its lifetime

Findings:
I can't afford scenario A - obviously. My new mortgage would be 591k and would cost 1143k over the life of the mortgage.

If prices fall by 10% over 3 years. Method B saves me 231k over the lifetime of the mortgage compared to buying now. Method C saves me 259k over the lifetime of the mortgage. The difference between C and B is not large enough to compensate for the hassle factors etc.
My mortgage under scenario B would be 471k and under scenario C, it would be 457k. Not much of a difference.

If prices fall by 20% over 3 years. Method B saves me 342k over the lifetime of the mortgage compared to buying now. Method C saves me 439k over the lifetime of the mortgage. The difference between C and B is now almost 100k, C is definitely attractive at this level.
My mortgage under scenario B would be 435k and under scenario C, it would be 382k.

If prices fall by 30% over 3 years. Method B saves me 410k over the lifetime of the mortgage compared to buying now. Method C saves me 577k over the lifetime of the mortgage. We are now in bonanza territory with a 167k saving between method C and B.
My mortgage under scenario B would be 398k and under scenario C, it would be 307k.

If prices fall by 40% over 3 years. Method B saves me 477k over the lifetime of the mortgage compared to buying now. Method C saves me k over the lifetime of the mortgage. We are now in bonanza territory with a 167k lifetime saving between method C and B.
My mortgage under scenario B would be 361k and under scenario C, it would be 232k.

If prices fall by 50% over 3 years. Method B saves me 545k over the lifetime of the mortgage compared to buying now. Method C saves me 853k over the lifetime of the mortgage. No comment neccessary.
My mortgage under scenario B would be 324k and under scenario C, it would be 157k.

If prices stay level over 3 years. Method B saves me 206k over the lifetime of the mortgage compared to buying now. Method C saves me 163k over the lifetime of the mortgage. No comment neccessary. Method C has just become a bad idea!
My mortgage under scenario B would be 508k and under scenario C, it would be 532k.

If prices increase by 10% over 3 years. Method B saves me 138k over the lifetime of the mortgage compared to buying now. Method C saves me 25k over the lifetime of the mortgage. Note I'm still saving money as I am saving faster than the prices have increased.
My mortgage under scenario B would be 545k and under scenario C, it would be 606k.


phew, that was longwinded. I need a beer. Obviously I cannot speculate on the future direction of house prices here but this may give some idea as to which scenarios may be best under which price events.

let me know if questions

 

[eamonn123456]

Re: Should I sell and rent for a while ?

I tried to read this but just couldn't continue. Any chance of posting a simple summary table or linking to a summary s/sheet?

 

[Kemo_Sabe]

Re: Should I sell and rent for a while ?

I tried to read this but just couldn't continue. Any chance of posting a simple summary table or linking to a summary s/sheet?

I tried posting a table but it just messed up completely

what do you want to know?

 

[eamonn123456]

Re: Should I sell and rent for a while ?

Just curious as to what your conclusion is from all the analysis.

 

[webtax]

Re: Should I sell and rent for a while ?

B - sell in 3 years, buy in 3 years (again traditional method). Take out 25 year mortgage on 'dream home'.
Current residence market value (realisable - very realistic, current asking of similar is about 450k) = 380k. (standard 3 bed semi-D in Raheny)
Current 'dream house' realisable value = 700k (again realistic). (nice 4 bed with biggish garden in Raheny)

If prices increase by 10% over 3 years. Method B saves me 138k over the lifetime of the mortgage compared to buying now.

I might be missing something, but if prices go up 10% how will buying a more expensive house in 3 years time instead of now save you 138k?

 

[Kemo_Sabe]

Re: Should I sell and rent for a while ?

Just curious as to what your conclusion is from all the analysis.

the OP may not be as mad as most people have suggested, if prices fall by 20%+, he will do very well out of his strategy

 

[DerKaiser]

Re: Should I sell and rent for a while ?

you don't need a spreadsheet to tell you that....
Also I thought your conclusion was that he'd do well to rent even in the event of moderate price rises?

 

[Kemo_Sabe]

Re: Should I sell and rent for a while ?

you don't need a spreadsheet to tell you that....
Also I thought your conclusion was that he'd do well to rent even in the event of moderate price rises?

no, I'd do well to rent under that scenario as I am saving cash fast

would have to make an assumption of no cash savings over next 3 years to see the income=expenditure scenario. Obviously it's not going to be favourable in that case.

fwiw, I'm speaking to agents this week about putting the house on the market

 

[Kemo_Sabe]

Re: Should I sell and rent for a while ?

I might be missing something, but if prices go up 10% how will buying a more expensive house in 3 years time instead of now save you 138k?

my s/s is on my home pc, I'll go through it this evening and get back to you.

 

[DerKaiser]

Re: Should I sell and rent for a while ?

I think what your proving can be explained basically as this:
Say interest rates are 6% (on savings and mortgages). If rental yields are 3.5% then you are financially better off renting (or deferring trading up) in periods where annual house price increases are less than 2.5%.
It's as simple as that.
Some of the scenarios above show savings as a result of staying longer in the less desirable house, these need to be offset against the benefit of actually living in a better house. I will obviously save money if I drive round my '94 fiesta for a few more years rather than buy a BMW.