Why buy – ever?

chucknorris

mwpt wrote: »

He rents, and believes (rightly or wrongly, it doesn't matter) that UK property isn't good value for money at the moment. But that is irrelevant. I used it as an example of renting now and buying later. Something that seems not to exist in the property bulls minds.



I'm going to be a little rude here but why are you guys so obtuse? I could assume you're stupid rather than obtuse, but I'll give you the benefit of the doubt.

Once again, for the terminally "obtuse" amongst you, my point was only to contradict the "obtuse" statement that people who choose to rent plan to rent forever.

This cannot be that hard to grasp.

I don't disagree, in fact, I rented myself when I first moved to London, and we are likely to rent for 3-4 months a year in Spain/Portugal in the winter months after we retire (certainly at least for the first 5 years or so). But I think that you need to explain this to the OP, as the title of this thread is 'why buy - ever'. That might possibly explain why some of the posts are worded in way that addresses renting but never buying.

EDIT: I can't believe that a moderator has actually decided that the autumn statement thread has nothing to do with the economy and moved it to the money saving arms. Did they think that it was a thread about the weather during autumn or something?

mwpt

chucknorris wrote: »

I don't disagree, in fact, I rented myself when I first moved to London, and we are likely to rent for 3-4 months a year in Spain/Portugal in the winter months after we retire (certainly at least for the first 5 years or so). But I think that you need to explain this to the OP, as the title of this thread is 'why buy - ever'. That might possibly explain why some of the posts are worded in way that addresses renting but never buying.

Fair point. I house-shared in London for many years. One thing I wish I'd done differently was actually draw up a cash flow spreadsheet many years ago. It may have shown me that even if house price falls had materialised (in London *), I would have been financially better off buying as early as possible and renting rooms to lodgers. I'd still have been house-sharing, at roughly the same cost, but would have been "earning" the lodgers rent as income to pay down the mortgage.

Unfortunately I didn't do that until too late, and by that stage the type of houses I could buy ten years back had slipped out of my reach (despite aggressive saving). Once I did draw up the spreadsheet, I found a price point and area that suited my risk profile and bought a place with a mortgage cheaper than rent that would buffer me in the case of price falls. There are many areas in London that are too high risk for me, mortgage exceeds rent by some way and falls would hit very hard. These are the places that people will be making big "returns" on capital growth.

In fact, that would be my most important piece of advice to younger people feeling priced out. Draw up a spreadsheet, look at the actual figures, and if you're house-sharing (quite likely in London), strongly consider continuing to do so, except in a house you own. You might find that price falls become less of an issue. Oh, and this assumes a really good job because ability to build deposit and obtain the mortgage will be a huge problem for this strategy.

chucknorris

mwpt wrote: »

Fair point. I house-shared in London for many years. One thing I wish I'd done differently was actually draw up a cash flow spreadsheet many years ago. It may have shown me that even if house price falls had materialised (in London *), I would have been financially better off buying as early as possible and renting rooms to lodgers. I'd still have been house-sharing, at roughly the same cost, but would have been "earning" the lodgers rent as income to pay down the mortgage.

Unfortunately I didn't do that until too late, and by that stage the type of houses I could buy ten years back had slipped out of my reach (despite aggressive saving). Once I did draw up the spreadsheet, I found a price point and area that suited my risk profile and bought a place with a mortgage cheaper than rent that would buffer me in the case of price falls. There are many areas in London that are too high risk for me, mortgage exceeds rent by some way and falls would hit very hard. These are the places that people will be making big "returns" on capital growth.

In fact, that would be my most important piece of advice to younger people feeling priced out. Draw up a spreadsheet, look at the actual figures, and if you're house-sharing (quite likely in London), strongly consider continuing to do so, except in a house you own. You might find that price falls become less of an issue. Oh, and this assumes a really good job because ability to build deposit and obtain the mortgage will be a huge problem for this strategy.

With the rent a room scheme threshold being significantly increased (from £4,250 to £7,500) this might now become much more of a factor to potential buyers. If I was the Chancellor I would have been tempted to also allow an additional London weighing too.

lisyloo

I think its because the numbers just don't stack up.

I did the numbers for my own (non-typical) situation and the numbers pointed to renting. The alternative investment involved was a pension that would obtain approx 40% relief, although I would say it's not a typical property, situation (2nd home so CGT) or term.
I'm not saying that's typical - on the contrary, but I am saying it's a good idea to run the maths for any particular situation rather than rely on axioms about what's right MOST of the time.
I think a life changing decision warrants a little more research than that.

lisyloo

That's assuming they can afford to pay rent and have enough money left to invest

Of course it is, but why would you automatically assume the worse case scenario?
That's either the sort of person you are or you're bringing a huge bias to the argument.
We're not buying and we're exceeding the £40K limits on our pensions by using previous years allowances - so don't assume everyone who is renting is stupid and/or poor. They may have very good reasons for making an active choice.

As an example did you know contractors can claim their rent as expenses in certain situations which is a 40% saving?

ukcarper

lisyloo wrote: »

I did the numbers for my own (non-typical) situation and the numbers pointed to renting. The alternative investment involved was a pension that would obtain approx 40% relief, although I would say it's not a typical property, situation (2nd home so CGT) or term.
I'm not saying that's typical - on the contrary, but I am saying it's a good idea to run the maths for any particular situation rather than rely on axioms about what's right MOST of the time.
I think a life changing decision warrants a little more research than that.

Out of interest did you allow for the high rates of HPI London has been experiencing and if not do you think it would have changed things. I must admit I didn't foresee the HPI we've been experiencing.

System

Mwpt -

. The point being, it does not matter if there is a better investment strategy, it only matters that there are alternate strategies, that allow a person to buy outright in retirement. Something almost everyone seems to chose to not see.

Most mortgages will result in outright ownership by retirement, it'll be bought at a cheaper price from years ago and the person would've reaped years of not having to pay the landlords insurance and tax bills and profit through higher rents

Pensions are good for sure (albeit risky), esp good for high rate taxpayers, but if your wallet matters surely it does matter which investment actually does best - if banks put so much into low yielding mortgages it seems like there aren't many compelling investments

mwpt

MatthewAinsworth wrote: »

Mwpt -

Most mortgages will result in outright ownership by retirement, it'll be bought at a cheaper price from years ago and the person would've reaped years of not having to pay the landlords insurance and tax bills and profit through higher rents

Do go on. I haven't heard of this before. I'd like to see your spreadsheets and research.

lisyloo

Out of interest did you allow for the high rates of HPI London has been experiencing

I obviously had to estimate HPI, rent increases and investment returns and I almost certainly underestimated HPI.
I think we would have already missed the boat in SW1 though.

and if not do you think it would have changed things

Yes certainly changes in those factors mentioned including HPI would make a difference. But I still wouldn't buy on the basis of just a 6 month work contract. In fact I started with 1 week in the Travelodge then serviced apartments before committing to renting, so there were other reasons for not buying initially beyond the maths (as there always are).

I must admit I didn't foresee the HPI we've been experiencing.

Whichever way you jump there are risks.
Personally I think I'm happier with a balanced portfolio.
I'm prepared to forego more risky gains for a level of safety/comfort, so I guess it comes down to your appetite for risk/reward.
I do like the fact that we can pack a suitcase and go even though that flexibility comes at a price.

lisyloo

Do go on. I haven't heard of this before

Really?
You think landlords do this for nothing or at a loss?
Take a step back.
Lanlords make money. Therefore it's going to be cheaper to provide your own accomodation.
Why would landlords provide this service if they weren't making a profit?