Is Selling To Rent A Potential Disaster?
Should you cash in on the property slump by selling your home?
Over a few beers at the weekend one of my friends announced that she and her husband had put their house on the market.
`Oh, have you found somewhere you want to buy?' I said.
`Well, we're not looking at the moment,' she replied, `we're going to rent for a bit and see what happens.'
The plan, it seems, is to wait for property prices to fall, then either buy a similar-sized property for less money and or buy a bigger place for the same amount they sell their two-up two-down terrace for.
Good luck to them, I say, but isn't it a risky strategy? It's certainly not an uncommon one at the moment. But like all cunning plans, it has a list of pros and cons.
They could be right of course. Having watched the value of their property rise steadily for the past five years or so since they bought it, my friends could cash in on the equity and hop off the property ladder. If they rent in the same town where they live at the moment, they'll probably pay around the same amount in rent that they used to pay on their former mortgage. Meanwhile their cash can sit in a nice high-interest savings account.
While watching their savings grow at between 6 and 7% APR, they can keep an eye on the property market and be ready to swoop in when prices fall. Then they could pick up a bigger and better property for the same money they got for their current place. Or they might even make a profit as well as having a bigger home.
When they put in an offer they'll effectively be first-time buyers which will make them a good choice for sellers who don't want to get caught up in a chain.
They are also considering upping sticks altogether and moving to a different part of the country. Renting somewhere new will give them the chance to work out if they like their new location.
But there are also some downsides to their plan. Firstly, by selling, then renting, then buying somewhere else they'll end up paying two lots of costs.
When they sell they'll be hit with estate agents fees, solicitor's fees, removal costs and charges for storing any furniture etc that doesn't fit into their rental property. Of course they'll also have to stump up a deposit as well as pay the rent when they become tenants. When they finally buy another property they'll be faced another lot of solicitor's fees and moving costs and also have to find several grand to pay the stamp duty on their new place.
Secondly, there's the hassle. Moving house is one of life's most stressful experiences and the thought of doing it too often fills me with dread. In the current market selling their place could take months and there's the risk they'll be gazundered by unscrupulous buyers trying to bag a bargain.
Being a tenant doesn't come without its problems either. First you have to find someone you want to live, get through the landlord's reference and credit checks and hope he or she is responsible enough to keep the property in a good condition and treat you nicely as tenants.
When it comes to buying again next year or the year after, who knows what state the property market will be in? Despite the doomsters' constant talk of a crash and prices falling from anything from 5 to 20% over the next couple of years, what if the opposite happens? Unlikely although it might seem now, there's always the outside chance that prices will stabilise then start to rise again - and where will that leave my now-renting friends? Faced with buying a small or less desirable property than they formerly owned, that's where.
So is selling to rent a good plan or a recipe for disaster?
More: Fix Your Rate This Week
> Get a mortgage quote from The Motley Fool Mortgage Service