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  • FIRST POST
    • fred246
    • By fred246 15th Apr 19, 9:10 AM
    • 1,479Posts
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    fred246
    FIRE & property
    • #1
    • 15th Apr 19, 9:10 AM
    FIRE & property 15th Apr 19 at 9:10 AM
    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.
Page 1
    • Pension Geek
    • By Pension Geek 15th Apr 19, 9:15 AM
    • 169 Posts
    • 128 Thanks
    Pension Geek
    • #2
    • 15th Apr 19, 9:15 AM
    • #2
    • 15th Apr 19, 9:15 AM
    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.
    Not an expert, but like pensions, tax questions and giving guidance. There is no substitute for tailored financial advice.
    • SeniorSam
    • By SeniorSam 15th Apr 19, 10:09 AM
    • 1,217 Posts
    • 628 Thanks
    SeniorSam
    • #3
    • 15th Apr 19, 10:09 AM
    • #3
    • 15th Apr 19, 10:09 AM
    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.
    I'm a retired IFA who specialised for many years in Inheritance Tax, Wills and Trusts. I cannot offer advice now, so my comments are just meant to be helpful.
    • Mordko
    • By Mordko 15th Apr 19, 10:39 AM
    • 191 Posts
    • 48 Thanks
    Mordko
    • #4
    • 15th Apr 19, 10:39 AM
    • #4
    • 15th Apr 19, 10:39 AM
    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
    • By thickasabrick 15th Apr 19, 10:48 AM
    • 75 Posts
    • 62 Thanks
    thickasabrick
    • #5
    • 15th Apr 19, 10:48 AM
    FIRE & property
    • #5
    • 15th Apr 19, 10:48 AM
    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.
    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.
    Originally posted by fred246
    • michaels
    • By michaels 15th Apr 19, 11:37 AM
    • 22,327 Posts
    • 102,944 Thanks
    michaels
    • #6
    • 15th Apr 19, 11:37 AM
    • #6
    • 15th Apr 19, 11:37 AM
    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.
    Originally posted by fred246
    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.
    Cool heads and compromise
    • Terron
    • By Terron 15th Apr 19, 4:45 PM
    • 408 Posts
    • 406 Thanks
    Terron
    • #7
    • 15th Apr 19, 4:45 PM
    • #7
    • 15th Apr 19, 4:45 PM
    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
    • By bostonerimus 16th Apr 19, 2:45 AM
    • 2,823 Posts
    • 2,138 Thanks
    bostonerimus
    • #8
    • 16th Apr 19, 2:45 AM
    • #8
    • 16th Apr 19, 2:45 AM
    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.
    Misanthrope in search of similar for mutual loathing
    • Sea Shell
    • By Sea Shell 16th Apr 19, 5:37 AM
    • 1,426 Posts
    • 2,566 Thanks
    Sea Shell
    • #9
    • 16th Apr 19, 5:37 AM
    • #9
    • 16th Apr 19, 5:37 AM
    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.
    " That pound I saved yesterday, is a pound I don't have to earn tomorrow "
    • k6chris
    • By k6chris 16th Apr 19, 6:48 AM
    • 412 Posts
    • 743 Thanks
    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......
    "For every complicated problem, there is always a simple, wrong answer"
    • AnotherJoe
    • By AnotherJoe 16th Apr 19, 7:00 AM
    • 13,480 Posts
    • 15,937 Thanks
    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.
    • Mordko
    • By Mordko 16th Apr 19, 9:56 AM
    • 191 Posts
    • 48 Thanks
    Mordko
    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.
    Originally posted by AnotherJoe
    The costs of owning go beyond mortgage. There is council tax and costs of repairs. There is also the cost of lost revenue if the same money you used to purchase the house went into the stockmarket instead.
    • Mnd
    • By Mnd 16th Apr 19, 2:58 PM
    • 1,176 Posts
    • 1,727 Thanks
    Mnd
    Don't people renting have council tax?
    I know I couldn't afford to rent my home, but we are mortgage free and there is no way I would prefer to rent to owning my own home
    • AnotherJoe
    • By AnotherJoe 16th Apr 19, 3:20 PM
    • 13,480 Posts
    • 15,937 Thanks
    AnotherJoe
    The costs of owning go beyond mortgage. There is council tax and costs of repairs. There is also the cost of lost revenue if the same money you used to purchase the house went into the stockmarket instead.
    Originally posted by Mordko

    The house next door to me is renting for £1400/month.
    Ive just looked up a 350k mortgage at 2%. £1,483.

    So the only "excess" money would be the £50k deposit.

    Whatever £50k at say 5% would rise to, i think its reasonable to think that £400k at less than that (lets say HPI is 4%) would be much less in 25 years than the £400k woudl appreciate to.
    Council tax, usually paid by renters.
    Maintenance, yep. What is that. Maybe a couple thousand a year if you thrown bathroom and kitchen replacement in over the years.? Similar to what you'd spend on costs with rentals I'd think what with new agreements legal arrangements etc. In any case its incidental.

    And then at 25 years with a mortgage all that happens is your maintenance continues, whereas with renting you continue to pay £1,483. Forever.
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
    • Mordko
    • By Mordko 16th Apr 19, 9:22 PM
    • 191 Posts
    • 48 Thanks
    Mordko
    The house next door to me is renting for £1400/month.
    Ive just looked up a 350k mortgage at 2%. £1,483.

    So the only "excess" money would be the £50k deposit.

    Whatever £50k at say 5% would rise to, i think its reasonable to think that £400k at less than that (lets say HPI is 4%) would be much less in 25 years than the £400k woudl appreciate to.
    Council tax, usually paid by renters.
    Maintenance, yep. What is that. Maybe a couple thousand a year if you thrown bathroom and kitchen replacement in over the years.? Similar to what you'd spend on costs with rentals I'd think what with new agreements legal arrangements etc. In any case its incidental.

    And then at 25 years with a mortgage all that happens is your maintenance continues, whereas with renting you continue to pay £1,483. Forever.
    Originally posted by AnotherJoe
    Not sure about maintenance. I paid over 20,000 pounds to replace doors and windows last year. And this year will likely spend something similar to refresh the kitchen.

    Someone who is renting can leverage his 50k in the exact same way a house buyer does and then use the 350k to invest in stocks. The return is uncertain but 7%/yr would have been modest by recent standards. In 25 years the poor sod would end up with 525k cash.

    Sure, he’d be taking a risk by leveraging. So does anyone with a mortgage. Anyone who has all his assets leveraged to get a single property is taking on A LOT of risk. Someone who holds a diversified portfolio of stocks and bonds limits his risk.

    Don’t get me wrong, I own a house (outright). I just don’t think it’s really an investment. Certainly a good idea for families who can afford it, but it’s a major expenditure item.

    And I don’t get the fundamental difference between buying a house in London vs New York or Vancouver, or Cheshire and Pennsylvania.
    • bostonerimus
    • By bostonerimus 17th Apr 19, 4:40 AM
    • 2,823 Posts
    • 2,138 Thanks
    bostonerimus
    FIRE and housing discussions in the US are usually about paying off the mortgage early or not. rather than between renting and owning.

    It's hard to ignore the advantages of a mortgage in the US when interest rates are so low. Remember a US mortgage rate can be fixed for the term ie the rate never changes so you know exactly what you'll pay for the next 15 or 30 years. and it's always possible to refinance if the rate goes down. Also mortgage interest can be deducted from your taxes and the first $250k ($500k for a married couple) in capital gains is tax free. There are fewer ways and lower thresholds for tax free saving and investing in the US than the UK so the potential tax free gains of home ownership are attractive.
    Last edited by bostonerimus; 17-04-2019 at 4:42 AM.
    Misanthrope in search of similar for mutual loathing
    • AnotherJoe
    • By AnotherJoe 17th Apr 19, 7:41 AM
    • 13,480 Posts
    • 15,937 Thanks
    AnotherJoe
    Not sure about maintenance. I paid over 20,000 pounds to replace doors and windows last year. And this year will likely spend something similar to refresh the kitchen.

    But if you are in the house for 10 years that's £2k a year. [/

    Someone who is renting can leverage his 50k in the exact same way a house buyer does and then use the 350k to invest in stocks.
    Buying on margin is much more problematic with shares than a house. There's no margin call on at house and you can only buy shares on margin, not funds and shares are much riskier . The return is uncertain but 7%/yr would have been modest by recent standards. In 25 years the poor sod would end up with 525k cash.
    Except with shares it's more likely to be double that or be bankrupt because of the risk. Oniy grouped shares (ie funds) are liable to rise in that manner. . A very big gamble. Witha house if the price falls after buying you've still got somewhere to live and even negative equity doesn't have anyone wanting money back as longa s you can pay the mortgage. . With shares you have someone demanding their money back.

    Sure, he’d be taking a risk by leveraging. So does anyone with a mortgage. Anyone who has all his assets leveraged to get a single property is taking on A LOT of risk. Someone who holds a diversified portfolio of stocks and bonds limits his risk.
    Not on margin
    Don’t get me wrong, I own a house (outright). I just don’t think it’s really an investment. Certainly a good idea for families who can afford it, but it’s a major expenditure item.

    And I don’t get the fundamental difference between buying a house in London vs New York or Vancouver, or Cheshire and Pennsylvania.
    Originally posted by Mordko
    Different tax regimes and laws regarding rental make a big difference
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
    • Mordko
    • By Mordko 17th Apr 19, 11:51 AM
    • 191 Posts
    • 48 Thanks
    Mordko
    Different tax regimes and laws regarding rental make a big difference
    Originally posted by AnotherJoe
    Governments everywhere encourage people to borrow to buy houses. This can be in the form of preferential tax treatment, government guarantees/mortgage insurance, partial ownership to subsidies house buying etc.

    These measures tend to have one-off effects of raising house prices; often just in time for elections. The effect on changing the balance between renting and buying is small compared to the other costs and benefits involved. Gets lost in the noise.

    In my list of house buying costs I managed to forget the cost of actually buying and selling a house, such as stamp duty, real estate agent fees, legal fees, searches, etc. House buying is particularly bad “investment” for those who have to relocate soon after buying. It becomes more viable if you know for sure that you won’t be moving for a very long time. People tend to move every 7 years. Young people move more often. People who own may miss on more profitable job opportunities because they are tied to a house.

    A nice comparison of buy vs rent maths: https://www.physicianonfire.com/rentvsbuy/ (US).

    Worth noting that on average housing has done well over the past 10 years. QE has pumped assets all over the world. UK pound dropped in value, which made houses appear more expensive when counted in sterling. So we have a “recency” bias.
    Last edited by Mordko; 17-04-2019 at 11:54 AM.
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