Home Ownership Is Completely Overrated

Hi Mark,
One question. Have you bought your home in Malta, or are you renting?
Best wishes for your newly found lifestyle, but I'm happily retired in rural Wales, and have no wish to follow you abroad. Just had a lovely day out with a couple of friends, doing a recce. for a trip out next month with our local Heritage Society. Sunshine and good company all the way.

John

Reply to the comment left by "John Walker" at "23/08/2016 - 20:02":

Hi John

We are renting our home in Malta.

5 year lease at €30k per annum with a one way option to break subject to 30 days notice and 30 days rent.

To purchase the property would be circa €1,600,000.

Reply to the comment left by "Yvonne Francis" at "21/08/2016 - 21:14":

We used to live near you in Merton (in the People's Republic of Otmoor). I noticed that the cottage we used to rent for £5 was recently sold for a little under 300,000. A 2-up, 2 down terrace with a small garden and garage. So I'd just hang in there; it obviously is a hot spot.

Reply to the comment left by "Mark Alexander" at "23/08/2016 - 20:08":

Hi Mark

Playing devils advocate then .......

If you had bought it you would have lifetime control over it rather than just a relatively short unsettling 5 years
And also a mere 1.9% rise in property prices pa means then you would be making 30K pa rather than losing 30k pa !

It takes a while to settle into any new home let alone a new country. So after say 4 years there you really have got things sorted in the house, feel really at home in the vicinity and your family love it and you made intricate good connections with local networks and made new friends just around the block who pop in for a cuppa when passing ......

But then the landlord calls round unexpectedly one day and says .. oh by the way just to let you know I wont be renewing the lease. That personally would leave me unsettled as i would then be focused on trying to replicate what i had just taken 4 years to build up and it might leave me feeling as if its all been for nothing.... And then to top it all I would have the stress of trying to find somewhere else to match what i have whilst thinking all the time I may have to do this all yet again in another 5 years and in fact for the rest of my life.

If I live to 100 that may mean shifting my whole life another whopping 8 times.
That wont be any fun at 60 65 70 75 80 85 90 let alone when I am 95 🙂
.

Reply to the comment left by "Jonathan Clarke" at "24/08/2016 - 05:24":

Hi Jonathan

I'm very happy to play devils advocate, I quite enjoy it 🙂

You could have chosen a much harder punch than your math challenge though! Come on 1.9%?!!! If the property value were to drop by 1.9% it would cost 30,000. Capital appreciation isn't guaranteed. However, by using the funds elsewhere it isn't difficult at all to secure a 1.9% cashflow yield. On a geared property investment portfolio double digit cashflow yield well into double figures is also relatively easy to achieve and that's producing real hard spendable cash. Try going to a cash machine to withdraw 1.9% capital appreciation in a property you live in!

If my wife and I live to be a ripe old age remain blessed with good enough heath to continue to be nomadic then all well and good. If our health fails us and/or if we decide just to settle down we can remortgage or sell some of our investment properties and buy. Alternatively, our inflation proof / inflation busting geared rental profit growth could pay for long term care without having to sell any of the geese that lay the golden eggs.

We have friends and family all over the world so as we collect a few more here in Malta we will be able to visit them and invite them to our next destination if/when we decide to move on. Our friends who live in the Alps are arriving today to stay for a fortnight. Two weeks ago we were with them.

The only reason that moving around is seen as a chore to some people is due to the crap they accumulate. If you can get all your belongings into suitcases or a container or a van then its not an issue. If we see a nicer property to live in this afternoon we could be in it by the weekend. That's a great feeling to have. If you were to have bed neighbours move in next door to you could you do the same thing?

I fully accept that in five years time we may feel settled and our landlord could decide not to re-let. However, that's a LOT of ifs and a very long time for me. The likelihood is that we will have long since moved on before five years expire. We love the place we are in but after just 6 months we can't help looking around; like a person who can't wait for the new iPhone to come out without knowing how if differs from the one he got just a few months ago.

The key point here is that investing shrewdly into rental property has given me these choices. I still struggle to understand why most people strive to own the home they live in over and above investing into rental property. Particularly young mobile people such as our 23 year old son who is an IT contractor.

Reply to the comment left by "Mark Alexander" at "24/08/2016 - 07:27":

OK Round 2

1) Yes some years you will be right and you may lose 1.9% or 30K .... BUT as a property investor you of course know full well not to look at just one year in isolation. No its a long term 25 year time frame you are looking at You will expect on average at least 1.9% growth pa over that 25 years . Probably nearer 5% average . 25 x 30K in rent = 750K dead money . Just 1.9% compounded capital growth on your 1.6 mil home is a tasty £916,000 equity in year 25 . Remortgage that a few times along the way and buy more property with that released equity. Your landlord is probably doing that as we speak!

2) Ok you contradict your opening post which says ``I will NEVER buy another home to live in``.
Now you say ``if we decide just to settle down we can remortgage or sell some of our investment properties and buy``

3) You say ``The only reason that moving around is seen as a chore to some people is due to the crap they accumulate. If you can get all your belongings into suitcases or a container or a van then its not an issue``...

If you got more crap than most you just order 2 vans. That's what removal firms do for a living . Its not a problem ... There are though a dozen other reasons why people see it as a chore moving house other than the volume of their belongings.. Schools / doctors / shops / friends/ walks / post redirection / job / recreation facilities / familiarity/ so many people you have to notify. etc etc Arrrgh its all an unnecessary and avoidable stress. Moving house is generally recognised as one of the top 5 most stressful things in life and the reasons for that are multiple other than just volume of crap in the house .

4) You say ``The likelihood is that we will have long since moved on before five years expire. We love the place we are in but after just 6 months we can’t help looking around;.``

There proof if i needed more that you are just a nomad at heart! I`m a home bod .. . Where you feel trapped, I feel free by being secure .

5) You say `` The key point here is that investing shrewdly into rental property has given me these choices. I still struggle to understand why most people strive to own the home they live in over and above investing into rental property`` .... But but but for 30 years you understood exactly why people wanted to own as you yourself did that . For people to come over to your new way of thinking you have to come up with something that everyone else has missed in home ownership . I don`t see it as evolving as you said earlier its just changing a direction or circumstance which is fine. I personally don`t feel the need to change direction. I evolve though in different lateral ways some to do with property but some nothing to do with property at all And your dramatic change may or may not work for you. Initial signs are good it seems but its early days yet . You are on a natural high and I can see the excitement in you in that . It may turn out to be a mature love match you have with rental property or it may turn out to be a crazy 6mth – 5 year fling. Time will tell and i hope it works out for you and your landlord doesn't jilt you at the altar 5 years down the line if you really really wanted to renew your vows.

I think this rental thing is maybe due to a mixture of lots of other stuff going on in your life / businesses / tax which due to serendipity all occurred more or less at the same time so you bravely made a leap of faith but as you were naturally uncertain as to whether Malta was for you on a permanent basis you didn't want to lash out 1.6 mil on what might turn out to be a short lived fad. I can run with that reason but that is a long way from equating that with home ownership being overrated .
I think there are deeper underlying reasons you have changed tack but hey we are not on the psychiatrist`s couch here 🙂

Back to the figures then to give you a harder punch to my view

. You say `` Try going to a cash machine to withdraw 1.9% capital appreciation in a property you live in!``
Well that`s easy to counter. Substitute `cash machine` with `mortgage lender` and you then have your answer ! Remortgage and release that equity

I`ve remortgaged my main ressi 3 times over the years to buy more. . The first remortage was in 1999 and i bought one property cash. Then after a year i remortagge that investment property and bought 3. So already my main ressi has been responsible for buying 4 properties EACH returning maybe 20% on the cash invested in them @ 85% LTV . So the 1.9% return is a pittance by comparison . Then not only did I remortgage twice again as the capital value grew but also the initial investment properties were remortagged as they grew in value and bought the second generation. Then 3rd generation and so on. The ressi was the acorn. My portfolio is the oak tree. Security of tenure but still use and abuse the equity within for financial gain is my philosophy.

And what I did was buy mainly high yielding low market properties for my positive cash flow now for lifestyle but crucially bought 10 properties within a mile of me which were posher nice to live in houses for potentially me / family etc . Within a mile because I`m a home bod. But if i was nomadic like you I may have gone for holiday lets or / and buy houses where i would like to live abroad like Malta / The Maldives / LA / Marseilles or wherever i fancied. Imagine you could buy 10 properties around the world which you own and you rent them out get them earning for you but then pick and choose which to live in when you fancy a change of scene. Same as renting in effect but they are still working for you
But when you get old and grey and slow down a bit you can settle happily in your favorite one and live in peace knowing that no landlord will come knocking at your door saying your time is up!

Is that a knockout blow ? Do I win!

Hi Jonathan

I'm enjoying the contest, thank you for picking up the gauntlet.

Point 1 - You have made an assumption that my wife and I need to increase wealth. That may or may not be true. We may already have enough money to be comfortable and have no need to have more in order to fulfil all of our dreams. However, let's assume that is not the case and consider your points on that basis. There would be two ways to buy this 1.6 mil property I'm currently living in a) with cash or b) with finance. Naturally there's a combination of the two but for the sake of ease lets assume it is one or the other. Even if it was possible to get a 100% LTV 25 year interest only mortgage on the property at a fixed rate of 5% per annum the mortgage interest alone would equate to 80,000 of dead money. That's nearly three times the rent. Naturally, 100% finance for an owner occupier mortgage at a 5% fixed rate isn't realistically available to anybody these days, hence my calculations are purely academic. Using cash to purchase also wouldn't make sense. There is no way this property would produce anywhere near the returns available by investing the same cash into a geared property investment portfolio. I think you quoted 20% net return on capital invested?

2) I said we "can" remortgage or sell properties if we change our minds and decide to own. Can is very different to will. We could also move into any of our investment properties, most of which are upmarket and were chosen on the basis of "would I live here?". A certain feeling of security comes from having these options even though it is highly unlikely we will ever use them.

3) Home is where the heart is, it matters not to me whether I own it or not. I still say this applies regardless of whether you believe you are nomadic or not. At best we are a guardians of physical property because it is likely to outlive us both.

School teachers, doctors and dentists come and go and vary in quality, much like neighbours. Change involves paperwork so we have to learn to deal with that if we want to retain control over our lives. There will always be paperwork in our daily lives and we will always have some shit to deal with whether we like it or not. That's why loo roll was invented LOL.

Jumping off a cliff wearing a parachute would be stressful for most people but some people get a buzz from it. That doesn't make them wrong. I said that homeownership is overrated and is not the best strategy for millions of people. I have never said that the alternative is the best strategy for everybody and that my current strategy of renting the home I live in and owning properties I rent is a one size fits all solution.

4) Agreed but not conceded on the basis that I have never said any different. I accept that I am more nomadic than you and that you perceive the many anchors you have as security. Our own perceptions are our own reality so neither of us can be right or wrong on this point.

5) The reasons you have presented in this point with regards to my current way of thinking are pretty much right, especially tax.

My wife and I also own rental property in Florida and Russia so we can live in those too if we ever choose to. We can also live in most areas of the UK where we also own rental properties. However, chances are we can rent an even nicer property in any of the locations we already own property in. It is also likely that the very high end properties we would choose to rent would not stack up well on returns to justify ownership for us. This is because we know how to get better returns to generate more income that to fund the associated liability. I consider the home you live in a liability regardless of whether you own or rent it.

Our property investment strategies are broadly similar. However, where you have chosen to invest into the bottom end of the market for high yield I chose the mid to upper end of the market. Both have their advantages and disadvantages. You get higher yields but management is far more complex and is probably much harder for you to let go of, thus somewhat tying you to your current location. You may be able to outsource what you do but it will be a lot more expensive than it is for me. Also, the leap of faith required on your part in order to do that is bound to be just as stressful as my decision was to change my life so radically. That said, I'm glad I made that jump, especially due to the tax savings that I have availed myself of.

MOVING TO ROUND THREE

So far round one and two has been quite personal to us and only really applicable to established portfolio landlords born in the 60's. Let's expand this a bit and assume we we born two or threee decades later. What if I was in my early 20's, single, no kids, just starting my career, priced out of home ownership because I'm working in an expensive area? Well this is the position our son is in. I have advised him to buy a rental property in an area that he can afford to invest in and to continue to rent the home he lives in. We are helping him with this because the first properties he buys will be the acorns of his future oak tree forest. Here's a link to the blog I wrote about that strategy https://www.property118.com/possible-strategy-for-first-time-buyers/89641/

If I was in a position where I had young children the strategy would be similar, save that I would seek out a landlord with long term property goals. I'd make certain I was the best applicant looking at his/her property and play on the fact that I want to rent long term due to needing assurances that I would not have to move my children to another school if my landlord decided to kick me out through no fault of my own. Now if you or I had a tenant like that we would have no intention of kicking them out for no good reason. Such a tenant would be our dream tenant would it not? So if that tenant said, I really like this property but i need some assurance you will not evict me through no fault off my own in the next 5, 10, 15 years would you give that assurance? I certainly would and so would many other landlords professional landlords. I would also be prepared to put my money where my mouth is to secure such a tenant, for example, I would offer a Deed of assurance on the basis that if I did change my mind I would pay compensation of say £5k, £10k, £15k or whatever. Naturally, I would not offer this unless if I had any intention of selling up or if my mortgage was due to expire in say three years time. I have done many deals like this with my tenants, some are disabled, some are elderly and some have young families. Many landlords and tenants haven't heard of Deed of Assurance but those that have heard of them have a massive commercial advantage.

I'm not sure whether this is a three round contest but if it is then I'd say you need a knockout in the next round 😀

If I was advising a bright, hardworking, well qualified person <25 years old, staying in the UK would be nowhere near the top of the list of my recommendations.

With that in mind, buying UK property at the current time wouldn't even be a consideration

An interesting thought that you have had here, however, I keep coming back to the same sticking point. Many buy to let lenders will not give you a BTL mortgage if you don't already have a residential mortgage, meaning that you cannot only own property that you do not live in.

Anyone else thinking along these lines?

Reply to the comment left by "amy milton" at "25/08/2016 - 18:19":

You're right, many lenders will not lend on BTL unless you're a homeowner. However, some do.

Also, those that don't are happier if you alreadyhave one mortgage so it gets easier.

For those with good parents (like me ?) then a 1% share in the offspring who owns NewCo suffices.