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The Financial Times has reported on a growing trend among wealthy investors who want to make money from falling house prices by betting on the property market falling over the next one to two years.
But it's not just the super-rich who can take advantage of softening house prices. Normal homeowners can join them if they sell their homes quickly, effectively cashing in on the property downturn.
House price falls predicted
On November 30 the FT said that "Banks are reporting a surge in interest from wealthy investors wanting to bet on property prices falling in the next one or two years." They continued, "Unnerved by gloomy housing forecasts, investors with large property portfolios are seeking some protection, while property speculators are keen to benefit from softening prices."
Recent reports from the Halifax and Nationwide banks and the FT's own housing index show slight falls in house prices across the UK over recent months. Many experts now say that prices have peaked for the time being and are predicting sharp falls in 2008 and even 2009, with the chief economist at Morgan Stanley investment bank forecasting a drop of 10 per cent by this time next year.
Sell home to rent: simple logic
Because of this after years of "buy-to-let" activity people are turning to "sell-to-rent" as a way to make money. The logic is simple.
Money expert Cliff D'Arcy, a regular contributor to the Motley Fool financial advice website took the decision to sell and rent back in June 2004. He said at the time, "By selling to rent, I move to a bigger house very soon, get a lump sum to put on deposit and get most of my rent paid for".
Sell home to rent: an example
Take this very rough, simple example: if you sell home now for £200,000 – the average price for a property in the UK – you get a cash lump sum, which you bank. You rent for two years; if the rent is £1,000 a month then that costs you £24,000. At the end of the two years you buy again: after two years of 10% drops, a similar one to the one you sold might now only cost £162,000. If you were to buy it you would be in the same position you are now, home-wise – but would still be £12,000 richer. And when you think that the money you spent would have been spent on a mortgage payment anyway, your potential profit reaches a staggering £38,000.
The above figures assume you've got an amount of equity in your property so you can pay off any mortgage outstanding on it. If you have, then this could be a rare chance to make money along with the wealthy investors.
Sell home quick: time is of the essence
However, time is of the essence. It is critical to get in quick – because if house prices are going to fall, then a delay will mean you get less money for your house, and your potential profit gets smaller. That's why many people want to sell home quick, to make the most of the opportunity a falling market can present.
Sell home quick with The Smarter Choice
The Smarter Choice is a company that's dedicated to helping you to sell your house. We're available 24 hours a day, seven days a week, and we try to ensure that you get a written valuation for your property within 48 hours of your enquiry. We offer a guaranteed, stress-free sale for a fair cash price. Call us FREE on 01632 960543 now or use our online enquiry form and we will get in touch with you as soon as possible.