I’ve sold my house, and I’m down over £500k

My Dream Home saga nears its conclusions. Longsuffering followers will recall that, in the last instalment in Q4 2016, I had abandoned my effort to sell my Former Dream Home into the Brexit referendum aftermath, in favour of renting the property out to some (North) Americans. I reasoned, three years ago, that I could well expect to sell the property for 1.20X (where X was the supposed fair market value) in 2020, by which point Brexit would be well and truly behind us…..

What happened next?

Well, the (North) Americans proved to be fine tenants. They looked after the place and kept on renewing. My rent increased by 2% each year. I used a managing agent, so the deductions were swingeing, and I had the occasional cost to bear too. But overall the landlord experience proved to be relatively painless.

Until Q2 this year, when the fine tenants gave notice. He had received a job offer back in the mother country and was off to take it.

Losing these tenants left me in something of a quandary. Brexit was due to be done in June 2019 (remember that?), except that pretty clearly it wasn’t. Property prices (and rents) hadn’t budged materially since late 2016. Yet somehow I felt a different mood – a “well I can’t put my life on hold forever” sentiment that tempted me to attempt a sale for the second time.

Moreover, with the void period starting in June, the timing felt good to ‘test the waters’ for selling the house, but reverting to let it in time for the busy ‘back to school’ season in September. So I decided to give it a go, and put my Former Dream Home on the market to sell. I listed it at a somewhat lower price than last time – essentially the price that I had accepted an offer on in 2016.

When is a sale a sale?

Cutting a long story somewhat short, the market felt completely different this summer than in the summer of 2016. I had far more interest in the house. I even had an offer, that I was prepared to accept! Not once, but in fact three times….

Followers of my blog will know how much I prize liquidity. But I must admit the meaning of the term took on new clarity for me this summer. In most commercial undertakings, when a buyer makes an offer and a vendor accepts it, you have Job Done. Sadly, not in the world of selling homes in England.

Having had my fingers burnt in 2016, when I accepted an offer that turned out to be phantom, I played a much harder ball game this time. I used multiple agencies, all of which produced a buyer at a price that I could agree to. I refused, whenever I accepted an offer, to take my house off the market for more than two weeks, and I pushed for tangible signs of commitment from the buyers. This approach meant I was able to ‘flush out’ un-serious buyers twice.

Back to the renting drawing board

In the end, as we rolled into September, even though I had accepted (in principle) three offers, I was struggling to see an actual sale going through, so I put my house back on the market to rent it (via a separate agent, to avoid conflicts of interest). The previous tenants had wanted it unfurnished so the house was almost empty; while I was prepared to put some (old) furniture back in I thought I would at least try for a bit to see if somebody wanted it unfurnished.

Whereas the sale market had felt much more lively in 2019 than 2016, the rental market felt much more challenging. Possibly I was lucky in 2016, when I found a tenant within days. Possibly the house being marketed unfurnished did me a disservice.

In any case, we entered October and things got interesting. One of the offers I had accepted proved to be a serious buyer. And I also found a tenant. This left me trying to juggle two agents and two timelines. The buyer ended up attempting a ‘chisel’ (i.e. a drop in the agreed price) but I just walked away, and pushed on with the tenant – which then quickly had the tearful buyer returning to the table at the agreed price.

And then, after quite a bit of last minute stress, right at the beginning of November I found myself exchanging contracts to sell the house, on the phone on the way to the airport (for a trip to a place with very patchy/expensive connectivity). Job Done.

In England, exchanging contracts is the first step in a two step process. Though the buyer has now paid a 10% deposit, I haven’t seen any money yet; the deposit sits with the lawyer. I agreed with the buyer to complete the transaction (when they pay the balance, and I give them the keys) some weeks into the new year. Right now we sit in a curious no man’s land, where the house is still mine, and I have access/keys/etc to it, but in fact the legal responsibility for it sits with the buyer. If the buyer were to pull out, they forfeit the deposit completely, so I have a high degree of certainty.

How did this saga work out, financially?

I have been the first to say that I don’t regard my principal residence as a financial investment. In fact Rich Dad, Poor Dad’s Robert Kiyosaki would argue that your principal residence is in fact a liability (because it consumes cash), not an asset (which generates cash). By having moved out of my Former Dream Home in 2016, and decided to rent it, it effectively flipped from being a liability into an asset – albeit not one that I would have chosen to buy as an investment.

The price I got in the end in Q4 2019 was about 5% below the price I agreed in Q3 2016. Based on what has happened to prices in London since then, this feels approximately par for the course.

As it happens, the gains I have made on this house since I bought it almost twenty years ago, are remarkably modest – the house has only gained 65% in value, or barely 3% per year. As I said, I have never considered it to be an investment! I will pay barely any capital gains on this, as all gains under the period where the house was my principal residence are tax-free in the UK.

Nonetheless, in 2016 I effectively made a decision to ‘Hold’ my investment, rather than Sell it.

In cold hard (‘nominal’) terms, I am in fact slightly up on where I ‘started’ in summer 2016 (based on the price I agreed, but didn’t get done). I have had almost three years’ rent come in, at a yield of around 3.5% per year. So technically speaking, in gross terms, I am a few tens of thousands of pounds better off, three plus years later.

Looking at my situation net of taxes, charges and other costs (e.g. repairs / new dishwasher/etc), would be a rather tedious analysis but would probably confirm that I am in fact slightly down, on a net basis, than if I had managed to get my 2016 buyer over the line.

While the counterfactual is hard to know for sure, I believe if I had been prepared to drop the price by 10% from what I had agreed, I would have sold the house to somebody. In reality I didn’t fancy taking that price, and gambled that as the Brexit clouds lifted I would more likely get a better price than a worse price. But based on that counterfactual price, I have definitely done better by holding on for three years – by at least £100k.

Opportunity cost

The true cost of the three extra years it has taken me to sell my house is however a much bigger number than £100k.

While this is hindsight speaking, I can say with complete certainty that had I managed to sell the house in Q3 2013, I would have deployed the money into my wider invested portfolio. And, as I have documented every month since then, I can say pretty precisely what returns it would have generated.

Let’s assume I didn’t sell my house until the end of 2016, and thus didn’t benefit from any of the 12% returns I posted in Q3/Q4 2016. I’d have seen my capital increase by 13% in 2017, far more than the 4.5% decline it would have endured in 2018. And, most importantly, I’d have the benefit, in 2019, of one of the most dramatic bull runs in equity market history – with 2019 almost finished, my portfolio has delivered almost 24% returns. My capital, had I redeployed it from my Former Dream Home into my liquid portfolio by 31 December 2016, would have risen in value over £500k.

Of course, I wasn’t to know in mid 2016 how the markets would pan out over the next three years. If we’d endured a 33% drop in global equities, and I’d sold my Former Dream Home for approximately what I could have sold it for in 2016, I’d have dodged an expensive (silver?) bullet. But, as my 2016 decision to borrow money to increase my exposure to the markets demonstrates, I was pretty confident in the equity markets. So I do consider my decision to Hold, not Sell, my Former Dream Home in 2016, was a mistake.