Home Ownership Is Completely Overrated

by Mark Alexander

8:25 AM, 14th August 2016
About 2 years ago

Home Ownership Is Completely Overrated

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Home Ownership Is Completely Overrated

Home Ownership Is Overrated

 

My 30 year love affair with home ownership is well and truly dead. I am divorcing myself of it.

I will NEVER buy another home to live in.

For three decades I have been advising on finance and property and building my own rental portfolio but it has taken me until now to realise that home ownership is overrated.

My recommended strategy to anybody from now on will be to rent the home you live in and own property that you can rent to other people.

Why?

Because home ownership is a millstone around your neck!

Because the return on capital from home ownership is pathetic in comparison to property investment!

Because mobility is crucial in modern life!

Because life is just too short!

For many years I believed that I was doing the right thing by owning the home I live in. It is a common British mentality so I didn’t think to challenge it. Now the fog has lifted I see what a fool I have been. I dare not think too deeply about all the opportunities I’ve missed due to my former obsession with home ownership, which I now realise has held me back on so many occasions.

I’ve had this discussion with a lot of people recently so I’ve heard and debated several counter arguments in favour of home ownership already; here’s a few examples:-

  • You can’t decorate – I don’t want to, the place I’m renting is lovely as it is and if I get bored I can move on a whim.
  • You can’t plant trees and flowers – I did that at my last home and it’s hard work. If I want trees and flowers I will rent a property with trees and flowers that have been planted by somebody else. If I ever get bored of the spectacular sea views I’m enjoying at this very moment I might decide to live on a golf course.
  • You will lose your place on the property ladder – maybe, but only if I don’t own other property which I rent out. Given that my rental properties produce a far greater return than capital tied up into home ownership I am actually in a position to climb the property ladder quicker if I choose to do so.
  • Renting is dead money, you are paying somebody else’s mortgage or pension – I am indeed, and I do not begrudge that. For somebody else, owning the property I am living in makes sense, even if it is only returning them a 2% yield. On the flipside, my tenants are paying my mortgages and the rental profits are paying my rent, and some more on top.
  • You don’t get the same choices in terms of furniture etc. – Yes I agree (to a point), I get far more choices and I am far less bound by them than I would be if I owned the home I live in and the furniture within it.
  • There’s no CGT on capital gains when you sell a UK home – agreed, but what if you don’t want to live in the UK anyway?

As you may be aware, I decided at the beginning of this year to live on the gorgeous Mediterranean Island of Malta. My new beliefs regarding home ownership would be no different if I had decided to remain in the UK though. Nevertheless, moving to Malta has helped me to see things from another perspective so perhaps I should also explain why I made that move.

Malta has numerous advantages over and above 300 days a year of sun filled lifestyle for me. Five percent income tax on UK dividend income and virtually no CGT on property sales or incorporation of a rental property portfolio, even with latent gains, being two big financial ones. That choice (living in Malta) raises other critique though such as:-

  • You can’t see your loved ones as often – oh yes I can, they love the free holidays and the tax I save even allows me to buy them flight tickets for birthday and Xmas presents. I speak to Mum and Dad via Skype frequently. They’ve been here to stay with us for a total of 42 nights in the last three months (that’s 6 weeks) which means I actually seen more of them then when I lived just 30 miles away!
  • The time you can spend in the UK is very limited for the first 5 years – it is indeed if the reason for moving is to become a tax exile, in my case to just 14 days any rolling year. However, the world is a very big place. I can’t see myself needing to use up my annual visiting allowance to the UK any time soon, certainly not within the next five years anyway.

I’ve realised that for the last 30 years I had been lying to myself, have you?

By the way, I recently wrote this linked blog to help frustrated first time buyers to deal with their own stinking thinking.

Whilst I don’t want to over sell living in the the jewel of the Mediterranean (it isn’t everybody’s’ cup of tea) here’s a few more of my observations which you might find interesting:-

  • The National Health system is far better than in the UK. The 11th best hospital in Europe is here.
  • We drive on the left.
  • English is the second official language, everybody speaks it.
  • The education system is good and there are English private schools
  • Unemployment is less than 1% and crime rates are much lower than the UK
  • Malta has the second strongest economy in the EU
  • The island has close connections to the UK and is steeped in history with monuments pre-dating the Egyptian Pyramids and Stone Henge

This blog isn’t supposed to be about living in Malta though. I only added that detail because it’s my blog, hence it’s also personal to me. I will look back on this in years to come.

The real purpose of this blog is to raise debate on whether home ownership makes sense.

It has taken me nearly 30 years to realise that home ownership is overrated.  Better late than though never hey?

So what’s your excuse for owning the home you live in?

I look forward to reading your thoughts on the subject.



Comments

steve p

17:26 PM, 14th August 2016
About 2 years ago

The math can work out but not always, it depends what kind of house you want to live in... You can buy cheaper houses to rent out that would return a higher yield than say a much more expensive property so if you rent that more expensive property then you could in theory be better off than if you owned that expensive property.... However post section 24 if you wanted to live in a similar house than one you rent out, ok you could buy a few with mortgages compared to having one you own outright that you live in but by the time you have paid the interest and the maintenance and then paid the tax it would not pay for your rent.

Its all very well if you dont want to live in the UK, but what if you do, a lot of landlords have a job, the uk can for some people be the ideal place to work.

Personally I like the security of having my own place, also I have a very nervous rescue dog, I think I would find it hard to find a rented place (very few where I live and rent out) that would welcome my dog.

Im not saying your wrong, I have thought about it and I think its definitely better to rent an expensive property instead of owning it and use the money to invest elsewhere that can in theory pay for your rent and some. But it depends on what lifestyle you want, I like where I live, I have had a bigger house and hated it as living on my own (plus dog) it felt too large, it had 3 toilets just for me and I was constantly cleaning and gardening, I prefer my more modest house as I spend less time cleaning and gardening and it feels more homely.

Jonathan Clarke

3:01 AM, 15th August 2016
About 2 years ago

.
Hi Mark

Cant agree with you on this one
Short term financial strategy maybe yes but medium to long term peace of mind no
Advice on this decision I believe should come from a life coach more than a financial coach.
Owning works for many for emotional reasons which has little to do with financial strategy
But having said that it can be used to provide equity release opportunities after a while to buy more property
Best of both worlds. I remortgaged mine 3 times over the years to buy more

I have reached a point where I am settled in life and I really really really don`t want that equilibrium to be upset
I`ve lived in my house for 23 years. Its looks how i want it but I also have the power to change anything i want to . I have control
If I want to knock a wall down on a whim or build an extension I can . If I want to paint a Lion King mural on the wall I can
I would feel very disempowered if I had to potentially ask perhaps an obnoxious unfriendly landlords permission to do these things.

I don`t want them knocking on my door and nosing in my cupboards doing a house check. I want my freedom to do what I like when i like
Financial freedom is great but I need my personal freedom equally as much

My home provides a comfort zone which allows me to go outside my comfort zone in other aspects of my life

The thought of me waking up every day and maybe getting served a sec 21 and having to leave in 2 months is simply not worth contemplating
Every perfect day I have had in my home could possibly be my last if I rented. No thank you
I would be in the hands of others.
And I cannot simply easily replicate what i have by renting elsewhere if the sec 21 lands on my doormat one day

So No No No ....I want to control my own destiny
.

Terry Davis

12:51 PM, 15th August 2016
About 2 years ago

Couldn't agree more. I own eleven Buy-To-Lets in UK but live in Nairobi, in a rented property, with no wish to buy in Kenya, as my previously, to coin a phrase, owned-to-Iive-in property is now rented out to pay rent in Kenya. UK is more stable politically and prices increase faster, so why put money into Kenyan housing market? Also, if thigns go wrong in Kenya I can grab a bag and go and don't lose my money invested in a property here, then I use rent from UK to pay for rent on where I want to go to next, even if it is the UK

Mark Alexander

19:48 PM, 15th August 2016
About 2 years ago

Reply to the comment left by "Jonathan Clarke" at "15/08/2016 - 03:01":

Hi Jonathan

I certainly wouldn't advocate anybody renting from just any landlord. That's madness and I really don't understand why tenants don't ask more questions and make more demands.

Presumably you have read about Deed of Assurance in the past?

If a tenant feels threatened at the prospect of a section 21 notice landing on their doorstep through no fault of their own then some of the most important questions they ahould ask of their potential landlord are why they are renting the property and how long they intend to rent it for. Most professional landlords will say they are in the business for the long term, have no intention of selling and that subject to their tenants compling with the tenancy then they would be very welcome to stay as long as they like.

If the landlord says all of the above then they should have no objection to entering into a Deed of Assurance.

If the landlord gives an unacceptable answer or refuses to agree to a Deed of Assurance then any tenant needs to seriously consider whether the landlord is the right one for them.

As for painting a mural or knocking a wall down, if that's really so important then yes I agree you probably need to own your home. However, if you make that choice you also give up the choice to move at the drop of a hat. You can't move a house or a flat you own if your circumstances change or if you decide you want a change of surroundings. You could have a neighbour from hell move in next door who devalues your property, causes you massive stress and leaves you feeling trapped. Renting the home you live in doesn't come with those problems.

Funny isn't it how so many Brits live for their holidays and can't wait to get away?
.

Mark Alexander

21:56 PM, 15th August 2016
About 2 years ago

I've just thought of something I would like to add.

One of the most important things in life is to have a roof over you head.

The reason for buying a property is for security and investment, but only when that becomes affordable.

There seems to be an unwritten rule which says that at least one of the properties you own (assuming you are fortunate enough to own one or more) should be the one you live in. It is that unwritten rule (or should I say belief mechanism) that I am challenging.

For me at least, the commonly held belief mechanism regarding home ownership is flawed. I suspect it is equally flawed for millions of others too, hence my reason for publishing my thoughts. Many will not have given the same of thought to this. I hope my sharing will help a few people.
.

Jonathan Clarke

2:46 AM, 16th August 2016
About 2 years ago

.
Hi Mark

I agree a deed of assurance does add another layer of protection but it still falls well short of sufficient security for me. Its a bit like a redemption penalty on a fixed term mortgage. I`ve paid to get out of them before because of the bigger picture. A landlord may well do that to a tenant if it suits his /her purpose at any given time

I have a tenant wanting to upgrade from one of my two beds to a three bed. They are ecstatic at the thought and talk excitedly about it will now be their `forever` home. I`ve no intention of selling it yet but do I burst their bubble and say hang on don`t get too excited as you are still 2 months away from eviction even if i have to maybe pay you 5K in compensation.

I have 100K equity in there but theoretically if i need that 100K for a much better investment I may well pay them the 5K compensation under a Deed knowing I will double that 5K loss elsewhere with this gem of a deal I`m about to invest in

I find tenants have a unrealistic assumption of how secure they are. The more equity I have in their house the less secure they are.

Age I find has a lot to do with it. A 20 - 30 yr old is quite happy often with a nomadic lifestyle . At 25 - 35 they talk about putting down roots and having a family etc so want the security of their own place. But still between 35 and 65 they can imagine selling up and upsizing or downsizing without too much adverse effect on their mental well being. But my mum who is 90 has lived in her (now) unencumbered home for the past 55 years. A sec 21 and even 20K compensation would not even touch the sides of her hurt if it were to happen to her . It makes be anxious just the thought that someone could put her or me in that position. Who would relish the insecurity of renting at that age.

I am all for challenging peoples long held belief mechanisms but I am struggling with this one.
I feel it will be a long time if at all before people will talk about aspiring to rent their own home as an end goal
I aspire to own my own ( unencumbered ) home ( and naturally lots of rental properties as well to keep that one company ) !
.

Steve From Leicester

11:15 AM, 16th August 2016
About 2 years ago

It very much depends on personal circumstances.

Thirty years ago, in my early 20's I'd have welcomed the opportunity to rent a decent house or flat at a market rate for a few years (back in those days the private rented sector was almost non existent unless you wanted to live in a badly furnished bedsit).

At the middle stage of my life with a family, a career and all the responsibilities that go with it I want the security of my own home - my sanctuary, my peace of mind, whatever you may want to call it.

In years to come when the kids are grown up and I'm hopefully semi-retired my wife and I will probably quite like the idea of renting and having the freedom to up sticks and move around almost on a whim once more.

Horses for courses as they say

Sara Webb

11:39 AM, 16th August 2016
About 2 years ago

having read your blog my initial thought is horses for courses, but one major factor in what you are saying about mobility and speed of movement is I can of course just put my house up to rent, I am having lots of thoughts of the future and in the current instability of the market that is just what I would do, and rent in France, Portugal or wherever, all you need is an open mind and flexibility in your thinking, nothing is impossible and as another contributor said while I have my own roof, that no one can dictate to me about is my security blanket. One of my tenants has sold the house, and they are spending the equity, renting my house, I think they are nuts but they are brilliant tenants as they have made it their home, unlike the previous ones who were serial renters and they just camped in it and wrecked it.

Sara Webb

11:43 AM, 16th August 2016
About 2 years ago

Reply to the comment left by "Steve From Leicester" at "16/08/2016 - 11:15":

I agree, some of the rented property I lived in, or should I say all of it, was utterly vile, one of the reasons I make a big effort for my tenants now, plus they stay longer in a nice place

Mick Roberts

7:30 AM, 19th August 2016
About 2 years ago

Well Mark,

You've created a debate there, which I suspect you wanted to, instead of fully believing it yourself.

I haven't fully read everyones comments, but what about the growth one is missing?
Your own big nice house in Norfolk as an example you've just sold.

I'd guess you had some good growth out that.
Whereas unfortunately for renters, they don't get that growth.

Some people have had some good growth & moved up the ladder to properties of their dreams, largely helped by the growth.
And what about slowly chipping away at the mortgage?
Some people have stuck their 20 years or so out & are now mortgage free on their own home, whereas renting, the monthly amount never stops, & normally over time, increases.

Interesting thoughts though, if u ever got a Landlord as good as me ha ha, & you wasn't working all the hours to pay the rent.

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