Should i put my savings into bricks and mortar?

Tassotti

carpy wrote:

property prices are continuing to grow and reports this week suggest a surge in prices again over the next few years, and by 2010 or 12 the average price will be £300k!!! :-(

any thoughts?

See what you started carpy

For me, I hope the prediction made above about prices is true. Others, like FTB will disagree.

I meet many people who want to buy a house and not live in it. Cannot really understand it myself. Why take on all the hassle of being a landlord for the little returns its providing at the moment.

Its time to double the rent (triple it and you may see Bob return to property)

I feel that over the next few years, the market will stay flat with slight increases/decreases, and then start increasing at a steady rate by 2010.

By 2018, prices will have doubled at least. I would call that a medium term investment.

If you can afford it, why not buy and take in a lodger or two. Not ideal, but you are still on the ladder and you have help with the mortgage?

The procrastinators of today are the homeless of tomorrow!!

F_T_Buyer

stphnstevey wrote:

I have no idea! I'm not the one with no balls to invest, who doesn't even own his own house let alone had an ounce of experience in investing in property to give an informed opinion. Just because of his own insecurity, crys wolf to everyone else that will listen, so that they don't get ahead of him.

I make money in a rising market as well as a downturn and beleive me, I have rode both ponies.

Lets face it, your attitude to risk is just different to mine. Your not going to convince me and I'm not going to convince you.

So let sum this up. You are advising people to invest in property because you have over the past decade and made money. You fail to state any risks, only that 'if you're in it for the long term' you will be ok. You claim massive profits by playing down your gearing. You fail to back up any argument, and only claim that prices always rise, so it's fine. You show you don't have a clue to how markets work, and their impact.

Now lets go back to my original comment "Now is not a good time to invest in property."

This still stands. Even if you're right in that property will rise over the long term, it is more than likely to stay still for peoples ability to pay catches up. If you were to invest now, and it doesn't matter how much you borrow, you will be lucky if you make positive cash flows. But the risks are huge, and the gains so little.

When I retire early though, I'll promise not to bother you behind the counter at BurgerKing:rotfl:

Personally I find this as an insult to people who work in restaurants.

property prices are continuing to grow and reports this week suggest a surge in prices again over the next few years, and by 2010 or 12 the average price will be £300k!!! :-(

What do you think the UK would be like if prices did rise 50%, yet wages only rose 30%?

BobProperty

A few more points from me:

If you want gearing use commodity futures.

Long term the stock market out performs property, not by much but it does.

If prices are the same over a period of 10-13 then in real terms they will have fallen, either by the effect of inflation or purely on the basis of "net present value" effect. (cue American real estate joke)

I will only look at property that gives a rental return of 15% or more. I decided this a long time ago. I have since realised there is further justification for this figure if you compare property to other businesses:
If I want a safe deposit for my money with no effort on my behalf I can put it on deposit with a bank and get 5% return.
If I want to take a bit more risk I can put my money into stockmarket funds, I can get a higher return but I have to be a bit more active in looking after it.
If I want to run a business I will have to take a lot more risks including borrowing money, but the going rate of return, because of the risks, is in the region of 20-25%.
So, if I want to invest in property, and I know that the average capital appreciation is 8% per annum, I need 12-17% in rent for it to give me the same returns as any other business.
Now, if you don't think being a landlord is a business that's your decision. If you think it is a business where you can delegate the responsibility for a fee that's your decision. What I do know is that a successful small business is almost wholely reliant on the owner's active participation and drive.
I don't think there's much more I have to say on the subject.

stphnstevey

I agree that running a property is much like running a business and investing in property normally requires active participation. However, this is not a downside as I personally enjoy that I can do things (such as renovate a property) to increase the value of my investment. If I had the same money in shares, there is not much I can do to those shares (apart from put them in a tax free wrapper) to increase their value.

I can see how you might think shares have outperformed property, but it depends if you compare like for like. A 20% rise in my share prices is literally that, a 20% ROI.A 10% rise in my property, gives me a 100% ROI (see below for calculation). So despite shares outperforming the increase in property prices, actually investments in property has far surpassed shares.

As for F_T_Buyer, I feel that property is a LONG TERM investment. If your in it for the short term then you have to accept the highs and lows of the market. There is still potential in ANY market to make money and I do believe that if someone bought property now they COULD potentially still make money from it over the LONG TERM (but there is no garantee). Todays market might not be ideal, but as many people are finding, not investing can be detrimental too (currently there are many FTB's that are priced out of the market).

There is a BIG difference between investing in BTL and investing in a home.

However, I do get narked by those people who seem to think renting is better than buying when they can afford to buy. I really shouldn't mind, as it is those same people who are paying my mortgages. They have become my assets, busy working hard all day to pay my debts and providing me with an income and ownership of their home. In fact F_T_Buyer, please keep advising people to rent:rotfl:

F_T_Buyer

stphnstevey wrote:

I can see how you might think shares have outperformed property, but it depends if you compare like for like. A 20% rise in my share prices is literally that, a 20% ROI.A 10% rise in my property, gives me a 100% ROI (see below for calculation). So despite shares outperforming the increase in property prices, actually investments in property has far surpassed shares.

And where do you borrow this money from? That's right, banks. And who provides the resources for banks to grow? That's right, investors (through the stock market).

The stock market will ALWAYS out perform property. Because investing in companies provides real wealth, those companies invest in labour and increase productivity. This is real wealth. The property market is always reliant on companies, as this is where people get their money from to pay for it.

Remember, rising property prices DOES NOT create wealth (it just redistributes it), whereas rising stock prices does. Rising stock prices is based on higher profits, which means higher investment, meaning higher productivity, meaning real wealth creation.

As for F_T_Buyer, I feel that property is a LONG TERM investment. If your in it for the short term then you have to accept the highs and lows of the market. There is still potential in ANY market to make money and I do believe that if someone bought property now they COULD potentially still make money from it over the LONG TERM (but there is no garantee). Todays market might not be ideal, but as many people are finding, not investing can be detrimental too (currently there are many FTB's that are priced out of the market).

What you seem to ignore with 'it's a long term investment' is the short term risks. In fact you seem to fly by them without a passing mention.

There is a BIG difference between investing in BTL and investing in a home.

Sure, there is always a difference between investing in BTL and investing in a home. But a home should be a home before it is an investment.

However, I do get narked by those people who seem to think renting is better than buying when they can afford to buy. I really shouldn't mind, as it is those same people who are paying my mortgages. They have become my assets, busy working hard all day to pay my debts and providing me with an income and ownership of their home. In fact F_T_Buyer, please keep advising people to rent:rotfl:

Now hold on. I have said several times, if someone wants to buy a home, go for it. As long as they don't take on too much debt. I have neither advised anyone to sell their home to rent.

I'm arguing against buying a property to rent out. And now is not the time to do so. If it wasn't for members like me arguing why now is not a good time to invest in property, any reader would read this and assume it's a one way bet - which it is not!

hethmar

Carpy from what you say you are thinking of buying a property to live in, not as an investment.

I cant see that your savings could make the potential gains that a property could over a long term and at the same time you would be living independently. I dare say you are paying mum rent and this may well be as much as your mortgage payments or certainly part. And you could always take in a mate as a lodger to help with your finances. My own son has a 2 bed place and has a lodger paying £60 per week (an old friend from uni). This suits them both, son knows he has someone reliable to look after the place if he is out, his friend is able to relax in a modern apartment at a rate less than the ratty bed sit he was paying for. AND the income is tax free.

I think the decision you are really trying to make is whether to leave home or not. Thats one for you - I dont know how old you are but there should come a time when a young person cuts the apron strings.

If you believe you can pay the mortgage comfortably plus things like untilities, groceries, council tax, insurance etc. then I cant see what the downside would be. (Apart from mum doing all the cooking cleaning and washing?)

BobProperty

stphnstevey wrote:

....I can see how you might think shares have outperformed property, but it depends if you compare like for like. A 20% rise in my share prices is literally that, a 20% ROI.A 10% rise in my property, gives me a 100% ROI (see below for calculation). So despite shares outperforming the increase in property prices, actually investments in property has far surpassed shares.....

No, I know shares outperform property in the long term.
But your ROI is dependant on gearing which isn't normally available for shares. It's the old "safe as houses" mentality of lenders. You can borrow up to 100% of the purchase price of a house, and 85% of a BTL. Try asking your bank manager for the loan of 85% of your proposed £100k share portfolio. (even if you could get 125% of the loan covered by dividends). The answer will be no, because traditionally houses are seen as "safe" and shares as "risky".
You are again forgetting the downside of gearing. A 10% fall in a share portfolio is a loss of 10%. A 10% fall in the value of your property is a 100% loss of the money you put in.

stphnstevey

BobProperty wrote:

No, I know shares outperform property in the long term.
But your ROI is dependant on gearing which isn't normally available for shares. It's the old "safe as houses" mentality of lenders. You can borrow up to 100% of the purchase price of a house, and 85% of a BTL. Try asking your bank manager for the loan of 85% of your proposed £100k share portfolio. (even if you could get 125% of the loan covered by dividends). The answer will be no, because traditionally houses are seen as "safe" and shares as "risky".
You are again forgetting the downside of gearing. A 10% fall in a share portfolio is a loss of 10%. A 10% fall in the value of your property is a 100% loss of the money you put in.

You contradict your 1st statement that shares always outperform property. You admit gearing does exist with property and because of the advantage of being able to do this with property and not with shares, property by far outperforms shares. Whether the increase in 'property prices' outperform the 'increase in share prices' is irrelevant.

If you asked a bank to lend you money to buy even its OWN shares, they would laugh you out of the office!. However, ask them to lend you the majority of the cost of a piece of dirt with a house on it and they are falling over themselves to lend it to you. This shows you that Banks (you know - those people who you trust with your money and investments) think that property is a safe bet compared to shares.

Your right about the gearing could work negatively, but thats only if you need to sell. I don't know how much my property is worth. I have no need to know, I am not selling. As I have pointed out time and time again, personally I am in it for the long term and would not advise anyone to get into property unless they were also taking a long term view.

I do not go into the negatives of buying property (there are some, but I still believe less than buying shares/pensions), because there are scare mongerers like F_T_Buyer doing that already. No one seems to be arguing the opposite way, which seems unbeleivable.

BobProperty

stphnstevey wrote:

You contradict your 1st statement that shares always outperform property. You admit gearing does exist with property and because of the advantage of being able to do this with property and not with shares, property by far outperforms shares. Whether the increase in 'property prices' outperform the 'increase in share prices' is irrelevant.

I didn't contradict myself. You are not comparing like for like. One investment is geared the other isn't. If you want to compare geared share purchases like options then, if you get it right, you will make an absolute fortune in a couple of years. Please explain Whether the increase in 'property prices' outperform the 'increase in share prices' is irrelevant. I thought that's what we were talking about.

stphnstevey wrote:

If you asked a bank to lend you money to buy even its OWN shares, they would laugh you out of the office!. However, ask them to lend you the majority of the cost of a piece of dirt with a house on it and they are falling over themselves to lend it to you. This shows you that Banks (you know - those people who you trust with your money and investments) think that property is a safe bet compared to shares.

Yeah right, banks never lend money to companies, especially publicly quoted ones. I was talking about at the level of the private investor. Large businesses are always borrowing money and at rates you can't get near.

stphnstevey wrote:

Your right about the gearing could work negatively, but thats only if you need to sell. I don't know how much my property is worth. I have no need to know, I am not selling. As I have pointed out time and time again, personally I am in it for the long term and would not advise anyone to get into property unless they were also taking a long term view.

I'm sure everyone who got repossessed in the early nineties can see that their mistake was that they were taking a short term view.

stphnstevey wrote:

I do not go into the negatives of buying property (there are some, but I still believe less than buying shares/pensions), because there are scare mongerers like F_T_Buyer doing that already. No one seems to be arguing the opposite way, which seems unbeleivable.

But the way you talk about it you make out there aren't any negatives, or that they are so insignificant, they can effectively be ignored. F_T_Buyer, myself and others can see that the current house market is unsustainable and that something has to change. I have posted the figures on another thread regarding the realism of some mortgage products, where the lender is willing to offer 5.5 x income. A .5% increase in base rate would leave the borrower paying 65% of their take home pay to their lender. Now if inflation is under control (as GB keeps pretending) and interest rates creep up a bit then the only thing left to give is house prices.

stphnstevey

BobProperty wrote:

I didn't contradict myself. You are not comparing like for like. One investment is geared the other isn't. If you want to compare geared share purchases like options then, if you get it right, you will make an absolute fortune in a couple of years. Please explain Whether the increase in 'property prices' outperform the 'increase in share prices' is irrelevant. I thought that's what we were talking about.

I know nothing about options! I also don't think you can gear them as benificially as property? The average investor either sticks his money in bog standard shares or property. But when they stick it in property it is nine times out of ten geared. Therefore just looking at house price increase compared to share price increase is not a true reflection of your year on year return. You need to look at your initial investment and the rate of return on that. This is were property far exceeds shares.

Yeah right, banks never lend money to companies, especially publicly quoted ones. I was talking about at the level of the private investor. Large businesses are always borrowing money and at rates you can't get near.

I am also talking about the private investor. No bank would lend money to a private investor to buy the bank's own shares, but a bank would lend a private investor money to buy almost any house.

I'm sure everyone who got repossessed in the early nineties can see that their mistake was that they were taking a short term view.

Not everyone got repossessed, in fact the majority didn't. So even in the worst circumstances, the majority of home owners managed (despite very hard times). Those that had considered if they could cope with their debt in those unusual circumstances, had made preparations and had taken on managable debt.

But the way you talk about it you make out there aren't any negatives, or that they are so insignificant, they can effectively be ignored. F_T_Buyer, myself and others can see that the current house market is unsustainable and that something has to change. I have posted the figures on another thread regarding the realism of some mortgage products, where the lender is willing to offer 5.5 x income. A .5% increase in base rate would leave the borrower paying 65% of their take home pay to their lender. Now if inflation is under control (as GB keeps pretending) and interest rates creep up a bit then the only thing left to give is house prices.

The reason I state the positives is purely because everyone else was more than stating the negatives. The discussion was not fairly put otherwise.

The fact is NO ONE (not even you Bob) knows what the future will bring. Making a prediction is simply half chance. Consider what would happen in the worst circumstances, put preparations in place for these circumstances if you need to, but don't let doom and gloom singers stop you doing something. They know very little more than you do really.