Why do people see their home as an investment?

wibble68_2

Tassotti wrote:

Unless you are an investor in property (ie own many properties) how is buying a house an investment?

You're quite right. One home cannot be an investment.

When I try to argue this point people hit me with the
"I'll downsize and release a lump sum" argument.

Which is very easy to say now but when it comes to crunch
time how many people actually do it.

Claire_DC

lynzpower wrote:

Is it only a "tiny bit extra" for yuo ClaireDC, It was almost 450 pcm difference for me and my mortgage is relitavely tiny cos I am in SO?

Sorry to take this offf-topic

Yeah i think if ours was interest only, it would only be about £60 less per month.. and at least then we're paying something off the mortgage each month.

Ours is a 64k mortgage, but as i said in a previous post, at the moment it's a 40 year mortgage term until 5 years time when we should hopefully be able to bring it down to about 15/20 years as that's the only way we could manage it (as it's only my fiance's name on the mortgage due to me having a bit of debt so didn't want to be financially linked to him until i'd sorted credit out, just in case).

I'd much rather know that the money i was paying each month, was going some way towards reducing the debt.. instead of endlessly paying interest and the debt amount being the same.

£450 extra a month seems quite excessive though.. is yours not extra that way because you'd have to rent the other half of the property also? Forgive me if i've got that wrong as i'm not very knowledgable on shared ownership.

sarah_elton

A house can be an investment, but into a volatile market like many other investments.

There are a lot of differences between houses and shares, but bear with it. If you buy shares, you're paying out money and not receiving anything (ok, so you do get dividends, ignore those for the moment). If when you sell them you get more than you paid, that's where they make you money.

Same principle very roughly applies to housing. If you buy a house for £100k and sell it for £200k, it has made you £100k, minus costs, interest you paid on your mortgage etc.

On the other hand of course the market drops and it halves in value.

It's an investment where you can build up capital (if you buy at the right time), not an investment that gives you income.

My friend hit the market lucky. She bought in Newcastle for £60k around six years ago, and used an IO mortgage. She sold about eighteen months ago I think for £120k. £60k went back to the bank, then out came fees and the rest of it, and then the remaining 50 odd thousand appeared in her bank account. That's how a house can make you money.

But it's a volatile market, and if she or anyone tried to do the same thing now it wouldn't happen in such a short time. That's the stock market equivalent of buying the day before a takeover gets announced. In the very long term the property market tends to give you a reasonable return as does the stock market, but that's not always true, or guaranteed, and in the short term losses can be huge.

That's just my attempt to answer why it's an investment. Any investment costs you money, but you do it to in the hope that you'll get more back than you put in.

I bought this year as some of you know, but I view it as my home first and foremost. I'm doing what I want to the place without stressing over whether it'll look good to sell. If there is a dip or a crash, I aim to ride it out and not be forced to sell and lose out heavily. I've worked out what the interest rate on my mortgage can go up to before I can't afford the repayments. I'm happy to spend money on the place to make it how I want without stressing about whether I'll get that money back when I sell. It's my home, I love knowing it's mine (at least until IR's hit that high I know I can't meet), and I love not having a landlord in the background.

moggins

I think of mine as an asset because when I bought it 7 years ago I paid £32,500 for it. A year ago it was valued at £125,000 where else could I have gained that much money in 7 years

lynzpower

moggins wrote:

I think of mine as an asset because when I bought it 7 years ago I paid £32,500 for it. A year ago it was valued at £125,000 where else could I have gained that much money in 7 years

but that money is only YOURS when its physically in your bank account. Until you sell up, its not your money in fact its a smokescreen.

lynzpower

Claire_DC wrote:

Yeah i think if ours was interest only, it would only be about £60 less per month.. and at least then we're paying something off the mortgage each month.

Ours is a 64k mortgage, but as i said in a previous post, at the moment it's a 40 year mortgage term until 5 years time when we should hopefully be able to bring it down to about 15/20 years as that's the only way we could manage it (as it's only my fiance's name on the mortgage due to me having a bit of debt so didn't want to be financially linked to him until i'd sorted credit out, just in case).

I'd much rather know that the money i was paying each month, was going some way towards reducing the debt.. instead of endlessly paying interest and the debt amount being the same.

£450 extra a month seems quite excessive though.. is yours not extra that way because you'd have to rent the other half of the property also? Forgive me if i've got that wrong as i'm not very knowledgable on shared ownership.

Ah, your on a 40 year, Im on 25. Im not sure 40 years was around when I was looking, at least not for SO lenders as there was only a few in any case back in 04. I agree with you, IM going for repayment next time.

sarah_elton

lynzpower wrote:

but that money is only YOURS when its physically in your bank account. Until you sell up, its not your money in fact its a smokescreen.

When you own shares you don't have the money till you sell.

Yes there's a difference when you're talking about a mortgage because you've borrowed the money to buy, but you take that off the value.

Taking your argument to an extreme, you could say money in the bank isn't yours - you've loaned it to the bank so they can invest it. The bank goes bust and what happens? OK, so not exactly likely, in fact very unlikely.

We're talking about assets of varying liquidity. A house isn't particularly liquid because of the time it takes to get cash out of it (i.e. the time it takes to sell). But it's still part of your overall wealth, just like all the stuff in your home you could sell on eBay if you wanted to. And all the money you have in bank accounts, other investments etc. The value of your wealth at any point in time will vary due to interest rates, house values, share values, etc. And most people's will consist of a mixture of cash and assets.

wibble68_2

sarah_elton wrote:

My friend hit the market lucky. She bought in Newcastle for £60k around six years ago, and used an IO mortgage. She sold about eighteen months ago I think for £120k. £60k went back to the bank, then out came fees and the rest of it, and then the remaining 50 odd thousand appeared in her bank account. That's how a house can make you money.

Are you saying that this was your friends home?

What's her situation now?

Wibble

sarah_elton

wibble68 wrote:

Are you saying that this was your friends home?

What's her situation now?

Wibble

Yes it was her home. She hit the market lucky, right at the start of the boom. I on the other hand have probably bought at the peak so am unlikely to see any return at all for a good many years.

She used that to get a house down here in Essex (I know her from work and she relocated down). She bought a house that needed complete modernisation and is about 3/4 through doing it up while living there.

tawnyowls

Doozergirl wrote:

...
When you put money into a pension fund, it doesn't pay out until you retire; it's still an investment. Some investments you wait longer for a return, it doesn't mean it isn't one while you're still paying in.

And unlike a pension, your house can be passed to your heirs when you die (minus Gordon Brown's increasingly large cut) - with a pension, if you die 6 months after actually starting to draw it, then even if you've paid into it for 40 years, only the pension company benefits.