Foundation Owning your House
 
 
 
 
 
 
 
 
 
 
Own your own home. It's the best buy-to-let investment you'll ever make.

The economics
You've got to live somewhere. So, to look at the economics of buying your own home, start with the assumption that you are renting it. Now, would buying it (instead of renting) be a good idea?

If your bought your house you would save the rental payments (in exchange for a mortgage).

Rentals are set by market forces. Rentals must compensate a landlord for:

  • financing costs, offset by expected capital appreciation,
  • repairs and upkeep,
  • management fees,
  • dead letting periods,
  • landlord's own management time and expenses,
  • legal and other expenses relating to disputes with tenant,
  • investment risk premium (no need to understand this!).

The proposition
If you buy your own house you become a landlord with the most marvellous tenant:- yourself! Compared with an independent landlord:-

  • Your financing costs net of capital appreciation will be the same or lower.
  • Repairs and upkeep will be the same or lower (you will make sure they are done properly, with an owner's care and foresight; and you may do them yourself at zero cost or even as an enjoyable recreation).
  • There will be no management fees.
  • There will be no dead letting periods.
  • There will be no landlord's management time - what's to manage?
  • There will be no disputes with the tenant.
  • No investment risk premium will be required (still no need to understand this!).

Not only that, your 'profit' (the difference between the rental you would have paid and the costs of ownership) will be untaxed, as will any capital gain on sale of the property.

Can you think of a better investment? If you can, by all means make it and good luck to you.

What mortgage?
Don't let's get ahead of ourselves. This is just mechanics.

Iit's actually quite difficult mechanics. Ignore it for now. Or take a peek at What Mortgage?, if you must.

 

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