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Little Professor

A Diss To All The Strs

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Sell Now Pay Later

Citywire 19 Mar 2008

Last September, my adventurous, high-achieving friend Kate sold her three-bedroom house on the right street in Clapham.

It was (she's positive) the top of the market. She hasn't bought another home yet. Her ideal home is the one she recently sold. Except cheaper.

Kate might sound crazy, but she represents a growing trend. It's called sell-to-rent.

Kate's can of worms involves selling a home at the top of the market, renting for a while as the entire house price edifice clatters down, and then buying in again, either taking a profit, or trading up.

It sounds ingenious. Middle-class people like nothing more than winning.

The majority of the sell-to-renters thrown up in the survey might come unstuck in a number of interesting ways.

- They might have under-estimated the cost of selling and renting. There's not just the rent to consider. Any move is expensive. And two moves (from house to rental, from rental to house) are more expensive than one. Your home would need to fall significantly in value to cover estate agency fees, solicitor's fees, removal costs, storage costs and - here's the killer - Stamp Duty.
- They might have under-estimated the time it takes for prices to tank. A correction can come in two forms: the kind of quick drop-off that plays nicely on a graph; or a long period of inaction in which static house prices combine with general inflation to improve affordability. Heaven help sell-to-renters if it's the latter.
- They might have under-estimated the uncertainty and stress. Renting can be stressful; rents are currently increasing and it's not nice to know your landlord can kick you out or ask for more money after 12 months.

Watching the market with so much at stake is stressful, too. Guessing where the bottom of the market really lies, reacting to the house price indices as if they really mean anything.

This is the kind of stress that follows risk, and one of the first rules of finance is that greater risk should be balanced by greater rewards. Factor in all the above, and the rewards of sell-to-rent look pretty slim at best.

Kate's adventurous and high-achieving enough to look after herself, but I wonder whether she watched an episode of BBC Two's The Money Programme, almost exactly three years ago, called The Great House Price Crash 2005?

The premise was simple: 2005 would almost certainly mark the end of nine years of rising house prices, but how? A crash or a whimper?

The programme featured an earlier wave of pioneering sell-to-renters. Except they're not called that anymore; now, they're just called tenants.

Ouch! :ph34r:

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Renting can be stressful; rents are currently increasing and it's not nice to know your landlord can kick you out or ask for more money after 12 months.

Yeah. Buying can be stressful too. Prices are currently falling and it's not nice to know your lender can ask for more money after a year or two.

EDIT:

Linton Chiswick (writer of the OP's Citywire piece), is the proprietor of the Rat and Mouse, ( http://theratandmouse.co.uk ) He also wrote the following:

How have we managed to manoeuvre ourselves into an economic Catch-22, in which the giant price-drop necessary to guarantee affordable homes for our children will mean our own economic ruin when we reach pension age? How has it become normal for the average first-time buyer to spend 35% of her salary financing the debt on a home that was taxed once with stamp duty when she bought it, will be taxed again whenever she exchanges it for another, and once more with inheritance tax when she dies?

( http://www.citywire.co.uk/personal/-/news/...3034&Page=1 )

Now, was the OP article an example of stealth de-ramping, or is he bitter about missing the STR top?

Edited by Timm

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i understand where the hatred of sell to renters comes from, but they are not the instigators like buy to letters are, more like a parasitic pilot fish that only feeds off its host and is harmless to normal humans.

i sense a little jealous undertone whenever i hear some hate spilled at a str.

i dont think its based on anything else.

i also feel, despite this, the str position is probably a good one.

there is no way this downturn in housing is going to linger and wait for inflation.

peoples personal debt is too high, and the system has already buckled under.

at the moment sellers are happy to snap off 3% here, 10% there even,

but as all crash monitors know, its not enough to temp the foolish anymore.

even if it did, the chances of getting a workable mortgage are slim.

then theres job fears.

no matter what you think of the str, the position has been made possible by the initial greed of others.

and now its blown up in their faces, they dont like it.

see. it seems we always gave these financial city boys the benefit of the doubt.

always thinking they were setting us up. in the know. biding their time...

now it seems they were a bunch of clueless jerks for the most part.

the top layer probably cashed in though. as usual.

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If he hates STR, what the frack does he think of FTS (forced to sell) and PTS (possessed to sell).

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What's Bruno been up to lately anyway? I wondered for a while whether Telometer, the chap on the Anecdotals forum, might be Bruno in disguise......

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Criticism of STR's is fair at the moment because they have "missed the boat". They should have done it last year or the year before. Anyone trying it now (and there appear to be plenty) have to be exceedingly reasonable on their pricing to stand of chance of selling (at all, never mind at a profit).

However, the arguments put forward here to criticise STRs are just rubbish. I can't believe that this type of crap is still tried on by some people in the UK

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Ouch! :ph34r:

Sour grapes.

It's like laughing at people who didn't want to take part in the dotcom boom.

Of course he missed out that rent is cheaper than an IO mortgage, that some people may have STRd to clear their debts on a house that they can't afford.

Let's not forget that it is only in London that houses are more expensive than in '05.

Actually I can't be bothered any more, there is a pinned thread for this. :D

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...here's the killer - Stamp Duty.

Do many people sell to rent just to buy back the same or a similar property? I would have thought it was a means of climbing the ladder at little cost to yourself? If you were selling to upsize you would incur the stamp duty cost in any case?

I struggle to follow his argument.

Regards,

Q

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Interesting how he lists the cost of renting is a significant drawback, but doesn't list NOT HAVING TO PAY A MORTGAGE to be an advantage.

Rent vs mortgage. Wonder which is more expensive. Wonder which is rising in cost faster.

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And moving twice (STR then buying) is not much more expensive than moving once:

One set of stamp duty, one set of EAs fees, one survey fee.

Possibly a small increase in solicitors fees (not sure if they do special deals for buy-and-sell at the same time conveyancing).

Admittedly double the removal fee.

What's this cr*p about storage? One of the beauties of STR is that you can afford to rent a BIGGER house than you could buy.

Edited by Selling up

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Do many people sell to rent just to buy back the same or a similar property? I would have thought it was a means of climbing the ladder at little cost to yourself? If you were selling to upsize you would incur the stamp duty cost in any case?

I struggle to follow his argument.

Regards,

Q

I would imagine that there are two types of STR; the type that logs on here and is doing it because they spotted a bubble and got out high to re-purchase low - these folk are likely to have sold and rented a different place. The second type is the forced seller who uses one of the BMV companies. They are probably still in what used to be their home.

Two completely different ends of the economic spectrum.

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Interesting how he lists the cost of renting is a significant drawback, but doesn't list NOT HAVING TO PAY A MORTGAGE to be an advantage.

Rent vs mortgage. Wonder which is more expensive. Wonder which is rising in cost faster.

Oh alright I can be bothered. :)

There is also the ability to withstand a financial shock to your family, if you have cash instead of home equity.

Hmm He should have mentioned that there is absolutely no chance of that happening to anyone working in the City. <_<

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My STR fund easily covers the rent and the council tax. Meanwhile prices are falling month after month and being a Chain Free Buyer is IN ITSELF worth a further 5% discount as sellers become totally frustrated at failing chains. I think STR'ing 12 months ago will end up saving me £100k. Which over a 25 yr mortgage is actually a £175k cost saving.

Tidy.

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I would imagine that there are two types of STR; the type that logs on here and is doing it because they spotted a bubble and got out high to re-purchase low - these folk are likely to have sold and rented a different place. The second type is the forced seller who uses one of the BMV companies. They are probably still in what used to be their home.

Well, I fall into the first category.

However, the plan is not to buy the same sort of house that I sold (two bed semi) and pocket the difference. We need to upsize on account of having a baby but we didn't want to get ourselves mortgaged up to the eyeballs. By renting we get the bigger house (a poster mentioned as an advantage) and we will be able to buy a bigger house at a later point without getting ourselves financially hamstrung (assuming property prices fall of course!). Renting is quite expensive and not without its stress but I don't suppose we have to worry about owning an asset that is losing hundreds or thousands of pounds a month.

The OP atricle seems to suggest that people sell to rent to pocket the difference when they buy back the same house later. I suppose this does happen but the proportion of people doing so would be quite small?

Regards,

Q

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I think, like much in life, it is the Green Eyed Monster. Yes, STR may not make sense (with the benefit of hindsight) for those who did it in, say 2000 or earlier, but my word does it make sense now!

And for the record I am not an STR'r a) I lack the cojones and B) I am put off by my previous experiences or renting, where in only 1 of ten rents did I have a reasonable landlord who had a nice place and didnt try to rip me off, and that in only 1/10 rents at least one of my co-renters was not an insufferable t8ss8r (and these were not the same places, sadly). All power to your elbow, STRs.

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The reason some STRs come under fire is their arrogance and blind optimism - denouncing anyone who doesn't subscribe to their philosophy as sheeple

the market may fall and they may make modest gains - but there are easier and less stressful ways of making money than becoming a perpetual nomad

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Well my heroine is Merryn Somerset Webb

She sold right slap bang top of the market and rents...

Those so-called professional middle classes with jobs and a hefty deposit will be the only market left for lenders from here on in...look at HBOS shares this am FFS.

Meanwhile my cash earns 8% per annum compound.

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"Middle-class people like nothing more than winning"

Whereas working class people like losing? Anyway, I suspect the "Kate" in the story will end up doing very nicely. I also suspect that anyone who goes to all the hassle of STR would manage to spend the ten minutes or so it takes to work out the cost of stamp duty, estate agents fees and other moving costs. I'm currently in the process of trying to STR, but I'm doing it because I want to move up the ladder anyway - I suspect I'm quite typical. I'd love to make money from the deal, but I'm not expecting to. But I have calculated that the probability of losing money is very, very small.

I get annoyed by the smug arrogance from many posters here (and the use of the word 'sheeple'). However, I reserve the right to become one of these smug and arrogant posters if I manage to sell my house.

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All buying/selling carries a risk.

STR is a risk.

Staying put is a risk.

Some will gain; some will lose.

That's business - we all take our choices and we all accept the profit or loss.

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Don't forget the category of STRs who are simply at a life-change; most commonly either those whose children have now left home and are downsizing, or at least freed from the necessity of living reasonably close to the school; or those retiring who no longer need to live within commuting distance to work. (Possibly both of these simultaneously, if you had your kids late!)

Renting removes the whole stress of being in a chain, HAVING to find somewhere else to live, may make you a cash buyer if you're downsizing, enables you to sample your new neighbourhood.... In these circumstances any "profit" is just a nice bonus.

Edited by cartimandua51

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  • 293 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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