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Advice Please


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Hi all,

 

I need some views from y'all to think about. Rest assured I'll not sue you/listen uncritically. I just want to put a situation out amongst GEI-ers and see if any comment resonates with where I am. No bitchy/sarcy posts please. Yes it might be naive to ask for views amongst strangers I've not met, but it is the quality of your argument that will persuade me, not what you say per se.

 

 

Situation

We are very pleasantly posted overseas with my job and housed well. We are ideally placed to sit out the credit crisis and UK property crash and should be overseas another two and a bit years - perfect timing.

 

Thanks to STR'g a while ago and investing (thanks, GEI-ers) I'm in the fortunate position where I have very high savings relative to income (which is quite modest) i.e multiple times. My thinking had been to let these grow in gold etc. and then head back to the UK and buy a house in 2011. We hold no property at present.

 

Problem

Unfortunately for various reasons relating to family we may need to head back to the UK much sooner than this. I shan't go into them but you should consider them non-negotiable. However, if we go back this year I need to rethink plan A above. Options include:

 

- trying to buy our 'ever-after' house now - placing 30% Below Asking Price offers in on market-average priced houses and seeing if someone nibbles (we are no-chain buyers);

- buying a small place now (to conserve some cash for when the market falls further and possibly up-sizing then)

- renting for a while

 

If we buy a house, would people advise keeping the mortgage as small as possible (i.e. using every last scrap of cash except a few quid for a rainy day) or would they recommend mortgaging beyond what I need to keep some invested in gold etc?

 

Also, if we were thinking of buying c. April, how would people advise me in terms of exiting Gold and other investments? I wouldn't want to risk losing out on a big run-up before Easter by selling now, but don't want to risk falling short of cash if the price of gold etc. falls before April.... I'm suddenly faced with an investment strategy that doesn't match my new time-horizon (last week was quite scary with gold falling sharply).

 

Answers on a postcard please - stating your reasoning. Part of me thinks that if Govt. let the monetary floodgates go then we might see property escape capitulous falls from here-on-in in which case a decent price today for a 'happily ever after house' might not be so bad. We've already had some vendors indicate a willingness to sell at c.30% below initial 2007 (speculative) asking prices. Furthermore, we won't mortgage up heavily and if we see a paper loss for a while then is it really so bad? The emotional stress to my family of not buying is considerable (we've been in rented accommodation for 12 years and need some roots for our kids).

 

But the larger part of me thinks 'don't touch property with a barge pole, gold is set to go...' This is probably the only time in our life when we'll have a good amount of working capital and I don't want to fritter it away or waste an opportunity. I've lived in Japan and seen the 14 years of falling property prices, so I'm innately cautious on property (and hence my STRing).

 

Curiously, most of my previously go-go property family are now advising staying well out of property!

 

Whatever happens we'll not mortgage beyond about 2.5 times salary as I've sat down and done the sums and can't see how we could possibly safely do more than this (even if we wanted to - which we don't).

 

Wanderer

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I would try and find some some form of alternative rental accomodation below market rental value if this at all possible. This would avoid purchasing now in market; see how this plays out further and keep capital intact/avoid bad timing of investment sales plus pay a low rent and possibly enjoy a surplus above rental value.

 

Where there is adversity there is opportunity. Might be possible to use current economic climate to your advantage:-

 

Some people have property that has a limited rental or no rental market. e.g. Docklands flats in the 90s were let near enough rent free so that the buildings could be occupied to avoid external costs of leaving them empty. Buildings need to be lived in to function e.g. heating and security to keep property in good order etc. Larger properties can also be difficult to rent out-limited market or no takers but need to be occupied. Some might have obligations in lieu of rent but could represent good value for money.

 

Just some thoughts but could be another string to bow.

 

 

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We are in a similar situation Wanderer, except we came back earlier, saw the state of the house market and decided that entering it would be financial suicide. Our plan is to rent until the market bounces on the bottom and then pick up something at auction which we can sell when the right house presents its self, especally as our children are begining to enter uni and we can start to downsize to a smaller place over the next six years. Renting can be trying but does have some upside in that you cannot do any DIY :D

 

Protecting our fund is the name of the game, currently we just swing trade our fund around in FX and metals, we are already out of everything else. So far we have managed with the help of GEI and other financial sites, to stay that slim margin ahead of the game and have increased the value of the fund each year and keep our fingers crossed that we will continue to do so. We have been creating a network of accounts with different banks, companies and trading firms so that we can shuffle funds around at a moments notice as the world financial situation develops. There is nothing worse than watching your fund deplete in a falling investment just because it takes time to move it to another.

 

 

 

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I think it depends upon if you think you will ever be out of work. If that's a "no" then you could consider buying below market value (BMV) if the repayment mortgage cost is less than the cost of renting plus an allowance for repairs. Obviously the bigger the BMV discount the better to 1) do away with the need for a deposit and receive cashback on the deal to cover legals etc. 2) a cushion should unforseen circumstances require you to sell up before a recovery in the housing market.

 

Employing the typical below market value (BMV) buy to let strategy exercised by professional BTL investors may be appropriate for your circumstances. There are a number of companies in the UK that buy BMV and package their deals up to sell on to investors, of course it's a home your after but that's "by the by". They don't charge for the service as they make their money by not passing on the full discount but you are very likely to get a good BMV discount anyway. You can register for email alerts. The discount should be more than the normal 5% deposit required for a residential mortgage and if you so wished cashback could possibly be factored into the deal to pay for legals etc. and hence avoiding the need to use any of your own cash. You will get a measure of the typical discount achievable by researching these companies offerings but I do believe there is a chance that the figures will stack up for you at least in some parts of the UK. It'll probably depend on how flexible you are with location.

 

As far as mortgages are concerned that's a difficult call but if the figures work as above and you take a long term fix then you'll still be in a home if high or hyperinflation hits. If we get the Japan style stagnation then at least at the end of your mortgage you'll have some capital value, be rent free and have something to pass on to your kids and at no more outlay than for renting.

 

I have n't used the companies I refer to but if you're interested I think I've got a couple of links in my favourite folder I can dig out.

 

EDIT: There are one or two minor flaws in this strategy but I'll leave it for someone else to highlight them.

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As far as mortgages are concerned that's a difficult call but if the figures work as above and you take a long term fix then you'll still be in a home if high or hyperinflation hits. If we get the Japan style stagnation then at least at the end of your mortgage you'll have some capital value, be rent free and have something to pass on to your kids and at no more outlay than for renting.

 

Hmmm...I've been wondering what happens to the housing market in a hyper-inflation environment...

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