FIRE & property

fred246

When I discovered FIRE websites I discovered I was already doing most of the things they recommended EXCEPT I had spent a lot on property. I had bought a nice house with plenty of space to bring up a family. It seems to have been a good investment and the increase in it's value contributes a lot to my net worth. When I retired at 50 I knew that if I ever ran out of money I could always downsize to free more cash. If I had spent less I could have retired earlier but I wouldn't have enjoyed my life as much. Most FIRE websites are American. Is the property market different there? Should people aiming to retire early buy cheap houses? More expensive houses seem to gain more in value.

Pension_Geek

I suppose the obvious thing would be that a smaller house and the residual money in the bank/invested is liquid, whereas a larger house is less liquid. That's before you factor in running costs, council tax and maintenance.

Also, there is no guarantee of an increase in value. I have cousin who bought a house and it took many many years to recover its value.

SeniorSam

Historically, property has been a great investment. Larger properties obviously gain more, but the upkeep is greater. Comfort and location matters to some but not all, but I prefer larger property for a good investment, than money in the bank.

[Deleted User]

Historically stockmarket performed significantly better than houses. Of course some properties have done better than some stocks, but on average stocks are better. People tend to leverage houses a lot more, which juices returns, but hypothetically margin could be used for stockmarket as well. Buying a house and considering it as an investment = high concentration of one’s net worth for most people = high risk. House prices can go down and stay down for a long time. Leverage magnifies losses,

thickasabrick

I quite like JL Collins take on it in his article "Why your house is a terrible investment".

If you are aiming for financial independence, then one of the simplest methods to increase your savings rate is to reduce your fixed costs.

You can generally rent the equivalent property cheaper than buying in high property price areas and put the difference into other investments.

This article by Paula Pant on affordanything.com has a very good worked example. "Renting is Throwing Money Away … Right?"

Run the figures through the New York Times "Is It Better to Rent or Buy?" calculator

From what I've read, buying a property or investing in the stock market should be about even over a 10 year period.
Not everyone has the ability to purchase a property (large or small) due to deposit, fees, credit history, income, moving for work or family etc. Most people can open and put money into a stocks and shares ISA or pension.

fred246 wrote: »

When I discovered FIRE websites I discovered I was already doing most of the things they recommended EXCEPT I had spent a lot on property. I had bought a nice house with plenty of space to bring up a family. It seems to have been a good investment and the increase in it's value contributes a lot to my net worth. When I retired at 50 I knew that if I ever ran out of money I could always downsize to free more cash. If I had spent less I could have retired earlier but I wouldn't have enjoyed my life as much. Most FIRE websites are American. Is the property market different there? Should people aiming to retire early buy cheap houses? More expensive houses seem to gain more in value.

michaels

fred246 wrote: »

When I discovered FIRE websites I discovered I was already doing most of the things they recommended EXCEPT I had spent a lot on property. I had bought a nice house with plenty of space to bring up a family. It seems to have been a good investment and the increase in it's value contributes a lot to my net worth. When I retired at 50 I knew that if I ever ran out of money I could always downsize to free more cash. If I had spent less I could have retired earlier but I wouldn't have enjoyed my life as much. Most FIRE websites are American. Is the property market different there? Should people aiming to retire early buy cheap houses? More expensive houses seem to gain more in value.

This seems to be conflating two different issues:
(1) whether property should form part of an investment portfolio when looking for fire
(2) whether the value of the 'services' provided by housing are worth paying for even if that delays fire

These two questions may have different answers for different people and in different areas. For example where land is scarce and population is increasing then housing should be a good investment - but don't forget even in London population and inflation adjusted prices fell in the 70s and 80s. In large parts of the US building land is almost unlimited and house values are more like cars, with a premium fo r'new' that is immeidately lost when it becomes second hand and then further declines as it is no longer the swanky new neighbourhood.

Terron

There is property and there is property.



Your home might gain in value, but you can't access that gain without a lot of hassle. Still you need a homeand you might enjoy a larger one that the minimum you could get away with. I have a larger house than I absolutely need in a nice area. I consider it worth the price of £179k that I paid for it 5 years ago. I am not that interested in the current value as I don't wish to move, but I was told earlier this year that it is likely worth £250k. That is not money I want to realize so its not really an investment,


My previous home I paid £80k for, lived in for 18 years and the remortgaged for £135k to help pay for the new one. I then let it. Rents and values have not dropped a bit in that area, though it lis still likely to be worth £50k more than it was valued at in 2014. I am currently trying to sell it.


Neither of those was bought as investments, but in 2013 I started buying other properties to provide an income as I had lost my job., I haven't done my accounts for last FY yet, but they have been bringing in over 7% net on average, well ahead of inflation and giving me FI and almost early retirement. As a bonus they have also gone up in price recently. I started off buying for cash two properties whose values I could increase by refurbishing them, so there was little risk. Later I bought using mortgages, but my overall LTV is still less than 50%.
I have also bought three properties using a company. For these I looked both for decent returns and a better chance of incresed value. I am in the process of remortgaging the first one for more than I paid for it. It has gone up almost 40% in 3 years, though I lost about £10k though a tenant who stopped paying and having to refurbish. Still the remortgage will provide most of the deposit for a fourth company property.
Over the same time the stock market has been going up and down, but my investment property has been more stable and paid for me to live


I have had some luck. I grew up in an area where rental yields were high and prices low, but the infrastructure was about to be improved (new tram line opening) when I started investing.

bostonerimus

FIRE is different for everyone. You can implement the basic ideas or frugality and aggressive saving in an infinite number of ways, just come up with a plan that gets you to your financial independence and retirement goals.

As I live in an area where may of the homes are designed for two families I bought one of those homes and have rented out the ground floor apartment for many years. The rental income allowed me to pay off the mortgage quickly so that in retirement I don't have to worry about a mortgage and now the rent is good income.

Sea_Shell

Yes, I can see that there could be an argument for this.

We could have stayed in our original 2 bed house, and squirrelled away even more savings for early retirement, but we would not have been HAPPY!!!

As it was we upsized into our (almost) forever home, and have been very happy here, and have still been able to pay off the mortgage and amass a FIRE pot.

We don't consider the value of our home to be part of the FIRE pot, but we always do have the option of downsizing again in the future if needed.

As with all things in life, it's about balance, in this case between saving every last penny and having a life (home) you enjoy.

k6chris

A suitable house / home is part of a FIRE portfolio as it has the potential to reduce costs (rent) once retired. In (very) simple terms a £400k house might negate the need for a £1,000 rent requirement, so is in effect an investment 'paying out' 3%. You can also liquidate it, albeit not quickly or simply. Of course an unsuitable house, which requires a lot of maintenance, repairs and other costs is less effective!!



I can also confirm that a new kitchen is NOT an effective part of FI but can be a very strong bargaining chip when negotiating RE......

AnotherJoe

Many of the American FIRE blogs ive read that favourably compare rental over purchase do, as you suggest, talk to a very different house market and environment to the U.K. both in finances and legalities. They also tend to be written by younger childless people who haven't considered the practicalities of moving children from one school to another every few years. Also maybe it's different in the US but over here my experience was, a mortgage was cheaper than renting for a comparable house.
They also all make the mistake that they compare rental vs purchase over the lifetime of a mortage, typically 30 years in the US. Whereas it should be compared over your lifetime, let's say 60 years. The results woudl be very different if they did that.