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Grommit

My Own Example Of Why I Am Renting For 3/4 Years.

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I've been busy the last few weeks in the lead up to Christmas, but very interested in the forums. Well done everyone who has posted constructively. The once I posted a longish post, I got the normal positive and negative responses which is fair. What I have now decided to do is to take my property actions without making more posts and now tell you all about them and why.

I think it is very important for everyone to make their own judgements about the economy, make your own predictions and take action for yourself based on them. Take input from others, but then decide yourself. This is crucial as we do this for our business all the time, (we have a retail business). It's not as hard as it looks to make a half decent prediction from which you can take half decent actions which can save you a fortune. There are too many VIs of all kinds around trying to cloud your views. In this post, I am not trying to change your minds about anything, this is the action I have decided to take based on my own personal outlook on the economy.

Yesterday we closed the sale on our house abroad (North America) and have banked the money. The last time I was there, we decided to sell as the new property being sold in the area has no chance of washing it's face financially and once the volume drops off locally, we would not have had a prayer at selling it in my opinion and we wanted to move on anyway. We sold our house in the SE of England in November and banked the money. Mrs Grommit wanted a bigger house, so we sold so we could have a leisurely look at new property. We now have cash in the bank earning interest. We are now living just where we want to be in town in a rental which is 50% bigger than our old house.

Let me tell you more about how the numbers stack up. The house Mrs Grommit really wants is expensive, but I am not ready to let her have it due to the cost. Therefore, the house we are renting (value about £950,000) we are renting for £2,800 a month. We probably will live here for 3-4 years, and thus we will eliminate a step on our "planned" housing ladder saving stamp duty and estate agents fees of about £45-50k. The money from our properties is in the bank earning interest which goes a long way towards the rental costs. I reckon the costs of owning the old house and renting a much larger house is narrowed to only about £200 extra a month, or even positive over 3/4 years if you account for not having to pay these fees.

I have to admit to being a bit of a bear at the moment. I've seen what happens at this point of the cycle when people are in the denial stage. In 1989 at the start of the downswing, I offered 25% below asking on a flat in London which was accepted, so you first time buyers need to hang on in there for a bit. Even with 25% off, we went negative equity for 2-3 years, which was an interesting learning experience having negative net worth. Now, if the prices fall 20% which I think they will over a 3/4 year period, and Mrs Grommit finds the house she wants then for £1m (which would have been on now at £1.25m), then our gain is 20% of our money in the bank plus 20% off the new house. This would be at least £400k. In addition to the stamp duty & estate agents fees above, you are looking at £450k LESS DEBT!!!!!!!!!!!!!!! to be in the same position as if we bought a big house now. This is serious debt (i.e. a pretty good retirement fund!!), and this is just a 20% drop. Add in the costs of servicing the debt to get the final figure. This is when renting can really work. I am tired of the posts saying that renting is dead money as more often than not, they are wrong or do not include everything, especially in a falling market. It's not the gains that are important now, it is the LESS DEBT.

Now for the FTB, we had the alarm system maintained prior to moving house and I was talking to the lad doing the work and he said he was thinking of buying his first place, i.e. he would be a FTB. He was looking at £120k etc. I helped him through this analysis on a back of an envelope and immediately, on 20% drop he would be LESS DEBT of £24k. He was going to go home that evening and explain this to his girlfriend. I hope I have helped him make a good decision to wait and see what happens. This is when renting can really work, if he waits two years and can buy something 20% lower, then he has effectively saved (via LESS DEBT about £800 a month). Prices of the types of places he was looking at i.e. 2 bed flats are certainly moving his way.

So, my New Year message to those thinking about property, MAKE YOUR OWN DECISION. If you have not bought yet, if you think things are going to boom next year then buy, if not then hold on. If you don't buy (or sell) and prices decline, you will be making a net gain every month by not saddling yourself with DEBT!!!!! But, make it your decision and be patient, I agree with many that this will not play itself out until 2009/2010. Short term ups and downs are not really relevant, this is a longer play.

I wish all a properous 2006. Take care out there!

Grommit

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I've been busy the last few weeks in the lead up to Christmas, but very interested in the forums. Well done everyone who has posted constructively. The once I posted a longish post, I got the normal positive and negative responses which is fair. What I have now decided to do is to take my property actions without making more posts and now tell you all about them and why.

I think it is very important for everyone to make their own judgements about the economy, make your own predictions and take action for yourself based on them. Take input from others, but then decide yourself. This is crucial as we do this for our business all the time, (we have a retail business). It's not as hard as it looks to make a half decent prediction from which you can take half decent actions which can save you a fortune. There are too many VIs of all kinds around trying to cloud your views. In this post, I am not trying to change your minds about anything, this is the action I have decided to take based on my own personal outlook on the economy.

Yesterday we closed the sale on our house abroad (North America) and have banked the money. The last time I was there, we decided to sell as the new property being sold in the area has no chance of washing it's face financially and once the volume drops off locally, we would not have had a prayer at selling it in my opinion and we wanted to move on anyway. We sold our house in the SE of England in November and banked the money. Mrs Grommit wanted a bigger house, so we sold so we could have a leisurely look at new property. We now have cash in the bank earning interest. We are now living just where we want to be in town in a rental which is 50% bigger than our old house.

Let me tell you more about how the numbers stack up. The house Mrs Grommit really wants is expensive, but I am not ready to let her have it due to the cost. Therefore, the house we are renting (value about £950,000) we are renting for £2,800 a month. We probably will live here for 3-4 years, and thus we will eliminate a step on our "planned" housing ladder saving stamp duty and estate agents fees of about £45-50k. The money from our properties is in the bank earning interest which goes a long way towards the rental costs. I reckon the costs of owning the old house and renting a much larger house is narrowed to only about £200 extra a month, or even positive over 3/4 years if you account for not having to pay these fees.

I have to admit to being a bit of a bear at the moment. I've seen what happens at this point of the cycle when people are in the denial stage. In 1989 at the start of the downswing, I offered 25% below asking on a flat in London which was accepted, so you first time buyers need to hang on in there for a bit. Even with 25% off, we went negative equity for 2-3 years, which was an interesting learning experience having negative net worth. Now, if the prices fall 20% which I think they will over a 3/4 year period, and Mrs Grommit finds the house she wants then for £1m (which would have been on now at £1.25m), then our gain is 20% of our money in the bank plus 20% off the new house. This would be at least £400k. In addition to the stamp duty & estate agents fees above, you are looking at £450k LESS DEBT!!!!!!!!!!!!!!! to be in the same position as if we bought a big house now. This is serious debt (i.e. a pretty good retirement fund!!), and this is just a 20% drop. Add in the costs of servicing the debt to get the final figure. This is when renting can really work. I am tired of the posts saying that renting is dead money as more often than not, they are wrong or do not include everything, especially in a falling market. It's not the gains that are important now, it is the LESS DEBT.

Now for the FTB, we had the alarm system maintained prior to moving house and I was talking to the lad doing the work and he said he was thinking of buying his first place, i.e. he would be a FTB. He was looking at £120k etc. I helped him through this analysis on a back of an envelope and immediately, on 20% drop he would be LESS DEBT of £24k. He was going to go home that evening and explain this to his girlfriend. I hope I have helped him make a good decision to wait and see what happens. This is when renting can really work, if he waits two years and can buy something 20% lower, then he has effectively saved (via LESS DEBT about £800 a month). Prices of the types of places he was looking at i.e. 2 bed flats are certainly moving his way.

So, my New Year message to those thinking about property, MAKE YOUR OWN DECISION. If you have not bought yet, if you think things are going to boom next year then buy, if not then hold on. If you don't buy (or sell) and prices decline, you will be making a net gain every month by not saddling yourself with DEBT!!!!! But, make it your decision and be patient, I agree with many that this will not play itself out until 2009/2010. Short term ups and downs are not really relevant, this is a longer play.

I wish all a properous 2006. Take care out there!

Grommit

What I ment to add was.

Trading up is easier to do in a falling/fallen market as opposed to a rising one (picking the bottom will be the challenge).

Stepping out of the market to put yourself in the position of a FTB with huge deposit, will put you in a very strong position to squeeze out all the value.

good luck

Pablo.

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Yesterday we closed the sale on our house abroad (North America) and have banked the money.

We sold our house in the SE of England in November and banked the money.

Therefore, the house we are renting (value about £950,000) we are renting for £2,800 a month.

and Mrs Grommit finds the house she wants then for £1m (which would have been on now at £1.25m), then our gain is 20% of our money in the bank plus 20% off the new house. This would be at least £400k. In addition to the stamp duty & estate agents fees above, you are looking at £450k LESS DEBT!!!!!!!!!!!!!!! to be in the same position as if we bought a big house now.

Grommit

Brag brag brag brag brag...I'd hate to be around at yours over Christmas

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.... I've seen what happens at this point of the cycle when people are in the denial stage. In 1989 at the start of the downswing, I offered 25% below asking on a flat in London which was accepted, so you first time buyers need to hang on in there for a bit. Even with 25% off, we went negative equity for 2-3 years, which was an interesting learning experience having negative net worth. ...

And so many have forgotten about the last crash, either because they were too young or they have seen their properties make great gains since '95. Those in their late 20s would do well to read your anecdote!

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Now, if the prices fall 20% which I think they will over a 3/4 year period, and Mrs Grommit finds the house she wants then for £1m (which would have been on now at £1.25m), then our gain is 20% of our money in the bank plus 20% off the new house. This would be at least £400k. In addition to the stamp duty & estate agents fees above, you are looking at £450k LESS DEBT!!!!!!!!!!!!!!! to be in the same position as if we bought a big house now. This is serious debt (i.e. a pretty good retirement fund!!), and this is just a 20% drop. Add in the costs of servicing the debt to get the final figure. This is when renting can really work. I am tired of the posts saying that renting is dead money as more often than not, they are wrong or do not include everything, especially in a falling market. It's not the gains that are important now, it is the LESS DEBT.

I don't follow your maths. Aren't you counting your gain twice?

Gain = Reduction in price on new property say £1.25m - £1m = £250K

Plus interest received on capital in bank

Plus savings on reduced stamp duty

Plus savings on not paying mortgage

Minus rent paid

How do you get to £450K ???

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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