Owning your home

I mentioned in Introduction To.. Wealth that money is an extremely emotive subject. So it stands to reason that if you stick absolutely truckloads of money into the place that you and your family live, then we’re on seriously dodgy ground! Strap in.

 

There’s plenty of people out there that will tell you that:

“owning your home is a terrible idea”

and there are people that will tell you that:

“owning your home is a great idea”

 

So, first up, my personal viewpoint; I don’t think there’s anything inherently wrong with owning your own home (and yes, in the interests of complete transparency, I’m biased because I currently do own my own home!). But it does depend on the circumstances; everybody’s situation is slightly different.

 

Run some numbers; it might be evident that it’s not the right thing for you to do, not at this point in your life anyway.

 

Alternatively, after running the numbers, and depending on what’s happening in your life, then owning your home might turn out to be a great idea.
Looking back, it was right for me to buy, it’s served me well. Paying off the mortgage last year felt amazing, and now we sleep at night safe in the knowledge that no landlord or bank heavy can come-a-knocking and tell us to “get orf their land”  (yes, yes, my house is freehold). And of course, we also have a much higher savings rate than before as we’re not currently paying rent or mortgage.

 

But here’s the thing – for people looking to become financially independent as soon as possible, you may be able to use your house as a way to reach FI earlier than you had previously thought possible.

 

Imagine that you’re planning to move towns, areas, or even better – countries. Or maybe you weren’t actually planning to move, but you are able to move, and you would consider it if that brings your FI date closer. Now then, if your current house (the one you own, or part own) is worth more than houses where you are going, then that could obviously work in your favour. (If you currently own a house in London, then I guess this applies to you if you’ll consider moving just about anywhere else!)

 

And things could be even better if the rent-houseprice ratio where you’re going is low too.

 

Here’s an example, and it’s a real life one; it’s our situation.

 

Our house is a 3-bed semi on the outskirts of town, with a current value of about £160,000.
Where we’re planning to move to, a similar sized house could be bought for €100,000 (or possibly even less, at the moment). At the time of writing that is about £80,000.

 

OR, here’s another idea – we could rent a house there for about €5,000/year (currently about £4,000).

 

So our £160,000 house sale would give us about €200,000, which is 40yrs rent money to stuff under the mattress. (Yes, that’s in “today’s money”.. obviously rising rentals would bring that number down.. although if the €200k was wisely invested then we’d hope to at least beat that nasty inflation).

 

OR, another idea – instead of selling our current house, we could rent it out for £600/mth (€750/mth) and bingo, it now pays our euros-rent, plus currently gives an extra “left-over” income of €330/mth. So that’s the food bill and the ‘leccy paid for. And assuming that rents rise fairly evenly in both countries, our rent (plus hopefully that extra bit for food and lights) would be covered for life.*

 

I would say it’s worth thinking about! Like I said – everyone’s situation is different, but there’s always more than one option, and I think that the process of thinking through these options – and thinking of new options you hadn’t previously considered – will stand you in good stead for this financial independence lark.

 

JAL

 

 

 

 

 

* Hopefully we’re talking about a period of at least 40 years here, and obviously the currencies could do all sorts of wacky things over that period! But again, if you’re willing to look at options, be flexible, “think outside the box”… then I think you’ll always find a way to make things work

 

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3 thoughts on “Owning your home

  1. What you’re missing is the asymmetric downside risk. Arguably if we went and bought our houses cash you’re right, but we don’t. We buy them with shedloads of leverage. Most of the time, and over long periods (20 years or so) house prices go up, leastways in nominal terms. The leverage works great, and this is the reason why housing is a religion in the UK – because most people make bank with it.

    But there are periods when they don’t, and now, all of a sudden, that leverage hurts you really, really badly. I know from personal experience. I was lucky – I didn’t lose my job or have to move, but I sold a house for roughly half, in real terms, of what I stupidly paid for it.

    I immediately bought the house I am in now, and that redeemed some of the loss because I was never out of the asset class, but it took me ten long years to break even. Get foreclosed and you’re out of the asset class at the low water mark – exactly when you want to trade up, as I did.

    That was 20-30 years ago. Jobs are less stable now, and the same control lights on the flight deck are flashing amber now as the ones I ignored in my twenties 😉

    • Hi Ermine, thanks for stopping by and taking the time to read a post! I’ve only recently started this blog and you have reminded me that although I tend to write as if nobody is reading, there’s always a slim chance that someone might actually be doing so 🙂

      I hope the post didn’t come across as a “buy a house, you’ll be rolling in dough whatever happens” type of affair, that was definitely not my intention. In fact, there’s no advice, no telling of a “right” or “wrong” thing to do. I was just getting down in words one of the ideas I had to reach FI earlier than originally planned. I actually bought my current house with a large deposit and paid off the mortgage very quickly. As you quite rightly say, the massive leveraging involved in most people’s love affair with property can work out really well for them.. or it can end in more than just tears. And I know this is something close to your heart as I discovered your superb blog earlier this year and have been slowly “catching up” on Ermine: The Earlier Years 🙂

      I didn’t mention mortgages, borrowing, leveraging etc. in this post, and the examples I give are real-life ones that I have found for our situation. That situation is that we own our current house with no loan on it and we’re looking to reach FI early. And to do that, I’m trying to “think outside the box” a bit. One thing that I’ve suspected for a while now, and reading your blog has confirmed for me, is that if you want to reach FI and jack in the day job early, you may need to be able to adapt, be flexible and think a little differently from time to time. That’s really all this post was getting at.

      Wow, it could be a good thing that people don’t read or comment on my blog, if I’m going to make all my replies almost as long as the posts themselves 😉

      Thanks again for coming to have a look, take care, and I hope you continue to enjoy your retirement!

      • There was good balance in the post, and you’ve done well. There is a fundamental win in living somewhere with low housing costs like your €4000 p.a. example. That’s because I suspect housing is a sunk cost – if you are living for less but earning the same you get to save more or have more fun and save the same. Year on year on year.

        Like you I discharged my mortgage earlier but technically it was a mistake – I take an income shortfall now because much of my pension savings are tied up in a pension. There is a lot to be said for having a mortgage and saving to pay down the capital in a pension, because of the tax advantages of pensions. But I absolutely agree there’s something viscerally good about having nobody able to tell you to gerrof their land 🙂

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