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LuckyOne

Mrs Luckyone Finally Understands The Equation ........

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Mrs LuckyOne and I had a great night out tonight.

Apart from some good food and exceptional wine, she finally understands the choices facing a cash buyer.

We have two choices :

- Buy a house for cash.

- Invest our money and hope that our return over the next three years exceeds house price growth - the exit cost of a house. In rough terms for NW London, rental yields are about 2%. The exit cost if you buy and sell a house within 3 years is at least 5% (estate agent fees plus stamp duty). The break even for a renter versus a buyer over the next three years is probably 7% return on assets + 5% costs/3- 2% rental yield = 6.67%. As long as house prices don't rise by about 21.5% from here, you are better of renting than buying.

A 12 month battle has now been resolved. This is one cash buyer who is very interested in the rental market and completely disinterested in buying.

You go Mrs LuckyOne ......

PS. Some may quibble with the expected 7% return on assets. Our experience is that it is not that hard to do if you play the currencies well and that we have outperformed 7% even in the October 2007 to March 2009 period.

Edited by LuckyOne

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Mrs LuckyOne and I had a great night out tonight.

Apart from some good food and exceptional wine, she finally understands the choices facing a cash buyer.

We have two choices :

- Buy a house for cash.

- Invest our money and hope that our return over the next three years exceeds house price growth - the exit cost of a house. In rough terms for NW London, rental yields are about 2%. The exit cost if you buy and sell a house within 3 years is at least 5% (estate agent fees plus stamp duty). The break even for a renter versus a buyer over the next three years is probably 7% return on assets + 5% costs/3- 2% rental yield = 6.67%. As long as house prices don't rise by about 21.5% from here, you are better of renting than buying.

A 12 month battle has now been resolved. This is one cash buyer who is very interested in the rental market and completely disinterested in buying.

You go Mrs LuckyOne ......

PS. Some may quibble with the expected 7% return on assets. Our experience is that it is not that hard to do if you play the currencies well and that we have outperformed 7% even in the October 2007 to March 2009 period.

Sounds a good plan, but where does tax figure in your calculations? Are you not due to pay tax on the 6.67%. That always seems to end up favouring renting the money from the bank rather than renting the house in such calculations.

If you own a house (imagine that is 100% capital, and so no mortgage to keep things simple), then the option of selling the house (and renting another) and looking for a yield on the capital incurs tax, while holding the house and living there rent free doesn't incur any tax. Most unfair!

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Sounds a good plan, but where does tax figure in your calculations? Are you not due to pay tax on the 6.67%. That always seems to end up favouring renting the money from the bank rather than renting the house in such calculations.

If you own a house (imagine that is 100% capital, and so no mortgage to keep things simple), then the option of selling the house (and renting another) and looking for a yield on the capital incurs tax, while holding the house and living there rent free doesn't incur any tax. Most unfair!

Fair comment.

The part of the equation that I did not raise is the whole non-dom issue as I fear raising people's ire.

For all the talk of offshore buyers in this market, I find it slightly odd that people ignore the fact that onshore assets are effectively taxed (either IHT or CGT) while offshore assets are effectively tax free if you are a non-dom.

All of the arguments about cash rich, offshore buyers really don't stand up to scrutiny.

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TBH this is going to last as long as the interval between her speaking to her sister/girlfriends.

We are a guest in your country. Her sister and girlfriends think that prices here are insane. They are my allies especially as we already own a house somewhere warm which satisifies at leat 80% of her nesting instincts .......

We enjoy living here but have reached the conclusion that giving our capital to a potential seller makes no sense relative to where things are probably going as well as in comparison to what we can get for the same capital elsewhere despite the 20% drop in the value of Sterling .....

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I think in London Id do the same. Here in the East Midlands/East Anglia there has been at least some downward movement in prices. The prices in London seem as insane as ever. People are either rich enough to buy, or poor enough/ good enough liar to be subsidised. The rest of us are screwed.

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I think in London Id do the same. Here in the East Midlands/East Anglia there has been at least some downward movement in prices. The prices in London seem as insane as ever. People are either rich enough to buy, or poor enough/ good enough liar to be subsidised. The rest of us are screwed.

Prices in London seem to be built on the artifice that people like my family (and many othres like us) will buy no matter what the prices actually are.

Now that a lot of ex-pats are being sent home (and yes, I am starting to see many more international removers in my part of NW London again), I think that this false prop to the market is being withdrawn.

East Anglia looks more reasonable but prices there are also being driven higher by London prices. Once London prices fall over, prices across the entire country will also feel the pressure. My dream of a nice place in the Slaughters at a reasonable price might just be possible in the next few years.

I know that I am rambling here but this evening was a watershed moment : Mrs LuckyOne finally understands rental yields versus other returns available on capital which means that buying a house makes no sense at all .......

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Prices in London seem to be built on the artifice that people like my family (and many othres like us) will buy no matter what the prices actually are.

Now that a lot of ex-pats are being sent home (and yes, I am starting to see many more international removers in my part of NW London again), I think that this false prop to the market is being withdrawn.

East Anglia looks more reasonable but prices there are also being driven higher by London prices. Once London prices fall over, prices across the entire country will also feel the pressure. My dream of a nice place in the Slaughters at a reasonable price might just be possible in the next few years.

I know that I am rambling here but this evening was a watershed moment : Mrs LuckyOne finally understands rental yields versus other returns available on capital which means that buying a house makes no sense at all .......

I presume you're talking Cotswold Slaughters. Houses are nice enough, some of the people......

I've twice made the mistake of living in somewhere generally considered as a picturesque dream.

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Mrs LuckyOne and I had a great night out tonight.

Apart from some good food and exceptional wine, she finally understands the choices facing a cash buyer.

We have two choices :

- Buy a house for cash.

- Invest our money and hope that our return over the next three years exceeds house price growth - the exit cost of a house. In rough terms for NW London, rental yields are about 2%. The exit cost if you buy and sell a house within 3 years is at least 5% (estate agent fees plus stamp duty). The break even for a renter versus a buyer over the next three years is probably 7% return on assets + 5% costs/3- 2% rental yield = 6.67%. As long as house prices don't rise by about 21.5% from here, you are better of renting than buying.

A 12 month battle has now been resolved. This is one cash buyer who is very interested in the rental market and completely disinterested in buying.

You go Mrs LuckyOne ......

PS. Some may quibble with the expected 7% return on assets. Our experience is that it is not that hard to do if you play the currencies well and that we have outperformed 7% even in the October 2007 to March 2009 period.

You want to play currencies... to boost your cash pile that you have set aside to buy your home !!!!!!!, not something I'd ever think of doing as its just far too risky.... you must have a LOT of currency trading experience to embrace this as a solution... good luck with it, especially in these highly volatile times. ( by the by I'm sure in any given period I could make 20% in currencies, commodoties, stocks etc.. what I am not sure about is that I wouldn't then go and lose 50%).

In my view you need to be very very focussed to make money trading your own book and very very few manage it... even seasoned pro's who have left the main market.

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Sounds a good plan, but where does tax figure in your calculations? Are you not due to pay tax on the 6.67%. That always seems to end up favouring renting the money from the bank rather than renting the house in such calculations.

If you own a house (imagine that is 100% capital, and so no mortgage to keep things simple), then the option of selling the house (and renting another) and looking for a yield on the capital incurs tax, while holding the house and living there rent free doesn't incur any tax. Most unfair!

If does F@cking council Tax.

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PS. Some may quibble with the expected 7% return on assets. Our experience is that it is not that hard to do if you play the currencies well and that we have outperformed 7% even in the October 2007 to March 2009 period.

I would suggest that anythinbg getting better than risk free is risky.

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You want to play currencies... to boost your cash pile that you have set aside to buy your home !!!!!!!, not something I'd ever think of doing as its just far too risky.... you must have a LOT of currency trading experience to embrace this as a solution... good luck with it, especially in these highly volatile times. ( by the by I'm sure in any given period I could make 20% in currencies, commodoties, stocks etc.. what I am not sure about is that I wouldn't then go and lose 50%).

In my view you need to be very very focussed to make money trading your own book and very very few manage it... even seasoned pro's who have left the main market.

If you have the liquidity and patience to give mean reversion time to work in major currency pairs, it is hard but not impossible to do OK if you take a strategic view rather than trying to day trade the currencies.

I am consistently very poor at day trading in just about everything but have done OK expressing longer term views over a very long period of time. I know that a blow-up could be just around the corner so I don't "play" in threatening amounts.

My mantra is that I would be 100x more unhappy if my worth halved than I would be happy if it doubled. That view naturally constrains the amount of risk that I am willing to take.

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I would suggest that anythinbg getting better than risk free is risky.

The classical definition of the risk free rate (say 3 month T-Bills) is not risk free as it is a nominal return.

There is no such thing as a riskless asset.

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This is what I'm telling people now (who attempt to talk the market up). I'll get a far better return on my cash in a 3-4% interest rate account than putting it into property. FACT.

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Here's why house prices will rise within the next two years:

pricesm.png

Thick blue lines are negative GDP. Changes of government: Thatcher 1980 and Blair 1990.

Guess what's round the corner?

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The classical definition of the risk free rate (say 3 month T-Bills) is not risk free as it is a nominal return.

There is no such thing as a riskless asset.

Not sure what the return being nominal has anything to do with risk free (in the accepted definition when it comes to finance)??

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This is what I'm telling people now (who attempt to talk the market up). I'll get a far better return on my cash in a 3-4% interest rate account than putting it into property. FACT.

How do you know? If it is a fact would you be prepared to bet on it?

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Guest KingCharles1st
TBH this is going to last as long as the interval between her speaking to her sister/girlfriends.

Depends if she is/isn't the dominant female in her group..

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Here's why house prices will rise within the next two years:

pricesm.png

Thick blue lines are negative GDP. Changes of government: Thatcher 1980 and Blair 1990.

Guess what's round the corner?

Interesting your graph has the wrong title, it should say % change adjusted for inflation (or pirates?)....Which raises an interesting question, will the same thing happen in a low inflation environment (Japan esq), that happened in a high inflation environment (1970s onwards)? or are you expect a boom in general inflation?

Edited by moosetea

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How do you know? If it is a fact would you be prepared to bet on it?

Not with you. You need to change your status to 'wobbling bear', 'on the fence' or 'bull' mate! :lol:

Ask me in 18 months time whether my decision to hold was a good one. I'll archive the thread.

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Not sure what the return being nominal has anything to do with risk free (in the accepted definition when it comes to finance)??

The discount rate used in a lot of financial modelling is completely irrelevant to real life.

If I hold 100% of my money in T-Bills and inflation suddenly takes off, I have earned the so-called risk free rate but have suffered from a severe erosion in my real net worth. Although financial theory calls my actions risk free, they are actually quite risky as I have just seen a severe erosion in my real net worth.

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Not with you. You need to change your status to 'wobbling bear', 'on the fence' or 'bull' mate! :lol:

Ask me in 18 months time whether my decision to hold was a good one. I'll archive the thread.

The balance of probability may be in your favour, but not much in life is a fact.

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The discount rate used in a lot of financial modelling is completely irrelevant to real life.

If I hold 100% of my money in T-Bills and inflation suddenly takes off, I have earned the so-called risk free rate but have suffered from a severe erosion in my real net worth. Although financial theory calls my actions risk free, they are actually quite risky as I have just seen a severe erosion in my real net worth.

I think risk free reference is in relation to the default risk, not inflation etc. Anyway, back to the original discussion, as FX (excluding trading costs) is zero sum (unlike stock market), what gives you the edge over the typical player (I'm not doubting you, just interested).

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