Renting vs Buying Outright

egoode

SteveRadner wrote: »

If I could've got a mortgage I would've bought some time ago, yes. But because I've almost always been freelance and am only recently starting to make a good living at it, it's never been an option.

This money makes it an option.

I think as it's something you have thought about before and you are buying it outright then you should just do it as you never know when you will have the money to do it again in the future. Every investment has a risk associated with it but at least with this one you get to live in your own place and only need money for maintenance and bills which will dramatically reduce your outgoings that you pay now. Also remember rent costs are likely to just keep going up and up and you won't have that issue anymore.

After you have bought a place I would then use the money you used to pay in rent to put in a pension, ISA, or whatever other investment you are interested in.

JimmyTheWig

SteveRadner wrote: »

If I could've got a mortgage I would've bought some time ago, yes. But because I've almost always been freelance and am only recently starting to make a good living at it, it's never been an option.

This money makes it an option.

Then, as egoode says, this is almost definitely something worth doing with the money.

JimmyTheWig

SteveRadner wrote: »

I'm starting to wonder if there are any plus points to having the money invested the way it currently is?

Depends on where it is currently invested and what your aims for the money is.

If, for example, you are very risk-averse and don't want to risk losing some or all of the money then it would make sense to put the money into a high-interest cash account. This would have the benefit of the money being safe whereas if you use it to buy a house the value of the house can go down.

Or if, for example, you have a business opportunity on the horizon for a few years time you might want the cash invested somewhere where you could get at it easily. Which it might be, currently. Whereas if you buy a house with it then even though you can sell the house again it is not an easy or quick thing to do and by the time you have sold the house the opportunity may be gone.

Or the value of the return on the investment may be such that it makes more sense to keep it invested and carry on renting.

I'm not convinced that any of the above apply in your case, but I do think it's worth noting that buying a property isn't necessarily a "one size fits all" solution.

But if you're looking to invest the money for the long term and you want the security and surety of home ownership then buying yourself somewhere to live sounds like the ideal answer.

booksurr

SteveRadner wrote: »

I'm starting to wonder if there are any plus points to having the money invested the way it currently is?

can't see any!

- the capital is being eroded by inflation
- the interest is not enough to allow you to live rent free

but apparently the sum of money is big enough to allow you to buy a property to live in without needing a mortgage and therefore you will benefit from the capital growth which you lack at the moment and will see a return on your investment because you won't be paying half of your income to top up your rent

all of this subject to:
a) I am not qualified to give investment advice so the above is not advice!!!!
b) owning property is a long term proposition

JimmyTheWig

booksurr wrote: »

apparently

A fair word to use.

Steve, do you want to give us ball-park figures for how much you are looking to pay for a flat and how much rent you are paying for something similar?
The whole thing does seem a little skewed in favour of buying. If you want someone on here to check your figures then that's fine.

SteveRadner

JimmyTheWig wrote: »

A fair word to use.

Steve, do you want to give us ball-park figures for how much you are looking to pay for a flat and how much rent you are paying for something similar?
The whole thing does seem a little skewed in favour of buying. If you want someone on here to check your figures then that's fine.

I have recently inherited just under 200k which is invested so I want to spend that or less preferably. I do have a small amount of savings in cash but need to keep that accessible as being freelance means I might need it if work dries up.
It seems this is just enough for me to buy somewhere.

Rental of a 1 bed flat in London is £800 per month at best. I'm currently paying more than that but could potentially find somewhere for that price.

SteveRadner

JimmyTheWig wrote: »

Depends on where it is currently invested and what your aims for the money is.

If, for example, you are very risk-averse and don't want to risk losing some or all of the money then it would make sense to put the money into a high-interest cash account. This would have the benefit of the money being safe whereas if you use it to buy a house the value of the house can go down.

Or if, for example, you have a business opportunity on the horizon for a few years time you might want the cash invested somewhere where you could get at it easily. Which it might be, currently. Whereas if you buy a house with it then even though you can sell the house again it is not an easy or quick thing to do and by the time you have sold the house the opportunity may be gone.

Or the value of the return on the investment may be such that it makes more sense to keep it invested and carry on renting.

I'm not convinced that any of the above apply in your case, but I do think it's worth noting that buying a property isn't necessarily a "one size fits all" solution.

But if you're looking to invest the money for the long term and you want the security and surety of home ownership then buying yourself somewhere to live sounds like the ideal answer.

I'm not entirely risk adverse -- all of this stuff is risky so I know I need to be aware of an element of risk if I want to make any profit.

That's the thing, I thought the interest on this amount of money would cover my rent easy but it turns out it doesn't. Don't get me wrong, I know I'm incredibly lucky to have it and to be in this position. I just don't want to mess it up now, and make smart decisions.

JimmyTheWig

SteveRadner wrote: »

I have recently inherited just under 200k which is invested so I want to spend that or less preferably. I do have a small amount of savings in cash but need to keep that accessible as being freelance means I might need it if work dries up.
It seems this is just enough for me to buy somewhere.

Rental of a 1 bed flat in London is £800 per month at best. I'm currently paying more than that but could potentially find somewhere for that price.

All sounds reasonable to me.
With £200k, you'd need a 4.8% return (after tax) to give you £800 a month. And has been said, that £200k lump sum wouldn't keep up with inflation. So each year you'd need better and better returns to pay an increasing rent.

4.8% after tax sounds unattainable to me, so buying somewhere seems like the sensible thing to do.

I definitely agree with you about keeping an emergency savings pot, especially when freelance.

JimmyTheWig

SteveRadner wrote: »

I just don't want to mess it up now, and make smart decisions.

Buying yourself somewhere to live is generally a smart decision.
As well as being an investment, you've got somewhere to live.

Be sensible when looking for places to buy. Try to imagine what it will be like to sell the place in 5+ years time. E.g. if it's in a trendy area now (and so the price will be inflated), will the area still be trendy in 5 years time? If it's a new build you'll be paying a premium for being the first person to live there - but the person you sell to in 5 years time won't. If you like Victorian or older properties, remember that they may have Victorian or older electrics, plumbing, heating, etc which may need money spent on.

If in doubt, get other people's opinions. Ask people you know who have bought flats in the past what they think. Feel free to ask on here.

Get a survey done, even though you won't need one for a mortgage.

In some ways, being able to pay for the place outright makes it less of a risk than someone with a small deposit. May sound counter-intuitive as you will be stumping up more money than them but in both cases you become liable for the full property.
Imagine buying somewhere for £200k and finding that it's a bit of a dud and actually only worth £180k. If someone buys it with a 5% deposit and 95% mortgage they will be in negative equity - they'll owe £190k on a property worth £180k. But in your case you'll have just lost £20k (on paper) of the money that you had.
Obviously no-one wants to lose £20k (which is why I spent most of this post saying about being careful when you buy) but it isn't so harsh for someone who has got £20k than someone who hasn't.

needabed

A couple of example properties:

http://www.zoopla.co.uk/for-sale/details/34417109 - Great 11% Rental Yield.

http://www.zoopla.co.uk/for-sale/details/34387956 - Being ideal for first time buyers and investors alike.