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Sell-to-rent shown to be 'high risk strategy'

Monday, 7 April 2008 12:00 AM

The emerging trend of selling a property in order to rent for a short-term period has been called a 'high risk strategy' by house hunters' website FindaProperty.com.

Compiling data from 8,000 member sales and letting agents, the site finds selling-to-rent has become more popular with buyers who are tentative about the direction of the market.

Such sellers see this option as an acceptable speculative alternative to being tied to a long-term investment - leaving the market as prices fall with the hope of reentering later at a lower price.

"With the recent media speculation the market is over-valued and prices have peaked we have seen a rise in this trend - especially over the past few months," said Kevin Shaw, sales director at Haart, part of the FindaProperty network.

"We would, however, advise that it's a high risk strategy and a difficult one to get right."

FindaProperty advises the slowness of the property market can add to the process increasing complications.

In such a market it could take months to complete a deal for example, and as the market drops buyers may try to negotiate discounts before exchange.

This, combined with any price rises on rental properties as the market brightens, could lead to lost savings, particularly if there is an extended rental period.

"If you plan to rent for more than a year there is no guarantee the landlord will renew your lease," said FindaProperty content editor Michael O'Flynn.

"The landlord may need the property back after a year or in a strong rental market demand a higher rent to renew. You may move three times making it an emotionally and financially stressing time."

Estate agent fees, solicitor's fees, removal and storage fees, administration costs for rental agreement, lost capital repayment on mortgage, payment of both mortgage and rent in the case of an overlap and stamp duty all add to the cost of such a decision.

"Based on the industry data we review and analyse, selling-to-rent is a costly and financially precarious proposition - and one with debatable benefit, particularly with the personal upheaval involved," continued Mr O'Flynn.

"The costs saving of selling-to-rent does not appear to justify the hassle of selling, renting and eventually buying again - and our figures do not even take into account average penalties for exiting fixed mortgages, which could add thousands to selling costs."

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