Buying versus Renting versus Investing – What should I do?
First thing you should do is not panic! If you are mid-30’s living in a rental property and you’re getting pressure from your parents or older members of your family to ‘buy your own home’…remain calm, and politely tell them to mind their own business!
It’s 2019 (almost 2020!), and gone are the days of getting married at 25, buying your own home at 26, having 2 kids by 30 and staying in the same job (and house) until you retire at 65. That fantasy (if you could even call it that) is unrealistic. Why? Well…where do we start…
Job/Employment – more and more young people are moving away from their home town to seek employment in cities like London, Manchester, Birmingham etc., but also travelling further afield and working overseas in places like USA, Australia, the UAE, Asia…basically all over the world, so if people are moving around a lot for work, why would they tie themselves down with a home and a mortgage? They won’t!
Generation Y (a.k.a generation rent) is full of people who are career-focused and don’t see homeownership at the top of their list of priorities. Their career can take them all over the world, which is why they prefer the freedom and flexibility to come and go as they please.
Cost – the cost of owning your own home is also not as cheap as it was 30-40 years ago when property prices were 2-3 times the average salary, whereas now, it’s more than double that. You also need to cover the cost of the maintenance, repairs, legal fees for purchasing, stamp duty…etc. So lots of people choose to rent over buying because they don’t want the hassle.
There are of course benefits of owning your own home which include having complete control over how you decorate and furnish the property, you can extend it and rearrange the layout as you wish (providing you secure planning permission if need be), and of course you are paying off your mortgage so that in later life you have a mortgage-free property to live in. Sounds good but…you do need to make sure you make those mortgage payments each month because if you don’t…the bank will remind you who owns the property and will repossess it!
For those who are very much in the ‘Rich Dad, Poor Dad’ mindset, there is a third option that more and more people are turning towards. Especially those who are living a very transient life where they move around a lot for work, or even those who live in places like London where the cost of living is high, and the cost of buying versus renting makes very little sense. For example…
A £1m property in London might require around £200-250,000 worth of cash to invest in the property (deposit, stamp duty, etc.), and the monthly mortgage payments would be around £4,000 per month at an average interest rate. If renting the same property, depending on the area, the rent might only be £2,500 or £3,000 per month. £1,000 saving PLUS you aren’t sinking £200,000 of cash into the property.
So what more savvy youngsters are doing is something called ‘Rent-vesting’ where they are using their savings to buy rental properties in areas that generate high returns, and using the rental income generated from their rental portfolio to pay for their living costs of the property they are living in (which could even be a rental property).
- Their money is working hard for them
- They are still ‘on the property ladder’
- They are free to live and travel wherever they want
- Are in a safer financial position if something happened with their employment or main source of income. Some may even call it ‘Financially Free’…
This isn’t to say that these types of investors don’t then go on to own their main residence in the future, but what they are doing is securing their financial position first, ensuring their living costs will always be covered no matter what, then what they can do is refinance some of their rental properties, release the equity that they’ve gained from the growth in the portfolio value, and use that money as the down payment on their main residence, and use the rental income to pay their mortgage!
In the above example, if you had £200,000 you could put this into 4 smaller properties that could generate you a net monthly income (after mortgage, running costs, maintenance and tax) of around £500-600 a month based on a 7% gross yield (average for areas like Manchester and Birmingham City Centre’s).
4 x £500 PCM = £2,000
This means that rather than spending £4,000 a month on monthly mortgage payments, this ‘Rent-Vestor’ is only actually spending £500 a month out of their own pocket, whilst at the same time the value of their ‘investment’ is rising each year as the property market grows in those areas (around 5% per year in Manchester and Birmingham).
If you treat your money like employees and get it working for you, life can become a lot easier for you. It’s about a shift in mindset but also having a smart strategy and working with the right people.
If this seems a little daunting or complex never fear…there are experts out there who can help advise or guide you through this process.
- You need to speak to an accountant. They will look at your current tax position and advise the best way to structure your property portfolio.
- Speak to a mortgage broker to find out what lending options you have available.
- Speak to a professional property investment consultant about which properties/areas will be most suited to your plan. Make sure you know how much monthly income you would like to generate then you can work out which properties are best for you. Make sure you discuss the advisors experience with them to make sure they understand the property market and what you are looking to achieve
You will also need to work with a solicitor or lawyer but either one of the above 3 people should be able to point you in the right direction for this.
In summary…should you buy or rent? Our opinion is both! Don’t ever wait to buy property, because if you wait too long the market will go up and you’ll miss out on growth, but at the same time don’t get yourself pinned down. Build your portfolio first, secure both your and your families financial future, and then decide where you want to be before committing to owning your main residence. And if you don’t ever ‘own’ your main residence…do not worry about it!
Good luck and if you need any advice on where to start, one of the experienced Thirlmere Deacon investment consultants will be able to guide you in the right direction.
Get in Touch
Interested in property investment? talk with us directly, you can call us on +44 (0) 2039507939 or send us an email at firstname.lastname@example.org. If this is your first time landing on Thirlmere Deacon Property Investments, I encourage you to visit our Buy-to-let page to find out more about the current opportunities we have on offer.
Thirlmere Deacon Property Investment
7/10 Chandos Street, Cavendish Square
+44 (0) 2039507939