To Downsize or Not to Downsize??

[moonblushtomato]

(Have also posted this on "What would you do?)

We and 3 DCs currently live in a spacious 5 bed detached house which we extended a few years ago.

Both DH and I do not have private pensions and aren't able to afford to pay into one so DH's idea is that we downsize and with the money thats left we invest in a buy to let.

There are also other reasons (noisy neighbours) why he, rather than me,wants to move.

We have been very spoilt with the space we have and have got very used to it. How difficult would it be to downsize?

It's not really clear what you'd be trying to achieve with the downsize, nor what your current position is regarding a mortgage, nor your age. However, a few thoughts:

• running a buy to let is timeconsuming and difficult. There are a lot of regulations/legals that would need to be met. You could sidestep these by using a letting agent, but that reduces your return. Stockmarket investments don't ring you at the weekend to let you know the boiler needs fixing.
• are you looking for capital growth or income? I'd suggest that you could do a lot better than property for either. If it's income that's providing a pension, what will you do when you get a void?
• a BTL is a very illiquid asset. You can't sell part of it, and it takes a while to sell.

and practically -

• Moving will have substantial frictional costs associated with it, such as stamp duty, redecoration etc.
• If you downsize, your neighbours will probably be closer & noisier :-)

We are both 44 and once our house is sold we would (hopefully!) have approx £275K equity.

We have actioned in approx £20K for stamp duty, legal fees etc.

I understand about the potential void periods when renting a property, I think that risk is unavoidable.

We wouldn't be doing the buy to let to make any money in the foreseeable future, I imagine we would probably break even after mortgage repayments/agents fees each month. It would be with a view to reselling in the future when we reach retirement age.

The properties we would be looking at would be a similar spec to what we have now but probably one less bedroom and in a less pricey area, tho still nice.We have already had a look at properties and there are a few that would suit us price wise and area wise.

I also know that noisy neighbours can live anywhere, its a chance you take. The noisy neighbours we have are students so each year brings a different kettle of fish. Last years were lovely, this years lot seem like a nightmare.

DH is getting more and more stressed about the student situation, I think moving would be a positive thing for that alone

Thanks for your reply evilkitten, I feel a bit lost about it all. I really don't know if deep down I want to move, but, equally I know I can make any house a home and I can't take DH carrying on like this (constantly stressed out and worrying about students)

If you sell your current house, buy a new family house and a BTL, then that is three sets of transaction fees.
Is it feasible to convert your current house into student lets (it is obv in a student-ish area) and buy a new family house - that will be only one set of transation fees and a conversion/fit-out cost.
Have you seen how much students will pay you in rent!?

In summary, your plan is to downsize, use the equity as a deposit on a BTL, and the sell in ~15-20 years, using the capital appreciation as your pension. There is realistically no income until this sale happens.

This strategy relies on house prices continuing to rise. If you believe this, why would you not stay in your larger home, use the space yourself, then downsize in 15-20 years, using the released cash as your pension? Without meaningful income from the BTL, your model doesn't really make sense.

The other issue is that of house price appreciation. I don't have a crystal ball, but I'd be dubious that house prices will be substantially better in your timeframes. To my mind, they're overpriced at present, and the trend for the government to try to prop up the prices (see today's proposal to allow pensions to guarantee a child's mortgage, together with shared ownership, low interest rates &c.) worry me. There are no new people joining the ladder, which does rather imply the ponzi scheme is close to collapse.

A pessimistic evilkitten.

If you believe this, why would you not stay in your larger home, use the space yourself, then downsize in 15-20 years, using the released cash as your pension?

The released cash being, BTW, CGT-free.

We don't plan to make any money whilst the property is being rented, it would be an investment for the future, to sell when the mortgage is up. We envisaged just about breaking even in the meantime. (from other thread)

Why not make money now? Bird in the hand and all that. You haven't got a pension, you want an investment that doesn't make a return ...[confiused] It's all a bit mañana. I feel that you have some psychological opposition to the whole plan.

I don't want to borrow against this or any other house

But that is the classic model for money-making on property: it's all done by leverage and inflation.

senua as you so supportively stated, I do have some psychological opposition to the whole plan !!

I feel a bit lost about it all and don't know if deep down I want to move

Obviously I'm really unsure about moving, its DH's idea/obsession.

Have you costed in that when you sell the BTL you will need to pay capital gains tax which I believe is 40%? I have BTLs for the bulk of my pension. I do not intend to sell them - why sell an asset that provides an income for a lump sum? Also how do you then plan to invest that lmp sum?

Personally I do not believe house prices will crash as there is more demand than supply. However there are significant variations, what part of the country are you in?