Could Str Be Saving Btl?

[Xil]

Just an idle thought but with the concensus opinion on this forum being that we are now experiencing the start of the crash, I have been pondering the differences between now and the early 90s.

Last time around (1989 onwards), house price inflation figures were hard to come by (no Internet, fewer TV channels, less media emphasis on house ownership etc.) Therefore, when the crash started, who predicted it or prepared for it?

In 2005 we have fantastic access to information (no least this forum). A lot of people are proudly announcing their success in becoming STR (Sold to Rent).

Great news for them (I think) but even these small numbers of people are putting additional demand on the letting market.

Therefore, are they inadvertently helping to prop up the BTL (Buy to Let) market?

I know transaction volumes are falling but could this delay the inevitable? Surely even a small effect will delay HPC (House Price Crash)?

Xil.

P.S. You might have gathered I am not a fan of abbreviations and acronyms

[leemo]

Rental yields are out of whack and this is one way to help correct them: we might see rents going up as well as prices coming down. Overall STRs help the crash in prices.

Yes the BTL gets a tennant, but if they want to sell their place they find that all the STRs selling have made their house price go down.

P.S. P.S. stands for Post Script

[dunroamin]

are STR's that common? anyone got a clue how many of them there are aound?? do u really think they are making that big an impact?

[Starcrossed]

I doubt that STR by itself is having such an effect on the market.

If it were so, then this would force prices down further and more quickly as more and more people are sellers and less and less are buyers.

Insodoing, STR may help the % of homeowners that are also BTL - at least with regard to income. However, this would be more than cancelled by capital depreciation on the BTL property.

Eventually STR will dry up anyway as the price drops and makes this option pointless.

[Pheno]

I'm sure the numbers of STR are going to be far too small to have any effect at all.

[Xil]

I'm sure the numbers of STR are going to be far too small to have any effect at all.

<{POST_SNAPBACK}>

I agree completely. There are probably at best only a few thousand people who have considered this a worthwhile tactic.

However, the easy availability of housing related stats is a definite change compared to the public awareness on the eve of the 1990s crash.

My belief is that this will accelerate the crash when the market sentiment shift is reported responsibly by the media.

[oracle]

I'm with you on this one starcrossed.

The STR's have had some effect on rents,yes they have risen slightly,but IMO this is a good thing.

Your typical BTL sheep(not the professional),is still bleating on about YIELD,and in his eyes...he increases the rent,he increases the yield.

what is sadly missing from his equation,as you rightly point out are:

1)factoring in inflation,and adjustment on mortgage payments if applicable

2)capital depreciation.

In BTL eyes no.2 hasn't happened yet.according to HBOS he has still made 5.7% on his properties and a yield of (x)%.

sh1t will hit fan when BTL realises he is losing more on the house each month than he receives in rent....now assuming a typical BTL has 6 props,if he loses £200 pcm on each I don't think he will be very happy....that's a £14400 per year LOSS!!!

OUCH!!!!!

[Xil]

P.S. P.S. stands for Post Script 

<{POST_SNAPBACK}>

[Mushroom]

STR, sorry, sell to rent is, a very sophisticated thing to do.

It requires a person who is very confident in their reading of the economic climate with the ability to also resist the derisory comments of family and friends etc.

I doubt that these folk are great in number or enough to support buy to let to any great extent.

This site may mistakenly lead you to think otherwise.

[the_wolf]

STR, sorry, sell to rent is, a very sophisticated thing to do.

It requires a person who is very confident in their reading of the economic climate with the ability to also resist the derisory comments of family and friends etc.

I doubt that these folk are great in number or enough to support buy to let to any great extent.

This site may mistakenly lead you to think otherwise.

<{POST_SNAPBACK}>

it's only sophisticated if you get the timing right and most str's were probably too early to sell. even when prices get back to 'normal' wouldnt you have had to buy in the last couple of years to be burnt. a 20 or 30% reduction will simply wipe out a few years growth but more importantly make people more cautious again. and i doubt anyone here has bought in the last 18 months?

[Mushroom]

it's only sophisticated if you get the timing right and most str's were probably too early to sell. even when prices get back to 'normal' wouldnt you have had to buy in the last couple of years to be burnt. a 20 or 30% reduction will simply wipe out  a few years growth but more importantly make people more cautious again. and i doubt anyone here has bought in the last 18 months?

<{POST_SNAPBACK}>

My point was that it's sophisiticated because it implies analysis, a rare commodity amongst the mass. This applies even if the timing is out.

As the discussions here illuminate, financial analysis is not cut and dried.

To sum up, STR takes guts.

[the_wolf]

it does take guts, but i think so does any gamble that the outcome of can change your future dramatically.

[frugalista]

Just an idle thought but with the concensus opinion on this forum being that we are now experiencing the start of the crash, I have been pondering the differences between now and the early 90s.

Last time around (1989 onwards), house price inflation figures were hard to come by (no Internet, fewer TV channels, less media emphasis on house ownership etc.)  Therefore, when the crash started, who predicted it or prepared for it?

In 2005 we have fantastic access to information (no least this forum).  A lot of people are proudly announcing their success in becoming STR (Sold to Rent).

Great news for them (I think) but even these small numbers of people are putting additional demand on the letting market.

Therefore, are they inadvertently helping to prop up the BTL (Buy to Let) market?

I know transaction volumes are falling but could this delay the inevitable?  Surely even a small effect will delay HPC (House Price Crash)?

Xil.

P.S.  You might have gathered I am not a fan of abbreviations and acronyms 

<{POST_SNAPBACK}>

STRs have got to be a tiny fraction of households.

Example: till summer 2004, I lived and worked in London, where I owned a small flat. The small company for which I worked was acquired and we all had to move to the US. Pretty much all my colleagues also owned their houses/flats in London. These are financially astute people who realised we were at the top of a boom. Of the ten or so over in the US, seven of us plan to move back to the UK. So of these seven, who sold up in the UK and who rented out their UK property?

3 guys kept hold of their UK property to rent it out and are renting in the US.

1 guy kept hold of his UK property to rent it out and also bought in the US.

1 guy sold his main UK property but kept his UK BTL and also bought in the US.

1 guy sold his UK property but bought another property in continental Europe where he has family connections.

I am the only one who sold up completely and is renting in the US. In other words, even given a perfect opportunity to avoid becoming a landlord and STR at the top of the market handed to you on a plate, only 1 out of 7 took the plunge.

The point is, the vast majority of owners are averse to STR even when it is easy, well timed and involves less hassle than continuing to own. It just doesn't "feel right" to most British people. And I think that's fair enough and I would not criticise people for it. But it also shows that STR will never be a factor in house prices or rents.

La frugalista

[Gavin]

As an STR I think there aren't many of us.

We have had our stuff in storage now for over a year, and that is very difficult. Its disruptive to married life!

We are looking for a new rented place now (after returning from travelling) and still even some of our best friends and family raise their eyebrows when we say we intend to rent.

This is in a time when many people now suspect there to be a problem with prices.

I quote a goodfriend the other day, "OK I accept that prices are fundamentally imbalanced, but I still don't think they will fall very much."

Parents ask us almost everyday when we will be buying. Its odd, they just won't leave it. Its like buying a house is as necessary as eating. The mother in law said last week, "I know, if you don't want to buy a house, why don't you buy a cheap old knackered house and do it up?"

I just didn't know what to say to that. She said it like it was a fantastic new idea that hadn't been paraded as a job replacement vehicle on every TV channel for the last 5 years.

You just have to be strong.

p.s. When you haven't access to your stuff, you forget what you used to have and that tells you a lot about whether you really needed it in the first place.

[Starcrossed]

p.s. When you haven't access to your stuff, you forget what you used to have and that tells you a lot about whether you really needed it in the first place.

<{POST_SNAPBACK}>

Yes. We have had the majority of stuff in storage for the last 14 months and will be going through it this weekend to get rid of over 50% of it.

I have not given a second thought to 95% of it since we put it away. Time has hardened my soul to my old sentimentality about 'things'.

On the attitude of those around towards not buying - I have found an increasing acceptance of our decision to STR. Family and friends have generally moved from 'you're doing what?' to intrigue that we have stuck with the decision and that it may even bear fruit.

I agree that it will never be a mass-movement, though.

[Gavin]

Starcrossed, no one has said we made a good move outside this forum.

I don't expect it, and although it would be nice, it ain't the reason we did it.

As said previously, people have selective memories, and when and if the crash comes there will be loads of "well, we, like you, knew this wasn't all going to unravel, but you know we couldn't do what you did because of the kids/ill parents/dog/schools/tax"

We will have just been lucky.

We will have to bite our lip, just like the last 18 months.

p.s. WHen we STR'd I thought maybe we had done it too early, but we have 2 friends now in different parts of the country who have had there houses on the market for over a year. One has just finally dropped their price from 340 to 305K. (We don't talk to them about the market. In fact we don't mention it to anyone now).

p.p.s. As oft repeated, I do not think of myself as clever, I just saw the danger early and didn't want to hold on to an asset that I thought had peaked. It was fear that made me sell.

[Marina]

Well, must admit I am a lone voice in my little circle of friends, family and acquaintances. I am the only person I know who has STRed.

I agree that it seems unlikely that the number of STRs is likely to have an effect on the housing market or the rental market - and most would be renting 3 and 4 bed detached houses - not the 2 bed flats that are going to cause all the trouble. In my area (Silicon Valley) there has been a huge drop off in corporate lets - so there is a glut of detached houses to rent. Some of these I imagine have come on the market over the last 2 to 3 years because, round here, the 400k market has been tight for a long time.

I have seen houses round here drop from £495k to £395k in the last couple of years (been on the market 2 or 3 times with progressive drops and still not sold). Some, of course, have sold. EAs are still putting some on at nutty money but you look in the local rag now and the differences are amazing. You can see a 4 bed 2 bath detached estate house for £335k with one agent - and a similar property with another agent for £395k. If you are in the market to buy at the moment I believe you can get a 4 bed detached house round here for between £50k and £70k less than you could say 2 years ago. That said, the biggest falls (from original asking prices) are in the stuff a bit above your bog standard 4 bed estate house. The 4 bed detached in an individual plot that might have gone for £550k a couple of years ago is more likely to go for £450k now.

And, the new 2 bed flat developments around here are not selling and dropping their prices. £31k off so far on one development and they are still not getting many away.

[crash 2005]

Marina,Jul 1 2005, 09:23 AM

Well, must admit I am a lone voice in my little circle of friends, family and acquaintances. I am the only person I know who has STRed.

As an STR (10 Months) I quite agree with Marina's comment

With at least 2000 - 3000 members of this site, we are a minority,

but at least we've seen the vision of the future of house prices, whilst others have buried their heads in the sand believing house prices can only go up

the thing I still can't believe is that when you tell someone the market has now been falling for the last 12 months, they look at you in disbelief, and as if you are an alien from outer space. They just don't have a clue.

the time has now come where we will all be proved right, and unfortunately it will be to late for them!!

much rather have money in the bank making interest now, than have it tied into a house in free fall.

Absolutely no regrets

besides, the snap shot of my position now is that Houses are a little cheaper than a year ago with no economic indicators signaling a recovery but further falls, we are also in a good buying position with nothing to sell when the time comes, whilst being in a buyers market, what could ever be better.

Edited July 1, 2005 by crash 2005

[ajh]

it does take guts, but i think so does any gamble that the outcome of can change your future dramatically.

<{POST_SNAPBACK}>

Sorry, but I disagree. Many people take gambles like that without a second thought when it's the conventional wisdom.

To pick the obvious example: all the people who stretched past their financial limits to buy their first homes in the last 12 months (here in Australia as well as in the UK).

They may (or may not!!) have thought through the problems involved in the closing costs and the first few monthly payments, but I guarantee you not one in a hundred would have considered the long term implications on their future of a stagnation or fall in price levels.

[gilf]

. a 20 or 30% reduction will simply wipe out  a few years growth but more importantly make people more cautious again. and i doubt anyone here has bought in the last 18 months?

<{POST_SNAPBACK}>

No so...

A 30% reduction is equivalent to a 50% rise.

£100K property goes up 50% to £150k

£150K House drops 50% = £75k

30% of £150K = £100K

So more like 4-5 years of rises.

[MrB]

it's only sophisticated if you get the timing right and most str's were probably too early to sell. even when prices get back to 'normal' wouldnt you have had to buy in the last couple of years to be burnt. a 20 or 30% reduction will simply wipe out  a few years growth but more importantly make people more cautious again. and i doubt anyone here has bought in the last 18 months?

<{POST_SNAPBACK}>

I think the jury is still out on STR. There are costs invloved with selling and buying back as well as lifestyle costs (i.e. the ball ache of uprooting) There is also the issue of selling too soon and missing out on the lunatic 20-30% HPI we were experiencing during the boom.

The sooner and steeper the falls the better the decision to STR will be. Only time will tell.

On the plus side it's a superb hedge against the economy going completely tits up.

The mother in law said last week, "I know, if you don't want to buy a house, why don't you buy a cheap old knackered house and do it up?"

I just didn't know what to say to that. She said it like it was a fantastic new idea that hadn't been paraded as a job replacement vehicle on every TV channel for the last 5 years.

<{POST_SNAPBACK}>

Genius. Lol.

No so...

A 30% reduction is equivalent to a 50% rise.

£100K property goes up 50% to £150k

£150K House drops 50% = £75k

30% of £150K = £100K

So more like 4-5 years of rises.

<{POST_SNAPBACK}>

I'd never considered this! A rise then a fall of the same percentage is actually a bigger fall! I'll never be able to explain this to anyone though.

STRers: How far do house prices have to fall before the decision to STR makes financial sense?

[fluke]

STRers: How far do house prices have to fall before the decision to STR makes financial sense?

<{POST_SNAPBACK}>

I've been working out how much I would gain or lose if I bought my previous house back. Breakeven point comes for me at about a 6% fall (due to moving costs). If I am conservative I can work it as low as needing a 10% fall to achieve breakeven.

Calculation I've used is:

size of previous mortgage - (sale price - (sale price* % fall)) - (cash profit from sale + 4%) - cost of move

I could make this more complicated by including rent / mortgage payments, but they were pretty similar and I can't be bothered.

If falls are to get to the heady depths of 20 to 30% STR will be seriously profitable.

Edited July 1, 2005 by fluke

[Once Bitten x2 Shy]

STRers: How far do house prices have to fall before the decision to STR makes financial sense?

Depends on how well you can negotiate your purchase the other end. It's easy to buy anything and make money in a rising market which is why every man and his dog seem to believe they are property experts at the moment. However it is much more difficult to identify quality in a falling or poor market.

We have now given up looking for any value until nearer the end of the year, however have a pretty good idea of what consitutes good value and when we see it we will buy.

At present I cannot see us buying anything unless we are really lucky for at least another year.