Making money on houses an illusion?

Corley

Just a question now that’s been in the back of my mind and I cant seem to figure out.
There’s all these people that go round saying they bought there house for such and such and now its worth this much more and ive gained so many thousands of pounds now, but saying that you paid interest on a mortgage for the last god knows how many years/part of your life so really the amount you make you don’t in effect thanks to interest paid on your mortgage, agents selling fee’s solicitors fee’s and all of the other rip off you have endure. Of course i can see if you buy a house out right it’s a different story but you still suffer some loss due to other various fee’s, and i dont know to many peopel who have several thousand pounds spare for a house, especialy if your just starting off. SO how does it all work how do you actually gain money from housing?

An example you pay 100grand for a house after 10 years its worth 115grand? But you have paid say 10grand interest over the 10 years so does this mean you have to sell your house at say 120grand just to break even thanks to all the costs + interest??

If you understand what im on about and can enlighten me please do, I would be very grateful.

John_M_Business

Corley wrote:

There’s all these people that go round saying they bought there house for such and such and now its worth this much more and ive gained so many thousands of pounds now, but saying that you paid interest on a mortgage for the last god knows how many years/part of your life so really the amount you make you don’t in effect thanks to interest paid on your mortgage, agents selling fee’s solicitors fee’s and all of the other rip off you have endure. Of course i can see if you buy a house out right it’s a different story but you still suffer some loss due to other various fee’s, and i dont know to many peopel who have several thousand pounds spare for a house, especialy if your just starting off. SO how does it all work how do you actually gain money from housing?

You only really gain money from housing if you raise the value of the property in relation to it's peers (i.e. if you had a house worth £100k and you did £20k worth of work to it, paid £10k on fees and similar and it is then worth £150k (and assuming that the general value of property didn't rise) - then you've made some cash).

Corley wrote:

An example you pay 100grand for a house after 10 years its worth 115grand? But you have paid say 10grand interest over the 10 years so does this mean you have to sell your house at say 120grand just to break even thanks to all the costs + interest??

Firstly, you need to work out what the Interest is - if you are just paying off Interest on your home then this is true - you have 'lost money' net. However if you are on part repayment, then you might find that actually what you 'owe' after ten years may be closer to £70k (then again, you will have paid a LOT more than £10k to get to that point!).

Secondly, you have to answer 'what is the cost of running a home?' If you would have had to pay rent during that time INSTEAD of living in a house you 'own' - then what would you have had to pay for this? There is a cost of a home that you would have had to cover either by rent or mortgage (or living with parents).

Finally, the main point on all of this is (and really the main debate across all the boards) 'is it worth it?' And the answer in recent years has been 'yes' because although you are right to summise that if houses go up in price, so do others - if you don't HAVE a house, then the money you need to invest in order to get one is getting GREATER. However, now with static house prices, most cautious people have missed the boat (and are therefore hoping for a crash!).

Corley

i know the example was really crude and inaccurate but i juwt wanted to show a point thats all, what ever you make from raising prices you in effect because the next house you buy will have risen jsut like your own that your selling and "making a profit" from and also the interst you have paid over the years will probabaly be the same as your increase if not alot more.

John_M_Business

Corley wrote:

i know the example was really crude and inaccurate but i juwt wanted to show a point thats all, what ever you make from raising prices you in effect because the next house you buy will have risen jsut like your own that your selling and "making a profit" from and also the interst you have paid over the years will probabaly be the same as your increase if not alot more.

Yes, but it is also a crude illustration, because:
1) If you don't buy a house, you will almost certainly be paying RENT - therefore it's unwise to just see mortgage repayments as a 'cost'.
2) If you didn't buy a house five years' ago, then you should be kicking yourself because by NOT getting one, you're in a worse position than you would be today (unless there is an enormous 'correction' which doesn't seem to be coming)
3) And people CAN add value to their properties. Even the mugs that Property Ladder manage to find with ridiculous notions of cost DO mostly make a profit in the end (even if a very small one!!). From doing a little decoration to the full works you can increase the value of your property over and above the market (and it should also protect you further if the market goes in the opposite direction)

meanmachine_2

John_M_Business wrote:

However, now with static house prices, most cautious people have missed the boat (and are therefore hoping for a crash!).

I agreed with everything up to this point.

Most cautious people are happy to have flat prices aren't they? I'd be happier with a crash, but I can certainly live with static prices, as they allow me to "catch up" in terms of saving for a deposit.

Or do you mean people who have bought in the last 18 months? In which case, I agree.

It must be quite frustrating to have overstretched to pay a huge mortgage, in order to join your mates in this miraculous money making pyramid scheme, only to find prices have flatlined since the purchase was made.

Unless you've bought simply to have a roof over your head, in which case you shouldn't give a monkeys either way.

meanmachine_2

John_M_Business wrote:

3) And people CAN add value to their properties. Even the mugs that Property Ladder manage to find with ridiculous notions of cost DO mostly make a profit in the end (even if a very small one!!). From doing a little decoration to the full works you can increase the value of your property over and above the market (and it should also protect you further if the market goes in the opposite direction)

Except in this most recent series not one of them made a profit, save for the first couple who could have sold to the neighbours anyway without all the stress attached!

The sweet elderly couple in Sudbury STILL haven't sold their townhouse, and it has since dropped by I believe 50K.

They also lost their son since the programme was made, poor folk.

Pennywise

It's not really as simple as comparing rent with mortgage payments. If you rent, you don't have any other costs relating to the property, but if you own, you *may* have quite substantial costs, especially as the housing stock is getting older - such as new roofs, new windrows, replacing electric and heating systems etc. Such property maintenance costs are covered at present by the recent house price boom in that the costs are factored in and the work done by the new buyer, but in the last property recession, quite a lot of home-owners were "trapped" - their houses needed a few thousand spending on them, but the house values would not support a re-mortgage, they had negative equity so couldn't sell, and not many people have a few thousand spare in the bank. Comparing rent and mortgage isn't "black and white". If there is any prolonged stagnation of the property market, even without a "crash" as such, the issue of general maintenance may well become a bigger issue again.

John_M_Business

Pennywise wrote:

It's not really as simple as comparing rent with mortgage payments. If you rent, you don't have any other costs relating to the property, but if you own, you *may* have quite substantial costs, especially as the housing stock is getting older - such as new roofs, new windrows, replacing electric and heating systems etc. Such property maintenance costs are covered at present by the recent house price boom in that the costs are factored in and the work done by the new buyer, but in the last property recession, quite a lot of home-owners were "trapped" - their houses needed a few thousand spending on them, but the house values would not support a re-mortgage, they had negative equity so couldn't sell, and not many people have a few thousand spare in the bank. Comparing rent and mortgage isn't "black and white". If there is any prolonged stagnation of the property market, even without a "crash" as such, the issue of general maintenance may well become a bigger issue again.

Sure, I didn't clarify this, because if I went to such detail even my longest posts would be dwarfed...

Yes, it's more than just repayments v. rent. However with my home (as an example), about 50% of the existing market value is covered by a mortgage with repayments of just under £1000. Rental I would probably have to pay (and yes, I have had quotes for this) about £2,400 after EA costs etc.

This means that there is about £450 'left over' per month which should more than cover your list of concerns.

John_M_Business

meanmachine wrote:

Except in this most recent series not one of them made a profit, save for the first couple who could have sold to the neighbours anyway without all the stress attached!

The sweet elderly couple in Sudbury STILL haven't sold their townhouse, and it has since dropped by I believe 50K.

They also lost their son since the programme was made, poor folk.

Yes, but the point is that even Property Ladder, who deliberately choose Muppets to film (for obvious broadcast reasons), find people who usually break even or make a small increase (and, though I don't watch EVERY one, I haven't seen one where someone has lost anything significant (i.e. over £5k), although many have effectively 'worked for free' in the process).

Most reasonably astute people should be able to make a good sum developing their own property - even if only doing 'House Doctor' cosmetic changes. I, for one, will be doing this to every single property I buy so that I can continue to climb as I move from home to home. It's just good sense.

dippy

John_M_Business wrote:

Sure, I didn't clarify this, because if I went to such detail even my longest posts would be dwarfed...

Yes, it's more than just repayments v. rent. However with my home (as an example), about 50% of the existing market value is covered by a mortgage with repayments of just under £1000. Rental I would probably have to pay (and yes, I have had quotes for this) about £2,400 after EA costs etc.

This means that there is about £450 'left over' per month which should more than cover your list of concerns.

When did you buy your house? Are you comparing current rent with mortgage on house prices from quite a few years ago? Have you made the sums if you were to buy your house at its current value now?

This is the dilemma that potential buyers are facing in the current market.

John_M_Business

dippy wrote:

When did you buy your house? Are you comparing current rent with mortgage on house prices from quite a few years ago? Have you made the sums if you were to buy your house at its current value now?

This is the dilemma that is facing potential buyers in the current market.

I am comparing my current mortgage (which is about half the current market value) with what I would currently get from the current rental marketplace in the current climate for my current property in its current condition.

Obviously the rental and sales markets closely follow each other. As soon as one offers 'better value' than the other, then people drift across (sales to rent and vice-versa) until they just about balance each other in perceived value.

For a long while buying seemed attractive, then renting (until now) - now there's little to choose between the two (at least in West London this is the case).