Savings Log of a 26yr old on low pay

MoneyWaster2007

Hi Allie, it's really good that you've paid off your mortgage at the young age of 39! Well done

I'm having reservations about getting a mortgage in the first place as I've read an extract from 'Rich Dad Poor Dad' which says that a house is not an asset. Has anyone read this book and if so could you explain this point please?

mike88

MoneyWaster2007 wrote: »

Hi Allie, it's really good that you've paid off your mortgage at the young age of 39! Well done

I'm having reservations about getting a mortgage in the first place as I've read an extract from 'Rich Dad Poor Dad' which says that a house is not an asset. Has anyone read this book and if so could you explain this point please?

Of course a house is an asset. My first house cost £5000 and I gradually built myself up to a £500k house all with a maximum of a £30000 mortgage admitedly over a 25 year period.

I also bought a buy to let flat costing £50000 in 1999 and sold in 2006 net of capital gains tax and selling expenses for £100000 as well as receiving of around a net of tax £20000 in rent which could have been more but my son lived there rent free for a couple of years.

The key is when to buy. In the late 1990's people were saying not to buy properties as prices were depressed but a few years later prices rose exponentially. The time to buy is when prices are low and that is now subject of course to mortgage approval

ViolaLass

MoneyWaster2007 wrote: »

Hi Allie, it's really good that you've paid off your mortgage at the young age of 39! Well done

I'm having reservations about getting a mortgage in the first place as I've read an extract from 'Rich Dad Poor Dad' which says that a house is not an asset. Has anyone read this book and if so could you explain this point please?

I wonder if the book means that a fully mortgaged house is not an asset (your net gain is zero).

rockitup

MoneyWaster2007 wrote: »

Hi Allie, it's really good that you've paid off your mortgage at the young age of 39! Well done

I'm having reservations about getting a mortgage in the first place as I've read an extract from 'Rich Dad Poor Dad' which says that a house is not an asset. Has anyone read this book and if so could you explain this point please?

Interesting point you brought up there MW.

I did not read his book yet but downloaded a TV programme or seminar that Kiyosaki did previously. He explained that a house, car or whatever else only become an asset when it brings in an income. In the case of a house, that could be seen to be a BTL or even using a Rent-a-Room scheme for your spare 1 or 2 rooms. For a car, that would qualify if it were a taxi, a rental car or delivery vehicle etc.
If no income comes in then Kiyosaki describes it as a liability, in other words you are paying for the cost and maintenance of the "product" but maybe not going to get that outlay back as a return.

Of course with a house, you get the use of it yourself as a big benefit but Kiyosaki seems to set it in stone, a dividing line between asset and liability. This could be used in smaller value items too such as all the nice gadgets we like, might help reduce our spending...

You did well getting rid of your car, I did that almost 20 years ago when I was just about to buy my first house. Then I bought a car the next year and it became an asset (part-time cab). The house had a spare room so it too became somewhat of an asset.

That book was originally published in 2000 and gained popularity in the next few years as the US Housing market took off and people on even small/average incomes started "flipping" properties. So the gains were indeed well leveraged then, probably not so likely to get rich so quickly in the current economic climate.

By the way, this link makes interesting reading about Mr Kiyosaki

http://www.dailymail.co.uk/news/article-2215642/Rich-Dad-Poor-Dad-bankrupt-dad-Best-selling-author-files-corporate-bankruptcy-losing-24m-judgement.html

Keep up the hard work MW

MoneyWaster2007

Brilliant post rockitup! It's got me thinking...if I save £15k and put that down on a £100k mortgage, I could buy a 2 bed flat to rent out, which at a very rough estimation could bring in £200-300 p/m which added to the £100 I save already would mean possibly £400, maybe at a push £500 saved p/m. So another couple of years after that I could get a second property...maybe I'm dreaming here, but I think it might be realistic, what do you think?

rockitup

MoneyWaster2007 wrote: »

Brilliant post rockitup! It's got me thinking...if I save £15k and put that down on a £100k mortgage, I could buy a 2 bed flat to rent out, which at a very rough estimation could bring in £200-300 p/m which added to the £100 I save already would mean possibly £400, maybe at a push £500 saved p/m. So another couple of years after that I could get a second property...maybe I'm dreaming here, but I think it might be realistic, what do you think?

You would need to look further into required size of deposits on BTL before you go any further down that route. 15% deposit was the norm until the credit crunch, more recently 25% was needed. That figure could have lessened by now so do your homework or see what is available when you have saved that £15k.

Another easier way is to go down the residential mortgage route with a lender that will allow a lodger or two while you live in the house too. You would need to work out what you would be saving from your current rental situation. If you can manage to get a 3 bed flat or house then you can rent 2 rooms out (and maybe a 2nd reception room if there is one) and the rent could cover most, if not all your mortgage depending on price of property of course.

This is a lot less risky than buying a BTL and renting it out to as a whole unit to a tenant who could end up jobless and unable to pay rent. As a live in Landlord you have more rights when it comes to getting someone to leave.

Whichever route you may take don't forget to factor in the costs of repairs, redecorating, voids, gas safety inspections etc. It is not a one-way ticket to riches like when capital gains were huge in the early 2000's but if you have time on your side it could work out well further down the line. I just cannot see house prices rising by any more than inflation over next 10 years.

Always good to read the "House buying, renting & selling" board on this forum too to gain an insight into what could go wrong (or right, hopefully). That is why the rent-a-room scheme should be a better way forward, just need to have lodgers you can get along with.

mike88

MoneyWaster2007 wrote: »

Brilliant post rockitup! It's got me thinking...if I save £15k and put that down on a £100k mortgage, I could buy a 2 bed flat to rent out, which at a very rough estimation could bring in £200-300 p/m which added to the £100 I save already would mean possibly £400, maybe at a push £500 saved p/m. So another couple of years after that I could get a second property...maybe I'm dreaming here, but I think it might be realistic, what do you think?

I think you should expect more than a £200-£300 per calendar month net return from a property if you choose well in an area where there is high rental demand. A gross £450 - £500 per calendar month is easily achievable but the net cost depends on the type of property you buy and the ongoing maintenance requirements. All costs are deductable for tax purposes.

Areas around hospitals are a good location as people tend to be in relatively secure employment and can afford decent rents. The problems associated with non payment of rent as alluded to by rockitup are perceived rather than real as most landlords nowadays require guarantors (normally parents) who become liable in the event of rental defaults.

Buy to Let mortgages are however more difficult to come by and more expensive than for houses that you propose to live in yourself. Even if you bought the house for yourself and then decided to move out and rent you would require the permission of the mortgage company who then might switch your mortgage to the higher buy to let rate. Having said that the cost of interest on a buy to let mortgage is tax deductable against income received. You will have to complete a tax return each year.

In your position and on balance I agree that the best bet is probably to buy a property and share which is tax efficient (if the rent a room allowance is still operable).

innovate

Don't forget that there are costs as well if you are a landlord. You have to pay for repairs and maintenance - potentially more frequently than if you occupied the property yourself.

Also, you may well have periods where your property is empty and you do not take in your monthly rent.

Plus, you need extra insurances, and you might be well advised to engage a letting agency to ensure you have legal contracts, vetted tenants, ongoing management of the relationship with the tenants. And of course your capital deployed will be subject to the variations of the housing market. This can work for or against you.
http://news.bbc.co.uk/1/shared/spl/hi/in_depth/uk_house_prices/html/houses.stm

The required effort, and the risks involved, are very different to putting your money into savings accounts.

Desperate_Housewife_2-2

I read the 'Rich dad Poor dad' a while back and it didnt really make any impact on my approach to money. I see how he looks at a house as a loss if it doesnt bring any income in but from my point of view having paid off the mortgage, the moeny we would have paid on mortgage/rent is now saved in an isa so is effectively an income as if we didnt have it we would have to pay rent.

You are doing very well in your venture and I wish you all the best. We were skint and struggled for years when the kids were little (I worked nights and stayed up with the kids instead of going to bed to save on child care) but it is lovely now as we both work part time and have less worries with money.
Keep going it will be worth it

Desperate_Housewife_2-2

MoneyWaster2007 wrote: »

I joined a dating website but not had much luck with it yet..

..just a tip on meeting girls....

Have you thought about joining a stitch and b!tch or knit and chat group? These are female dominated and even if you dont meet anyone at the group the women there will know loads of other single women and I'm sure would love to hook you up! Give it a go! Just google wool shops or knitting shops in your area on yell.com and try it out

At the very least you will learn how to knit