The Way We View Houses is Changing
Let’s tackle each opportunity to rethink your relationship with property / home ownership and supporting your family verses supporting yourselves.
Renting verses home ownership.
Rental facts – when you pay rent – you are simply paying the owner to borrow their property. There is not long-term benefit to you and you can no stake in the property or accrue an assets.
Home ownership – the mortgage you pay – is a combination of capital repayment and interest. If you check your mortgage, you will notice that interest payments all most double the cost of your house. However, at the end you own it.
The problem is – we don’t stay put and neither will our children. So you need to add on the additional costs such solicitors, brokers, lender fee and surveys for each remortgage, for each move you will need to add these costs plus estate agent fees, then generally insurance and home repairs and improvements. This means comparing rent and mortgage are not like for like as the initial presenting mortgage is not the actual cost.
Thinking buying in a university town is a good idea
Next if we stick to the point of helping your children step onto the property ladder – the issue of location is crucial given the costs of buying and selling. Most young people move away from home to experience university. Often to areas that are cheaper in terms of rental costs than a typical southern mortgage.
BUT I hear you shout if you bought in the north or outside of the south then house prices and so the mortgage would be cheaper – yes except what happens in 3 years when junior decides to leave xyz university town? Well except a “good’ university does push up the price of local housing, and the property will be shared by your young persons friends and fellow students – this known as an HMO and can require licensing and strict Health and safety measures.
Making the best use of your money for now AND in the future
Last but not least In my 5th book, The Wealthy Retirement Plan, I referred to data that showed we are living a lot longer than we think we will, and more importantly a lot longer than the majority of people are prepared for – leading to a new term of elder-poverty.
This is why making good use of your money NOW is so important. The compounding effect of investments made sooner rather than later could make the difference between getting the care and support you need at home when the time comes or becoming a financial burden on your family.
My insight after doing this for nearly 20 years is this: buy property, yes, but you don’t have to live where you buy, or buy where you live.
You do need to INVEST in property where it makes long term financial sense. Then you plan that, for 3-6 years, the rental income will fund your children to live in rented accommodation in the location where they need to be. After that, the income becomes your midlife crisis fun money. And, finally, it pays for a carer and cleaner when all your mid-life partying has taken its toll on your body and YOU need more support.
A couple of quick stories to summarise the points
The student that worked with me on my climate change project first studied at Royal Holloway and then is taking her Masters in Oxford. That would mean buy and sell (Holloway) and rebuy (In oxford)! Or end up having a portfolio of random houses all over the country because I guarantee you none of your children will attend the same university!
A neighbour started to talk to me about their child post Uni and helping them on the ladder. First before the parental decision is made (because it can be like that can’t it parents? Okay maybe that’s more about me again) You newly graduated young person needs to transition into work and SETTLE, because if they don’t you will be in buy, sell rebuy mode again with associated costs.
I offered the idea that:
- Young person will have more earning potential in front of them than parents.
- they are on their first job, university degree or even work placement and need to work out what they want in life before settling
- Even when they pick a location they will most likely start in a flat (all you can afford in the south) and then buy, sell rebuy their way up the ladder
What if there was another way?
You could have one sensibly invested portfolio that funded the children through gap years, travelling, undergraduate and post graduate degrees. Maybe even into their first job or two before they meet a partner.
Then if your offspring meet someone that has done the same … the parents both sell one property – extract the capital gain and reinvest it into a new joint first home. No lost buy-sell-rebuy costs.
Your money will have been invested throughout – generating income and also hopefully accumulated a modest capital gain. Once your child enters work and you stop supporting them, your initial capital investment will continue to generate cash flow that can now be used for your pleasure and, ultimately, your care, if needed.
If you want to understand how this could work for you and your family – or if you don’t have children and want to use this process simply to generate long term additional income for your own use and comfort– then please drop me an email and we can arrange a call.
If you search Amazon, you can also access both The Wealthy Retirement Plan: A revolutionary guide to living the rest of your life in style and Property for the Next Generation: Securing your financial future in uncertain times.
If you are interested in learning more about creating a wealth plan, make sure you listen to my podcast A Wealthy Life, and look at the free resources I offer like the Readiness to Retire Wealthy Audit. Creating wealth might not be easy and quick for everyone all the time, but that is precisely why I am here. For more impactful wealthy life tips, please visit my website www.vickiwusche.com, listen to my podcast here and here, or schedule a free call with me.