Str

[LDB]

I'm a first-time poster and this is probably a stupid question. I have a fair bit of equity (£120kish) in my house, but after reading you guys for the last few weeks, I'm as nervous as hell.

Should I sell while I can and rent?

Also, won't the Banks do as much as they can to support the market? Surely they'll lose billions if there's a HPC.

Sorry for sounding a bit wet behind the ears but I no economist.

[BandWagon]

Str is a risky strategy, and not to be taken lightly.

I STR'd just over a year ago, and I'm quite happy with the decision, in fact I look forward to renting places I wouldn't buy.

But think very carefully when you make this decision, write down your thoughts, that will help clear your thinking. Talk it over with people you trust.

When did you buy the place? If you really like it, and have no reason to move (job, kids) etc, why put yourself through the pain?

Weigh up the possibilities (ie a 30% fall) against the definites that will occur when you sell.

And just keep reading, this site is a great place to learn.

Edited January 29, 2006 by BandWagon

[iLegallyBlonde]

Do you want to move house ?

I wouldn't move for the sake of it.

If you're happy where you are and are confident you can cover a 2/3% increase on your mortgage.

[2005]

You have enough equity in your house to ride out a house price correction.

BUT would that £120K make a huge difference to you if you stuck it in the bank and rented? Would the interest pay the rent?

I am no expert and I have not STR but it seems to me that you need a lot of equity for STR to work. If not you may as well ride it out.

[Jason]

I'm a first-time poster and this is probably a stupid question. I have a fair bit of equity (£120kish) in my house, but after reading you guys for the last few weeks, I'm as nervous as hell.

Should I sell while I can and rent?

You really need to concentrate on your own circumstances. How much would it cost to rent? What would you do with your £120k?

Are you mentioning STR to make money? Or are you worried about negative equity? It sounds like negative equity won't be a risk as you have a small mortgage (in comparison to your house value).

Also, won't the Banks do as much as they can to support the market? Surely they'll lose billions if there's a HPC.

The banks have done as much as they can, by trying to create as much debt as possible.

What makes you think the banks will lose billions? Remember, wealth is not lost, it is merly transfered. In the case of a HPC the rich (banks) will just get richer. I'm sure some other HPCer can mention more about the shift of wealth.

Edit: Welcome!

Edited January 29, 2006 by Jason

[abc]

Well from the purely financial point of view 120k in the bank is far better than 120k in a house. (in the current climate, IMO)

However things are never that simple...

1.) Is that 120k equity based on a 2004 evaluation?

2.) Are you prepared to take the risk and sell up?

3.) Are you willing to live in a property that you can be turfed out of every 6 months?

Personnally I would do it... Oh yeah I already have

Edited January 29, 2006 by abc

[Converted Lurker]

On whose maths is is the 120K based yours, or a recent valuation? If you have perhaps 120K and your mortgage is 50K then fine as there is slim chance you could rent a 170K place for £300 per month. If you have a mortgage of 100K and equity of the same I`d sell I would not want less than 50% ownership/equity of the place I own and live in after a correction.

[a j]

How much mortgage debt do you have in the property? The first question to ask is whether you could cover the loss of equity following a crash. Assuming that the answer to the first question is positive, the second question is whether you are willing to risk the rental market and loss of your own place for a greater feeling of financial security in the short term, and potential gains from buying back at a lower price.

[Once in a lifetime]

I'm a first-time poster and this is probably a stupid question. I have a fair bit of equity (£120kish) in my house, but after reading you guys for the last few weeks, I'm as nervous as hell.

Should I sell while I can and rent?

Also, won't the Banks do as much as they can to support the market? Surely they'll lose billions if there's a HPC.

Sorry for sounding a bit wet behind the ears but I no economist.

Why?

If you are happy in your home, and can afford the mortgage.

Use the low interest rate climate to over-pay your mortgage.

Giving yourself as much equity as you can, STR isn’t for everyone.

A lot will get burnt if they lose their jobs in the coming 'historic' recession.

Money in the Bank is only good if you don’t need it to Live on.

When house prices drop, you will be able to trade-up easier than you

Could now.

[slowjoe]

I'm a first-time poster and this is probably a stupid question. I have a fair bit of equity (£120kish) in my house, but after reading you guys for the last few weeks, I'm as nervous as hell.

Should I sell while I can and rent?

Also, won't the Banks do as much as they can to support the market? Surely they'll lose billions if there's a HPC.

Sorry for sounding a bit wet behind the ears but I no economist.

You ask a good question, and it's certainly not stupid.

I know that I have been bearish and wrong, so you should consider that. It is possible to predict based on economic fundamentals, and get the market totally wrong. You should read the stuff here critically.

Whether to sell to rent depends on the circumstances. Different people are protecting against different situations. What are you concerned about? A static market not allowing you to move? A loss of equity? Negative equity? As in all things, you should think about your fears rationally, and decide what your priorities are.

Relationships

The first question is, do you have close family (wife/gf, kids) and what is their view on selling? 120k in the bank might not assuage them if they disagree. Will the kids (if they exist) have to change schools?

Economics

If you have a 3 bed semi that has gone from 80k to 200k, the 120k probably won't all disappear. If, on the other hand, it was bought for 400k and is now 520k, an n% drop is going to hit you harder.

How overpriced is your area? If you wished to rent the equivalent of the house that you live in, would the rent cover the interest-only mortgage payment on the property? This ratio between IO Mortgage payment and rental payment should be pretty close. The rent should exceed the IO payment. If it isn't, then the economics are providing a stronger argument for selling.

With the sketchy info provided, anyone making a strong statement is a little foolish.

[OzzMosiz]

Like others have said, it depends on your situation.

If you bought a 200K house and its now worth 320K, you're probably fine.

If you bought a 2,000,000K house and its now 2,120,000K, then its more volatile.

If you are happy where you are and can cope with the repayments on your mortgage then

do the sensible thing and don't gamble! A crash is not a definite, but more a possibility.

[paradox]

I sold to rent because we wanted to live in a house not a flat and we figured that cashing in on our flat at the top of the market and renting a house made better sense than taking out an even bigger mortgage to buy a house.

However we WANTED to move, and the mortgage was 2/3 of the value of the property. That equity represented my savings so I wanted to keep it safe and use it as a deposit on a house when (if) prices fall.

For us there is no downside.

Lets say prices don't fall then we would never have been able to afford to trade up to a house, and the only reason to sell the flat and realise the profit would be to buy a house. Think about it - it makes sense. Trading up from a small flat to a big flat had already cost us a much larger mortgage and we would not be able to do it again.

Lets say prices do fall, then whoopee - we are quids in

Lets say prices stay the same - then my savings are growing faster than they would be if they were still equity in the flat

So it made sense for us. And we are enjoying the space and freedom of our nice rented house and enjoying the fact that we dont have to pay a penny to maintain it.

BUT try explaining this to family and friends. For many we have 'dropped out'. They just cant see the logic of it.

However I would not recommend doing what we have dont to anyone - It is a decision you have to reach yourself.

[Given Up]

You really need to work out the figures, maybe using a spreadsheet. You need to factor in selling costs (agents fees and legal) and then buying costs (stamp duty, lawyers and surveys). There is the cost of 2 moves and the cost of rent.

Against that you need to work out what income you would genetrate after tax and what you would save in outgoings by not paying a mortgage (if you have one).

If you use a spreadsheet you can do some "what-if" analysis if some of the variable things change such as interest rates and house prices, you can be quite extreme such as if prices drop 50% or prices rise 20%.

If you look at it and work out your risk/reward this should help you to make a decision.

[damconsult]

I sold to rent in 2004 first because I thought that house prices were near their peak. Secondly to live in the area I was looking to buy next property. Althought the interest does not fully cover the rent but if I bought straight away I would be struggling to pay mortgage on the new house. Also I learned more about where I want to live which is not possible by driving around the area and reading the local papers.

[BufferBear Bitcoin Bull]

An STR Calculator was previously devised and posted on HPC, does anyone remember the poster or where it can be found?

damconsult, you may find it useful.

I have it saved on my P.C but have no idea how to re-post it.

Well, I just guessed how to do it and it didn't work!

Edited January 30, 2006 by Buffer Bear