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To Those Who Rent, Please Work Out What The House


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Except that the net rent can be placed in a savings account in the same way so that doesn't really work.

One problem with the EA's logic is that he's ignoring costs of owning the property (voids; agents fees & repairs) so the actual net yield is closer to 3%.

The other problem is that a 3% return is terrible by historical standards.

I should also say that using 5.5% as a discount rate is wrong. Rents paid also factor in the expenses mentioned above, for a homeowner you need to adjust the rate to (IMO) 8% minimum and I would argue that 10% is more appropriate.

So £800 pcm = £96,000 - £120,000.

But "historical standards" aren't necessarily a good guide. 3% as a rising annuity rate is about right - and that isn't indexed and doesn't preserve any capital.

If "historical standards" resume, that means inflation is back and your 3% will rise with that.

Notwithstanding that "historical standards" say your capital in the property will rise way above inflation (I'm not saying it will, just illustrating that "historical standards" don't necessarily apply too well).

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So we are both agreed that bigger houses in the SE still overvalued - by around 25%, and that the % would be more than 25% if it wasn't that there are older families who have built up equity because of HPI who can buy them.

re: downsizing, my parents friends all had kids in their late 20s, and by the time they were 50 (around 5 years ago) the kids had all left home and they downsized, many of them now retired early eg at 55/60 - hence I was taken aback by the comment about buying the big house at 50.

Yes, I agree with that.

The increasing age before people have kids is an interesting one, particularly for higher income brackets. Lots of professional women leaving it until later to have kids.

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Just as well you did, your thinking is faulty.

There are many people with cash who wish to invest for income and find current savings rates poor. A buy to let will give them an index linked income, a deposit account won't. All the examples given here show that current house and rental prices give a good index linked return for a capital sum at today's prices.

Even if you invest for growth and reinvest all the interest or rental income (which will then compund itself) which do you think will do better over 25 years? Given that, over 25 years, even if property falls to early 90s levels and stays there relative to earning/prices, you will still have some capital appreciation over 25 years.

You are conveniently for yourself comparing standard savings account against not standard and not quaranteed inflation in rents.

Have you evre heard of investing in inflation linked gilts or indices? Shares?

Have you not heard of static rents? My rent has not moved for the last 5 years, although the contract says otherwise.

Can you statistically support your statement of inflation and rents link?

Because this - http://www.calculatedriskblog.com/2009/05/...-inflation.html - says exactly the opposite.

Of course it is easier to try and BS with a VI [email protected] rather than provide facts.

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I'm talking about people who have built up substantial retirement savings and are seeing deposit yields of 1-2%. If they BTL now they will see improved income and long term (10 years +) capital security.

And their income will be index linked long term too, that is extraodinarily valuable.

I'm personally looking to trade up from my modest 2 bed flat and can wait to see what prices will do.

You're taking the short term view on savings and a long term view on property. Apples and pears! Take a long term view on both and if you invest today there is no chance that property will come out on top after factoring in falls and IR increases. I would not go near property as an investment for several years at least. Every bargain today will be an ever bigger bargain tomorrow.

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You are conveniently for yourself comparing standard savings account against not standard and not quaranteed inflation in rents.

Have you evre heard of investing in inflation linked gilts or indices? Shares?

Have you not heard of static rents? My rent has not moved for the last 5 years, although the contract says otherwise.

Can you statistically support your statement of inflation and rents link?

Because this - http://www.calculatedriskblog.com/2009/05/...-inflation.html - says exactly the opposite.

Of course it is easier to try and BS with a VI [email protected] rather than provide facts.

Hahahaha. You ask for facts and provide a blog.

Shares currently yield about the same as the rentals posted here and wll rise broadly with inflation long term. And carry at least as much risk. Companies can go bust and often do, your rental property is unlikely to go the same way.

"Statistically" the historical RPI shows the link long term between inflation and rental prices.

Rentals may fall over the short term, but we are talking about people with a cash pile earning little who want an index linked income long term with long term capital security.

Your rent may not have moved in 5 years, but inflation has been low. Do you really think it will still be similar in another 20 years?

Index linked gilts will guarantee your capital, guarantee that it won't rise over the term.

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You're taking the short term view on savings and a long term view on property. Apples and pears! Take a long term view on both and if you invest today there is no chance that property will come out on top after factoring in falls and IR increases. I would not go near property as an investment for several years at least. Every bargain today will be an ever bigger bargain tomorrow.

Your timing argument may well be true but is a bit circular in that you are saying that people will not buy at todays prices because they will fall.

Even long term in the optimumn scenario of interest rates higher than inflation you won't get inflation linked income from a savings account. From a Buy to let you will.

You don't invest in an index linked income stream short term.

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Your timing argument may well be true but is a bit circular in that you are saying that people will not buy at todays prices because they will fall.

Even long term in the optimumn scenario of interest rates higher than inflation you won't get inflation linked income from a savings account. From a Buy to let you will.

You don't invest in an index linked income stream short term.

IRs have historically kept in line with (or slightly below) general inflation so while not guaranteed a savings account can offer a good return in a high inflationary period. More over it is easy to switch between cash and stocks/shares which often show rising values and high returns in such periods. BTL may provide increased income but capital values will in real terms more than likely fall more than the yield rises. Historically stocks and sharesa have offered a better return long term than property.

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