A Fundamental Question – Answered? 6
Earlier on this month I questioned whether to start saving for the sole purpose of buying a house, or going back to renting and continuing with the freedom to both save and invest, once I’ve paid off my debts.
At the time I didn’t have an answer, but I think I have made up my mind.
I will return to renting. Here’s why.
House prices remain inflated. Despite the credit crunch, house prices have not fallen very much at all compared to their explosive growth over the previous 9 years. While the term doesn’t fit precisely, the fact that property prices are reportedly on the increase again after “slumping” in my view is merely a dead cat bounce.
A mortgage is expensive. My generation has all but been priced out of house-buying, and the current bubble house prices remain in keep this so. Even an interest only mortgage works out more expensive than the equivalent rental cost, and that’s even before taking into account the maintenance costs of buying rather than renting and other sundry ownership-related expenses.
I want to invest. Virtually all sources I have researched agree that financial freedom cannot be achieved by saving alone. If my desire to retire early is to become a reality, my money will need to work very hard for me and I cannot do this while tied to paying an expensive mortgage for an overpriced property. This therefore means that realistically any purchase of a house needs to be entirely made with cash once the market finally relents and corrects (or Gordon Brown stops shoring up the bubble, whichever happens first).
My inheritance may enable this. I hope not to have to cross this particular bridge for a while yet, but my grandmother left me a sum when she died. This was invested further in property by my parents and now (even post-crash) stands at around three times its original value in today’s money.
My father has a reasonable property portfolio that will one day hopefully pass to me, along with a unique liftetime accumulation of rare collectibles that may fetch anywhere from £5 to £1 million at auction depending on the day.
On my mother’s side I also have a share of their existing property.
If the figures I have are even remotely correct, then I have quite a tidy sum of future wealth to be realised at some stage, although the worth of that will vary greatly depending on when it becomes cashable, thanks to inflation. While I hope for the higher estimate, even the lower will enable the purchase of a nice property, with probably 50% still unused. The more left over the better as it’d be an excellent headstart on my compounding goals and investment plans.
All said however, I’m not in the habit of counting money I don’t have so while these figures are comforting, they may as well be written in monopoly money for the moment. The existance of possible inheritance a decade or more down the road does not change the fact I am still almost £5,000 in debt now and have no cash in savings that isn’t already earmarked for debt elimination.
My revised plan then is continue to work my way out of debt, finish my divorce, save hard for a further 12 months while resident with my parents – taking advantage of the minimal overheads that provides – and then look for a small rental property much closer to work. This will enable me to cut my diesel bill considerably as well as cut the time it takes me to get to work and back home.
Is this a sensible strategy? Would you do different?
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