A Better Stategy Than Str

[Guest wrongmove]

Semi-spoof post (but not a troll post)

People who STR have not yet seen any real benefit - sure prices have dropped slightly on some properties in some areas, but when transaction costs (EAs to sell, stamp duty to buy back etc.) as taken into account, the returns are, dare I say it, a bit boring. While property, on average, has been creeping up at say 5% per annum.

But of course your canny STR has not been sitting around watching their STR fund dwindle away on inflation and rent payments, they have been successfully punting on the markets, and making far more than 5% pa.

But in hindsight, without decent nominal falls in house prices, wouldn't MTG have been a better strategy ? (Call it MEW to invest, if you prefer). By gearing into property at say 90%, the 5% rises in property would be levered to 50%, with no transaction costs. Sure, you have to service the loan, but 4% fixes were available a year or two ago, which is comparable to rental values on pricier properties.

The released capital could then have been put on commodities, not gold, which has shown a tedious 65%gain over the last year, but copper which is is up 165% in the same period.

With the wonderful benefit of hindsight, wouldn't MTG (or MTI) have been the best tactic ?

No offense meant to STRs - some of the best posters here, and I would probably have done the same had I been in a position to do so. But the only justification now seems to be that returns have been better elsewhere. So not STR, but STG. And don't say "we are in in for the longterm". Remember the days when this was the ultimate put down to BTLs ? A longterm investment is a shortterm one gone wrong, remember ?

[Guest wrongmove]

MTS: Mortgage-To-Speculate is good business for some banks who fund it

...until all goes bad

That's one of the points I am trying to make. If STR only works if you can successfully speculate with the capital raised, it looks like a very high risk strategy for anyone but full-timers like yourself.

With MTS, if we can call it that, the worst that can happen is you lose your house. STRs have already lost their house, and unless they can buy back later, they end up in the same boat.

Edited May 17, 2006 by wrongmove

[godsakes]

That's one of the points I am trying to make. If STR only works if you can successfully speculate with the capital raised, it looks like a very high risk strategy for anyone but full-timers like yourself.

With MTS, if we can call it that, the worst that can happen is you lose your house. STRs have already lost their house, and unless they can buy back later, they end up in the same boat.

Seems to me all you really need is an offset mortgage...

[Magpie]

Another way to look at this is to ask: what would justify the STR decision?

Firstly, I'm tending to see STR over the last few years as a brave gamble which still might or might not prove to be a successful strategy. So can you say it's succeeded if your investments outperform property, or only if house prices fall?

I think that wrongmove's example shows that if you knew for absolute certain that prices would stay level or increase slightly (and you had the knowledge to make money by investing elsewhere) then you could do as well or better by remortgaging the property and speculating. I think this does rather undermine the "Property is boring, I'm doing far better elsewhere" argument - it tends to show that STR would only really be justified by a clear drop in nominal prices.

Having said that, I know there are other motivations for STRing, and I also saw Samuel Whiskers earlier talking about how he STRed in London and it took a year to sell the house. It's probably too early to call - it would probably be bad strategy to wait to sell until prices were starting to fall, so selling a bit below the peak on the way up may have been the best plan - if so it would entail at least a period of trying to keep up or increase the value of the STR fund while waiting for prices to fall.

So clearly investing the money wisely would be an indispensable part of any STR strategy, but I do think that "Property is Boring" isn't sufficient to prove that the decision was vindicated.

(Incidentally if it's not vindicated I wouldn't see that as a personal criticism of STRs - it was a gamble either way, and at this stage we're all gambling one way or another on what house prices will do in future)

Edited May 17, 2006 by Magpie