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tatty

How Do You Calculate The Potential Benefit/cost Of Str?

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Me and my better half are open-minded about selling up and renting but I want to make sure we've looked at the financial implications as thoroughly as we can.

We live in Hampshire in a 4 bed townhouse and reckon we have around £80,000 in equity on a house we paid £250k for (although already similar houses are on the market for what we actually paid so we'd take a loss I think).

Anyway, i've tried listing the things we need to look at:

1. Hassle of STR

2. Return on equity

3. Cost of rent versus mortgage (would we be in a similar situation after 2 years of paying rent?)

4. Insecurity

5. Price of rents

6. Renting a nicer house

7. Better position for re-entry in to the market

8. Percentage chance of stagnation or even rise in hpi

What have we missed?

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Me and my better half are open-minded about selling up and renting but I want to make sure we've looked at the financial implications as thoroughly as we can.

We live in Hampshire in a 4 bed townhouse and reckon we have around £80,000 in equity on a house we paid £250k for (although already similar houses are on the market for what we actually paid so we'd take a loss I think).

Anyway, i've tried listing the things we need to look at:

1. Hassle of STR

2. Return on equity

3. Cost of rent versus mortgage (would we be in a similar situation after 2 years of paying rent?)

4. Insecurity

5. Price of rents

6. Renting a nicer house

7. Better position for re-entry in to the market

8. Percentage chance of stagnation or even rise in hpi

What have we missed?

I am a STR already, but we did it because we are at a point in life where we are best to have the freedom of renting and the extra space having had a baby.

I am not sure from your post exactly how much equity you have, but in reality this is not the most significant factor. You should only consider selling now if you are thinking of relocating shortly, or if you can see financial pressures building and it would prevent a forced sale in a market that is likely to falling.

I am a bear but the advice the bulls give on selling your house purely for profit is entirely correct and not worth the trip.

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Google "Buy vs Rent xls" and you'll get a choice of many tools to play with, such as this spreadsheet.

One factor that I have found missed by just about everyone is the income on the tenants savings. For some reason, that extra money going into saving each month is just not on the radar.

If you assume that you have already STR'd, then you'll have a good picture of how much and when it might be viable to buy a house again based on your HPI/HPC outlook and savings rates, etc. Add to the cost of the STR, a single hit to the savings equivalent to the cost of selling the house and moving to a new one. Also, you can add or subtract value from the rent according to whether you feel being tied to a house is a good thing or a bad thing. Renting gives much better job flexibility for me but it irritates my wife, so I don't weigh that figure either way.

I would be very surprised if the numbers didn't say "SELL, SELL". And remember, when you've added $200pm against renting (as your feel-good homemaker factor) and the numbers still say "SELL, SELL", then forget sentimentality. Ramp the rent factor right up until the numbers say "HOLD" and then see if you're comfortable with paying £500pm for the privilege of owning a house in the short term.

Edited by dellboy

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1. We live around 5 minutes from my work which is a plus

2. My other half hasn't really taken to the house and isn't worried about renting

3. We only moved in at the end of may but are tied to a mortgage until jan 08

4. My job is secure and I won't be moved

5. Financially we are secure even if rates should rise

6. The rent on houses we like are around the same as my repayment now

I've been following hpc for a good few years and i'm a bit narked I didn't follow my convictions in May and move straight in to rented instead of buying again but at the time it would have cost a few thousand in repayment charges (small change now when I look at it).

It seems that the crash i've been ridiculed for by workmates is finally materialising and I want to be on the 'right' side of it and not stuck on the 'wrong' side again as I was from 97 to 05 when I refused to buy.

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Me and my better half are open-minded about selling up and renting but I want to make sure we've looked at the financial implications as thoroughly as we can.

We live in Hampshire in a 4 bed townhouse and reckon we have around £80,000 in equity on a house we paid £250k for (although already similar houses are on the market for what we actually paid so we'd take a loss I think).

Anyway, i've tried listing the things we need to look at:

1. Hassle of STR

2. Return on equity

3. Cost of rent versus mortgage (would we be in a similar situation after 2 years of paying rent?)

4. Insecurity

5. Price of rents

6. Renting a nicer house

7. Better position for re-entry in to the market

8. Percentage chance of stagnation or even rise in hpi

What have we missed?

A complex and very personal question to be honest - don't get lost in mathematical models - remember the fundementals:

House prices, like equities, always go up in the long (read LONG) term.

If you are happy living there AND you can manage the debt (at 11% interest rates??) then stay

If you don't like it there OR need to be flexible OR are insecure about your job OR the debt is pinching then sell

and remember, if any of us here could accurately predict the future then we wouldn't be here :-)

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I agree with bdon that mathematical models will only take you so far.

I Sold to Relocate, and am now renting.

I left my first rental house after 6m because the landlord was dragging his feet over repairs. (3 cracked windows and a leaking central heating system not fixed in 6 months!!!!)

I know I had other options legally - like arranging for the work to be done myself - but I couldn't be bothered. And I felt it was better to move out than to live dependent on someone so inefficient.

Lsat month I moved into the BTL property of my friend Paul. A few days before my moving date he happened to mention that after my initial 6m contract was up, "his son and his girlfriend might need to move in there". Okay, I had never explicitly asked "do you expect this house to be available to rent indefinitely" because I assumed he might mention if it wasn't!

So I'm not over-enamoured of the rental experience.

Damn cheap though, Paul paid £105000 and is charging £4800 rent annually. (4.5% gross) My previous landlord was making a similar gross. I am the first tenant either of them has had (both amateur newbies, bought in last 12m). Paul admits the rent doesn't cover the mortgage interest.

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A lot depends on what you are going to do with the equity. Mine will be clearing ALL my debts. For the first time since I was 16 in 1975 I will be debt free :D . I will have enough leftover to fund my new business and still have well over 10 grand in the bank (which I will invest when I find the right vehicle).

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For me, buying a house was the most stressful thing I think I ever did (well, before I had kids that is). So, no, I wouldn't STR. Not even if I was "100% guaranteed" £20k. Even £30k I wouldn't sniff at. Perhaps £40k I would consider it :)

It is not always about the money.

Edited by HOwner

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What have we missed?

Your mortgage is too high and you are too highly geared,

a 20% drop in house prices and you lose 60% of your equity

Sell now.

Edited by Downtraded

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