So a new chapter in UK history begins with a vote to leave the EU by the British public. Personally it would have been my wish to remain in the EU but I can see the argument for leaving it as well. As always time will tell if we have made the right choice. But as estate agents, political analysts and your local barman speculate about what will happen I turn to another one of my favourite topics of the property market.
I’ll be having a look at that age old question that has been asked since Joe and/or Joan public could buy their own property. Should I buy or should I rent. I have had my own experiences and have come very close to being a home owner in the past. But I haven’t done this yet.
Buy Vs Rent
This includes knowledge picked up along the way from articles, various friends, colleagues and family members.
1. What’s your plan
I know it may seem absurd and quite plainly daft in these uncertain times but everyone should have a plan and try and stick to it. This is something that you want to do with your life. So rather than drift along and let other people take you for a ride on their plan you can decide what you want in the future today. That maybe selling up and becoming a digital nomad and living in lots of different places. Or it may mean settling down and starting a family in the village that you grew up in as a kid close to family and friends. Whatever you choose to do will help you massively decide on whether to rent or buy your next home.
2. Planned for a change
Once you have your ideal life plan in place and you’re doing things towards that plan you need to factor in some flexibility. For starters you probably won’t be able to achieve that plan without a time of change and in that time of change things may not go as you actually had planned. For example, that family comes a little sooner than expected or that solid job you thought you were in doesn’t turn out to be quite as solid as you thought it was. You can’t plan for everything of course, but you can do things like start saving (for any eventuality), cut back spending on luxuries and start a project in your spare time to increase your earnings.
3. What do the experts say
This usually means your parents, your peers and the media. The wisdom used to be that there is security and a long term investment in buying property (certainly in the UK). But times are a changing. Look at the problems in the US and also now the UK’s own uncertain political future. The experts at the moment can’t agree so how can we mere mortals know what the right thing to do is. Property can still give a solid low level long term return on investment. A lot of analysts today say you can make more by investing in the right stocks and shares or commodities such as gold rather than property. Some also say it’s worthwhile looking at the opportunity cost. What could you spend the same amount of money on that you intend to invest in property. As it is possible to make investments and rent and still be in a better position than if you bought a property.
4. Who’s got my crystal ball
Leading on from a couple of points above. To make such a massive investment such as buying a house you want to know that you’re doing it at the right time and getting a good deal on rates, duties and taxes that you have to pay. It has to be remembered that in most people’s lifetimes a house is the largest most expensive thing we will ever buy. But who can tell what will happen tomorrow at the moment let alone in 25 to 30 years. You may think this primarily applies to buyers but it also applies to renters too. Unfortunately, the future economic strength of the country you choose to reside in will have a knock on effect on supply, cost and ability to rent in your preferred location. So with governments changing quicker around the world than anyone can predict leading to economic uncertainty rather than stability you must use other indicators to decide whether to rent or buy.
5. What are your finances like
Ask yourself how solid are your personal finances? This includes savings, retirement provision, regular income stream etc. As per some previous points, your plan comes into this. If you need a lot more capital than you currently have, how ae you going to get it? How much do you need and when do you need it for? Some analysts have suggested if you’re going down the buy route and you don’t have the funds then maybe renting in the short to medium term somewhere cheap whilst you build up the funds is the answer. But maybe you need an alternative revenue stream to bring in the much needed extra cash. The same applies for renters as you may be looking to rent somewhere particularly pricey as part of your plan.
6. Owning vs Not owning
A lot of people used to say to me that renting “Is like throwing money away”. I don’t see it like that as this comes down to the opportunity cost again. Or having flexibility vs having a mortgage. As not many people are in a position to buy their home outright. If you are then hats off to you and enjoy. But the majority of us will have to get a mortgage if you want to buy. This means you’ve got to pay the bank to live in a property for a long time and as a consequence you are now in a cycle that can be difficult to get out of. But at the end of it you will have an asset that you own and hopefully has added some value in those years. Renters on the other hand have the flexibility to up and move when their term paying the landlord has finished and they are not stuck long term. But you don’ get the supposed pot of gold at the end of the rainbow. This choice again comes down to what you have planned for your future. Being flexible and moving around a bit or being in a fixed location for some time.
7. What kind of investment am I making in my future?
I touched upon this earlier regarding the opportunity cost and how you can make an investment. For most people they don’t see any other large type of investment other than buying property. But there are alternatives that are said to bring in higher yields than buying property. A well-stocked shares and bond portfolio looks a better bet than ploughing 80-90% of your net worth into a house. Unless your near retirement and thinking of which golf course is going to be nearby.
8. Freedom and Responsibility
As with most of these points they come down to a choice depending what your plans are for the future. Be that freedom to move at will but not manage your environment or freedom to change/manage every aspect of your environment but have a responsibility to look after all matters. Once everything has been thought through it’s a personal choice based on your needs for the short, medium and long term future. But I think it’s best to base this on what you want from life and not what the so called experts and governments have to say.
I hope this has been informative, interesting and you liked reading it.
That’s all folks this week but I’ll be back again next week. Please subscribe to my Virtual Demon blog and I look forward to your comments and feedback.