We have a financial time horizon of 5 years. Why? Because we are of a certain age and want to have time to enjoy ourselves before the Grim Reaper arrives at our shores. We do have provision for a semi-comfortable retirement but have no intention of retiring. Life is far too interesting for us to hang up our boots – or running shoes – sit in front of the fire and the telly and quietly slip away. No, we want to carry on and go out with a bang but that all needs money and frankly we don’t have enough of it!
Even if you have a lot more ahead of you (or believe you do), do you not want to have some freedom in that timescale? So while we are baby-boomers, the truth is applicable to everyone. Imagine, oh! Young Ones, retiring at 30, 40. And read on!
This therefore leads to the question – how to make enough money and, having made it, where and in what to invest so you don’t have to work, at least have a job, ever again?
Most advisors suggest a property portfolio. Some time ago I was reading advice in an EasyJet magazine about people and property. Guess what – it said that people know that to win at Monopoly buy Mayfair and Park Lane and sit back. Poppycock – I nearly choked on my tomato juice. Total and absolute rubbish. Clearly he had never played me at Monopoly because I would have wiped the floor with him. He was peddling property in Kensington and Chelsea which all, including our overseas readers, will know are the rich parts of London with studio flats at a £ million a pop, houses from Edwardian TV dramas commanding £5, £10 or more millions as foreign money pours into our capital, using it as a safe-haven bank. Now if you’ve got that sort of money in the first place, you don’t need to bother reading this. Go away.
No, the strength of the property game is in numbers, lots of small houses so that one problem doesn’t bring you down.
Hey, wait a mo’! Isn’t that a lot of work? For each house, you need to find the place, get finance organised, buy it, and arrange for builders to gut it because the previous owners were pigs. Once it is ready you need to find tenants. It could be 3, 4 or more months before you start to see some rental income. Here in the UK, you need to jump through administrative hoops if you pretend to be an ethical and responsible landlord – X, Y and Z need certification every year. You have to do this time and time again to build up the ‘portfolio’ which hopefully has strength in numbers. Only then can you settle back and count the rent rolling in. Nice one.
Except then you find that the street of houses you bought for a song as a short cut has problems. Or, like people who bought with sub-prime mortgages in the US, all your property prices take a dive because a local office closes (the factory closed in the ’80s). And because you borrowed to buy the aforesaid residences, you are up the creek because you have borrowed to invest, just as people did before the Wall St Crash. Doesn’t anyone read recent history? Shane Filan of Westlife ring a bell? (OK, OK I’m not into boy bands honest – not even girl bands – but he was on breakfast TV this morning. He went bankrupt with £18 million debts from the Irish property crash.)
Or the tenants trash it and do a runner leaving bills. Back to the drawing board – find better tenants – and to put your feet up. Slowly, slowly, slowly you get rich because rents increase at market level while the house price was fixed when you buy it. While you are worrying yourself into that early grave which you imagined you had avoided, your life is passing you by because this most certainly is not passive income.
But after 10, 20 or more years when the mortgage is paid, the rent is just free money. All of a few hundred quid a month – a thousand perhaps – times 10, 20 or however many houses you have. And hopefully the value of the houses will have increased. Hopefully.
Even with stupid pumping schemes like the UK Help to Buy (guaranteeing mortgages up to £600k), I don’t think that the price inflation of the past will return. It can’t – there just isn’t the market for it, possibly except for uber-rich overseas cash buyers in London or some other part of the world.
There is always the risk of political interference – rent controls because sky-rocketing rents and the consequent housing benefit bill swallows many billions of public money. Or in a sensible move the government may actively encourage the building of large numbers of social and low cost properties which will immediately undermine rents towards the bottom end of the market. Student lets may collapse as universities have both built their own residencies (more money to them) with ultra-fast broadband and student numbers fall.
Elsewhere the story may be different. It is likely that there are good bargains to be had in the US, Spain and Ireland as they recover precisely because those countries have had spectacular price crashes. This hasn’t really happened in the UK. There are bargains to be had in the UK as well – there always are of course – but don’t stop to breathe because the stampede to buy them will trample you. There is always continental Europe – Germany is particularly low priced at the moment – and the quaintly-labelled ‘emerging’ markets like Brazil and Indonesia which may be worth a punt but that means in some way dealing with properties a long way away. If that rocks your boat, go for it.
No, in our book, buying property is an idea that in the UK at least is past its sell-by date – people make good money from houses as long as they bought them 10 or more years ago. Maybe it would be a useful place to store money, as London is now finding, but to use it to make money is not really worth while any longer.
If we want to invest in property then the shared equity approach of The House Crowd is about as far as we want to go. This promises 6%, better than the bank. Or we will put money in Nutmeg where our current investments are making 8.6% annualised gain. Not earth shattering, we know, and these will never make us rich on their own. Or we will even leave some of it in the bank where the government will guarantee it (up to £85k) for immediate liquidity. And look for more exciting and bigger opportunities.
Well, it is Nutmeg for now. But given the state of the stock market lately we are on the look out for dramatically new opportunities.
Wish us luck!