Parents predicament - what to do?
Discussion
My parents have been trying to sell their house for the past year or so. Obviously isnt a great time to be selling and its a three bedroom house that falls in to the four bedroom house bracket due to its size. Was on for 310k when it first went up about two years back and received an offer of 280k which looking back now should have been accepted but seemed too little back then. Since that time no other offers have been made. They probably owe about 30k still on the house at an estimate.
They have had their eye on a house that has been up for sale for a similar period of time and still hasnt sold. Its a bungalow that was initially on at 185k but now down to 135. It belongs to the son of an old lady who died and left it to him.
Now they are considering making an offer of around 100k in the hope that this guy just cuts his losses and sells. He hasnt rendted it out or done anything with it during this time so perhaps he has the finances to keep the house until the market picks up. No harm in making an offer though.
If that offer was accepted the plan would be to keep living in the current house and rent out this bungalow (it is in need of some doing up if we were to live it in so its perfect to rent as there wouldnt be much worry about what happens to it as it will be stripped out and done up when they move in). The money to fund this would be drawn from their pensions, which are currently making nothing.
So the hope is that they get this whilst its cheap, make a bit of rent from it and then hopefully sell current house once market eventually picks up.
So after all that, the question is, does that sound like a good idea or given the way the housing market is should it be avoided?
They have had their eye on a house that has been up for sale for a similar period of time and still hasnt sold. Its a bungalow that was initially on at 185k but now down to 135. It belongs to the son of an old lady who died and left it to him.
Now they are considering making an offer of around 100k in the hope that this guy just cuts his losses and sells. He hasnt rendted it out or done anything with it during this time so perhaps he has the finances to keep the house until the market picks up. No harm in making an offer though.
If that offer was accepted the plan would be to keep living in the current house and rent out this bungalow (it is in need of some doing up if we were to live it in so its perfect to rent as there wouldnt be much worry about what happens to it as it will be stripped out and done up when they move in). The money to fund this would be drawn from their pensions, which are currently making nothing.
So the hope is that they get this whilst its cheap, make a bit of rent from it and then hopefully sell current house once market eventually picks up.
So after all that, the question is, does that sound like a good idea or given the way the housing market is should it be avoided?
Im no financial expert BUT with the economy in the state its in at the moment if they can get it for +- 100k and fix it up and rent it out (i exoect there will be a lot more renters out there over the next couple of years) they will be getting it at bargain basement price. IF it drops in value it really shouldnt be that much and once the economy picks up again as it inevitably will as these things are cyclical it will rise in value potentially at a much higher rate than if they simply left the money in their pension.
Also any rent achieved will offset the potential loss from it going negative in the short term.
I appreciate your parents concern in this issue as pensions are important but at the same time property generally is one of the safest places to put your money.
Also any rent achieved will offset the potential loss from it going negative in the short term.
I appreciate your parents concern in this issue as pensions are important but at the same time property generally is one of the safest places to put your money.
If I have read things correctly, they have an outstanding mortgage of £30k (on the existing property), and the purchase of the bungalow will be funded out of other investments, so negative equity isn't going to come into play.
It's a bad time to downsize, so if they can hang on to their current place and pick the bungalow up at a good price & then rent it out, giving them some form of rental income, whilst waiting for the market to improve (this is gonna take a while) then the plan makes sense.
ETA - just read your post again, and seen that it is the renovations that are to be paid for out of pension funds. Is there any borrowing involved?
It's a bad time to downsize, so if they can hang on to their current place and pick the bungalow up at a good price & then rent it out, giving them some form of rental income, whilst waiting for the market to improve (this is gonna take a while) then the plan makes sense.
ETA - just read your post again, and seen that it is the renovations that are to be paid for out of pension funds. Is there any borrowing involved?
Edited by rah1888 on Wednesday 7th January 23:37
Are they looking to downsize or to buy an investment in addition to their current home?
While pensions at the moment may not be doing very well they have now taken the hit from the recent market movements. Have the markets reached the bottom? Have house prices? Which is likely to make most money when the economy picks up? Don't forget to include a realistic rental incoming, including time when the property is not occupied, all relevant fees and any taxes you might get hit by.
If the markets are roughly as low as they are likely to go and house prices continue to drop then you've made an immediate loss, doubly so if the markets start to recover of the same time. Of course the opposite could be true, in which case happy days.
I'm sure you know all of this already though so for that reason ammmmm ooot.
While pensions at the moment may not be doing very well they have now taken the hit from the recent market movements. Have the markets reached the bottom? Have house prices? Which is likely to make most money when the economy picks up? Don't forget to include a realistic rental incoming, including time when the property is not occupied, all relevant fees and any taxes you might get hit by.
If the markets are roughly as low as they are likely to go and house prices continue to drop then you've made an immediate loss, doubly so if the markets start to recover of the same time. Of course the opposite could be true, in which case happy days.
I'm sure you know all of this already though so for that reason ammmmm ooot.
Edited by gingerpaul on Wednesday 7th January 23:47
gingerpaul said:
Are they looking to downsize or to buy an investment in addition to their current home?
Preferably to downsize, however their house which has only 30k owing against it which is worth iro 250k-300k has not sold after being on the market for some time. This house they are looking at is one they would'nt mind downsizing to but are considering buying and renting out till the market picks up and they can offload their present house is how i read it.rah1888 said:
If I have read things correctly, they have an outstanding mortgage of £30k (on the existing property), and the purchase of the bungalow will be funded out of other investments, so negative equity isn't going to come into play.
It's a bad time to downsize, so if they can hang on to their current place and pick the bungalow up at a good price & then rent it out, giving them some form of rental income, whilst waiting for the market to improve (this is gonna take a while) then the plan makes sense.
ETA - just read your post again, and seen that it is the renovations that are to be paid for out of pension funds. Is there any borrowing involved?
My point about negative equity wasnt that they would be in negative equity in reality. However with things the way they are at the moment there is a chance they may buy the house in full and renovate to the tune in total of 120k but the house may then slip in value to 100k over the course of the next year or so before the markets start to pick up again. Leaving them 20k down for a while.It's a bad time to downsize, so if they can hang on to their current place and pick the bungalow up at a good price & then rent it out, giving them some form of rental income, whilst waiting for the market to improve (this is gonna take a while) then the plan makes sense.
ETA - just read your post again, and seen that it is the renovations that are to be paid for out of pension funds. Is there any borrowing involved?
Edited by rah1888 on Wednesday 7th January 23:37
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