Home Ownership Is Completely Overrated

Reply to the comment left by "Mark Alexander" at "25/08/2016 - 09:58":

Hi Mark

Sorry for the delay in responding. You make some good punchy comments and I had to draw breath 🙂

1) 5% mortgage would yes cost you 80K . But a 5% rise in values would leave you evens . Renting though you are still 30K down pa on the deal

2) Ok maybe just a slight softening of your initial view I feel. Your 1.6 mil property I am guessing is fairly superior to any of your rentals. So downsizing into one of them is probably not really on your radar. My residential is not top dog in my fleet but its up there with them but not a massive loss leader value wise. I would prefer to remain here in my own home and buy in doctors/ gardeners / decorators / carers / cleaners etc when the need arises rather than shifting location. When I had the patio and conservatory put in I even designed it so wheelchair access was possible with minimal disruption even though hopefully that may be 30 years away! .

My 90 yr old mum still lives in her own home. We have a care home lined up if needs be but she shows no signs of wanting to leave her private den of the last 50 years. Its her home. Its safe and its where her heart is. We plan so to speak to bring aspects of the care home to her home as far as is possible rather than the other way around . This serves to illustrate our possibly maybe rather extreme positions. Both work for each of us in our own worlds whereas the majority may sit in the middle somewhere. I think i know myself well enough to know how I will act in a certain way in 30 years time but I accept that I may change my view over time. For that reason alone I wouldn't just sell up because when that is done its done. No going back

3) I agree home is where the heart is. I just don't want my heart ripped out though by a landlord serving notice on me. I cant replicate that home feeling maybe as quickly as you can
I dont feel you can easily just replace people like good doctors teachers neighbours friends etc . Commodities like fridges and washing machines yes but surely not people. Communities are built on these complex interlinked social networks which can take years to nurture and mature . On one hand you talk about the freedom when you decluttered but you brush off as an inconsequence all this extra potential paperwork you will have to do if you change addresses again. That would add to the clutter in my brain. You cant have it both ways.
This is where the home bod and the nomad may differ. I totally agree there is no right or wrong just a different view and different approach to life

Moving to round three or yes just opening it out

This deed of assurance thing worries me . I don't do it with my tenants as there is no real need to in the market i operate. But yes the more upmarket the property then the more I can see the up market tenant also may well want more control / security over their lives. Putting aside 5 years being too short for me anyway the fact that its not watertight at all really would prey on my mind. So your landlord will have said all the right things when he meets you like .... He`s got no plans to sell, he is in in for the long term and he`s financially solvent so no bailiffs knocking at the door because he cant pay his mortgage. But lets say the compensation is 10K if he does decide to sec 21 you .

I`m guessing 10K is not that big a deal to you so yes its a nice lump sum but (unlike my LHA tenants) it wont really change your life . Would that truly compensate you if he forced you to up sticks in 2 months if you were nicely settled . How much would it hurt your landlord. He like you has taken a calculated gamble. Your landlord owns the 1.6 mil property so do we know what his wealth is and what his plans are . Has he got a mortgage on it or is it unencumbered. He may have 50 mil of property worldwide and this is just a small two bit rental for him. If his circumstances change and he fancies using the 1.6 mil to buy himself a helicopter he will be quite happy to serve you notice and pay you the 10K penalty as he is now busy looking for his new toy and you are simply a `commodity` to be let go !

Ok time out for Sunday lunch 🙂

Reply to the comment left by "Jonathan Clarke" at "28/08/2016 - 12:11":

Hi Jonathan

I was hoping to de-personalise our discussion and to focus on my suggested round three. However, just to clear up the confusion regarding Deed of Assurance and what I have here in Malta, here goes:-

I have a five year lease with an option for me to break at any time subject to 30 days notice and a forfeiture payment equal to a months rent. My landlords is tied in for 5 years. That's very typical here in Malta and landlords are fine with it on the basis that they have similar powers to evict as hotels do in the UK when it comes to none payment or forfeiture. If I break the lease I could be out on my ear with my stuff on the street in plastic bags within 7 days. The onus would then be upon me to sue my landlord for damages if I disagreed with the eviction.

A bit about my landlord. She has no mortgages and owns five properties of a similar value to the one my wife and I are living in.

Now for Deed of Assurance - not what I have but what I'm recommending to UK landlords and tenants. Yes the landlord can still secure possession subject to a payment which both landlord and tenant agree at the same time as they agree to the tenancy. The terms are negotiable, i.e. the term and the value placed on the assurance given by the landlord. Both landlord and tenant need to be happy with that. Some landlords will say that demand is so high they don't need to offer a Deed of Assurance. I don't buy that argument because demand falls as price increases. If people want the security of a Deed of Assurance they will pay for it. It's the law of economics, i.e. scarcity, supply & demand and a bit of Maslow's hierarchy of needs all rolled into one. The highest bidder wins, that's how value is determined. Deed of Assurance has a value.

Now moving back to those born in the 80's and 90's. Let's work on an example where they simply cannot afford to buy where they live and work but they have got some savings and parents are willing and able to help. However, even with all of this they still can't afford to buy in their area. What advice would you offer to them?

Reply to the comment left by "Mark Alexander" at "28/08/2016 - 18:41":

Hi Mark

Thank you for clarification of your individual circumstances. I agree we can leave that arena now. And the Deed of Assurance has advantages and has its place in some areas of the UK no doubt . But in MK the tenant demand has been and is so strong I cannot see me personally needing to go down that route for the foreseeable future . In 17 years I`ve never had the worry that i wont fill a property and with us leading the jobs market in 2016 I am fortunate in that the future looks very rosy and voids will not be a problem . http://www.telegraph.co.uk/finance/economics/12065319/Cambridge-and-Milton-Keynes-to-lead-UK-growth-in-2016.html

So onto those starting out today. I would go along with what you advise. Partly by default in that if you have to rent if you cant buy even with the help of parents - then yes rent where you are and invest in a cheaper area and do it that way around. But rents are expensive. So if feasible maybe stay with family a while longer if the competing dynamics can sustain that proximity and save more pennies. Or be a lodger

I see the rise of smaller and smaller bite size studio units in expensive areas. People who work in the city long hours and really only need a bed for the night before dawn breaks and they are off again. If you have a 5 yr plan say to earn good money working long hours you dont mind roughing it so much as there is light at the end of the tunnel. Beds in sheds should be allowed. I have a 14 foot x 7 foot shed insulated with electrics. I could spend another 2K on it to put in some water and a loo and someone would rent it at a cheap rate. If you are on good money and live frugally you could be saving 1K pcm and build up a deposit that way. What about renting someones garden space and getting yourself a tent . Is that legal?

My fave idea would be buy an old motor home though for say 10K and live in that . Independent self contained living and you can also have a holiday every weekend going up perhaps to visit the area you are going to invest in to do your DD and sort out tenant problems etc . You could also sublet it out during the day while you are at work to someone who may like a cheap office space to meet their clients etc
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Reply to the comment left by "Jonathan Clarke" at "28/08/2016 - 21:23":

Hi Jonathan

As I said in my last post, if demand is strong then Deed of Assurance can help you get top dollar from the best tenants.

Your ideas are all good. A caravan or house boat is another similar option.

Our son rents a spare room from friends. Previously he was in a shared house, funnily enough in MK but he's just moved to Richmond for a better job.

Hi Mark,

Your absolutely right, I never thought of this - thank you for enlightening us on a new way forward. I'm now seriously considering selling my house, I've been here 14 years and although I like it, I don't think I'm emotionally tied to it, I think people get set in their ways and are frightened of change.
Obviously there are no risks if you stay put in a house you have lived in a long time, there is always a risk the next house/area you live in may not be as good, or you might not settle - but sometimes a change is as good as a rest and I think I'm at that point now.
This is not the house I want to stay in forever so if I sell now and rent, then I can pick and choose when & where I go after that - I like the thought of that freedom for a while. I can choose to stay in the UK or go abroad whenever I feel like it.
And yes, the equity will be easily put to good use - thank you for inspiring us to start a new life!

Very interesting debate that's very much a Rich Dad Poor Dad point of view.

Many people have large "lazy capital" sums of money tied up in their own home. That certainly strengthens Mark's side of the argument.

However, there are bucketloads of non-financial concerns. It really depends on how mobile you are, the attitude of your nearest and dearest to stability and their home, the age of any children, and a whole host of other factors - even if you are the toughest of the tough and don't get attached to anything material! Thus Jonathan's side also has a lot of merit.

I personally compartmentalise them as 2 different things altogether and try to take a little from column A, and a little from column B. Consider the home ownership as a perk or privilege, but one that has a fighting chance of actually showing a decent investment return (especially in the current environment), BUT an investment return that will be inferior to strategically bought investment property.

The higher-end you rent or want to live in - it should be noted that the more Mark's argument makes sense. It has to be reduced to percentages IMO - if your LL is getting a 3% yield, then you are probably roughly equal with what you'd be paying on a mortgage at the current time. Yes, you don't access the cap growth in that home, but presumably you'd be using the big fat lazy capital sum to earn better returns somewhere else and thus be quids in. If you spend it instead of investing it, then of course that argument falls apart!

Reply to the comment left by "Adam Lawrence" at "09/09/2016 - 06:50":

Excellent points Adam, very well written.

I don't completely agree with your final point though as it assumes that finance is the primary consideration. For me, and many others like me, it is not. I have sufficient income and investments in property to maintain a very reasonable lifestyle. I don't want to feel tied to a particular location. On that basis, I am using my "big fat lazy capital sum" to do other things. Some of these are personal lifestyle things (we can all think of things we would do with more money) and some are philanthropic help for my close family members.

Fair comment Mark, I am looking forward to being in the position where I could consider doing the same......:)

Reply to the comment left by "Yvonne B." at "07/09/2016 - 09:56":

I think to a degree we are all apprehensive of change ( frightened maybe too strong a word for it ) . It would be strange perhaps if we were not apprehensive . Especially with 3 substantial changes of the kind we are talking about all at once

1) moving to another property
2) relinquishing ownership in favour of renting
3) moving to another country .

Personally though I believe I can draw on my life experiences to date to project my mind body soul and spirit into imagining what life would be like with such a change if it were to take place. I don`t feel I have to physically immerse myself in that change by 100% committing myself to it to find out that its not for me. I am 95/5 sure of what i want. None of the above 3 tick any boxes with me

If I felt lackluster though with my current lot and undecided about my future and maybe more 50/50 about the whole idea then yes Marks experience and enthusiastic endorsement of his new adventure could well inspire and motivate me to make also that leap into the unknown .
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Reply to the comment left by "Jonathan Clarke" at "09/09/2016 - 20:18":

Hi Jonathan

I link my emotions went from anything between apprehensive and terrified at making the move.

There is a half way house though, i.e. move abroad and add the family home to the rental portfolio.

What is the third point by the way? You have repeated point one in point three.
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Action cures fear.

I felt the very same emotions when I purchased my very first investment property by the way.