Profiting from property - or really a myth?

[Deleted User]

Exactly! My point really was that almost everyone I speak to...when they talk about property, doesn't understand that equity does not = profit. And I think it's actually quite a concerning situation if the mindset of most people is that way.

Being on the property ladder is a 'good thing' perhaps, but it's not a profit-making process despite others talking about it as if it is.

beecher2

Also, he's got to buy somewhere else, and if his has gone up in value since 2004, so will the new one, so where's the profit? I don't understand people who refer to their homes as an investment anyway - it is somewhere to live, not to make a profit on.

kinglewis

Exactly! My point really was that almost everyone I speak to...when they talk about property, doesn't understand that equity does not = profit. And I think it's actually quite a concerning situation if the mindset of most people is that way.

Being on the property ladder is a 'good thing' perhaps, but it's not a profit-making process despite others talking about it as if it is.

Completely agree..

Most people only remember the last 10-20 years when property has done particularly well (and it's never off the news!!) People just jump on the bandwagon in my opinion. I suppose cash buyers can do well out of it if you can bear all the huge set up costs / hassle of managing the property / risk of no tennant etc.

The right investment in stocks and shares can perform much better but its not exactly sex & violence owning an ISA is it!! Owning a 2nd/3rd property is a status thing for many people. (unfortunately). IMHO

Euphoria1z

id agree with your own home, you pay the interest, but what about buy to let? someone else is paying the mortgage interest payments for you? regards to your own home, at the end of the day, you have to live somewhere, pay mortgage/pay rent, you have to pay!!! but if youd own the property long enough, it tends to appreciate alot faster than the rate of interest your paying?

matt1234

beecher2 wrote: »

Also, he's got to buy somewhere else, and if his has gone up in value since 2004, so will the new one, so where's the profit? I don't understand people who refer to their homes as an investment anyway - it is somewhere to live, not to make a profit on.

Most people you talk of base their arguments on the performance of the housing market in the last 10 years. In that time, plenty of normal home owners have benefitted from increased house values when they come to selling....some as high as 150%! As you pointed out, if they're about to buy another house then chances are the new house will have gone up in value too so there's no real point. However, you've ignored the many people who downsize, go to elderly homes, go live with their relatives and so on...all these people will have made some £££

The cost of fees/valuations/stamp duty/mortgage interest etc need not eat up your equity. I would hazard a guess that most peolpe (including your friend) who talk of gains from property probably do actually make a real term profit.

Radiantsoul

You need to deduct the interest costs and fees, but then add back the rent you would have paid to get the true profit figure.

A big advantage of house buying is you borrow a lot and so you only need to invest a small sum of your own money. Any increase in the value of the house is kept by you, so a large loan offers large rewards for a small initial investment.

Ed_Zep

I think you should tell your friend he did fine, just to keep the peace.
You and everyone else here know the truth!

Reminds me of the old expression "Be wiser than others but do not tell them so."

Dave_the_Ginger_Cat

maninthestreet wrote: »

22K profit over 5 years on a property that cost 218K is 2% per year return - nothing to write home about, and that's before EA and solicitor fees have been taken into account.

Agree with all the comments on needing to stay in the market but I'd work it out a different way to above.

My calc assumes he returns to renting, and that the money he has paid for mortgage roughly equals the amount he might have paid in rent over this period.

I'd work it out the return this way:

His profit is worked out on the increase in his stake, not the net increase in the house value.

So £22k increase on his investment, which was his deposit of £13k, is 169% over 6 years, which is a reasoable return. On a compound basis, this equates to 20.5% return per year, and more if he bought at the end of 2004 (I've used a full 6 year duration in these calcs)

Assuming fees of about £5.5k (£4360 of it would have been stamp duty, then surveys, fees etc), this is still an annual rate of 9.5% per year

So the hypothetical answer is yes - he got a much better rate than had he put it in the bank on deposit. He might have made more in stocks, might have made less.

At the end of the day, though, a house is your home.

Did he enjoy living there?

HTH