When we relocated our investment area from the outskirts of SE London to Margate, in the interests of time we decided to rent out our home in London, and to rent a place in Margate instead. In the interests of moving quickly it made the most sense, and we kind of figured that in time we’d sell our London place and buy somewhere down here to live.
Then we started to interrogate the detail.
We wanted to live in a good size 2 bedroom flat in a good location.
In order to buy somewhere we’d be happy to live in meeting those criteria, we would need to tie up around £150k of cash.
To rent something comparable would cost between £800-£1000 PCM. So let’s call it £900 PCM (£10,800 PA)
So we did the maths.
If we INVESTED the £150k, and rented for a cost of £10,800 PA then as long as we were getting greater than a 7.2% return on the £150k (which equates to £10,800PA)… we were essentially living in the flat for free!
If we had instead bought somewhere to live in with the £150k, we would then also have had to take on a mortgage that would incur a monthly payment which would be coming out of our own pocket each month! So this would be negatively affecting our monthly cashflow, which would mean that in terms of cashflow, purchasing our own home would become a LIABILITY, not an ASSET.
We were concerned that the buy-to-let lenders would not be happy with this set-up, as it was the case a few years ago that if you weren’t an owner-occupier it would cut out a lot of the potential lenders… this hasn’t caused us any issues as it seems lenders are not so concerned about this anymore.
So for us the choice was clear – rent our own home for the long term!
I would caveat this to say that if we didn’t own any other property, we would most likely choose to own our own home, as we would want to have a foot on the property ladder in order to benefit from the long term capital appreciation. But since we are heavily invested in property elsewhere, we really don’t NEED to own our own home – and in fact it would be more of a liability that an asset for us at this time.
So there we go, we own over 40 homes… but we can’t live in any of them!
Oh and there is something glorious about being able to pick up the phone to our landlord when the washing machine breaks down 😉
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