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spunko2010

Buying Now - One Possible Reason, Perchance?

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I had an interesting conversation with a colleague (who isn't a homeowner and realistically probably won't ever be one) about this and whilst I didn't admit defeat to him I could see his angle and it had me wondering...

Going on the assumption that prices are at their peak now and will drop significantly (at least 50% drop for example), would you ever buy now if it was the perfect home?

Let's assume that while the home is overpriced, it ticks all the boxes and is pretty much perfect, and that you happily live there for the next 30/40/50 years until you die or are put into a home and have no desire to move.

Armed with all of this knowledge with the benefit of hindsight, would you still buy it? You will lose out big time financially, at least in the short to mid term, but if you aren't moving again would it make any difference?

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I had an interesting conversation with a colleague (who isn't a homeowner and realistically probably won't ever be one) about this and whilst I didn't admit defeat to him I could see his angle and it had me wondering...

Going on the assumption that prices are at their peak now and will drop significantly (at least 50% drop for example), would you ever buy now if it was the perfect home?

Let's assume that while the home is overpriced, it ticks all the boxes and is pretty much perfect, and that you happily live there for the next 30/40/50 years until you die or are put into a home and have no desire to move.

Armed with all of this knowledge with the benefit of hindsight, would you still buy it? You will lose out big time financially, at least in the short to mid term, but if you aren't moving again would it make any difference?

If I could buy all cash - yes. If I was going to have a mortgage - no.

I would want absolute security of tenure; and the certain knowledge that I wouldn't need to sell the place for at least 15 years.

It's impossible to perfectly time a market. House pries will crash, but when?

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If I could buy all cash - yes. If I was going to have a mortgage - no.

I would want absolute security of tenure; and the certain knowledge that I wouldn't need to sell the place for at least 15 years.

It's impossible to perfectly time a market. House pries will crash, but when?

+1

Edited by renting til I die

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That's interesting, I didn't think anyone here would agree.

Agree with the cash purchase only point, didn't consider that really.

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yes if cash, if yours goes down 50% then the guy you buy off in the future goes down the same if not more if your upsizing,I bought 3 BTL cash purchases in 2012 as the banks were offering crap rates and I dont trust em,I dont care if they go up/down/sideways im keeping em for 30 years minimum!! I make more than having the money in the bank,i got em cheap as they were all probate needing work,Im a handyman by trade,all of em 32 yearsold so no roof/electric/damp problems, etc if however the bank rate had stayed at what iwas getting (6.5% gross) i would still be money in the bank,ive made £180k in their "todays price",and before i get "landlord troll" etc i sold up in oct 2007 and rented for 5 years!! so ive been on both sides of the coin.

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No. What type of math is that?

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Nice vid Venger.

Yes I agree it is fools maths but... I have bought shares which have dropped 50%. Not good but generally it was a risky play (i.e. catching a falling knife) where I knew I could lose 100% in the worst case! So, I know what that feels like.

So, just if say, I found the perfect home (I'm currently not looking, so no chance of that) and I was rich enough, not to really care about the risk of the house falling 50% in value. Then buying it to live in with no mortgage risk wouldn't be fools math! It would be just like buying a chicken to eat tonight and then finding it on discount tomorrow!

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Bit more expensive than a chicken though. With a house you are potentially talking about spunking down years of your life if you make the wrong choice - especially with a mortgage.

Personally, I take the view that once I buy something - I don't care what it cost, or what it will be worth in the future. I'll live with my choice however it turned out. Depreciation is a fact of life if you work in technology so you concentrate on the tech's utility value. It does help a lot if you are buying with cash though. I learned that as a kid buying a toy I really wanted from my Mum's catalogue. I can still remember the pain of giving up most of my pocket money for 20 weeks for a toy I'd lost interest in after week 3. It was an important lesson. Dipped into an overdraft a couple of times since til the end of the respective month, but never went into debt again.

I don't regret buying a couple of years ago at all. The house you live in is not an investment vehicle.

Edited by StainlessSteelCat

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Certainly more expensive than a chicken! :P and you didn't even mention the lack of mobility if you find yourself needing to move for work! That's just why I view housing as being so overvalued. No house is worth 10 years of anyone's income.

I also focus on the utility value of stuff I buy. This is something that I notice doesn't always seem clear to others; when I put off buying something because I am not 100% sure that I really do need it!

I love your example of the toy and the accompanying 17 weeks of loss you had to suffer from it! There's a powerful message in there, if only more people could see it!

Edited by renting til I die

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It would be just like buying a chicken to eat tonight and then finding it on discount tomorrow!

If I could rent tonights chicken then yes, exactly like that. As it's not and chicken is a short term thing, it's not!

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If I could rent tonights chicken then yes, exactly like that. As it's not and chicken is a short term thing, it's not!

Maybe I'm going off topic a little here .. but if I remember an FT article I saw about 6 months ago it said the results of an investigation into cold storage in China found some meat that was over 60 years old.

Can't go wrong with a '72 chicken .. best year ever. Prices only ever go up! :-p

But back on topic - it does actually make sense to buy a house in many situations where you loose money on the capital value of the hosue, as there is much value that cannot be easily given a monetary quantity.

The loss also needs to be correct worked out as a present value given future cash flows on rent / maintenance etc. Haven't done it myself for a while but it is often eye opening even if you expect to spend roughly 10x what your landlord puts down on maintenance. Even with significant losses you can often wind up on the deal just because of money not expended on rent .. particularly in the situation where interest rates on cash are 0% and you buy without debt. In the real world .. with actual interest rates that aren't designed to cause wars by causing massive future mispricing (i.e. future valuations not .. in the future) then the calculation rapidly inverts.

But at 0% interest rates .. if you can't stuff it in a bag and run while smacking somebody else in the head with a hockey stick for the last can of beans ... then ultimately it's worthless.

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