Why buy a property?

[Floob]

Ok this is a bot off topic, but it is a very simple question.

I currently rent and do not own a property.
What benefit is there to buying?

I rent a room in a large 3 bed flat for £240 a month. It is large enough for me, and gives me flexibility to move.

If I bought a house I'd be looking at £150,000
I would put a deposit of approx £50,000 and a mortgage of £100,000 - even assuming a interest rate of 0%! I would be paying £150,000 for somewhere to live.

If I continue to rent until I am 80 (29 now), I will pay approx £145,000 in rent.

So if I bought a house, I'd be out of pocket now and still have a roof over my head as I do now. The difference being without a mortgage I have a hell of a lot more disposable income available to enjoy myself with.

Now clearly at the end of the mortgage I would own a property, but I dont have a family to pass it to so is it really an asset?
I realise house prices increase and so it is an investment - but then all the house prices are relative, so if I were to sell its not as though I'd get money from it unless I downgrade.

Basically I'd like a sound financial argument to invest in a property.

Thanks

Floob.

[MrShed]

Because that £145000 you will spend on rent is being thrown away. Fair enough you pay 5000 more for a property(OK more with interest :P) but that is then an asset....you are not in fact, in a way, spending any money apart from the interest, as the other payments are going towards an asset that is not falling in value, you can get the money back any time. Also, despite any recent dip in the housing market, housing still almost always rises above inflation, and for a good proportion of the time significantly above.

It's like hiring a vacuum cleaner instead of buying one, except a vacuum cleaner that doubles in value every 5 years :P

[Paul_f]

This is a rhetorical question if ever I saw one!

If you can't make up your own mind on this how do you think everyone else manages to make such a decision?

Do you buy a car or use public transport................discuss!

Perhaps you used to be indecisive, but now are not so sure!

[MrShed]

AND you are making a huge assumption in that your rent will stay the same. It certainly will not....in certain areas close to where I live (Newcastle) rent is increasing by 20% per year.

And who says you have to pass the property on to family? When you are 50, you could always sell it(after you have paid the mortgage) and would have a nice lump sum of (assuming you bought a £150000 house) probably at least £250k, if not £300 or £350, and you can go back to renting :P

The financial arguments for investing in property are so plainly obvious, I cannot see how you cant see them.

[Floob]

Thanks for the replies I appreciate them.
But with the figures:

For arguments sake, if I have £200,000 available to me at the moment.

I can rent:
£250 per month (has been for the last 5 years, but I'm sure it will increase)
£145,000 until I'm 80.


or buy:
£50,000 now as a deposit
£100,000 mortgage= £650 a month (at 6%) over 25 years.
and realisticlly about £90,000 in interest?
So I'm paying 240,000 for a house, that does the same job as something I can pay out only £240 a month for?

I understand that rent is throwing money away, but the money against mortgage is locked away unless I sell or remortagage. If I sell, yes I get the money back but then it still has to go on another property so its never 'available'.

I think my essential argument is that I can spend less (and therefore have more disposable income) during my life by renting than buying?

I understand it is far more common to rent in Europe?



And who says you have to pass the property on to family? When you are 50, you could always sell it(after you have paid the mortgage) and would have a nice lump sum of (assuming you bought a £150000 house) probably at least £250k, if not £300 or £350, and you can go back to renting :P

The financial arguments for investing in property are so plainly obvious, I cannot see how you cant see them.

So you are saying that if a house were not to increase significantly in value it would be a poor choice to purchase?
So I should make the decision to purchase as it is a good investment - but even if my house is worth more, so are all the other houses - would I not be better spending the excess (difference between rent and mortgage cost) on myself? Clearly I would be *worth* more if I own a house - but I dont really see how that worth can be used unless I sell - and I'm always going to want somewhere to live?

I apologise if these seem like daft questions, as I'm sure they do, but I just want to get my head around spending such a vast amount of money.

[Floob]

This is a rhetorical question if ever I saw one!

If you can't make up your own mind on this how do you think everyone else manages to make such a decision?

Do you buy a car or use public transport................discuss!

Perhaps you used to be indecisive, but now are not so sure!

I'd buy a car, because I want to go where I want, when I want. I also find mile for mile it is cheaper.

[dazalock]

Thanks for the replies I appreciate them.
But with the figures:

For arguments sake, if I have £200,000 available to me at the moment.

I can rent:
£250 per month (has been for the last 5 years, but I'm sure it will increase)
£145,000 until I'm 80.


or buy:
£50,000 now
£100,000 = £650 a month (at 6%) over 25 years.
and realisticlly about £90,000 in interest?
So I'm paying 240,000 for a house, that does the same job as something I can pay out only £240 a month for?

I understand that rent is throwing money away, but the money against mortgage is locked away unless I sell or remortagage. If I sell, yes I get the money back but then it still has to go on another property so its never 'available'.

I think my essential argument is that I can spend less (and therefore have more disposable income) during my life by renting than buying?

I understand it is far more common to rent in Europe?

OK so this is the delema I was in 12 years ago.

Why buy a house for £50k and pay a mortgage of £350 per month when Im living in a house now for £300 per month.

Well its because Im now living in a house, with a family of 2 kids and a wife, Ive used the increasing equity in my house to raise deposits for 4 flats, which in turn has returned enough to pay back the deposit money. My house now has no mortgage on it, so Im living a mortgage free life. Each flat brings in about £100 a month income and together themselves have about £100k equity. If I had not bought and struggled for a couple of years, I would now be paying £700 in rent with no assets.

Times are different now, but principle is the same, you wont want to spend your whole life in a room in a shared house and you may want your own "castle" one day.

Regards

Darren

[Floob]

OK so this is the delema I was in 12 years ago.

Why buy a house for £50k and pay a mortgage of £350 per month when Im living in a house now for £300 per month.

Well its because Im now living in a house, with a family of 2 kids and a wife, Ive used the increasing equity in my house to raise deposits for 4 flats, which in turn has returned enough to pay back the deposit money. My house now has no mortgage on it, so Im living a mortgage free life. Each flat brings in about £100 a month income and together themselves have about £100k equity. If I had not bought and struggled for a couple of years, I would now be paying £700 in rent with no assets.

Times are different now, but principle is the same, you wont want to spend your whole life in a room in a shared house and you may want your own "castle" one day.

Regards

Darren

Now that makes sense. I like the argument, and I am tempted to have control of where I live.
However, I'm thinking I wont get a family as I am quite boring and probably wont attract anyone I like that much.

And I am wondering how much you have currently paid out, against what you would have paid out if you still rented. Presumably there is still a mortgage on the flats - but the rent pays that and more?

I also hate the idea that if I did rent out I'd lose 40% straight away. Flippin taxes.

I dont know, I just like liquid cash rather than equity. Perhaps thats the wrong way to think.

[dazalock]

Now that makes sense. I like the argument, and I am tempted to have control of where I live.

Flexabilty is a argument for renting, owning a home is like owning a dog.

However, I'm thinking I wont get a family as I am quite boring and probably wont attract anyone I like that much.

Ugly people unite, ask Paul_f for any advice on this.

And I am wondering how much you have currently paid out, against what you would have paid out if you still rented.

Difficult to work out, but assuming say on average £550 a month, thats £79200, plus the fact that the house I was renting has changed hands and subsequent houses may have well dont the same, so say I would have had to move say 4 times in that period, and the charges associated with that, removals, agents finding fees, moving kids schools (uniforms) so £2000 per move, thats almost £90k. Buying wise, on average £300 a month (went down to about £250 at one point) on mortgage, about £43K, but I was and still am paing part into a endownment, so that stacks up to be worth about £10 half way through, so £33K. House repairs and inprovements about £10 so yes, about £45 as a very rough guess, if I had not gone down the renting route.

Presumably there is still a mortgage on the flats - but the rent pays that and more?

Yes

I also hate the idea that if I did rent out I'd lose 40% straight away. Flippin taxes.

Why, read the forum about what you can set against this, 10% wear and tear, all financial interest charges, agents fees and so on, on paper, Im making a loss.

I dont know, I just like liquid cash rather than equity. Perhaps thats the wrong way to think.

Equity IS liquid if you raise money against it. FOr example, I had a virgin one account, my facility was say £100k but I only used £50, I wanted a Motor bike for £5k, load would have cost me 8%? use the facility cost me 5%.

[Floob]

And I am wondering how much you have currently paid out, against what you would have paid out if you still rented.

Difficult to work out, but assuming say on average £550 a month, thats £79200, plus the fact that the house I was renting has changed hands and subsequent houses may have well dont the same, so say I would have had to move say 4 times in that period, and the charges associated with that, removals, agents finding fees, moving kids schools (uniforms) so £2000 per move, thats almost £90k. Buying wise, on average £300 a month (went down to about £250 at one point) on mortgage, about £43K, but I was and still am paing part into a endownment, so that stacks up to be worth about £10 half way through, so £33K. House repairs and inprovements about £10 so yes, about £45 as a very rough guess, if I had not gone down the renting route.

So you paid £45k so far by buying - and would have paid £90k if renting.
Its a shame that house prices have shot up so much recently, maybe I wouldnt have an isssue if house prices were still £50k.

I also hate the idea that if I did rent out I'd lose 40% straight away. Flippin taxes.

Why, read the forum about what you can set against this, 10% wear and tear, all financial interest charges, agents fees and so on, on paper, Im making a loss.

As I am in the 40% tax bracket from my full time job, I understood that any income will be initially taxed at 40% minus any expenses.

I dont know, I just like liquid cash rather than equity. Perhaps thats the wrong way to think.

Equity IS liquid if you raise money against it. FOr example, I had a virgin one account, my facility was say £100k but I only used £50, I wanted a Motor bike for £5k, load would have cost me 8%? use the facility cost me 5%.

But thats it, I hate paying more than something is worth - interest bugs me, I want to pay the price tag (hence my interest in a 125k flat I could buy outright) - I dont want to pay the extra if I can help it. Again, have I got the wrong mindset? Should I just mortgage myself up to the hilt, get out those credit cards and buy everything on hp? I like the sense of actually having money, not having money on paper.

This is whyt I am thinking I will be financially better of if I have the money in my hands and not in the house.
As I have said, perhaps my opinion is skewed due to the very high house prices currently.

[Paul_f]

Gosh! Never seen so much waffle for ages! (No! I haven't read it either!)

[KM L-J]

I can't see why you are even bothering with adding up all thosed figures and comparing them to be honest.

Statistics show property doubles in value every seven years - yes it is a fact even allowing for downward trends.

So let's say ten years from now it is only worth double what you paid for it, surely that in itself is worth giving up some of your disposable income now, not to mention pride of ownership and freedom to make your own choices about where you live, what you live in and how it is maintained.

[Floob]

I can't see why you are even bothering with adding up all thosed figures and comparing them to be honest.

Statistics show property doubles in value every seven years - yes it is a fact even allowing for downward trends.

So let's say ten years from now it is only worth double what you paid for it, surely that in itself is worth giving up some of your disposable income now, not to mention pride of ownership and freedom to make your own choices about where you live, what you live in and how it is maintained.

Surely adding up figures is important when deciding to invest.

Barring the past five years, isnt doubling in house prices every 7 years an excessive value? I agree that it will clearly rise in value, but my question is how best to make use of that benefit - remortgage? It is the cash I am interested in, I would say my flexibility is not lessened by renting.

So you are saying that by spending, lets say £400 a month more than I do now, in 10 years I could get at that money at a time when I may need it? Its just in my mind I picture that excess cash would just be waiting for my in my bank if I dont put it in the mortage. Although I agree that the house prices should be rising more tahn thre 5% I get in my bank? Alebit there would be interest to pay on the mortgage?

It sounds so simple as everyone keeps saying it is a no brainer, but with the figures it seems harder to see it. I mean, the fact is, I will have more disposable income for many years by renting and not buying.

[dazalock]

At the end of the day, I wish you luck with what ever you decide, for me, its better people rent, a steady flow of tenants is good for most on this board, can I suggest you try www.thisismoney.co.uk as the board there are geared to the buy or not to buy debate.

Regards

Darren

[Floob]

At the end of the day, I wish you luck with what ever you decide, for me, its better people rent, a steady flow of tenants is good for most on this board, can I suggest you try www.thisismoney.co.uk as the board there are geared to the buy or not to buy debate.

Regards

Darren

Thanks for the tip.

[MrShed]

Bar the deposit, isnt it cheaper to mortgage anyway rather than rent?? Isnt this why a lot of people "buy to let" as the rent more than pays for the mortgage??

And you are missing my point about house prices doubling etc. Yes, house prices are relative. But, as someone has said, you can use this to secure other monetary sources. And, as I said, if you really wanted to, you could live in a house for 20 years, have around 4 times the money you had originally, sell the property and rent.....retirement sorted :-D

[juliet2002]

Sounds a bit like the 'am I ready for children?' question - the point being that if you're asking yourself the question, then whatever rational argument might say, you probably aren't ...

I understand it is far more common to rent in Europe?


Historically this is true, but it is also becoming in many countries (eg. Netherlands where we live) much more popular to buy. In part because here you still get tax relief on all your mortgage interest payments (except in a some circumstances; the writing's on the wall for that one I'm afraid) so it really does make financial sense. It took us some time and a lot of Excel spreadsheets to get our head round the idea that because of the tax relief it genuinely was financially advantageous to us (1) to invest/save spare cash we had and then (2) have a large mortgage, instead of using the cash to make a deposit and reduce the sum of our mortgage debt.

Good luck anyway.

Juliet

[deandevy]

Sorry Floob You Said It. You Are Boring!!!

[dazalock]

Sorry Floob You Said It. You Are Boring!!!


Bit Harsh, ok, YOU say something interesting!

[Jennifer_M]

Not sure if there's any point posting on this but MY reason for buying my first house were:

- I can finally put a nail in a wall if I want to and paint my walls in another colour than boring magnolia
- I'm sure the house is in a good condition and that I don't have to battle it out to get the boiler (or anything else) fixed
- The money I spend in the mortgage is MINE (except the interests but I'm prepared to put up with that)
- By the time I retire I will hopefully have moved up the property ladder and own a house far too big for myself, sell it and move into a nice little property somewhere in the world and use the rest of the cash to finally enjoy life (meaning without the worry of paying bills and working for it).
- And if they're lucky, my kids will inherit something from me which hopefully will help them not to have to work as hard as me to have a decent life.

[Floob]

So does buying a house boil down to the fact it is a better investment than having money in the bank?

For example if I buy a £125k flat outright now, it should be worth approx £250k in 10 years? 125k profit.

If this 125k was left in a bank (5%) it would be worth approx £200k? 75k profit.

But if I bought a flat for £125k with £50k deposit and 75k mortgage I'd end up paying 150k (£100,00 for the mortgage inc interest) over 10 years. 100k profit.

So it seems if I put much less than 50k down or paid it back over more than 10 years I'd make less than keeping it in the bank?

I realise interest rates will change, but I'm guessing the relative difference between savings and mortgage rates should keep in sync.

Is that right? Or are my figures totally screwed?
I'm trying to boil this down to the simplest view possible.


=============

Mind you, I guess I would have to pay 40% on all the bank interest, whereas I wouldnt with the value of a house?

[dazalock]

But you would get taxed on any interest earned in a bank, you dont, as long as you live in it, on the profit from a house.

[Floob]

But you would get taxed on any interest earned in a bank, you dont, as long as you live in it, on the profit from a house.


Yep - I added that above, I guess that makes a massive difference.
So the equity in a house, should be passsed from house to house, or invested in other homes so that you can use the extra value and benefit from it whilst not being taxed?

[dazalock]

This is like one of those threads where you can only answer with a question.

You buy a house, it gains equity, you live in said house and then sell, equity is tax free. You buy 2 houses using some equity, you live in one and the process starts again, you rent the other, and in very basic terms will need to pay some CGT on the profits if you sell that.

You put money in a bank, you pay tax.

[deandevy]

We Bought Our First House To Live In. Then We Bought Our First Rental Property From The Equity Of Our House, Then 2 Years Later We Bought Our Second Rental Property Again From The Equity From Our House. We Did Manage To Get These Houses Cheap As They Did Need A Lot Of Work Done To Them. With Rent Coming In From Both Houses We Are Now Mortgage Free.

I Am 27 Years Old 3 Houses No Mortgage.

Surely Buying Your Own House Is Worth It In The End. My 2 Young Children Will Have A House Each When They Are Older.

Surely This Is Interesting Enough Dazalock.

[dazalock]

Yes it is! And ive placed it on my wall to re-read time and time again.

[deandevy]

lol. I was only joking when I said about him being boring, it's that everyone was giving him good advice but he kept repeating himself and not understanding the difference between buying and renting.

This is an excellent forum and I have learnt a lot from it. I have made mistakes in the past because of not knowing where to go for advice, but now I know where to look before I make any mistakes again. Thank you.

[Floob]

lol. I was only joking when I said about him being boring, it's that everyone was giving him good advice but he kept repeating himself and not understanding the difference between buying and renting.


I wanted to get my head around why spend more to get a house, the answer seems to be because over time you will recover more (than putting it in a bank). Mainly due to taxes?

Now I'm wondering if I should get a 4 bed house, live in it and rent rooms. Or get two smaller flates, live in one rent one.
Bearing in mind I have approx £150k I would layout on property - what would you go for?

[MrWoof]

Bearing in mind I have approx £150k I would layout on property - what would you go for?Personally, I would split it, use it for four deposits on BTL interest only mortgages. Initially, the income is about the same as buying one outright but in the longer term, you have four properties with an average value growth better than savings income and the security of a constant income even if one is empty or you have a problem tenant. The rent is about the same as a savings account so double bubble and as rents only go up whereas the relative cost of mortgages comes down, your income continually grows. Invest the amount you would pay as capital repayment and pay off the capital when you feel like it, not monthly. Try an offset mortgage, I have just renegotiated mine and got a lower interest rate than I could get with repayment mortgages.:D