I was pleased – and a bit rueful – to read Mr Money Mustache making the same case for renting over buying a home in expensive locations as I have often used myself:
The mustached millionaire of opt-in-and-out leisure writes [1]:
When choosing between buying versus renting a house or apartment, people are making much, much worse choices than I would have thought possible.
The implications are so striking that logically, some of the world’s busiest stretches of road should not even exist.
We could save millions of lives and trillions of dollars by just helping certain people operate a basic hand calculator at a beginner level.
He then looks at case studies of how renting a property in Toronto and New York – right in the heart of the action – is spectacularly cheaper than buying in swanky suburbs and spending a fortune of commuting.
I was pleased to see the same analysis that I’ve used myself [2] coming from one so versed in making moolah from bricks and mortar.
Who doesn’t like a bit of positive reinforcement?
Theory teary
So why was I also rueful?
Because following the logic of my conclusion that London property is grossly overvalued has cost me, conservatively, at least £200,000 – even after backing out the investment gains I’ve made elsewhere.
Awful awful awful.
Property price rises like we’ve seen in London – and Toronto, I guess – make a mockery of these sober-minded price-to-rent comparisons. Only something like a 30-50% crash in London house prices can save me from a lifetime of slapping my head whenever I think about it now.
Of course, I’m a money saving and investing whiz and all! So I’ve built up a very sizable warchest elsewhere. I’ve even made plenty of money from the shares of housebuilders [3], which has some tangy sense of irony about it.
But so successful has this investing effort been that I now have a significant six-figure sum outside of tax shelters.
This is sort of a disaster [4], because it means that should I cash in my unsheltered portfolio to buy a property, I’ll face at least a 28% capital gains tax hit, promptly obliterating a huge chunk of said property-substituting hoard.
The £11K or so tax-free allowance is routinely described as “generous” by personal finance bloggers, including my co-blogger The Accumulator.
But it’s not so generous if you end up doing something slightly different from the herd.
I was therefore starting to think I’d just rent for life on the back of the dividends, but of course those are now set to be taxed [5], too.
Why are you even reading this blog?
I’ve considered London property ‘too expensive’ for about the past 13 years, which was when I backed out of an almost flat purchase as soon as I got the chance.
In contrast, numerous friends put down 5-10% deposits on London property (usually but not quite exclusively raised from family, not savings) and then got a big chunk of other people’s money via a mortgage, which they have doubled or tripled over the past 15 years.
This vast gain can be realized entirely capital gains tax-free [6] – a massive tax perk that I think [7] should be extended to those of us who rent, but never will be.
Worst of all, over dinner they then discount all this, saying idiotic things like “a home is not an investment” and it’s “only a paper profit”.
They’re wrong [8], but they’re the one’s who’ve made out like bandits, and I’m the muppet daring to write an investing blog despite my glaring failure to profit from the biggest property boom of all time happening in the streets outside my door.
Reminder: Everyone is fallible!
Especially me.
From the blogs
Making good use of the things that we find…
Passive investing
- Where’s the evidence? – The Evidence Based Investor [9]
- The simplicity portfolio – The Escape Artist [10]
- Don’t judge diversification over the short-term – AAAI [11]
- What to do when an ETF is shut down [Ignore Canada specific bits] – CCP [12]
Active investing
- The market is cheap, given interest rates – Expecting Value [13]
- Gold is the worst investment ever – Servo Wealth [14]
- A quick overview of the Simply Wall Street [15] website – mcturra2000 [16]
- A dozen things learned from Paul Tudor Jones about investing – 25iq [17]
- More on pricing country risk – Musings on Markets [18]
Other articles
- Top Ten list of when not to invest – Rick Ferri [19]
- The exchange rate conundrum – Retirement Investing Today [20]
- I don’t want to be rich, I want to be free – Early Retirement Guy [21]
- Frogs catching flies and your brain when investing – Value Perspective [22]
- The definition of insanity – No More Waffles [23]
- Mustachian spotting: UK – The FIREStarter [24]
Product of the week: According to The Telegraph [25], the new two-year and three-year cash ISAs from Skipton [26] match the current Best Buys. You get 2% with the two-year product, and 2.1% if you go for three years.
Mainstream media money
Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.1 [27]
Passive investing
- Roth: How to beat the S&P 500 Index – AARP [28]
- Robo-advisors set to disrupt UK wealth management – ETF Strategy [29]
- Swedroe: ‘Gurus’ without a clue – ETF.com [30]
- You don’t need to know about 99.3% of all ETFs – ETF Reference [31]
Active investing
- Swedroe: Ignore the dividend hype [US but relevant] – ETF.com [32]
- A rare interview with Nick Train, the inactive active manager – ThisIsMoney [33]
- Stop thinking about markets as if they were human – Bloomberg View [34]
- Roth: A contrarian case for precious metals equities – ETF.com [35]
Other stuff worth reading
- Mr Money Mustache: Freedom is the best part of early retirement – Vox [36]
- …on the other hand these people like working at 70, 80, 90 – Guardian [37]
- “I own most of my street”, says 26-year old BTL investor – Telegraph [38]
- Rewards of working hard are too big for Keynes’ vision [Search result] – FT [39]
- What it’s like to live at Google for 13 months – Bloomberg [40]
- Suicide on campus and the pressure of perfection – NY Times [41]
Book of the week: Older – usually retired – people who learn about my penchant for investing will often share a few war stories, but then shake their heads and mutter something about “kids today”. The feeling seems to be that they’re hopeless with money. I don’t buy it (I just think the pressures on them are far greater than were on today’s 60 to 70-somethings) but I don’t doubt their parents’ and grandparents’ concern. Blogger Ben Carlson hears [42] the same laments, and recommends The Opposite of Spoiled [43]
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- Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [↩ [48]]